Weiqiao Textile : Renewal of Continuing Connected Transactions-Supply of Excess Electricity

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魏橋紡織股份有限公司

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

SUPPLY OF EXCESS ELECTRICITY

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

Reference is made to the announcement of the Company dated 26 October 2016. According to the aforesaid announcement, among others, the Company and the Parent Company entered into the Old Excess Electricity Supply Agreement on 26 October 2016, pursuant to which, the Group agreed to supply excess electricity to the Parent Group for the period from 1 January 2017 to 31 December 2019 (both days inclusive).

The Board announces that, on 21 October 2019, the Company entered into the Renewed Excess Electricity Supply Agreement with the Parent Company for a term of three years commencing on 1 January 2020 and ending on 31 December 2022 (both dates inclusive), pursuant to which, the Group will continue to supply excess electricity to the Parent Group. The terms and conditions of the Renewed Excess Electricity Supply Agreement are basically the same as those of the Old Excess Electricity Supply Agreement.

LISTING RULES IMPLICATION

The Parent Company is the controlling shareholder of the Company and it therefore constitutes a connected person of the Company under the Listing Rules. Accordingly, the transactions contemplated under the Renewed Excess Electricity Supply Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

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As certain applicable percentage ratios (as defined under the Listing Rules) in respect of the Renewed Excess Electricity Supply Agreement are more than 5%, the Continuing Connected Transactions constitute non-exempt continuing connected transactions under Chapter 14A of the Listing Rules and are subject to the reporting, annual review, announcement and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

EGM

An EGM will be convened to consider and, if thought fit, approve, among other things, the Renewed Excess Electricity Supply Agreement and the Continuing Connected Transactions contemplated thereunder (including the Annual Caps).

A circular containing, among others, (i) further details of the Renewed Excess Electricity Supply Agreement and the Continuing Connected Transactions contemplated thereunder (including the Annual Caps); (ii) the letter from the Independent Board Committee to the Independent Shareholders; (iii) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; and (iv) the notice of the EGM, will be dispatched to the Shareholders on or before 11 November 2019.

1. RENEWAL OF CONTINUING CONNECTED TRANSACTIONS
   The material terms of the Renewed Excess Electricity Supply Agreement are set out as follows:
2. 1. Date
      21 October 2019
   2. Parties
   3. 1. the Company; and
      2. the Parent Company
   4. Connected person
      the Parent Company
   5. Transaction nature
      The Company and the Parent Company entered into the Old Excess Electricity Supply Agreement on 26 October 2016, pursuant to which, the Group agreed to supply excess electricity to the Parent Group for the period from 1 January 2017 to 31 December 2019 (both days inclusive). On 21 October 2019, the Company entered into the Renewed Excess

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Electricity Supply Agreement with the Parent Company for a term of three years commencing on 1 January 2020 and ending on 31 December 2022 (both dates inclusive), pursuant to which, the Group will continue to supply excess electricity, which will be in excess of the Group's actual electricity consumption, to the Parent Group.

5. Pricing basis

The benchmark price of raw coal is RMB454.35 per ton (VAT inclusive), which is determined based on the price of raw coal procured by the Group in September 2016. Accordingly, the benchmark price of excess electricity to be supplied to the Parent Group by the Group shall be RMB0.37 per kWh (VAT inclusive).

Procurement cost of raw coal is a major cost for electricity generation and will account for approximately 80% of the total cost incurred for electricity generation of the Group. The price of raw coal may be materially affected by the governmental policies and market demand in the PRC.

The benchmark price of excess electricity, RMB0.37 per kWh (VAT inclusive) or approximately RMB0.33 (VAT exclusive), is determined on a cost-plus basis. The Company will charge the electricity price based on the actual cost for the generation of electricity by the Group plus an expected fixed gross profit of RMB0.10 per kWh (VAT inclusive), which was determined with reference to the gross profit margins of supply of excess electricity for the nine years ended 31 December 2018. Such market-oriented pricing basis is applied to the Parent Group and the Independent Third Party Large Customers. Since the demands for electricity of the Parent Group and the Independent Third Party Large Customers are large and stable, the prices offered by the Group to the Parent Group and the Independent Third Party Large Customers were and will be lower than those offered to the medium and small customers of the Group, both historically and in the future. Under such pricing basis, notwithstanding the fluctuation of the price of raw coal affecting the cost of electricity generation, the fixed gross profit to be gained by the Group from the sales of excess electricity to the Parent Group and the Independent Third Party Large Customers will basically remain the same. Such pricing basis can help minimize the adverse effect caused by the price fluctuation of raw coal and ensure a fixed gross profit for the Group.

Based on the above, the Board considers that as the price of raw coal is materially affected by the governmental policies and market demand in the PRC and is fluctuating largely in nature, the pricing basis adopted by the Company under the Renewed Excess Electricity Supply Agreement can reflect the fluctuated price of raw coal on a monthly basis and the Group will be able to gain a stable gross profit from the sales of excess electricity. Since such pricing basis (cost plus fixed gross profit) is also applied to the Independent Third Party Large Customers, the Board believes such pricing basis can ensure that the Continuing Connected Transactions will be conducted on normal commercial terms, fair and reasonable and not prejudicial to the interests of the Company and the Shareholders as a whole.

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If any applicable mandatory price for the supply of electricity is prescribed by the PRC government under the relevant PRC laws and regulations in the future, the Group would adopt such price since it is mandatory with no choice. The Directors believe that with the deeper reform of the electricity industry and gradually open regulatory policies of sales of electricity, the sales price of electricity in the PRC will be more market-oriented. The Company and the Parent Company agreed to calculate the actual settlement price of excess electricity at the day before the last day of each month. The actual settlement price of excess electricity in each month will be adjusted by RMB0.01 per kWh on the basis of the benchmark price of excess electricity at every 5% fluctuation of the weighted average price of raw coal in such month over the benchmark price of raw coal.

1. Payment terms
   The Parent Company shall pay for the electricity supplied in arrears on a monthly basis based on the actual amount of electricity supplied. The Company will prepare an account book of the amount due on the last business day of each month and Parent Group shall make the payment before the first 10th days of the following month. The amount undue and in controversy shall not be included in such account book. To the best knowledge of the Directors, such payment terms are in line with the market practice in Shandong Province, the PRC.
2. Termination and renewal
   Either party to the Renewed Excess Electricity Supply Agreement may terminate it by providing at least thirty (30) days prior written notice to the counterparty.
   The Renewed Excess Electricity Supply Agreement is renewable for another term of three years (subject to the compliance of relevant requirements under the Listing Rules by the Company) unless any party decides not to renew it and give at least thirty (30) days prior written notice to the counterparty accordingly.

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8. Historical transaction values and the Annual Caps

The historical transaction values, annual caps and sales volumes for the electricity supplied by the Group to the Parent Group under the Old Excess Electricity Supply Agreement for the two financial years ended 31 December 2018 and the financial year ending 31 December

2019 are as follows:

	For the financial year ended/ending 31 December
	2017	2018	2019
	(RMB)	(RMB)	(RMB)
	(excluding VAT)	(excluding VAT)	(excluding VAT)
Historical transaction values	2,312,810,000	2,431,327,000	2,434,113,0001
Historical annual caps	3,022,223,000	3,022,223,000	3,022,223,000
Historical sales volumes (kWh)	6,230,644,000	6,602,856,000	6,789,197,0001

Note 1: The sales volume and transaction value for the financial year ending 31 December 2019 were calculated based on the actual average monthly sales volume and transaction value for the nine months ended 30 September 2019 by multiplying 12, respectively. The sales of the excess electricity to the Parent Group by the Group for the three months ending 31 December 2019 is expected to be stable in comparison with that for the nine months ended 30 September 2019.

Set out below are the Annual Caps which are estimated to be payable by the Parent Group to the Group and the estimated maximum sales volumes of electricity under the Renewed Excess Electricity Supply Agreement for each of the three financial years ending 31 December 2022:

	For the financial year ending 31 December
	2020	2021	2022
	(RMB)	(RMB)	(RMB)
	(excluding VAT)	(excluding VAT)	(excluding VAT)
Annual Caps1	3,124,232,0001	3,124,232,0001	3,124,232,0001
Estimated maximum sales
volumes (kWh)	6,789,197,000	6,789,197,000	6,789,197,000

Note 1: The Annual Caps for each of the three financial years ending 31 December 2022 are determined with reference to the followings:

1. As the production capacity and electricity consumption of the Parent Group are expected to remain stable for the three financial years ending 31 December 2022, the sales volume of excess electricity to be supplied by the Group to the Parent Group for each of the three financial years ending 31

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