Yanchang Petroleum International : CONNECTED TRANSACTION LOAN ARGEEMENT

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

(Incorporated in Bermuda with limited liability)

(Stock Code: 00346)

CONNECTED TRANSACTION

LOAN ARGEEMENT

LOAN AGREEMENT

On 5 November 2019 (after trading hours), Novus (as the borrower) entered into the Loan Agreement with Yanchang Petroleum HK (as the lender), pursuant to which Yanchang Petroleum HK conditionally agreed to provide the Loan of US$35,000,000 to Novus for a term commencing from the Utilisation Date and expiring on the third anniversary of the Utilisation Date.

IMPLICATION UNDER THE LISTING RULES

Novus is a wholly-owned subsidiary of the Company. In addition, as at the date of this announcement, Yanchang Petroleum HK is the Controlling Shareholder holding 6,496,729,547 Shares, representing approximately 53.49% of the issued share capital of the Company. Yanchang Petroleum HK is directly and wholly owned by Yanchang Petroleum Group. As such, Yanchang Petroleum HK is a connected person of the Company as defined under the Listing Rules. Hence, the transactions contemplated under the Loan Agreement will constitute connected transaction of the Company under Chapter 14A of the Listing Rules. As the applicable percentage ratios in respect of the Loan exceed 5% and the consideration exceeds HK$10,000,000 on an annual basis, the Loan Agreement is subject to the reporting, announcement, annual review and the Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

As Yanchang Petroleum HK is the Controlling Shareholder, and directly and wholly owned by Yanchang Petroleum Group, Yanchang Petroleum Group and its associates shall abstain from voting in favour of the Loan Agreement and the transactions and matters contemplated thereunder at the SGM. Save for Yanchang Petroleum Group, to the best knowledge, information and belief of the Directors, no other Shareholders or any of their respective associates have a material interest in the Loan Agreement and the transactions and matters contemplated thereunder, and accordingly are required to abstain from voting at the SGM.

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INTRODUCTION

On 5 November 2019 (after trading hours), Novus (as the borrower) entered into the Loan Agreement with Yanchang Petroleum HK (as the lender), pursuant to which Yanchang Petroleum HK conditionally agreed to provide the Loan of US$35,000,000 to Novus for a term commencing from the Utilisation Date and expiring on the third anniversary of the Utilisation Date.

THE LOAN AGREEMENT

The principal terms of the Loan Agreement are summarised as follows:

Date:	5 November 2019 (after trading hours)
Parties:	(1) Novus (as borrower); and
	(2) Yanchang Petroleum HK, (as lender)
Principal amount:	US$35,000,000
Interest rate:	4.8% per annum, which shall be payable every three months
	from the Utilisation Date. If any interest payment date would
	otherwise fall on a day which is not a Business Day, it shall
	be postponed to the next Business Day in that calendar
	month (if any) or the preceding Business Day
Term:	Commencing from the Utilisation Date and expiring on the
	third anniversary of the Utilisation Date
Principal conditions	The Utilisation is subject to the following principal
precedent to Utilisation:	conditions precedent to Utilisation as contemplated under the
	Loan Agreement:
	(1) Novus and Yanchang Petroleum HK having obtained
	all necessary approvals in relation to the transactions
	contemplated under the Loan Agreement, including
	but not limited to passing relevant board resolutions to
	approve the transactions contemplated under the Loan
	Agreement;
	(2) Novus and Yanchang Petroleum HK having obtained
	all necessary approvals from the relevant regulatory
	authorities (including the Stock Exchange) in relation
	to the transactions contemplated under the Loan
	Agreement;

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	(3)	a payout statement in relation to the agreement for
		the Existing Credit Facility having been issued by the
		lender of the Existing Credit Facility;
	(4)	a general release and discharge in relation to the
		agreement for the Existing Credit Facility having been
		issued by the lender of the Existing Credit Facility;
	(5)	all related documents and obligations, including an
		undertaking and authorization to release the debenture
		in relation to the Existing Credit Facility and all other
		liens; and
	(6)	the Independent Shareholders having approved the
		Loan Agreement at the SGM.
Repayment arrangement:	The principal of the Loan shall be repaid in full by the
	maturity.
Security:	The Loan is secured by the debenture as described under
	the paragraph headed "Debenture" as below in this
	announcement.

DEBENTURE

As disclosed under the paragraph headed "Security" above, the Loan is secured by the debenture with details summarised as follows:

Parties:	(1)	Novus (as borrower); and
	(2)	Yanchang Petroleum HK, (as lender)
Principal Sum:	US$70,000,000
Charge:	(1)	first and fixed charge over all of Novus' right, title and
		interest, whether freehold, leasehold or other, under or
		in respect of the lands, in relation to the properties held
		by Novus from time to time;
	(2)	a first priority security interest to and over all of
		Novus' present and after-acquired personal property,

tangible and intangible, in each case, of every nature and kind and wherever situate and all proceeds thereof; and

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1. a floating charge over all of Novus' property to the extent not otherwise described above (excluding any agreement, right, franchise, intellectual property, licence or permit).

When considering the terms of the Debenture, the Board took into account prior debenture that Novus had given to the bank and considers that the terms of the Debenture are comparable or better.

INFORMATION ON THE PARTIES TO THE LOAN AGREEMENT

Novus is a company incorporated in Canada with limited liability and is wholly owned by the Company. Novus engaged in the business of exploration, exploitation and production of oil and natural gas in Western Canada.

Yanchang Petroleum HK is a company incorporated in Hong Kong with limited liability which is directly and wholly owned by Yanchang Petroleum Group. As at the date of this announcement, Yanchang Petroleum HK is the Controlling Shareholder holding 6,496,729,547 Shares, representing approximately 53.49% of the issued share capital of the Company. Accordingly, the Yanchang Petroleum HK is a connected person of the Company.

The principal activities of Yanchang Petroleum HK are investment holding and trading of crude oil. The principal activities of Yanchang Petroleum Group include oil and gas exploration, engineering construction, technical research and development, equipment manufacturing, oil and gas development, petrochemical engineering, oil refining, comprehensive chemical engineering of oil, gas, coal, and salt, and pipeline transport.

REASONS FOR AND BENEFITS OF THE LOAN

As at the date of this announcement, the outstanding amount drawn down under the Existing Credit Facility is approximately CAD41,525,000 (equivalent to approximately HK$246.1 million), and Novus is required to repay all outstanding amount on or prior to 31 December 2019. In addition, according to the unaudited condensed financial statement of Novus for the six months ended 30 June 2019, the cash and net asset value of Novus were amounted to approximately CAD3.2 million (equivalent to approximately HK$19.0 million) and CAD227.9 million (equivalent to approximately HK$1,350.9 million) as at 30 June 2019, respectively. Although the management of Novus has approached several individual facility providers and/ or banks in Canada and US, such facility providers and/or banks refuse to provide the relevant proposal upon the date of this announcement.

According to the interim report of the Group for the six months ended 30 June 2019, the cash and bank balances of the Group were amounted to approximately HK$349.2 million as at 30 June 2019, of which approximately HK$296.8 million was maintained in the subsidiaries of the Group in the PRC, which is used for maintaining the daily operation of the subsidiaries of the Company in the PRC, and can only be transferred to countries and regions outside the PRC through burdensome and time-consuming administrative procedures, therefore, it is not

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expected that the Company would have sufficient internal resources to inject into Novus to repay the outstanding amount drawn down under the Existing Credit Facility upon maturity.

Besides, it is expected that facility providers and banks would refuse to provide the proposal to the Company as the Company lacking collateral. The Company has also considered equity financing, such as placing, rights issue or open offer, the Company will need to undergo a relatively lengthy process in order to (i) identify suitable underwriter(s) and negotiate terms agreeable to the Company; (ii) prepare the requisite compliance and legal documentation, including but not limited to the underwriting agreement(s), announcement(s) and prospectus(es). Also, the Directors consider that the placing, rights issue or open offer would incur more transaction costs including but not limited to placing/underwriting commission (assuming the placing/underwriting commission of a rights issue or an open offer payable to the underwriter(s) would be 3% on the gross proceeds of the subscriptions, the underwriting commission would amount to approximately HK$8.2 million) and such corporate exercises would have a relatively more time-consuming process including the lengthy process of identifying potential placee(s) and/or underwriter(s), if applicable; and that the lengthy timetable and procedures of implementing placing, rights issue or open offer which may affect the fund raising plan to meet the repayment timeline of Novus. For other equity financing method such as subscription of Shares, the Company has also tried equity financing that the Company entered into a subscription agreement to propose the issue of 1,210,000,000 Shares at the subscription price of HK$0.24 per subscription share on 14 June 2016 but the proposed subscription was ceased on 31 December 2017 due to certain conditions of the subscription had not been fulfilled. Please refer to the announcements of the Company dated 16 June 2016, 17 July 2017 and 2 January 2018 for further details. In addition, the Company issued convertible bonds to Yanchang Petroleum HK with principal amount of US$60,000,000 which was completed on 28 November 2018. As such, another issuance of convertible bonds short term is not practicable given the lack of interest from potential investors.

The Loan is first applied to the repayment of the outstanding amount drawn down under the Existing Credit Facility, and then the remaining balance of the proceeds from the Loan is expected to be used as general working capital for operating Novus.

The Loan demonstrates the continuous financial support provided by the Controlling Shareholder to the Group. The terms of the Loan Agreement, including the applicable interest rate, are entered into after arm's length negotiations between the parties and taking into account, among others, the prevailing market interest rates and practices.

Taking into account (i) the repayment of outstanding amount drawn down under the Existing Credit Facility on or prior to 31 December 2019; (ii) the financial situation of Novus as discussed above; (iii) the cash level to be maintained for the daily operation of the subsidiaries of the Company in the PRC; and (iv) the alternative funding tried and considered by Novus and the Company, respectively, as discussed above; the Directors (excluding the independent non-executive Directors who will express their view after considering the advice from the Independent Financial Adviser) are of the view that the transactions contemplated under the Loan Agreement, although are not in the ordinary and usual course of business, are entered

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into on normal commercial terms, fair and reasonable and in the best interests of the Company and the Shareholders as a whole.

IMPLICATION UNDER THE LISTING RULES

Novus is a wholly-owned subsidiary of the Company. In addition, as at the date of this announcement, Yanchang Petroleum HK is the Controlling Shareholder holding 6,496,729,547 Shares, representing approximately 53.49% of the issued share capital of the Company. Yanchang Petroleum HK is directly and wholly owned by Yanchang Petroleum Group. As such, Yanchang Petroleum HK is a connected person of the Company as defined under the Listing Rules. Hence, the transactions contemplated under the Loan Agreement will constitute connected transaction of the Company under Chapter 14A of the Listing Rules. As the applicable percentage ratios in respect of the Loan exceed 5% and the consideration exceeds HK$10,000,000 on an annual basis, the Loan Agreement is subject to the reporting, announcement, annual review and the Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

As Yanchang Petroleum HK is the Controlling Shareholder, and directly and wholly owned by Yanchang Petroleum Group, Yanchang Petroleum Group and its associates shall abstain from voting in favour of the Loan and the transactions and matters contemplated thereunder at the SGM. Save for Yanchang Petroleum Group, to the best knowledge, information and belief of the Directors, no other Shareholders or any of their respective associates have a material interest in the Loan Agreement and the transactions and matters contemplated thereunder, and accordingly are required to abstain from voting at the SGM.

Independent Board Committee

An Independent Board Committee comprising all the independent non-executive Directors has been established to advise the Independent Shareholders in relation to, among other things, the Loan Agreement and the transactions and matters contemplated thereunder and on how to vote. Astrum Capital Management Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in these regards.

SGM

The SGM will be convened by the Company to seek the approval from the Independent Shareholders for the Loan Agreement and the transactions and matters contemplated thereunder by way of poll. As at the date of this announcement, Yanchang Petroleum Group, being a substantial Shareholder holding 6,496,729,547 Shares representing approximately 53.49% of the existing issued share capital of the Company, is a connected person and hence Yanchang Petroleum Group, together with its associates, will abstain from voting at the SGM.

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General

A circular containing, amongst other things, (i) details of the Loan Agreement; (ii) the recommendation of the Independent Board Committee; (iii) the letter from the Independent Financial Adviser; and (iv) a notice of the SGM will be despatched to the Shareholders as soon as practicable, which is expected to be on or before 22 November 2019.

DEFINITIONS TERMS USED IN THIS ANNOUNCEMENT

In this announcement, the following expressions have the meanings set out below unless the context requires otherwise:

"associate(s)"	has the meaning ascribed to it under the Listing Rules
"Board"	the board of Directors
"Business Day(s)"	any day (other than Saturday and any day on which a
	tropical cyclone warning signal no. 8 or above is hoisted
	or remains hoisted between 9:00 a.m. and 12:00 noon
	and is not lowered at or before 12:00 noon or on which
	a "black" rainstorm warning signal is hoisted or remains
	in effect between 9:00 a.m. and 12:00 noon is not
	discontinued at or before 12:00 noon) on which licensed
	banks in Hong Kong are open for general business
"Company"	Yanchang Petroleum International Limited, a company
	incorporated in Bermuda with limited liability, the Shares
	of which are listed on the Main Board of the Stock
	Exchange (stock code: 00346)
"connected person(s)"	has the meaning ascribed to it under the Listing Rules
"Controlling Shareholder"	has the meaning ascribed to it under the Listing Rules
"Debenture"	the debenture given in favour of Yanchang Petroleum HK
	by Novus as security for the Loan
"Director(s)"	the director(s) of the Company
"Existing Credit Facility"	the credit facility of CAD48,000,000 granted to Novus by
	a bank in Canada under the relevant agreement
"Group"	the Company and its subsidiaries from time to time
"Hong Kong"	the Hong Kong Special Administrative Region of the PRC

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"Independent Board Committee"	an independent committee of the Board comprising all
	the independent non-executive Directors to be established
	to advise the Independent Shareholders on the Loan
	Agreement and the transactions contemplated thereunder
"Independent Financial Adviser"	Astrum Capital Management Limited, a corporation
	licensed to carry out type 1 (dealing in securities),
	type 2 (dealing in futures contracts), type 6 (advising
	on corporate finance) and type 9 (asset management)
	regulated activities under the Securities and Futures
	Ordinance (Chapter 571 of the Laws of Hong Kong),
	being the independent financial adviser to the Independent
	Board Committee and the Independent Shareholders in
	respect of the Loan Agreement
"Independent Shareholders"	Shareholders other than Yanchang Petroleum Group and
	their respective associates
"Listing Rules"	the Rules Governing the Listing of Securities on the Stock
	Exchange and as amended from time to time
"Loan"	the loan granted to Novus by Yanchang Petroleum HK
	in a principal amount of US$35,000,000 under the Loan
	Agreement
"Loan Agreement"	the agreement in relation to the Loan entered into between
	Novus and Yanchang Petroleum HK on 5 November 2019
"Novus"	Novus Energy Inc., a company incorporated in Canada
	with limited liability and is wholly owned by the
	Company
"PRC"	the People's Republic of China, which shall, for the
	purpose of the Loan Agreement, exclude Hong Kong, the
	Macau Special Administrative Region of the PRC and
	Taiwan
"SGM"	the special general meeting of the Company to be
	convened and held for the Independent Shareholders
	to consider and approve the Loan Agreement and the
	proposed transactions contemplated thereunder
"share(s)"	existing ordinary share(s) of HK$0.02 each in the share
	capital of the Company

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"Shareholder(s)"	holder(s) of the Shares
"Stock Exchange"	The Stock Exchange of Hong Kong Limited
"subsidiary(ies)"	has the meaning ascribed to it under the Listing Rules
"Utilisation"	a utilisation of the Loan
"Utilisation Date"	date of a utilisation of the Loan, being the date on which
	the Loan is to be made
"Yanchang Petroleum Group"	陝西延長石油（集團）有限責任公司 (Shaanxi Yanchang
	Petroleum (Group) Co . , Limited), a state - owned
	corporation registered in the PRC with limited liability,
	being a substantial Shareholder, through Yanchang
	Petroleum HK, holding 6,496,729,547 Shares representing
	approximately 53.49% of the existing issued share capital
	of the Company as at the date of this announcement
"Yanchang Petroleum HK"	Yanchang Petroleum Group (Hong Kong) Co., Limited (延
	長石油集團（香港）有限公司), a company incorporated
	in Hong Kong with limited liability and is wholly owned
	by Yanchang Petroleum Group
"CAD"	Canadian Dollars, the lawful currency of Canada
"HK$"	Hong Kong dollars, the lawful currency of Hong Kong
"US$"	United States dollars, the lawful currency for the time
	being of the United States of America
"%"	per cent.

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For the purpose of this announcement, the exchange rate of USD0.1275=HK$1.00 and CAD0.1687=HK$1.00 has been used, where applicable, for the purpose of illustration only and does not constitute a representation that any amount have been, could have been or may be exchanged, at this or any other rates.

	By order of the Board
	Yanchang Petroleum International Limited
	Mr. Li Yi
	Chairman
Hong Kong, 5 November 2019
Executive Directors:	Independent non-executive Directors:
Mr. Li Yi (Chairman)	Mr. Ng Wing Ka
Ms. Sha Chunzhi	Mr. Leung Ting Yuk
Mr. Gao Hairen	Mr. Sun Liming
Mr. Li Jun	Dr. Mu Guodong

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