1. finance

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to any aspect of this circular, you should consult your licensed securities
dealer, bank manager, solicitor, professional accountant or other professional advisor.
If you have sold or transferred all your shares in Shougang Concord Grand (Group) Limited, you
should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer
or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or
transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no
responsibility for the contents of this circular, 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 circular.
首 長 四 方（ 集 團 ）有 限 公 司
*
SHOUGANG CONCORD GRAND (GROUP) LIMITED
(Incorporated in Bermuda with limited liability)
(Stock Code: 730)
(1) MAJOR AND CONNECTED TRANSACTION
FINANCE LEASE AGREEMENT WITH
SHOUGANG GUIGANG
AND
(2) VERY SUBSTANTIAL ACQUISITION AND
CONTINUING CONNECTED TRANSACTION
MASTER LOAN FACILITY AGREEMENT WITH
SHOUGANG SHUIGANG
AND
(3) NOTICE OF SPECIAL GENERAL MEETING
Independent Financial Advisor to the Independent Board Committee
and to the Independent Shareholders
A letter from the Board is set out on pages 5 to 18 of this circular and a letter from the Independent Board
Committee to the Independent Shareholders is set out on pages 19 to 20 of this circular.
A letter from Messis Capital Limited, the Independent Financial Advisor, containing its advice to the
Independent Board Committee and the Independent Shareholders is set out on pages 21 to 41 of this
circular.
A notice convening the Special General Meeting to be held at Rooms 1101-04, 11th Floor, Harcourt
House, 39 Gloucester Road, Wanchai, Hong Kong on Friday, 14 November 2014 at 11:00 a.m. is set
out on pages 63 to 64 of this circular. A form of proxy for the Special General Meeting for use by the
Shareholders is enclosed with this circular.
Whether or not you are able to attend the Special General Meeting in person, please complete and return
the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s Hong
Kong branch share registrar and transfer office, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183
Queen’s Road East, Hong Kong as soon as practicable and in any event not later than 48 hours before
the time designated for holding the Special General Meeting or any adjournment thereof. Completion
and return of the form of proxy will not preclude you from attending and voting in person at the Special
General Meeting or at any adjourned meeting should you so wish.
* For identification purpose only
28 October 2014
CONTENTS
Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Letter from the Independent Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Appendix I
– Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Appendix II – Valuation Report of the Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Appendix III – Valuation Report of the Commercial Properties . . . . . . . . . . . . . . . . . . . . . . . 49
Appendix IV – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
i
DEFINITIONS
In this circular, the following expressions shall have the following meanings unless the context
requires otherwise:
“associate(s)”
has the same meaning ascribed to it under the Listing Rules;
“Board”
the board of Directors;
“Commercial Properties”
2nd and 3rd basement floors, 1st to 28th floors and rooftop of
Chao Yang Xing Yuan Shuigang Building, Zunyi Road, Guiyang,
Guizhou, the PRC;
“Company”
Shougang Concord Grand (Group) Limited, a company
incorporated in Bermuda with limited liability whose securities
are listed on the Main Board of the Stock Exchange;
“connected person(s)”
has the same meaning ascribed to it under the Listing Rules;
“controlling shareholder(s)”
has the same meaning ascribed to it under the Listing Rules;
“Director(s)”
the director(s) of the Company;
“Effective Date”
the date on which the Master Loan Facility Agreement becomes
effective;
“Equipment”
a batch of engineering equipment which is utilised by Shougang
Guigang for manufacturing refined wire materials;
“Finance Lease Agreement”
the agreement dated 30 September 2014 entered into between
South China Leasing and Shougang Guigang (as supplemented
by the Supplemental Agreement) pursuant to which South China
Leasing agreed to provide finance lease to Shougang Guigang for
a term of 3 years;
“Group”
the Company and its subsidiaries;
“HIBOR”
Hong Kong inter-bank offered rate;
“HK$” or “HKD”
Hong Kong dollar, the lawful currency of Hong Kong;
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC;
“Independent Board Committee”
the independent committee of the Board, comprising all
independent non-executive Directors, which has been appointed
by the Board to advise the Independent Shareholders on (1)
the Finance Lease Agreement and (2) the Master Loan Facility
Agreement and the proposed annual caps thereunder;
1
DEFINITIONS
“Independent Financial Advisor”
Messis Capital Limited, a corporation licensed to carry out Type 1
(dealing in securities) and Type 6 (advising on corporate finance)
regulated activities under the SFO;
“Independent Shareholders”
the Shareholders other than Shougang Holding and its associates;
“Interest Difference”
the difference in the interest rate chargeable by the financing bank
to South China Leasing and the interest rate of 6% per annum
chargeable by South China Leasing to Shougang Guigang;
“Latest Practicable Date”
24 October 2014, being the latest practicable date prior to the
printing of this circular for the purpose of ascertaining certain
information contained in this circular;
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock
Exchange;
“Loan Facilities”
loan facilities with an aggregate principal amount of up to
HK$250,000,000 to be provided under the Master Loan Facility
Agreement;
“Master Loan Facility Agreement”
the agreement dated 10 October 2014 entered into between
the Company and Shougang Shuigang, pursuant to which the
Company agreed to provide, or procure its subsidiaries to provide,
the Loan Facilities to Shougang Shuigang and/or its subsidiaries
for a term of 3 years;
“Net Finance Lease Interest Income” the net finance lease interest income calculated by reference to the
Interest Difference on the outstanding principal amount borrowed
by the lessee under the finance lease pursuant to the Finance
Lease Agreement;
“PRC”
the People’s Republic of China, which, for the purpose of
this circular, does not include Hong Kong, Macao Special
Administrative Region and Taiwan;
“RMB”
Renminbi, the lawful currency of the PRC;
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of
Hong Kong);
“Share(s)”
ordinary share(s) of HK$0.01 each in the share capital of the
Company;
“Shareholder(s)”
the holder(s) of the Share(s);
2
DEFINITIONS
“Shougang Corporation”
Shougang Corporation, a state-owned enterprise in the PRC and
the holding company of the entire interest of Shougang Holding;
“Shougang Guigang”
首鋼貴陽特殊鋼有限責任公司 (Shougang Guiyang Special Steel
Co., Ltd.*), a company established in the PRC and a non whollyowned subsidiary of Shougang Corporation, in which Shougang
Corporation holds 66.68% of its equity interests;
“Shougang Holding”
Shougang Holding (Hong Kong) Limited, a company incorporated
in Hong Kong and a wholly-owned subsidiary of Shougang
Corporation and the controlling shareholder of the Company;
“Shougang Shuigang”
首鋼水 城 鋼鐵（集團）有限責任公司 ( S h o u g a n g S h u i c h e n g
Gangtie (Group) Co., Ltd.*), a company established in the PRC
and a non wholly-owned subsidiary of Shougang Corporation, in
which Shougang Corporation holds 61.06% of its equity interests;
“Shougang Shuigang Group”
Shougang Shuigang and its subsidiaries;
“South China Leasing”
South China International Leasing Co., Ltd., a company
established in the PRC and an indirect wholly-owned subsidiary of
the Company;
“Special General Meeting”
the special general meeting of the Company to be held and
convened at Rooms 1101-04, 11th Floor, Harcourt House, 39
Gloucester Road, Wanchai, Hong Kong on Friday, 14 November
2014 at 11:00 a.m. for the Independent Shareholders to consider
and, if thought fit, approve (1) the Finance Lease Agreement and
the transactions contemplated thereunder; and (2) the Master Loan
Facility Agreement, the transactions contemplated thereunder and
the proposed annual caps thereunder, or any adjournment thereof;
“Stock Exchange”
The Stock Exchange of Hong Kong Limited;
“Supplemental Agreement”
the supplemental agreement dated 23 October 2014 entered into
between South China Leasing and Shougang Guigang pursuant
to which the terms of the Finance Lease Agreement have
been supplemented, details of which have been set out in the
announcement of the Company dated 23 October 2014;
“Transactions”
the transactions contemplated under the Finance Lease Agreement
and the Master Loan Facility Agreement; and
3
DEFINITIONS
“%”
per cent.
Unless otherwise specified in this circular, translations of RMB into HK$ are made in this circular,
for illustration only, at the rate of HK$1.00 to RMB0.79. No representation is made that any amounts in
RMB or HK$ could have been or could be converted at that rate or at any other rate or at all.
* For identification purpose only
4
LETTER FROM THE BOARD
首 長 四 方（ 集 團 ）有 限 公 司
*
SHOUGANG CONCORD GRAND (GROUP) LIMITED
(Incorporated in Bermuda with limited liability)
(Stock Code: 730)
Directors:
Mr. Li Shaofeng (Chairman)
Mr. Luo Zhenyu (Managing Director)
Mr. Wang Tian (Deputy Managing Director)
Mr. Wang Qinghua (Deputy Managing Director)
Mr. Yuan Wenxin (Deputy Managing Director)
Mr. Leung Shun Sang, Tony (Non-executive Director)
Mr. Tam King Ching, Kenny
(Independent Non-executive Director)
Ms. Zhou Jianhong (Independent Non-executive Director)
Mr. Yip Kin Man, Raymond
(Independent Non-executive Director)
Registered office:
Canon’s Court
22 Victoria Street
Hamilton, HM 12
Bermuda
28 October 2014
Principal office in Hong Kong:
Rooms 1101-04, 11th Floor
Harcourt House
39 Gloucester Road
Wanchai
Hong Kong
To the Shareholders
Dear Sir or Madam,
(1) MAJOR AND CONNECTED TRANSACTION
FINANCE LEASE AGREEMENT WITH
SHOUGANG GUIGANG
AND
(2) VERY SUBSTANTIAL ACQUISITION AND
CONTINUING CONNECTED TRANSACTION
MASTER LOAN FACILITY AGREEMENT WITH
SHOUGANG SHUIGANG
AND
(3) NOTICE OF SPECIAL GENERAL MEETING
INTRODUCTION
The Board announced that on 30 September 2014, South China Leasing, an indirect wholly-owned
subsidiary of the Company, entered into the Finance Lease Agreement with Shougang Guigang pursuant
to which South China Leasing agreed to provide finance lease to Shougang Guigang for a term of 3
years. The Board then announced that on 23 October 2014, South China Leasing as lessor and Shougang
Guigang as lessee entered into the Supplemental Agreement to supplement the terms of the Finance Lease
* For identification purpose only
5
LETTER FROM THE BOARD
Agreement. The transactions contemplated under the Finance Lease Agreement constitute major and
connected transactions for the Company under the Listing Rules.
The Board further announced that on 10 October 2014, the Company entered into the Master
Loan Facility Agreement with Shougang Shuigang pursuant to which the Company agreed to provide, or
procure its subsidiaries to provide, the Loan Facilities to Shougang Shuigang and/or its subsidiaries in an
aggregate principal amount of up to HK$250,000,000 for a term of 3 years. The transactions contemplated
under the Master Loan Facilities Agreement constitute a very substantial acquisition and continuing
connected transactions for the Company under the Listing Rules.
The Independent Board Committee, comprising the independent non-executive Directors, has been
formed to advise the Independent Shareholders on (1) the terms of the Finance Lease Agreement and
the transactions contemplated thereunder; and (2) the terms of the Master Loan Facility Agreement, the
transactions contemplated thereunder and the proposed annual caps thereunder. Messis Capital Limited
has been appointed as the Independent Financial Advisor to advise the Independent Board Committee on
(1) the terms of the Finance Lease Agreement and the transactions contemplated thereunder; and (2) the
terms of the Master Loan Facility Agreement, the transactions contemplated thereunder and the proposed
annual caps thereunder.
The purposes of this circular are to:
(a)
provide you with information in respect of, among other things, the details of (1) the Finance
Lease Agreement; and (2) the Master Loan Facility Agreement and the proposed annual caps
thereunder;
(b)
set out the opinions of the Independent Financial Advisor in respect of (1) the Finance
Lease Agreement; and (2) the Master Loan Facility Agreement and the proposed annual caps
thereunder;
(c)
set out the recommendations of the Independent Board Committee in respect of (1) the
Finance Lease Agreement; and (2) the Master Loan Facility Agreement and the proposed
annual caps thereunder; and
(d)
give notice of the Special General Meeting to consider and, if thought fit, to approve (1) the
Finance Lease Agreement; and (2) the Master Loan Facility Agreement and the proposed
annual caps thereunder.
6
LETTER FROM THE BOARD
(1)
FINANCE LEASE AGREEMENT
Date
30 September 2014 (supplemented by the Supplemental Agreement dated 23 October 2014)
Parties
Lessor:
South China Leasing, an indirect wholly-owned subsidiary of the
Company which is principally engaged in the business of finance
lease in the PRC; and
Lessee:
Shougang Guigang, a company established in the PRC which
is principally engaged in the business of steel smelting, metal
processing and production of metal components. Shougang
Guigang is a non wholly-owned subsidiary of Shougang
Corporation, which in turn is the holding company of Shougang
Holding. Shougang Holding is a controlling shareholder and
connected person of the Company.
Subject of the transaction
Pursuant to the Finance Lease Agreement, South China Leasing will provide finance lease to
Shougang Guigang for a term of 3 years.
Conditions of the Finance Lease Agreement
The Finance Lease Agreement is subject to approval by the Independent Shareholders in
accordance with the requirements of the Listing Rules and the condition that Shougang Corporation
has executed a guarantee in favour of South China Leasing as referred to in the paragraph headed
“Guarantee and security” below.
As at the Latest Practicable Date, all the above conditions have yet to be fulfilled.
7
LETTER FROM THE BOARD
Lease payments
The principal amount under the Finance Lease Agreement is RMB200,000,000 (equivalent
to approximately HK$253,164,557). Shougang Guigang will pay its lease payments on a quarterly
basis with an interest rate at 6% per annum over 3 years and South China Leasing has the right
to make adjustment to the interest rate of the finance lease on the first and second anniversary of
the date of commencement of the lease. If Shougang Guigang does not agree with the adjustment,
Shougang Guigang shall make early repayment of all outstanding lease payments and fees.
South China Leasing will finance the principal amount under the Finance Lease Agreement
by bank borrowing. Shougang Guigang agreed that, if the financing bank modifies the terms of
related bank borrowing to South China Leasing, Shougang Guigang will unconditionally enter into
a supplemental agreement with South China Leasing to modify the respective terms of the Finance
Lease Agreement.
In the event that the Interest Difference to be received by South China Leasing falls below
1.2% per annum, South China Leasing will be entitled to either (a) terminate the finance lease
granted under the Finance Lease Agreement; or (b) receive an additional fee to be calculated at a
specified rate (equivalent to the difference between 1.2% per annum and the Interest Difference)
on the principal amount under the Finance Lease Agreement of RMB200,000,000 (equivalent to
approximately HK$253,164,557). The additional fee will be payable annually during the term of the
finance lease.
South China Leasing is also entitled to a lease handling fee of RMB3,000,000 (equivalent
to approximately HK$3,797,468) payable by Shougang Guigang, in one lump sum prior to the
commencement of the lease term. This handling fee will be sufficient to cover the handling fee to
be charged by the financing bank at the current rate.
The interest rate and the fees for the lease have been agreed between the parties after arm’s
length negotiations with reference to the prevailing market rates.
Guarantee and security
Shougang Corporation, the holding company of Shougang Guigang, will provide a guarantee
in favour of South China Leasing in respect of the obligations of Shougang Guigang under the
Finance Lease Agreement.
Shougang Guigang will pay South China Leasing RMB10,000,000 (equivalent to
approximately to HK$12,658,228) as the security deposit in respect of its obligations under the
Finance Lease Agreement prior to the commencement of the lease term.
Lessee’s option to purchase
At the end of the lease term of the Finance Lease Agreement, Shougang Guigang will have
the right to purchase the Equipment at a nominal purchase price of RMB10,000 (equivalent to
approximately HK$12,658).
8
LETTER FROM THE BOARD
The Equipment
South China Leasing will purchase the Equipment from Shougang Guigang and lease it back
to Shougang Guigang. The Equipment is a batch of engineering equipment which is utilised by
Shougang Guigang for manufacturing refined wire materials.
The total consideration for the Equipment is RMB200,000,000 (equivalent to approximately
HK$253,164,557), which was determined by the parties after arm’s length negotiations with
reference to the valuation of the Equipment of approximately RMB223,400,000 (equivalent to
approximately HK$282,784,810).
(2)
MASTER LOAN FACILITY AGREEMENT
Date:
10 October 2014
Parties:
(1)
the Company; and
(2)
Shougang Shuigang, a company established in the PRC
which is principally engaged in the business of production
and sales of iron, steel and coal products. Shougang
Shuigang is a non wholly-owned subsidiary of Shougang
Corporation, which in turn is the holding company of
Shougang Holding. Shougang Holding is a controlling
shareholder and connected person of the Company.
Subject matter:
Subject to the fulfilment of the conditions precedent, the Company
agreed to provide, or procure its subsidiaries to provide, the Loan
Facilities to Shougang Shuigang and/or its subsidiaries.
Method of provision:
The Loan Facilities will be provided by way of the following: (a)
term loan; and (b) finance lease.
Loan Facilities:
An aggregate principal amount of up to HK$250,000,000.
Term of Loan Facilities:
Up to 3 years, commencing from the Effective Date. The duration
of each term loan or finance lease will be negotiated on a case-bycase basis. Each term loan or finance lease will expire by the end
of the 3-year period from the Effective Date. Upon the expiry of
the 3-year term, the unutilised portion of the Loan Facilities will
be cancelled.
Security/Guarantee:
(i)
As security in respect of the obligations of Shougang
Shuigang and its subsidiaries under the Master Loan
Facility Agreement, member(s) of the Shougang Shuigang
Group will mortgage the Commercial Properties in favour
of the Company; or
9
LETTER FROM THE BOARD
(ii)
Shougang Corporation will provide an irrevocable joint and
several guarantee in favour of the Company in respect of
the obligations of Shougang Shuigang and its subsidiaries
under the Master Loan Facility Agreement.
The market value of the Commercial Properties as assessed
by an independent valuer is RMB217,000,000 (equivalent to
approximately HK$274,683,544) as at 31 August 2014.
In case of default, the Company is entitled to enforce its rights
under the security/guarantee to discharge any outstanding debt
as owed by Shougang Shuigang and/or its subsidiaries under the
individual term loan or finance lease agreement to be entered into
pursuant to the Master Loan Facility Agreement.
Conditions precedent:
(i)
The due execution and registration of the mortgage
deed(s) to be entered into by relevant member(s) of the
Shougang Shuigang Group in favour of the Company
has been performed or Shougang Corporation has
executed an irrevocable joint and several guarantee in
favour of the Company in respect of the obligations of
Shougang Shuigang Group under the Master Loan Facility
Agreement; and
(ii)
The Master Loan Facility Agreement having been approved
by the Independent Shareholders in accordance with the
requirements of the Listing Rules.
As at the Latest Practicable Date, all the above conditions have
yet to be fulfilled.
(A)
Major terms of the term loan:
Loan amount:
The Company (either directly or through its subsidiaries)
may at its discretion provide term loan(s) to relevant
member(s) of the Shougang Shuigang Group from time
to time during the term of the Master Loan Facility
Agreement, and the relevant loan amount shall be
determined on a case-by-case basis, with the maximum
amount representing the unutilised portion of the Loan
Facilities.
Term:
Up to 3 years, commencing from the Effective Date. The
duration of each term loan will be negotiated on a caseby-case basis. Each term loan will expire by the end of the
3-year period from the Effective Date.
10
LETTER FROM THE BOARD
(B)
Interest:
The interest rate payable by the borrower shall be at a
rate equal to the cost of lending of the Company (or its
subsidiaries) plus 1% to 5%, which shall be between 3.6%
to 8.6% above the 3-month HIBOR. Unless otherwise
agreed, interest payments shall be made on the expiry of the
term of the loan.
Documentation:
Individual loan agreement(s) will be entered into between
the Company (or its subsidiaries) as lender and the relevant
member(s) of the Shougang Shuigang Group as borrower
setting out the interest rate as agreed, the loan amount
and the repayment term will be entered into before the
drawdown.
Major terms of the finance lease:
Loan amount:
The Company (either directly or through its subsidiaries)
as lessor may at its discretion provide finance lease to
relevant member(s) of the Shougang Shuigang Group as
lessee from time to time during the term of the Master Loan
Facility Agreement, and the principal amount of the finance
lease shall be determined on a case-by-case basis, with the
maximum amount representing the unutilised portion of the
Loan Facilities.
Term:
Up to 3 years, commencing from the Effective Date. The
duration of each finance lease will be negotiated on a caseby-case basis. Repayment of the finance leases shall be
made quarterly. Each finance lease will expire and any
outstanding payment will become payable by the end of the
3-year period from the Effective Date.
Interest:
The interest rate payable by the borrower shall be at a
rate equal to the cost of lending of the Company (or its
subsidiaries) plus 1% to 5%. If the loan is denominated
in HKD, the interest rate payable by the borrower shall
be between 3.6% to 8.6% above the 3-month HIBOR. If
the loan is denominated in RMB, the interest rate payable
by the borrower shall be at a rate between 2.15% below
and 2.85% above the 3-year interest rate offered by The
People’s Bank of China. Interest payments shall be made on
a quarterly basis.
11
LETTER FROM THE BOARD
Handling fee:
The Company (or its relevant subsidiary) is entitled to
charge the relevant lessee a handling fee of not more than
1.5% of the principal amount of the finance lease which
will be sufficient to cover the handling fee to be charged by
the financing bank at the current rate.
Security deposit:
The Company (or its relevant subsidiary) is entitled to
a security deposit of not more than 5% of the principal
amount under the finance lease before commencement of
the finance lease.
Lease items:
The lease items will be the production equipment used
by Shougang Shuigang and/or its subsidiaries in their
respective ordinary course of business. The principal
amount to be granted by the Company (or its subsidiaries)
under the individual finance lease will not exceed the value
of the related lease items as assessed by an independent
valuer to be appointed by the Company.
The Company (or its subsidiaries) will purchase the lease
items, as may be agreed with the relevant lessee under
the finance lease agreement(s), and then lease them to the
relevant lessee.
Option to purchase:
At the end of the lease term of the finance lease
agreement(s), the relevant lessee of the finance lease will
have the right to purchase the lease items at a nominal
purchase price of not more than 0.01% of the principal
amount of the finance lease.
Documentation:
Individual finance lease agreement(s) setting out the
principal amount, the interest rate, the lease items and the
repayment term will be entered into by the Company (or
its subsidiaries) as lessor and the relevant member of the
Shougang Shuigang Group as lessee before the drawdown.
Basis of determination of the interest rate
As the Company will finance the principal amount under the Master Loan Facility
Agreement by bank borrowing, the range of interest rate as stipulated in the Master Loan Facility
Agreement was determined with reference to the prevailing market rate and a margin will be added
to the cost of lending by the Company (or its subsidiaries) so as to ensure that the Company (or its
subsidiaries) can earn a net income under the Master Loan Facility Agreement.
12
LETTER FROM THE BOARD
The exact interest rate to be charged by the Company (or its relevant subsidiary) under
the individual term loan or finance lease will be determined at the relevant time after taking into
account of: (a) the prevailing market interest rate; and (b) the risk profile of the loan including
the then business and financial conditions of the relevant member(s) of the Shougang Shuigang
Group being the borrower. In assessing the risk profile of the loan, the following factors will be
considered: (i) source of funds available for repayment, including the profitability and cash flow
condition of the borrower; (ii) the convertibility and liquidity of the lease items when they are being
sold in secondary markets to discharge the debt of the borrower; (iii) the risk level of the relevant
industry of the borrower during the term of the loan; (iv) the risk and return comparisons of other
financing projects between the Company (or its relevant subsidiary) and other borrowers who are
independent third parties; and (v) the general market conditions that will be faced by the Shougang
Shuigang Group. The Company (or its relevant subsidiary) will ensure that the interest rate of the
loans will not be on terms more favourable than the loans granted to independent third parties based
on the analysis of items (i) to (v) above.
The Company has adopted the following policy and internal control mechanism to ensure
that the interest rate charged by the Company (or its relevant subsidiary) of each of the transactions
contemplated under the Master Loan Facility Agreement will not be on terms more favourable to
Shougang Shuigang than the loans granted to independent third parties.
(a)
Assessment of risk profile of the borrower to be conducted by the risk management
department of South China Leasing:
The risk management department of South China Leasing will assess the risk
profile of the borrower based on an analysis of items (i) to (v) as mentioned above. After
determining the risk profile of the relevant subsidiary of Shougang Shuigang and the interest
rate of the term loan or finance lease, a proposal will be submitted to the Company’s risk
management committee for review and consideration. South China Leasing will also be
responsible for monitoring the prevailing market interest rate in relation to HIBOR and the
interest rate offered by The People’s Bank of China.
(b)
Review by the risk management committee of the Company:
Members of the Company’s risk management committee consist of senior
management personnel of the Company and executive Directors and the committee is
responsible for reviewing proposals of term loans and/or finance leases put forward by South
China Leasing, including the interest rate in accordance with the risk profile of the borrower
and will either approve or reject the proposals submitted by South China Leasing.
(c)
Reporting to the audit committee of the Company:
A report on the transactions contemplated under the Master Loan Facility Agreement
will be prepared by the risk management committee of the Company and will be submitted
to the audit committee of the Company semi-annually. The audit committee of the Company
comprises three independent non-executive Directors.
13
LETTER FROM THE BOARD
Annual caps
The annual caps of the Loan Facilities (i.e. for each of the financial years ending
31 December 2014, 31 December 2015, 31 December 2016 and 31 December 2017) is
HK$276,250,000, being the possible maximum loan amount that can be granted under the Master
Loan Facility Agreement plus the maximum interest income and the handling fee that can be
charged by the Company (or its relevant subsidiary).
REASONS FOR THE TRANSACTIONS
The Company is an investment holding company and its subsidiaries are principally engaged in the
provision of financial services and property investment and management.
(1)
Finance Lease Agreement
The Finance Lease Agreement is being entered into in the ordinary and usual course of
business of South China Leasing and is under normal commercial terms. The entering into of the
Finance Lease Agreement will enable South China Leasing to earn a Net Finance Lease Interest
Income at a rate of not less than 1.2% per annum over the 3-year lease term.
(2)
Master Loan Facility Agreement
The entering into of the Master Loan Facility Agreement is in the ordinary and usual course
of business of the Group and is under normal commercial terms. It will also enable the Group to
earn a net interest income under the Master Loan Facility Agreement.
Despite of the fact that the transactions contemplated under the Finance Lease Agreement and
the Master Loan Facility Agreement constitute major transactions and very substantial acquisition for
the Company, respectively, under the Listing Rules, the Directors consider that the Group will remain
financially and operationally independent from the connected persons of the Company after taking into
account of the following factors:
(a)
the source of funding for the Group’s finance leasing business is obtained from financial
institutions which are independent third parties and the operation of the finance leasing business of
the Group does not rely on the operation of the connected persons of the Company;
(b)
the terms of the Finance Lease Agreement and the Master Loan Facility Agreement are on normal
commercial terms and are not on terms more favourable to the connected persons of the Company
than to independent third parties; and
(c)
in the financial year ended 31 December 2013 and the six months ended 30 June 2014, the
Group generated a turnover of approximately HK$55,888,000 and HK$25,165,000, respectively
and recorded a gross profit of approximately HK$18,573,000 and HK$9,577,000, respectively.
Assuming that the overall turnover and gross profit will remain at the same level in the financial
years ending 31 December 2014 and 31 December 2015 as that of the financial year ended 31
December 2013, respectively, and on the basis that for each year during the 3-year lease term
14
LETTER FROM THE BOARD
for the transactions contemplated under the Finance Lease Agreement and the Master Loan
Facility Agreement, the maximum average finance lease revenue to be derived per annum will
amount to approximately HK$10,893,108 and HK$23,750,000, respectively, and the maximum
average aggregate finance lease income to be derived per annum will amount to approximately
HK$3,968,589 and HK$5,416,667, respectively, the revenue to be generated from the transactions
contemplated under the Finance Lease Agreement and the Master Loan Facility Agreement out of
the total revenue of the Group will amount to approximately 12% and 26% per annum for the two
financial years ending 31 December 2014 and 31 December 2015, respectively, and the amount of
gross profit to be contributed by the transactions contemplated under the Finance Lease Agreement
and the Master Loan Facility Agreement out of the total gross profit of the Group for the two
financial years ending 31 December 2014 and 31 December 2015 will amount to approximately
14% and 19% per annum, respectively.
As such, the Directors are of the view that the Group will remain financially and operationally
independent from the connected persons of the Company upon completion of the Finance Lease
Agreement and the Master Loan Facility Agreement. The Directors consider that the entering into of the
Finance Lease Agreement and the Master Loan Facility Agreement demonstrates the capability of the
Group in handling financial services transactions that are sizeable in scale, which will enable the Group
to source similar transactions with independent third-party customers in the future. The Directors also
consider that the entering into of the Finance Lease Agreement and the Master Loan Facility Agreement is
in the interest of the Company and its Shareholders as a whole.
Mr. Li Shaofeng, a Director and also a director of Shougang Holding, has abstained from voting
for the Board resolutions for approving (1) the Finance Lease Agreement and (2) the Master Loan Facility
Agreement. Mr. Luo Zhenyu and Mr. Wang Qinghua, both Directors, have no material interests in the
transactions contemplated under (1) the Finance Lease Agreement and (2) the Master Loan Facility
Agreement. However, for good corporate governance, Mr. Luo Zhenyu and Mr. Wang Qinghua, both
related to Shougang Corporation, have abstained from voting for the Board resolutions for approving (1)
the Finance Lease Agreement and (2) the Master Loan Facility Agreement. The remaining Directors are of
the view that the terms of (1) the Finance Lease Agreement and (2) the Master Loan Facility Agreement
have been negotiated on an arm’s length basis and on normal commercial terms and (1) the Finance Lease
Agreement and (2) the Master Loan Facility Agreement including the proposed annual caps are fair and
reasonable and in the interests of the Company and the Shareholders as a whole.
15
LETTER FROM THE BOARD
FINANCIAL EFFECT OF THE TRANSACTIONS
(1)
Finance Lease Agreement
Immediately after completion of the purchase of the Equipment, and assuming that the
consideration of RMB200,000,000 (equivalent to approximately HK$253,164,557) to be paid by
South China Leasing for the purchase of the Equipment will be satisfied by bank borrowing of
RMB200,000,000 (equivalent to approximately HK$253,164,557), and that South China Leasing
will receive a security deposit of RMB10,000,000 (equivalent to approximately HK$12,658,228)
from Shougang Guigang upon the Finance Lease Agreement becoming effective and will place a
bank deposit of RMB10,000,000 (equivalent to approximately HK$12,658,228) upon the drawdown
of the relevant bank borrowing, the total assets of the Group will increase by HK$265,822,785 and
total liabilities of the Group will increase by HK$265,822,785.
South China Leasing will earn an aggregate finance lease income for the 3-year term ranging
from approximately RMB6,363,333 (equivalent to approximately HK$8,054,852) to approximately
RMB9,405,556 (equivalent to approximately HK$11,905,767), being the aggregate of the net
finance interest income for the 3-year term ranging from approximately RMB4,563,333 (equivalent
to approximately HK$5,776,371) to approximately RMB7,605,556 (equivalent to approximately
HK$9,627,286) and the lease handling fee of RMB3,000,000 (equivalent to approximately
HK$3,797,468), deducting the handling fee of RMB1,200,000 (equivalent to approximately
HK$1,518,987) to be payable by South China Leasing to the bank in relation to the bank borrowing
for the settlement of the consideration for the Equipment over the 3-year lease term.
The aggregate net finance interest income as set out above represents the difference in the
aggregate finance lease interest income to be received by South China Leasing and the aggregate
lending interest cost chargeable to South China Leasing by the financing bank, which has been
determined based on the assumption that the interest rate chargeable by the financing bank will
range from 4.0% to 4.8% per annum over the 3-year lease term. The handling fee chargeable by the
financing bank is assumed to be 0.6% of the principal amount of the transaction. Also, the lease
handling fee chargeable by South China Leasing represents 1.5% of the principal amount of the
finance lease.
(2)
Master Loan Facility Agreement
Assuming 100% of the Loan Facilities are provided by way of finance lease, immediately
after completion of the purchase of the lease items, and assuming that the consideration of
HK$250,000,000 to be paid by the Company (or its relevant subsidiary) for the purchase of the
lease items will be satisfied by bank borrowings of HK$250,000,000, and that the Company (or
its relevant subsidiary) will receive security deposits of HK$12,500,000 from Shougang Shuigang
and/or its subsidiaries upon the Master Loan Facility Agreement becoming effective and will place
a bank deposits of HK$12,500,000 upon the drawdown of the relevant bank borrowings, the total
assets of the Group will increase by HK$262,500,000 and total liabilities of the Group will increase
by HK$262,500,000.
16
LETTER FROM THE BOARD
The Company (or its relevant subsidiary) will earn an aggregate finance lease income for the
3-year term ranging from HK$7,500,000 to HK$41,250,000, being the aggregate of the net finance
interest income for the 3-year term ranging from HK$7,500,000 to HK$37,500,000 and the net
lease handling fee after deducting the handling fees to be payable by the Company (or its relevant
subsidiary) to the banks for the bank borrowings for the settlement of the consideration for the lease
items which results at a maximum of HK$3,750,000 over the 3-year lease term.
The above aggregate net finance interest income to be accrued to the Company has been
determined based on the following assumptions: (i) the entire principal amount of the Loan
Facilities will be drawn down in full for the 3-year term; and (ii) the interest rate chargeable by the
Company over and above the cost of lending of the Company ranges from 1% to 5% per annum
over the 3-year lease term. Also, the maximum net lease handling fee represents 1.5% of the
maximum principal amount.
GENERAL
As Shougang Corporation is the holding company of Shougang Holding, which in turn is a
controlling shareholder and connected person of the Company, and Shougang Guigang and Shougang
Shuigang, each being a non wholly-owned subsidiary of Shougang Corporation, are associates of the
connected person of the Company, the transactions contemplated under the Finance Lease Agreement and
the transactions contemplated under the Master Loan Facility Agreement constitute connected transactions
and continuing connected transactions for the Company under Chapter 14A of the Listing Rules,
respectively.
As one or more of the applicable percentage ratios for the transactions contemplated under the
Finance Lease Agreement exceed 25% but less than 100%, the Finance Lease Agreement constitutes both
a non-exempt connected transaction and a major transaction for the Company under the Listing Rules,
and shall be subject to the reporting, announcement and Independent Shareholders’ approval requirements
under the Listing Rules.
As one or more of the applicable percentage ratios for the transactions contemplated under the
Master Loan Facility Agreement (including the annual caps thereunder) exceed 100%, the Master Loan
Facility Agreement constitutes both a non-exempt continuing connected transaction and a very substantial
acquisition for the Company under the Listing Rules, and shall be subject to the reporting, announcement
and Independent Shareholders’ approval requirements under the Listing Rules.
SPECIAL GENERAL MEETING
A notice of the Special General Meeting is set out on pages 63 to 64 of this circular. In accordance
with the requirements of the Listing Rules, all votes to be taken at the Special General Meeting will be
by poll. Shougang Holding and its associates, who were interested in a total of 430,491,315 Shares and
controlled the voting rights of such Shares which represented approximately 37.36% of the issued share
capital of the Company as at the Latest Practicable Date, will be required to abstain from voting at the
Special General Meeting on the resolutions in relation to (1) the Finance Lease Agreement; and (2) the
Master Loan Facility Agreement and the proposed annual caps thereunder. Save as disclosed above, no
other Shareholder will be required to abstain from voting on the resolutions in respect of (1) the Finance
Lease Agreement; and (2) the Master Loan Facility Agreement and the proposed annual caps thereunder.
17
LETTER FROM THE BOARD
A form of proxy for the Special General Meeting is enclosed herewith. Whether or not you intend
to attend and vote at the Special General Meeting in person, you are requested to complete the form
of proxy and return it to the Company’s Hong Kong branch share registrar and transfer office, Tricor
Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong in accordance with the
instructions printed thereon as soon as practicable but in any event no later than 48 hours before the time
appointed for holding the Special General Meeting or any adjournment thereof. Completion and return
of the form of proxy will not preclude you from attending and voting in person at the Special General
Meeting or at any adjournment thereof should you so wish.
RECOMMENDATIONS
Your attention is drawn to the letter from the Independent Board Committee set out on pages 19 to
20 of this circular which contains its recommendations to the Independent Shareholders on (1) the Finance
Lease Agreement; and (2) the Master Loan Facility Agreement and the proposed annual caps thereunder.
Your attention is also drawn to the letter of advice from the Independent Financial Advisor as set out
on pages 21 to 41 of this circular which contains, amongst other matters, its advices to the Independent
Board Committee and the Independent Shareholders in relation to (1) the Finance Lease Agreement; and
(2) the Master Loan Facility Agreement and the proposed annual caps thereunder. Based on the advices
from the Independent Financial Advisor and the Independent Board Committee, the Directors recommend
the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the Special
General Meeting.
Your attention is also drawn to the additional information set out in the appendices to this circular.
By Order of the Board
Shougang Concord Grand (Group) Limited
Li Shaofeng
Chairman
18
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
The following is the text of the letter of recommendation, prepared for incorporation in this
circular, from the Independent Board Committee to Independent Shareholders regarding (1) the Finance
Lease Agreement and (2) the Master Loan Facility Agreement.
首 長 四 方（ 集 團 ）有 限 公 司
*
SHOUGANG CONCORD GRAND (GROUP) LIMITED
(Incorporated in Bermuda with limited liability)
(Stock Code: 730)
28 October 2014
To the Independent Shareholders
Dear Sir or Madam,
(1) MAJOR AND CONNECTED TRANSACTION
FINANCE LEASE AGREEMENT WITH
SHOUGANG GUIGANG
AND
(2) VERY SUBSTANTIAL ACQUISITION AND
CONTINUING CONNECTED TRANSACTION
MASTER LOAN FACILITY AGREEMENT WITH
SHOUGANG SHUIGANG
We refer to the circular of the Company to the Shareholders dated 28 October 2014 (the
“Circular”), in which this letter forms part. Unless the context requires otherwise, capitalized terms used
in this letter will have the same meanings as defined in the Circular.
We have been authorised by the Board to form the Independent Board Committee to advise the
Independent Shareholders on whether (1) the terms of the Finance Lease Agreement and the transactions
contemplated thereunder; and (2) the terms of the Master Loan Facility Agreement, the transactions
contemplated thereunder and the proposed annual caps thereunder are fair and reasonable so far as the
Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a
whole. Messis Capital Limited has been appointed as the Independent Financial Advisor to advise the
Independent Board Committee and the Independent Shareholders in this respect.
* For identification purpose only
19
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
Your attention is drawn to the “Letter from the Board” set out on pages 5 to 18 of the Circular,
which contains, among other things, details of the Transactions and the “Letter from the Independent
Financial Advisor” set out on pages 21 to 41 of the Circular, which contains the advices from the
Independent Financial Advisor in respect of (1) the Finance Lease Agreement and (2) the Master Loan
Facility Agreement.
As the Independent Board Committee, we have discussed with the management of the Company
the reasons for entering into the Transactions and the basis upon which the terms of (1) the Finance Lease
Agreement and (2) the Master Loan Facility Agreement have been determined and the major factors taken
into account by the Company in arriving at the proposed annual caps for the transactions contemplated
under the Master Loan Facility Agreement. We have also considered the key factors taken into
consideration by the Independent Financial Advisor in forming its opinions regarding the terms of (1) the
Finance Lease Agreement and (2) the Master Loan Facility Agreement as set out in the “Letter from the
Independent Financial Advisor” on pages 21 to 41 of the Circular, which we urge you to read carefully.
Having considered the advices given by the Independent Financial Advisor and key factors in
arriving at its advices, we consider that each of (1) the Finance Lease Agreement and (2) the Master
Loan Facility Agreement was entered into in the ordinary and usual course of business of the Group
and on normal commercial terms, or on terms no less favourable to the Group than terms available from
independent third parties, and the terms of each of (1) the Finance Lease Agreement and (2) the Master
Loan Facility Agreement are fair and reasonable and in the interests of the Company and the Independent
Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the
ordinary resolutions in respect of (1) the Finance Lease Agreement and the transactions contemplated
thereunder; and (2) the Master Loan Facility Agreement, the transactions contemplated thereunder and the
proposed annual caps thereunder.
Yours faithfully,
For and on behalf of the
Independent Board Committee of
Shougang Concord Grand (Group) Limited
Tam King Ching, Kenny
Zhou Jianhong
Yip Kin Man, Raymond
Independent Non-executive Directors
20
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
The following is the full text of the letter from Messis Capital Limited, the Independent Financial
Advisor, for the purpose of inclusion in this circular, to the Independent Board Committee and the
Independent Shareholders regarding (1) the Finance Lease Agreement and (2) the Master Loan Facility
Agreement.
28 October 2014
To: The Independent Board Committee and the Independent Shareholders
of Shougang Concord Grand (Group) Limited
Dear Sir or Madam,
(1) MAJOR AND CONNECTED TRANSACTION – FINANCE LEASE
AGREEMENT WITH SHOUGANG GUIGANG
AND
(2) VERY SUBSTANTIAL ACQUISITION AND CONTINUING CONNECTED
TRANSACTION – MASTER LOAN FACILITY AGREEMENT WITH
SHOUGANG SHUIGANG
INTRODUCTION
We refer to our appointment as the Independent Financial Advisor to the Independent Board
Committee and the Independent Shareholders in connection with the Finance Lease Agreement, the
Master Loan Facility Agreement and the proposed annual caps thereunder, details of which are set out in
the letter from the Board (the “Letter from the Board”) contained in the circular of the Company to the
Shareholders dated 28 October 2014 (the “Circular”), of which this letter forms part. Capitalised terms
used in this letter shall have the same meanings as defined in the Circular unless the context otherwise
requires.
On 30 September 2014, South China Leasing, an indirect wholly-owned subsidiary of the Company,
entered into the finance lease agreement with Shougang Guigang, pursuant to which South China Leasing
agreed to provide finance lease to Shougang Guigang for a term of 3 years. Further on 23 October 2014,
South China Leasing and Shougang Guigang entered into the Supplemental Agreement to supplement
the terms of the finance lease agreement, pursuant to which South China Leasing and Shougang Guigang
agreed that, in the event that the Interest Difference to be received by South China Leasing falls below
1.2% per annum, South China Leasing will be entitled to either (a) terminate the finance lease granted
under the Finance Lease Agreement; or (b) receive an additional fee.
On 10 October 2014, the Company entered into the Master Loan Facility Agreement with Shougang
Shuigang pursuant to which the Company agreed to provide, or procure its subsidiaries to provide, the
Loan Facilities to Shougang Shuigang and/or its subsidiaries in an aggregate principal amount of up to
HK$250.0 million for a term of 3 years.
21
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
Shougang Corporation is the holding company of Shougang Holding, which in turn is a controlling
shareholder and connected person of the Company, and Shougang Guigang, being a non wholly-owned
subsidiary of Shougang Corporation, is an associate of the connected person of the Company, the
transactions contemplated under the Finance Lease Agreement constitute connected transaction for the
Company under Chapter 14A of the Listing Rules. As one or more of the applicable percentage ratios for
the transactions contemplated under the Finance Lease Agreement exceed 25% but less than 100%, the
Finance Lease Agreement constitutes both a non-exempt connected transaction and a major transaction
for the Company under the Listing Rules, and shall be subject to the reporting, announcement and
Independent Shareholders’ approval requirements under the Listing Rules.
As Shougang Shuigang, being a non wholly-owned subsidiary of Shougang Corporation, is an
associate of the connected person of the Company, the transactions contemplated under the Master Loan
Facility Agreement constitute continuing connected transactions for the Company under Chapter 14A
of the Listing Rules. As one or more of the applicable percentage ratios in respect of the transactions
contemplated under the Master Loan Facility Agreement (including the annual caps thereunder) exceed
100%, the Master Loan Facility Agreement constitutes both a non-exempt continuing connected
transaction and a very substantial acquisition for the Company under the Listing Rules, and shall be
subject to the reporting, announcement and Independent Shareholders’ approval requirements under the
Listing Rules.
Shougang Holding and its associates will be required to abstain from voting on the resolutions
to be proposed at the Special General Meeting in relation to the Finance Lease Agreement, the Master
Loan Facility Agreement and the proposed annual caps thereunder. Save as disclosed above, no other
Shareholder will be required to abstain from voting in respect of the Finance Lease Agreement, the Master
Loan Facility Agreement and the proposed annual caps. An Independent Board Committee has been
formed to consider, and to advise the Independent Shareholders on, the fairness and reasonableness of the
terms of the Finance Lease Agreement, the terms of the Master Loan Facility Agreement and the proposed
annual caps thereunder.
The Independent Board Committee comprising all independent non-executive Directors, namely,
Mr. Tam King Ching, Kenny, Ms. Zhou Jianhong and Mr. Yip Kin Man, Raymond, has been established
to advise the Independent Shareholders as to whether the terms of the Finance Lease Agreement, the
terms of the Master Loan Facility Agreement and the proposed annual caps thereunder are on normal
commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and in
the interests of the Company and the Shareholders as a whole. We, Messis Capital Limited, have been
appointed as the Independent Financial Advisor to advise the Independent Board Committee and the
Independent Shareholders in these regards and to give our opinion in relation to the Transactions for the
Independent Board Committee’s consideration when making their recommendations to the Independent
Shareholders.
As at the Latest Practicable Date, Messis Capital Limited did not have any relationship with
or interest in the Company and any other parties that could reasonably be regarded as relevant to the
independence of Messis Capital Limited. Apart from normal professional fees payable to us in connection
with this appointment as the Independent Financial Advisor, no arrangement exists whereby we will
receive any fees or benefits from the Company. Messis Capital Limited is recently appointed as an
independent financial advisor for BeijingWest Industries International Limited (stock code: 2339), a
connected person of the Company, regarding (i) a very substantial acquisition and connected transaction;
(ii) reverse takeover involving a new listing application; and (iii) continuing connected transactions,
details of which are set out in its announcement dated 5 August 2014. Notwithstanding, we are
independent from the Company pursuant to Rule 13.84 of the Listing Rules.
22
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
BASIS OF OUR OPINION AND RECOMMENDATIONS
In arriving at our recommendations, we have relied on the statements, information and
representations contained in the Circular and the information and representations provided to us by the
management of the Company. We have assumed that all information and representations contained or
referred to in the Circular and all information and representations which have been provided by the
management of the Company are true and accurate at the time they were made and will continue to be
accurate as at the date of the despatch of the Circular. We have no reason to doubt the truth, accuracy and
completeness of the information and representations provided to us by the management of the Company.
The Directors jointly and severally accept full responsibility for the accuracy of the information
contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their
knowledge and belief, opinions expressed by them in the Circular have been arrived at after due and
careful consideration and there are no other material facts not contained in the Circular; the omission
of which would make any such statement made by them that contained in the Circular misleading in all
material respects. We consider that we have been provided with sufficient information on which to form
a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been
withheld, nor are we aware of any material facts or circumstances which would render the information
provided and representations made to us untrue, inaccurate or misleading. We consider that we have
performed all the necessary steps to enable us to reach an informed view and to justify our reliance on the
information provided so as to provide a reasonable basis for our opinion. We have not, however, carried
out any independent verification of the information provided by the management of the Company, nor
have we conducted an independent investigation into the business and affairs of the Group and any parties
to the Finance Lease Agreement and the Master Loan Facility Agreement.
This letter is issued for the information of the Independent Board Committee and the Independent
Shareholders solely in connection with their consideration of the Finance Lease Agreement, the Master
Loan Facility Agreement and the proposed annual caps thereunder. Except for its inclusion in the Circular,
this letter is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other
purposes, without our prior written consent.
PRINCIPAL FACTORS AND REASONS CONSIDERED
In arriving at our opinion and recommendations to the Independent Board Committee and the
Independent Shareholders, we have considered the following principal factors and reasons:
1.
Background Information of the Group
(i)
Information of the Group
The Company is an investment holding company and its subsidiaries are principally engaged
in the provision of financial services and property investment and management. The business of
the Group can be categorised into three business segments namely (i) finance leasing; (ii) property
leasing and building management services; and (iii) asset management.
23
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
South China Leasing is an indirect wholly-owned subsidiary of the Company which is
principally engaged in the business of finance leasing of property, plant and equipment in the PRC.
It is the principal arm of the Group in conducting finance lease business.
The table below sets out the audited key financial information of the Group for the two years
ended 31 December 2013 and the unaudited financial information of the Group for the six months
ended 30 June 2014 as extracted from the Company’s annual report for the year ended 31 December
2013 (the “2013 Annual Report”) and the interim report for the six months ended 30 June 2014
(the “2014 Interim Report”), respectively:
For the six months ended For the year ended
30 June
31 December
2014201320132012
HK$’000HK$’000HK$’000HK$’000
Revenue
Gross Profit
Profit for the period/year
25,16529,18855,88855,534
9,577
9,861
18,573
20,565
10,322
5,596
6,527
2,048
As at 30 June
As at 31 December
201420132012
HK$’000HK$’000HK$’000
Bank balances and cash
Total liabilities
Total equity
254,618
404,088
862,863
289,273
487,155
866,795
316,267
524,286
846,217
Finance leasing was the largest business segment of the Group accounted for approximately
78.6%, 80.2%, 82.4% and 80.9% of its total revenue for the period ended 30 June 2014 and 30 June
2013 and the year ended 31 December 2013 and 31 December 2012, respectively.
According to the 2013 Annual Report, revenue of the Group for the year ended 31 December
2013 was approximately HK$55.9 million, representing a slightly increase of approximately 0.6%
when compared with that of approximately HK$55.5 million in 2012. The increase was mainly
attributable to the income growth from the finance lease segment by approximately HK$1.1 million
with the increase in interest-bearing finance lease balances resulted from the commencement of
new projects. According to the 2014 Interim Report, the revenue of the Group for the six months
ended 30 June 2014 was approximately HK$25.2 million, represented a decrease of approximately
13.7% when compared with the revenue of approximately HK$29.2 million for the corresponding
period in 2013. The decrease in revenue was mainly from the finance leasing segment as a result of
the decrease in interest-bearing finance lease receivables average balance.
24
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
The Group recorded a gross profit of approximately HK$18.5 million for the year ended 31
December 2013, representing a gross profit margin of approximately 33.2%, which is a decline
when comparing with the gross profit margin of 37.0% for the year 2012. As advised by the
Directors, the decline in gross profit margin was mainly due to the decrease in gross profit of
asset management business and return of interest income spread owing to the changes in market
environment. The Group recorded a gross profit of approximately HK$9.6 million for the six
months ended 30 June 2014, representing a gross profit margin of approximately 38.0%, which
was a slight increase when comparing with the gross profit margin of approximately 33.7% for the
corresponding period in 2013. The improved gross profit margin was mainly contributed by the
finance leasing segment with the increase in handling fee income as recorded by the Group in 2014.
The Group recorded a profit for the year of approximately HK$6.5 million for the year ended
31 December 2013, representing an increase of approximately 223.6% when compared with that
of approximately HK$2.0 million for the year ended 31 December 2012. The increase in profit for
the year was mainly attributable to the business growth in finance leasing segment and the oneoff impairment loss on interests in an associate of HK$30 million in 2012. The Group recorded a
profit for the period of approximately HK$10.3 million for the six months ended 30 June 2014,
representing an increase of approximately 84.5% when compared with that of approximately
HK$5.6 million for the corresponding period in 2013. The increase in profit was mainly attributable
to the increase in share of results of an associate and other income including interest income from
bank deposits and consultancy income.
As stated in the 2013 Annual Report, the Group upheld a prudent philosophy of good
governance, with emphasis on risk management, attends to maintain excellent assets quality,
stability and financial resources. In particular, in operating the finance lease business, the Group
strived to maintain adequate financial resources and strong source of funding from financial
institutions for new finance lease projects as and when suitable projects are identified. The Group
was in a healthy liquidity position with bank balances and cash of approximately HK$254.6
million, HK$289.3 million and HK$316.3 million as at 30 June 2014, 31 December 2013 and 2012,
respectively, which represented approximately 29.5%, 33.4% and 37.4% of its total equity as at the
respective period/year end.
Total liabilities of the Group mainly comprised of long and short term bank borrowings
which were principally utilised on the Group’s finance lease projects. The total liabilities decreased
from approximately HK$524.3 million as at 31 December 2012 to HK$487.2 million as at 31
December 2013 and further to HK$404.1 million as at 30 June 2014. Such decrease was mainly due
to the repayment of bank borrowings along with the receipt of finance lease receivables over time.
25
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
2.
Background Information of Shougang Guigang, Shougang Shuigang and Shougang
Corporation
(i)
Information of Shougang Guigang
As set out in the Letter from the Board, Shougang Guigang is a company established in
the PRC which is principally engaged in the business of steel smelting, metal processing and
production of metal components. Shougang Guigang is the existing owner of the Equipment.
Pursuant to the Finance Lease Agreement, the Equipment is proposed to be sold to South China
Leasing under a sales and leaseback arrangement. Shougang Guigang will become a lessee of the
Equipment with the effective of the Finance Lease Agreement.
(ii)
Information of Shougang Shuigang
As set out in the Letter from the Board, Shougang Shuigang is a company established in
the PRC which is principally engaged in the business of production and sales of iron, steel and
coal products. Shougang Shuigang is a non wholly-owned subsidiary of Shougang Corporation.
According to the “Prospectus in relation to the first phrase raising of short term financing bill in
2014” (2014年度第一期短期融資券募集說明書) as published by Shougang Corporation in June
2014 (the “Shougang Corporation Prospectus”), Shougang Shuigang is a principal subsidiary
of Shougang Corporation with an annual steel production capacity of 3 million tonnes. It is one
of the largest steel production enterprise in southwest region of the PRC. As at 31 March 2014,
total assets and net assets of Shougang Shuigang amounted to approximately RMB14.6 billion and
RMB2.5 billion, respectively.
(iii) Information of Shougang Corporation
According to the Shougang Corporation Prospectus, Shougang Corporation is a state-owned
enterprise wholly-owned by Beijing Holders of State-owned Capital Management Centre (北京國
有資本經營管理中心) which is in turn wholly-owned by Beijing Municipal People’s Government
State-owned Assets Supervision and Administration Commission (北京市國有資產監督管理委
員會). Shougang Corporation is one of the largest steel production enterprises in the PRC and
is principally engaged in a wide range of business including steel and iron production, overseas
business, property development, mining resources and other businesses. As at 31 March 2014, total
assets and net assets of Shougang Corporation amounted to approximately RMB394.6 billion and
RMB85.0 billion, respectively.
Shougang Corporation will provide a guarantee in favour of South China Leasing in respect
of the obligation of Shougang Guigang under the Finance Lease Agreement. Shougang Corporation
will also provide an irrevocable joint and several guarantee in favour of the Company in respect
of the obligations of Shougang Shuigang and its subsidiaries under the Master Loan Facility
Agreement, in the event of a failure on due execution and registration of the mortgage deed(s) on
the Commercial Properties.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
3.
Finance Lease Agreement
(i)
Background and reasons for the Finance Lease Agreement
On 30 September 2014, South China Leasing, an indirect wholly-owned subsidiary of
the Company, entered into the Finance Lease Agreement with Shougang Guigang pursuant to
which South China Leasing agreed to provide finance lease to Shougang Guigang for a term of 3
years. Further on 23 October 2014, South China Leasing and Shougang Guigang entered into the
Supplemental Agreement to supplement the terms of the finance lease agreement, pursuant to which
South China Leasing and Shougang Guigang agreed that, in the event that the Interest Difference
to be received by South China Leasing falls below 1.2% per annum, South China Leasing will be
entitled to either (a) terminate the finance lease granted under the Finance Lease Agreement; or (b)
receive an additional fee.
Pursuant to the Finance Lease Agreement, South China Leasing will purchase the Equipment
from Shougang Guigang and will lease the Equipment back to Shougang Guigang. The Equipment
is a batch of engineering equipment which is utilised by Shougang Guigang for manufacturing
refined wire materials.
As advised by the Directors, the Finance Lease Agreement is being entered into in the
ordinary and usual course of business of South China Leasing and is under normal commercial
terms. The entering into of the Finance Lease Agreement will enable South China Leasing to earn
a net finance lease income of approximately RMB4.6 million (equivalent to approximately HK$5.8
million) to approximately RMB7.6 million (equivalent to approximately HK$9.6 million) and the
lease handling fee of RMB3.0 million (equivalent to approximately HK$3.8 million), deducting the
handling fee of RMB1.2 million (equivalent to approximately HK$1.5 million over the 3-year lease
term to be payable by South China Leasing to the bank in relation to the bank borrowing for the
settlement of the consideration for the Equipment over the 3-year lease term.
Having considered that (i) finance lease is the principal business of the Group which
generated majority of its total revenue; and (ii) the Group is able to enjoy a net finance lease
income over the lease term under the Finance Lease Agreement, we concur with the view of
the Directors that the transactions contemplated under the Finance Lease Agreement is in the
ordinary and usual course of business of the Group and that the entering into of the Finance Lease
Agreement is in the interests of the Company and the Shareholders as a whole.
(ii)
Key terms of the Finance Lease Agreement
In assessing the fairness and reasonableness of the terms of the Finance Lease Agreement,
we have considered the key terms as identified by the Directors in conducting finance lease
transactions by the Company. Such key terms comprises of (i) the consideration of the subject
matters under the finance lease; (ii) the lease payments and term; (iii) the handling fees under the
finance lease; and (iv) the level of guarantee and security.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
Consideration of the Equipment
As advised by the Directors, the total consideration for the Equipment is RMB200.0 million
(equivalent to approximately HK$253.2 million), which was determined by the parties after arm’s
length negotiations with reference to the valuation of the Equipment of approximately RMB223.4
million (equivalent to approximately HK$282.8 million). The consideration represented a discount
of approximately 10.5% to the said valuation.
To assess whether the valuation report in relation to the Equipment has been prepared
under fair and reasonable grounds, we have reviewed the valuation report as prepared by an
independent valuer (the “Equipment Valuer”). We have also discussed with the Equipment
Valuer on the methodology being taken in conducting the valuation for the Equipment. We
are given to understand from the Equipment Valuer that there are three common approaches in
valuating equipment in similar nature of the Equipment, namely the depreciated replacement cost
approach, market comparable approach and income capitalisation approach. We note from the
Equipment Valuer that the market comparable approach and income capitalisation approach are
not applicable in the case of valuating the Equipment mainly due to the reasons that (i) there is
no active used-equipment market identified in the PRC which provides sufficient information on
recent transactions of comparable items for the market comparable approach; and (ii) there is no
identifiable income stream that can be attributed to a specific piece of equipment or a group of
equipment for the income capitalisation approach. As a result, the Equipment Valuer concluded
that the depreciated replacement cost approach, which establishes value based on the cost of
reproducing or replacing the assets, less depreciation from physical deterioration, and functional
and economic/external obsolescence, is deemed to be the most appropriate method on valuating the
Equipment.
We are given to understand from the Equipment Valuer that it has relied on certain
information made available to it by the Company, including the Equipment records furnished by
the Company describing the assets to be appraised, their original costs and their acquisition dates.
We also understand from the Equipment Valuer that they have conducted inspections to assess the
physical condition of the Equipment such as its existence, condition of the Equipment including
obsolescence and wear and tear or other observable conditions distinguishing the appraised
equipment in arriving at the value.
We have conducted an interview with the Equipment Valuer and we are given to understand
that (a) it has over 18 years of experience in the valuation industry; and (b) except for its
engagement in respect of the valuation of the Equipment, it has no current or prior relationships
with the Company and/or the connected persons of the Company. As such, we are not aware of
any matters that would cause us to question the Equipment Valuer’s expertise and independence in
conducting the valuation for the Equipment.
We have also reviewed the terms of engagement of the Equipment Valuer having particular
attention to the appropriateness of the scope of work. Based on our review, we are not aware of any
limitations on the scope of work which might adversely impact on the degree of assurance given by
the Equipment Valuer in its valuation report.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
Having considered the above, in particular that (i) the valuation report in respect of the
Equipment was prepared by an independent valuer who has extensive experiences under appropriate
methodologies; (ii) the consideration of the Equipment (i.e. the principal amount of the finance
lease) is determined at a discount to the valuation of the Equipment, we concur the view of
the Directors that the consideration is determined on a fair and reasonable basis so far as the
Independent Shareholders are concerned.
Lease payments and term
Pursuant to the Finance Lease Agreement, Shougang Guigang will pay its lease payments
on a quarterly basis with an interest rate of 6.0% per annum over the 3 years. South China Leasing
has the right to make adjustment to the interest rate of the finance lease on the first and second
anniversary of the date of commencement of the lease. If Shougang Guigang does not agree with
the adjustment, Shougang Guigang shall make early repayment of all outstanding lease payments
and fees.
As advised by the Directors, the interest rate for the lease have been agreed between the
parties after arm’s length negotiations with reference to the prevailing market rates. As discussed
with the Directors, South China Leasing will finance the principal amount under the Finance Lease
Agreement by bank borrowing and the interest rate of 6.0% under the Finance Lease Agreement
would allow the Group to enjoy an interest rate spread which is comparable to other recent finance
lease transactions as conducted by the Group to customers who are independent third parties.
As at the Latest Practicable Date, South China Leasing and a financial institution in Hong
Kong is in the process of negotiating for a banking facility of RMB200.0 million (the “Banking
Facility”). The Banking Facility is to finance the transaction contemplated under the Finance Lease
Agreement. Pursuant to the Supplemental Agreement, the interest rate spread (being the difference
between the interest rate chargeable to Shougang Guigang under the Finance Lease Agreement and
the interest rate chargeable by the financial institution to South China Leasing under the Banking
Facility) to be enjoyed by the Group under the Finance Lease Agreement shall be not less than
1.2% per annum over the 3-year term. In the event that the interest rate spread falls below 1.2% per
annum, South China Leasing will be entitled to either (a) terminate the finance lease granted under
the Finance Lease Agreement; or (b) receive an additional fee to be calculated at the specified rate
(equivalent to the difference between 1.2% per annum and the Interest Difference) on the principal
amount under the Finance Lease Agreement, as such the interest rate spread shall be not less than
1.2% per annum. In addition, Shougang Guigang agreed that, if the financing bank modify the
terms of the Banking Facility to South China Leasing, Shougang Guigang will unconditionally
enter into a supplemental agreement with South China Leasing to modify the respective terms of
the Finance Lease Agreement.
In assessing the fairness and reasonableness on the interest rate chargeable to Shougang
Guigang under the Finance Lease Agreement, we have reviewed the terms of all finance lease
transactions conducted by the Group from 1 January 2013 up to 30 September 2014, being the date
of the Finance Lease Agreement (the “Review Period”). The terms of the finance lease transactions
of the Group may change over time to reflect the latest market situation and are affected by many
factors including, the fluctuation of the interest rates, the monetary policy of the government in
the PRC and Hong Kong and economic situation, etc., Therefore, in determining the period to be
29
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
covered for the Review Period, we have selected the latest full financial year of the Group up to
the date of Finance Lease Agreement as the Review Period and we are of the view that the terms
of the transactions conducted in the Review Period represent the latest market information for our
analysis in this letter. During the Review Period, we note that the Group has conducted 40 finance
lease transactions with customers who are independent third parties. Out of which 11 finance lease
transactions were supported through bank borrowings in full (the “Comparables”). As advised by
the Directors, it is the normal practice of the Group to finance the finance lease transactions either
by the Group’s internal resources or bank borrowings. The funding mode is determined by the
Directors based on the scale of the finance lease transactions, level of the internal resource from
time to time, availability of bank borrowings from financial institutions and their respective terms.
As the transactions contemplated under the Finance Lease Agreement is to be funded by bank
borrowings, we have compared the terms of the transactions under the Finance Lease Agreement to
the Comparables in our analysis.
We note that the interest rate spreads as enjoyed by the Group of the majority of the
Comparables ranged from 0.6% to 1.2%, with an exception of three finance lease transactions with
a spread of 2.0%, 2.2% and 2.8% respectively. As advised by the Directors, the terms of finance
lease transactions are negotiated with its customers depending on a combination of various factors,
including, among others, the respective default risks, level of guarantee and/or securities obtained
and the background of the customers. Under such considerations, the interest rate spreads of the
Comparables were generally 0.6% to 1.2%. For Comparables which had relatively higher spreads,
the Directors advised that such spreads were determined because (i) a lower handling fee of 0.98%
was charged on the Comparable with a spread of 2.0%; and (ii) the transaction sizes were small and
a relatively higher spread of 2.2% and 2.8% were required for the Group to generate net finance
incomes acceptable to the Group. We note that the interest rate spread to be enjoyed by the Group
under the Finance Lease Agreement of 1.2% is in line with the Comparables and the Group is able
to enjoy a reasonable margin under the Finance Lease Agreement at a spread which the Group
normally charges to its independent third party customers.
We note that the term of the finance lease transactions entered into between the Group and
other independent third parties during the Review Period ranges from 0.5 to 3 years. The term of
the finance lease transaction as offered under the Finance Lease Agreement is therefore in line with
the Group’s normal practices.
Having considered that (i) the Group will enjoy an interest rate spread at a level comparable
to other transactions as conducted with independent third parties; and (ii) the term of the transaction
under the Finance Lease Agreement is in line with other finance lease transaction as offered by
the Group, we therefore concur with the views of the Directors that the terms of the transactions
contemplated under the Finance Lease Agreement are on normal commercial terms and are fair and
reasonable so far as the Independent Shareholders are concerned.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
Handling fee
As advised by the Directors, the Group used to charge its customers handling fees on finance
lease transactions. The handling fee is for the services provided by the Group in assessing the
feasibility of conducting the relevant finance lease transactions. It is the Group’s normal practice
that the handling fees are charged at a rate of 1.5% to the principal amount of each finance lease
transaction. Such rate is adjustable depending on various factors, including the level of services as
provided by the Group and the risk exposures of the finance lease transactions.
As stated in the Letter from the Board, South China Leasing is entitled to a lease handling
fee of RMB3,000,000 (equivalent to approximately HK$3,797,468) payable by Shougang Guigang
in one lump sum prior to the commencement of the lease term. The handling fee is equivalent to
1.5% of the principal amount of the transaction contemplated under the Finance Lease Agreement.
We have reviewed the handling fees as charged on other finance lease transactions conducted
by the Group to other independent third party customers during the Review Period. We note that
majority of the handling fee charged at a rate ranging from nil to 2.0%, with an exception of one
transaction of 7.5%. As advised by the Directors, the high handling fee of this particular transaction
was due to the fact that no security deposit was provided by this customer.
Having considered that the handling fee chargeable under the Finance Lease Agreement is
in line with the Group’s normal practice and the rate of which is within the range as offered to
other independent third-party customers, we therefore concur with the view of the Directors that
the handling fee chargeable under the Finance Lease Agreement is determined based on normal
commercial terms and is fair and reasonable so far as the Independent Shareholders are concerned.
Guarantee and security
As set out in the Letter from the Board, under the Finance Lease Agreement, Shougang
Guigang will pay South China Leasing RMB10,000,000 (equivalent to approximately
HK$12,658,228) as the security deposit in respect of its obligations under the Finance Lease
Agreement prior to the commencement of the lease term. In addition, Shougang Corporation, the
holding company of Shougang Guigang, will provide a guarantee in favour of South China Leasing
in respect of the obligations of Shougang Guigang under the Finance Lease Agreement.
As discussed with the Directors, it is of the Group’s normal practice to obtain a security
deposit at a rate of 5.0% on the principal amount of each finance lease transaction. In addition,
depends on the assessments of the Directors on each finance lease transaction from time to time,
corporate guarantees and/or personal guarantees may also be obtained to safeguard the interests of
the Group. Pursuant to the Finance Lease Agreement, Shougang Corporation will provide guarantee
on the obligations of Shougang Guigang under the Finance Lease Agreement. As advised by the
Directors, Shougang Corporation, being the guarantor, is more scalable in size as compared to
other guarantors provided for the Comparables. As such, the Directors believed that the guarantee
provided by Shougang Corporation will assist in safeguarding the risk in relation to the Finance
Lease Agreement.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
Having reviewed the terms of the finance lease transactions conducted during the Review
Period, we note that security deposits of 5.0% to the principal amount of the finance lease
transactions were sought by the Group for most of the transactions. As such, we concur with
the view of the Directors that the level of security deposit as agreed under the Finance Lease
Agreement determined based on normal commercial terms and is fair and reasonable so far as the
Independent Shareholders are concerned.
Moreover, given the background of Shougang Corporation as set out in paragraph headed
“Information of Shougang Corporation” above, in particular its strong financial position and its
corporate background as a state-owned enterprise, we concur with the view of the Directors that
adequate guarantee has been sought to secure the interests of the Group under the Finance Lease
Agreement.
Having considered (i) the background and reasons for the Finance Lease Agreement;
(ii) the consideration and valuation of the Equipment; (iii) the lease payments and terms of the
Finance Lease Agreement; (iv) the handling fee charged under the Finance Lease Agreement;
(v) the guarantee and security provided under the Finance Lease Agreement; and (vi) the strong
background of Shougang Corporation in providing the guarantee as compared to the Comparables,
we are of the view that the entering of the Finance Lease Agreement is in the interests of the
Company and the Shareholders as a whole and the terms of the Finance Lease Agreement is on
normal commercial terms and is fair and reasonable so far as the Independent Shareholders are
concerned.
4.
Master Loan Facility Agreement
(i)
Background and reasons for the Master Loan Facility Agreement
On 10 October 2014, the Company entered into the Master Loan Facility Agreement with
Shougang Shuigang pursuant to which the Company agreed to provide, or procure its subsidiaries to
provide, the Loan Facilities to Shougang Shuigang and/or its subsidiaries in an aggregate principal
amount of up to HK$250.0 million for a term of 3 years from the Effective Date. Upon the expiry
of the 3-year term, the unutilised portion of the Loan Facilities will be cancelled.
Pursuant to the Master Loan Facility Agreement, the Loan Facilities shall be provided
to Shougang Shiugang Group by way of (i) term loan; or (ii) finance lease. As advised by the
Directors, the finance lease will be provided on the production equipments of Shougang Shuigang
and/or its fellow subsidiaries.
As stated in the Letter from the Board, the Company (or its subsidiaries) and the relevant
member of the Shougang Shuigang Group will enter into separate loan agreement or finance lease
agreement specifying specific terms such as the principal amount, interest rate, repayment term,
lease items before each of the drawdown under the Loan Facilities. As advised by the Directors,
the transactions contemplated under the Master Loan Facility Agreement will be funded by bank
borrowings and the terms will be on a back-to-back basis, so as to remove the risks of the Company
suffering from any fluctuations on its borrowing costs.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
The Directors consider that the entering into of the Master Loan Facility Agreement is in the
ordinary and usual course of business of the Group and is under normal commercial terms. It will
also enable the Group to earn a net income under the Master Loan Facility Agreement. Assuming
100% of the Loan Facilities are provided by way of finance lease, the Company (or its relevant
subsidiary) will earn an aggregate finance lease income ranging from approximately HK$7.5
million to HK$41.3 million, being the aggregate of the net finance interest income ranging from
approximately HK$7.5 million to approximately HK$37.5 million and the net lease handling fee
after deducting the handling fees to be payable by the Company (or its relevant subsidiary) to the
banks for the bank borrowings for the settlement of the consideration for the lease items which
results at a maximum of approximately HK$3.8 million over the 3-year lease term.
Having considered that (i) it is the principal business of the Group to provide financial
services to its customers, in particular that finance lease segment accounted for majority of the
Group’s revenue; and (ii) the Group is able to earn a net income over the term of the Master Loan
Facility Agreement, we concur with the view of the Directors that the transactions contemplated
under the Master Loan Facility Agreement are in the ordinary and usual course of business of
the Group and that the entering of the Master Loan Facility Agreement is in the interests of the
Company and the Shareholders as a whole.
(ii)
Key terms of the Master Loan Facility Agreement
Pursuant to the Master Loan Facility Agreement, the Loan Facilities will be provided by way
of the following: (a) term loan; and (b) finance lease and the key terms thereof are set out below:
(A)
Major terms of the term loan:
Loan amount:
The Company (either directly or through its subsidiaries) may
at its discretion provide term loan(s) to relevant member(s) of
the Shougang Shuigang Group from time to time during the
term of the Master Loan Facility Agreement, and the relevant
loan amount shall be determined on a case-by-case basis, with
the maximum amount representing the unutilised portion of the
Loan Facilities.
Term:
Up to 3 years, commencing from the Effective Date. The
duration of each term loan will be negotiated on a case-bycase basis. Each term loan will expire by the end of the 3-year
period from the Effective Date.
Interest:
The interest rate payable by the borrower shall be at a
rate equal to the cost of lending of the Company (or its
subsidiaries) plus 1% to 5%, which shall be between 3.6% to
8.6% above the 3-month HIBOR. Unless otherwise agreed,
interest payments shall be made on the expiry of the term of
the loan.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
(B)
Major terms of the finance lease:
Loan amount:
The Company (either directly or through its subsidiaries) as
lessor may at its discretion provide finance lease to relevant
member(s) of the Shougang Shuigang Group as lessee from
time to time during the term of the Master Loan Facility
Agreement, and the principal amount of finance lease shall be
determined on a case-by-case basis, with the maximum amount
representing the unutilised portion of the Loan Facilities.
Term:
Up to 3 years, commencing from the Effective Date. The
duration of each finance lease will be negotiated on a caseby-case basis. Repayment of the finance leases shall be made
quarterly. Each finance lease will expire and any outstanding
payment will become payable by the end of 3-year period from
the Effective Date.
Interest:
The interest rate payable by the borrower shall be at a
rate equal to the cost of lending of the Company (or its
subsidiaries) plus 1% to 5%. If the loan is denominated in
HKD, the interest rate payable by the borrower shall be
between 3.6% to 8.6% above the 3-month HIBOR. If the
loan is denominated in RMB, the interest rate payable by the
borrower shall be at a rate between 2.15% below and 2.85%
above the 3-year interest rate offered by The People’s Bank of
China. Interest payments shall be made on a quarterly basis.
Handling fee:
The Company (or its relevant subsidiary) is entitled to charge
the relevant lessee a handling fee of not more than 1.5% of the
principal amount of the finance lease.
Security deposit:
The Company (or its relevant subsidiary) is entitled to a
security deposit of not more than 5% of the principal amount
under the finance lease before commencement of the finance
lease.
Lease items:
The lease items will be the production equipment used by
Shougang Shuigang and/or its subsidiaries in their respective
ordinary course of business. The principal amount to be
granted by the Company (or its subsidiaries) under the
individual finance lease will not exceed the value of the
related lease items as assessed by an independent valuer to be
appointed by the Company.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
The Company (or its subsidiaries) will purchase the lease
items, as may be agreed with the relevant lessee under the
finance lease agreement(s), and then lease them to the relevant
lessee.
Option to purchase:
At the end of the lease term of the finance lease agreement(s),
the relevant lessee of the finance lease will have the right to
purchase the lease items at a nominal purchase price of not
more than 0.01% of the principal amount of the finance lease.
In assessing the fairness and reasonableness of the key terms of the Master Loan Facility
Agreement, we have considered the following:–
Interest
Pursuant to the Master Loan Facility Agreement, the interest for (i) term loan will be
determined at a rate equal to the cost of lending of the Company (or its subsidiaries) plus 1% to
5%, which shall be between 3.6% to 8.6% above the 3-month HIBOR; and (ii) finance lease will be
determined at a rate equal to the cost of lending of the Company (or its subsidiaries) plus 1% to 5%.
If the loan is denominated in HKD, the interest rate payable by the borrower shall be between 3.6%
to 8.6% above the 3-month HIBOR. If the loan is denominated in RMB, the interest rate payable
by the borrower shall be at a rate between 2.15% below and 2.85% above the 3-year interest rate
offered by The People’s Bank of China.
As set out in the Letter from the Board, in determining the interest rate to be charged on
the transactions contemplated under the Master Loan Facility Agreement, the Company (or its
subsidiary) will refer to the prevailing market rate and a margin will be added to the cost of lending
by the Company (or its subsidiaries) so as to ensure that the Company (or its subsidiaries) can earn
a net income under the Master Loan Facility Agreement.
The exact interest rate to be charged by the Company (or its relevant subsidiary) under the
individual term loan or the finance lease will be determined at the relevant time after taking into
account of: (a) the prevailing market interest rate; and (b) the risk profile of the loan including
the then business and financial conditions of the relevant member(s) of the Shougang Shuigang
Group being the borrower. In assessing the risk profile of the loan, the following factors will be
considered: (i) source of funds available for repayment, including the profitability and cash flow
condition of the borrower; (ii) the convertibility and liquidity of the lease items when they are being
sold in secondary markets to discharge the debt of the borrower; (iii) the risk level of the relevant
industry of the borrower during the term of the loan; (iv) the risk and return comparisons of other
financing projects between the Company (or its relevant subsidiary) and other borrowers who are
independent third parties; and (v) the general market conditions that will be faced by the Shougang
Shuigang Group. The Company (or its relevant subsidiary) will ensure that the interest rate charged
on the loans will be no less favourable than the loans granted to independent third parties based on
the analysis of items (i) to (v) above.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
As stated in the Letter from the Board, the Company has adopted policy and internal control
mechanism to ensure that the interest rate to be charged by the Company (or its relevant subsidiary)
of each of the transactions contemplated under the Master Loan Facility Agreement will not be on
terms more favourable to Shougang Shuigang than those granted to independent third parties. Such
policy and/or internal control mechanism includes (i) the assessment of risk profile of the borrower
to be conducted by the risk management department; (ii) the review by the risk management
committee of the Company which is comprised of senior management personnel and executive
Directors; and (iii) the report by the risk management committee to the audit committee of the
Company comprising all independent non-executive Directors on a semi-annual basis. Details of the
policy and the internal control mechanism are set out in the Letter from the Board. We are given to
understand from the Directors that similar policy and internal control mechanism was adopted in
determining the exact interest rate charged on the transactions with other third parties and the terms
of the loan and/or finance lease were reviewed and approved by the Directors in the manner as set
out in (i) and (ii). For the purpose of the Master Loan Facility Agreement, given the transactions
contemplated thereunder will constitute connected transactions to the Company, an addition report
will be prepared and reviewed by the audit committee. Having considered that (i) the Group has
long established policy and internal control mechanism in assessing the terms and conditions
of each finance lease and/or term loan transactions; and (ii) senior management and executive
Directors are involved in the review and approval process, we therefore concur with the view of the
Directors that adequate internal control procedures are in place to ensure that the actual interest rate
to be charged will be in accordance with the Group’s pricing policy and that such interest rate will
be no less favourable than those granted to the independent third party customers of the Group.
Pursuant to the Master Loan Facility Agreement, the Group is able to enjoy an interest rate
spread of 1.0% to 5.0% for each transaction to be entered into. We note that the minimum interest
rate spread to be enjoyed under the Master Loan Facility Agreement (i.e. 1.0%) is within the
range of the Comparables of 0.6% to 1.2% (please refer to sub-paragraph headed “Lease payments
and terms” under paragraph headed “(ii) Key terms of the Finance Lease Agreement” as set out
under the section headed “3. Finance Lease Agreement” above in this letter for details). Having
considered that (i) there is adequate internal control policy to be taken place by the Group to
determine the exact interest rate to be offered to each transaction contemplated under the Master
Loan Facility Agreement; (ii) the minimum interest rate spread to be enjoyed by the Group is
comparable to those as offered to independent third party customers of the Group, we concur
with the view of the Directors that the exact interest rate to be charged under the Master Loan
Facility Agreement is no less favourable than those as offered to the Group’s independent third
party customers, on normal commercial term and are fair and reasonable so far as the Independent
Shareholders are concerned.
We note that the interest rate to be charged on transactions under the Finance Lease
Agreement and the Master Loan Facility Agreement may be different, subject to the determining of
the final terms of each transaction contemplated under the Master Loan Facility Agreement by the
Group from time to time. As advised by the Directors, the difference is mainly because flexibility
is required for the Group to cater any possible movements of borrowing costs of the Group over
the term of the Transactions, which in turn will affect the exact interest rate to be charged on such
a way that reasonable interest rate spreads can be enjoyed by the Group under the Transactions.
On the basis that (i) the Group has adopted adequate internal control policy on determining the
36
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
exact interest rate; and (ii) the exact interest rate are determined on fair and reasonable grounds,
we concur with the view of the Directors that even though the interest rate of the Transactions may
be different, the terms of each of the Transactions are fair and reasonable so far as the Independent
Shareholders are concerned.
Handling fees and security deposits
We are given to understand from the Directors that handling fees and security deposits are
common terms for finance lease transactions as offered by the Group. As advised by the Directors,
the handling fees and level of security deposits are determined by the Group on a case-by-case
basis and will in any event with reference to the rates as offered by the Group to its independent
third-party customers. Pursuant to the Master Loan Facility Agreement, the handling fees and
security deposits to be charged by the Group will be not more than 1.5% and 5% of the principal
amount under the finance lease, respectively. The terms of which will therefore be comparable to
those as offered by the Group in recent transactions under the Review Period (please refer to subparagraphs headed “Handling fee” and “Guarantee and security” under the paragraph headed “(ii)
Key terms of Finance Lease Agreement” as set out under the section headed “3. Finance Lease
Agreement” above in this letter for details). We therefore concur with the view of the Directors that
the handling fees and security deposits to be charged under the Master Loan Facility Agreement
is no less favourable than those as offered to the Group’s independent third-party customers, on
normal commercial term and are fair and reasonable so far as the Independent Shareholders are
concerned.
Guarantee and securities
As security in respect of the obligations of Shougang Shuigang and its subsidiaries under
the Master Loan Facility Agreement, member(s) of the Shougang Shuigang Group will mortgage
the Commercial Properties in favour of the Company; or Shougang Corporation will provide an
irrevocable joint and several guarantee in favour of the Company in respect of the obligations of
Shougang Shuigang and its subsidiaries under the Master Loan Facility Agreement.
Moreover, in case of default, the Company is entitled to enforce its rights under the security/
guarantee to discharge any outstanding debt as owed by Shougang Shuigang and/or its subsidiaries
under the individual term loan or finance lease agreement to be entered into pursuant to the Master
Loan Facility Agreement.
The market value of the Commercial Properties as assessed by an independent valuer is
RMB217,000,000 (equivalent to approximately HK$274,683,544) as at 31 August 2014. The
aggregate principal amount of HK$250.0 million under the Master Loan Facility Agreement
represents a discount of 9.0% to the market value of the Commercial Properties.
In assessing the fairness and reasonableness of the market value of the Commercial
Properties, we have reviewed the valuation report prepared by the independent valuer (the
“Commercial Properties Valuer”) and discussed with the Commercial Properties Valuer on
the methodology undertaken in the valuation for the Commercial Properties. We are given to
understand from the Commercial Properties Valuer that the income approach is deemed to be the
37
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
most appropriate and common method on valuating the Commercial Properties as the Commercial
Properties was rented to a third party for hotel operation and income was generated from such
Commercial Properties.
We are given to understand from the Commercial Properties Valuer that it has relied on
certain information made available to them by Shougang Shuigang Group, including tenure,
particulars of occupancy, title documents, lettings and land use rights certificate.
We have conducted an interview with the Commercial Properties Valuer and we are given
to understand that (a) it has 20 years of experience in the valuations on properties in Hong Kong
and the PRC; and (b) except for its engagement in respect of the valuation of the Commercial
Properties, it has no current or prior relationships with the Company and/or the connected persons
of the Company. As such, we are not aware of any matters that would cause us to question the
Commercial Properties Valuer’s expertise and independence in conducting the valuation for the
Commercial Properties.
We have also reviewed the terms of engagement of the Commercial Properties Valuer having
particular attention to the appropriateness of the scope of work. Based on our review, we are not
aware of any limitations on the scope of work which might adversely impact on the degree of
assurance given by the Commercial Properties Valuer in its valuation report.
Having considered the above, we are of the view that the valuation of the Commercial
Properties has been conducted by the Commercial Properties Valuer on fair and reasonable
grounds.
We are given to understand from the Directors that the mortgage deed(s) of the Commercial
Properties will be subjected to due execution and registration. In order to protect the Company’s
interest further under the Master Loan Facility Agreement, Shougang Corporation will provide an
irrevocable joint and several guarantee in favour of the Company should the mortgage deed(s) are
failed to be duly executed and registered. As advised by the Directors, Shougang Corporation will
provide guarantee on the Master Loan Facility Agreement entered into between the Company and
Shougang Shuigang, the guarantee provided under Shougang Corporation is relatively sizable as
compared to the corporate guarantees and/or personal guarantees for the Comparables, as such the
Directors believed that the guarantee provided by Shougang Corporation will assist in safeguarding
the risk in relation to the Master Loan Facility Agreement.
Having considered, (i) the market value of the Commercial Properties; (ii) the strong
background of Shougang Corporation set out in paragraph headed “Information of Shougang
Corporation” above; (iii) the background of Shougang Shuigang Group set out in paragraph headed
“Information of Shougang Shuigang” above; and (v) the background of Shougang Corporation in
providing the guarantee as compared to the Comparables, we concur with the view of the Directors
that adequate security/guarantee has been sought to secure the interests of the Group under the
Master Loan Facility Agreement.
38
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
(iii) Annual caps
The annual caps for the transactions contemplated under the Master Loan Facility Agreement
for each of the financial years ending 31 December 2014, 31 December 2015, 31 December 2016
and 31 December 2017 is HK$276,250,000. As discussed with the Directors, the annual caps is
calculated based on the possible maximum loan amount that can be granted under the Master Loan
Facility Agreement plus the maximum interest income and the handling fee that can be charged
by the Company (or its relevant subsidiary). Accordingly, we are of the view that the basis on
determining annual caps in respect of the Master Loan Facility Agreement is fair and reasonable so
far as the Independent Shareholders are concerned.
Having considered (i) the background and reasons for the Master Loan Facility Agreement;
(ii) the key terms of the Master Loan Facility Agreement; and (iii) the annual caps under the Master
Loan Facility Agreement, we are of the view that the entering into of the Master Loan Facility
Agreement is in the interests of the Company and the Shareholders as a whole and the terms of the
Master Loan Facility Agreement (including the proposed annual caps) is on normal commercial
terms and is fair and reasonable so far as the Independent Shareholders are concerned.
5.
Possible Effect of the Transactions
Possible Concentration of Customers
Given the entering into the Finance Lease Agreement and the Master Loan Facility
Agreement constitutes a major transaction and a very substantial acquisition, respectively, of
the Company, Shougang Guigang and Shougang Shuigang may become key customers of the
Group upon their completions. As advised by the Directors, the entering into of the Finance
Lease Agreement and Master Loan Facility Agreement demonstrates the capability of the
Group on handling financial services transactions of sizeable in scale, which will enable the
Group to source similar transactions with independent third party customers in future. On
such basis, even though Shougang Guigang and Shougang Shuigang will become the major
customers of the Company, we concur with the Directors that the entering into of the Finance
Lease Agreement and the Master Loan Facility Agreement is in the interests of the Company
and its Shareholder as a whole.
Possible Financial Effect
(i)
Effect on net assets value
The transactions contemplated under the Finance Lease Agreement and the Master
Loan Facility Agreement will be financed by bank borrowings in full. Accordingly, should
the Transactions being taken placed by the Group, the Directors expect that the Group’s total
assets and liabilities will be increased by the same amount. Over time, given that the Group
will enjoy interest rate spreads from the Transactions, the net assets value of the Group is
expected to be enhanced following the completion of the Transactions.
39
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
(ii)
Effect on liquidity position
It is estimated by the Directors that there will be no material negative impact on the
liquidity position of the Group as the transactions contemplated under the Finance Lease
Agreement and the Master Loan Facility Agreement will be financed by bank borrowings in
full.
(iii) Effect on earnings
As set out in the Letter from the Board, South China Leasing will earn an
aggregate finance lease income ranging from approximately RMB6.4 million (equivalent
to approximately HK$8.1 million) to approximately RMB9.4 million (equivalent to
approximately HK$11.9 million) pursuant to the Finance Lease Agreement. The Company
(or its relevant subsidiary) will also earn an aggregate finance lease income ranging from
approximately HK$7.5 million to approximately HK$41.3 million pursuant to the Master
Loan Facility Agreement, assuming 100% of the Loan Facilities are provided by way of
finance lease. Accordingly, the Directors expect that there will be positive impact on the
earnings of the Group.
It should be noted that the above financial effects are for illustrative purpose only and do not
purport to represent the financial position of the Group following the effective of the Transactions.
RECOMMENDATION
Having taken into account the above-mentioned principal factors and reasons, in particular:
•
the background information of the Group as set out under the section headed “1. Background
Information of the Group”;
•
the background information of Shougang Guigang, Shougang Shuigang and Shougang
Corporation as set out under the section headed “2. Background Information of Shougang
Guigang, Shougang Shuigang and Shougang Corporation”;
•
the background, reasons and terms of the Finance Lease Agreement as set out under the
section headed “3. Finance Lease Agreement”;
•
the background, reasons, terms and annual caps of the Master Loan Facility Agreement as set
out under the section headed “4. Master Loan Facility Agreement”; and
•
the financial effect of the Transactions as set out under the section headed “5. Possible Effect
of the Transaction”,
40
LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR
we consider that the entering into of the Finance Lease Agreement and the Master Loan Facility
Agreement are in the ordinary and usual course of business of the Group and in the interests of the
Company and the Shareholders as a whole. We are also of the view that the terms of the Finance Lease
Agreement and the terms (including the proposed annual caps) of the Master Loan Facility Agreement
are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are
concerned. Accordingly, we recommend the Independent Shareholders, as well as the Independent
Board Committee to recommend the Independent Shareholders, to vote in favour of the resolutions to
be proposed at the Special General Meeting to approve the Finance Lease Agreement, the Master Loan
Facility Agreement and the proposed annual caps thereunder.
Yours faithfully,
For and on behalf of
Messis Capital Limited
Vincent Cheung
Director
Mr. Vincent Cheung is a licensed person registered with the Securities and Futures Commission and
regarded as a responsible officer of Messis Capital Limited to carry out type 6 (advising on corporate
finance) regulated activities under the SFO and has over 7 years of experience in corporate finance
industry.
41
APPENDIX I
I.
FINANCIAL INFORMATION OF THE GROUP
FINANCIAL INFORMATION OF THE GROUP
Financial information of the Group for the three years ended 31 December 2011, 12 and 13 are
disclosed on pages 49 to 146 of the annual report of the Company for the year ended 31 December 2011,
pages 52 to 136 of the annual report of the Company for the year ended 31 December 2012, pages 53
to 135 of the annual report of the Company for the year ended 31 December 2013 and pages 4 to 28 of
the interim report of the Company for the six months ended 30 June 2014, all of which are published
on the website of the Stock exchange at http://www.hkexnews.hk, and the website of the Company at
http://www.shougang-grand.com.hk. Hyperlinks to the annual reports and the interim report of the
Company are set out below:
annual report of the Company for the year ended 31 December 2011:
http://www.hkexnews.hk/listedco/listconews/SEHK/2012/0412/LTN20120412255.pdf
annual report of the Company for the year ended 31 December 2012:
http://www.hkexnews.hk/listedco/listconews/SEHK/2013/0418/LTN20130418208.pdf
annual report of the Company for the year ended 31 December 2013:
http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0416/LTN20140416641.pdf
interim report of the Company for the six months ended 30 June 2014:
http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0915/LTN20140915364.pdf
II.INDEBTEDNESS
Borrowings
At the close of business on 31 August 2014, being the latest practicable date for the purpose of this
statement of indebtedness prior to the printing of this circular, the Group had outstanding bank borrowings
of approximately HK$325,349,000 secured by investment properties, certain finance lease receivables and
certain bank deposits.
Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal
accounts payable in the ordinary course of business, the Group did not have any other loan capital issued
and outstanding or agreed to be issued but unissued, loans, bank overdrafts, or other similar indebtedness,
financial lease or hire purchase commitment, liabilities under acceptances (other than normal trade bills)
or acceptable credits, debentures, mortgages, charges, guarantees or other material contingent liabilities as
at the close of business on 31 August 2014.
42
APPENDIX I
III.
FINANCIAL INFORMATION OF THE GROUP
WORKING CAPITAL
After taking into account the Group’s internal resources, the cash flows from the Finance Lease
Agreement and the Master Loan Facility Agreement, the presently available banking facilities and in the
absence of unforeseen circumstances, the Directors are of the opinion that the Group will have sufficient
working capital to meet its present requirements for the next twelve months from the date of this circular.
IV.
MATERIAL ADVERSE CHANGE
The Directors were not aware of any material adverse change to the financial or trading position
of the Group since 31 December 2013, being the date to which the latest audited consolidated financial
statement of the Company were made up.
V.
OUTLOOK AND PROSPECTS
The global economy moves along the track of moderate growth yet the recovery strength is weaker
than expected while in major advanced economies the recovery strength remains fragile in 2014. Facing
a fluctuating market environment, the Group achieves stable and steady development with a pace of
progress while maintaining stability.
Capturing market opportunities, the Group disposed of certain investment properties in the past
few years (including residential, commercial and industrial units) so as to adjust the combination and
quality of the investment properties portfolio. The Group will continue to monitor market changes and
seek investment opportunities. The Group received stable cash flow from rental income and expected that
the investment properties would continue to contribute stable cash return to the Group in the foreseeable
future.
The Group adhered to a prudent risk management policy, with the finance leasing segment
continuously carrying out rigorous and regular review of credit risk over all the existing clients and new
finance leasing projects. The Group will continue to adopt a careful and prudent credit risk management
strategy and endeavor to exercise its best efforts in the recovery of impaired receivables.
In response to the fluctuated and unbalanced credit environment in the PRC and the changing
international economic environment, based on the ever strengthening and improving risk control
mechanism, the finance leasing segment insisted on optimizing management system, enriching business
team to solidify existing clients and proactively explore customers with good quality so as to promote an
expanded business scale and increase overall revenue.
The assets management segment achieved stable business growth and generated stable income from
its brand management service. The segment result turning from profit to loss was mainly attributable to
changes in market environment that resulted in the decrease in gross profit.
Relying on the good business base and network built up in the past several years in the PRC, the
Group will pay close attention to the economic development in the PRC by tracking industries with good
growth potential, capturing opportunity to develop new projects, promoting positive interaction among
projects and enriching the assets management business at the same time.
43
APPENDIX II
VALUATION REPORT OF THE EQUIPMENT
The following is the text of a letter prepared for the purpose of incorporation in this Circular
received from Greater China Appraisal Limited, an independent valuer, in connection with its valuation
as at 31 August 2014 of a batch of engineering equipment which is utilised by Shougang Guigang for
manufacturing refined wire materials.
香港
灣仔
Room 2703, 27/F
Shui On Centre
6-8 Harbour Road
Wanchai
Hong Kong
28 October 2014
港 灣 道 6-8 號
Shougang Concord Grand (Group) Limited
Rooms 1101-1104, 11th Floor
Harcourt House
39 Gloucester Road
Wanchai
Hong Kong
瑞 安 中 心 2703 室
Dear Sirs,
In accordance with the instructions from Shougang Concord Grand (Group) Limited (referred to as
the “Company”), we have completed the valuation of certain machinery and equipment (the “Equipment”)
exhibited to us as those of 首鋼貴陽特殊鋼有限責任公司 (Shougang Guiyang Special Steel Company
Limited*, “Guigang”) in the People’s Republic of China (the “PRC”) and submit our findings in this
report.
We confirm that we have made relevant enquiries and obtained such further information as we
considered necessary for the purpose of providing you with our opinion of the market value of the
Equipment as of 31 August 2014 (the “date of valuation”). It is our understanding that this valuation is
being used for the purpose of a major and connected transaction.
I.
DESCRIPTIONS OF THE EQUIPMENT
The Equipment is located in the production facilities of Guigang located at Zhazuo Town, Xiuwen
County, Guiyang City, Guizhou Province, the PRC.
The Equipment is principally used in the production of steel. It comprises integrated electrical
distributors, wire rod mill production line, electrical control equipment, electrical furnace and switch
boards.
Excluded from this investigation are land improvements, real property, buildings, spare parts,
supplies, inventories, materials on hand and all other tangible assets of current nature and intangible assets
that might exist.
* For identification purpose only
44
APPENDIX II
II.
VALUATION REPORT OF THE EQUIPMENT
BASIS OF VALUATION
The valuation is our opinion of the Fair Market Value in Continued Use (FMV-CU) which we
would define as intended to mean the estimated amount expressed in terms of money that may be
reasonably expected for assets in exchange between a willing buyer and a willing seller with equity to
both, neither being under any compulsion to sell or buy, both fully aware of all relevant facts, as of a
valuation date, and assuming that the earnings support the value reported.
When fair market value is established on the premise of continued use, it is assumed that the buyer
and the seller would be contemplating retention of the assets at their present locations as part of the
current operations. An estimate of fair market value arrived at on the premise of continued use does not
represent the amount that might be realized from piecemeal disposition of the assets in the marketplace or
from an alternative use of the assets.
III.
VALUATION METHODOLOGY
To develop our opinion of value, we considered the three generally accepted approaches to value:
the depreciated replacement cost, market comparable and income capitalization. The theory of these
approaches is outlined as follows:
The depreciated replacement cost approach
The depreciated replacement cost approach establishes value based on the cost of
reproducing or replacing the assets, less depreciation from physical deterioration, and functional
and economic/external obsolescence.
Reproduction Cost, New is defined as the estimated current cost of reproducing a new replica
of an asset with the same or closely similar materials.
Replacement Cost, New is defined as the estimated current cost of the new asset having the
nearest equivalent utility as the asset being appraised.
Physical Deterioration is the loss in value of an asset from wear and tear of asset in operation
and exposure to various elements.
Functional Obsolescence is the loss in value is due to factors inherent in the asset itself
and changes in design, materials, or process that result in inadequacy, over capacity, excess
construction, lack of functional utility or excess operating costs, etc.
Economic Obsolescence is an incurable loss in value caused by unfavorable external
conditions. When market transactions of comparable assets are not available, when data cannot
be extrapolated from larger transactions, or when transactions are non-existent, under premise
of continued use, assuming adequate earnings the depreciated replacement cost approach is the
preferred valuation procedure.
45
APPENDIX II
VALUATION REPORT OF THE EQUIPMENT
The market comparable approach
The market comparable approach involves the collection of market data pertaining to
the subject assets being appraised. The primary intent of the market comparable approach is to
determine the desirability of the assets through recent sales or offerings of similar assets currently
on the market in order to arrive at an indication of the most probable selling price for the assets
being appraised.
If the comparable sales are not exactly similar to the asset being appraised, adjustments must
be made to bring them as closely in line as possible with the subject asset.
Under the premise of continued use assuming adequate earnings, consideration is given to
the cost to acquire similar equipment in the used-equipment market; an allowance then is made to
reflect the costs for freight and installation.
The income capitalization approach
In the income capitalization approach considers value in relation to the present worth of
future benefits derived from ownership and is usually measured through the capitalization of a
specific level of income. This approach is most applicable to investment and general-use properties
where there is an established and identifiable rental market.
In any valuation study, all three approaches to value must be considered, as one or more may be
applicable to the subject Equipment. In some situations, elements of two or three approaches may be
combined to reach an opinion of value.
IV.
INVESTIGATION AND ANALYSIS
In valuing the Equipment, since there is no identified active used-equipment market in the PRC
which provides sufficient information on recent transactions of comparable items, the market comparable
approach was not applied. On the other hand, since no identifiable income stream can be attributed to a
specific piece of equipment or a group of equipment, the income capitalization approach to value was not
applied. Therefore, we conclude that the depreciated replacement cost approach is deemed to be the most
appropriate method of valuing the Equipment under premise of continued use.
For the Equipment of standard manufacture, we used current manufacturers’ price lists, price
quotations and price catalogs to determine the cost of replacement new. Allowances for freight and
installation were sometimes required.
For the Equipment of special design or fabrication, we used current market price for labor, current
market price for materials, manufactured components, design fees, engineering fees and contractors’
overhead, profit and fee to determine the cost of replacement new. Allowances for freight and installation
were sometimes required.
The deductions for physical deterioration, functional obsolescence, and economic/external
obsolescence reflected observed condition; current use; and planned future utilization.
46
APPENDIX II
V.
VALUATION REPORT OF THE EQUIPMENT
VALUATION COMMENTS
We have inspected the Equipment on 4 September 2014. At the time of our inspection, the
appraised Equipment was found to be generally in good condition. We have therefore assumed that the
Equipment was in good condition as at the valuation date and can perform efficiently according to the
purposes for which they were designed and built.
In the course of our investigation, we have not investigated the title or any liabilities against the
Equipment. We did not investigate any financial data pertaining to the present or prospective earning
capacity of the operation in which the appraised assets are used. It was assumed that prospective earnings
would provide a reasonable return on the market value of the appraised assets, plus the value of any assets
not included in the valuation, and adequate net working capital.
We accepted Equipment records furnished by the Company as properly describing the assets to be
appraised, their original costs and their acquisition dates. We have relied to a very considerable extent
on such records, listings, specifications and documents in arriving at our opinion of value. We visited the
locations to verify the existence of the assets and to gather information relating to the condition and utility
of these assets. Any deferred maintenance, physical wear and tear, operating malfunctions, lack of utility,
or other observable conditions distinguishing the appraised equipment from equipment of like kind in new
condition were noted and made part of our judgment in arriving at the value.
We do not investigate any industrial safety environmental and health related regulations in
association with this particular manufacturing process. It is assumed that all-necessary license, procedures,
and measures were implemented in accordance with the Government legislation and guidance.
It is assumed that there are no hidden or unapparent conditions of the equipment which would
render it more or less valuable.
VI.
OPINION OF VALUE
In view of all relevant circumstances, we are of the opinion that the Fair Market Value of the
Equipment in continued use as at 31 August 2014, with the assumption of free of all encumbrances, is in
the region of CHINESE RENMINBI TWO HUNDRED TWENTY THREE MILLION AND FOUR
HUNDRED THOUSAND ONLY (RMB223,400,000).
We enclosed herewith the list of the Equipment of Guigang in Appendix A.
We hereby certify that we have neither present nor prospective interest in the appraised assets or
the value reported.
This valuation report is issued subject to our General Service Conditions.
Yours faithfully,
For and on behalf of
GREATER CHINA APPRAISAL LIMITED
Analysed and Reported by
Andy Chu
Director
47
APPENDIX II
VALUATION REPORT OF THE EQUIPMENT
Appendix A - List of the Equipment
Shougang Concord Grand (Group) Limited
Held by: Shougang Guiyang Special Steel Company Limited
Location: Zhazuo Town, Xiuwen County, Guiyang City, Guizhou Province, the PRC
Valuation Date: 31 August 2014
No. Descriptions
1
2
3
Model/
Specifications
GIS integrated
GFBN12B
electrical
distributors
Control equipment for n/a
wire rod mill
Wire rod mill
500,000 tonnes/
production line
year
4
Electrical furnace
60T
5
High voltage switch
board
10KV
Origin
Purchase
Date
Qty
Contract
Amount
(RMB)
FMV-CU
(RMB)
Beijing Hongda Nissin Electric
Co., Ltd.*
China
13/1/2012
3 sets
23,097,200
19,400,000
ABB (China) Limited*
China 15/11/2012
1 set
64,234,500
54,000,000
Beijing Shougang International
Engineering Technology Co.,
Ltd.*
Tenova Industrial Technologies
(Beijing) Co., Ltd.*
Siemens Switchgear Ltd.,
Shanghai*
China
7/2/2012
1 set
149,364,747
130,800,000
Italy
8/8/2012
1 set
11,713,500
9,700,000
China
8/11/2012
1 set
11,289,000
9,500,000
259,698,947
223,400,000
Supplier
Total:
* For identification purpose only
48
APPENDIX III
VALUATION REPORT OF THE COMMERCIAL PROPERTIES
The following is the text of a letter, summary of values and valuation certificates, prepared for the
purpose of incorporation in this Circular received from Jones Lang LaSalle Corporate Appraisal and
Advisory Limited, an independent valuer, in connection with its valuation as at 31 August 2014 of the
property interest held by Shougang Shuigang Group.
Jones Lang LaSalle Corporate Appraisal and Advisory Limited
6/F Three Pacific Place 1 Queen’s Road East Hong Kong
tel +852 2846 5000 fax +852 2169 6001
Company Licence No.: C-030171
28 October 2014
The Board of Directors
Shougang Concord Grand (Group) Limited
Rooms 1101-1104, 11th Floor
Harcourt House
39 Gloucester Road
Wanchai, Hong Kong
Dear Sirs,
In accordance with the instructions of Shougang Concord Grand (Group) Limited (the “Company”)
to value the property interest held by Shougang Shuicheng Gangtie (Group) Co., Ltd.* (首鋼水城鋼鐵
（集團）有限責任公司) and its subsidiaries (hereinafter together referred to as the “Shougang Shuigang
Group”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections,
made relevant enquiries and searches and obtained such further information as we consider necessary for
the purpose of providing you with our opinion on the market value of the property interest as at 31 August
2014 (the “valuation date”).
Our valuation is carried out on a market value basis. Market value is defined “the estimated
amount for which an asset or liability should exchange on the valuation date between a willing buyer and
a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion”.
We have adopted the income approach in our valuation by taking into account the net rental
income of the property derived from its existing leases and/or achievable in the existing market with
due allowance for the reversionary income potential of the leases, which have then been capitalized to
determine the market value at an appropriate capitalization rate.
Our valuation has been made on the assumption that the seller sells the property interest in the
market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or
any similar arrangement, which could serve to affect the value of the property interest.
* For identification purpose only
49
APPENDIX III
VALUATION REPORT OF THE COMMERCIAL PROPERTIES
No allowance has been made in our report for any charge, mortgage or amount owing on any of the
property interest valued nor for any expense or taxation which may be incurred in effecting a sale. Unless
otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of
an onerous nature, which could affect its value.
In valuing the property interest, we have complied with all requirements contained in Chapter 5
and Practice Note 12 of the Rules Governing the Listing of Securities issued by The Stock Exchange of
Hong Kong Limited; the RICS Valuation – Professional Standards published by the Royal Institution of
Chartered Surveyors; the HKIS Valuation Standards published by the Hong Kong Institute of Surveyors
and the International Valuation Standards published by the International Valuation Standards Council.
We have relied to a very considerable extent on the information given by Shougang Shuigang
Group and have accepted advice given to us on such matters as tenure, planning approvals, statutory
notices, easements, particulars of occupancy, lettings, and all other relevant matters.
We have been shown copies of various title documents including State-owned Land Use Rights
Certificate, Building Ownership Rights Certificates and other title certificates relating to the property
interest and have made relevant enquiries. Where possible, we have examined the original documents to
verify the existing title to the property interest in the PRC and any material encumbrance that might be
attached to the property interest or any tenancy amendment. We have relied considerably on the advice
given by the Company’s PRC legal advisers – Guantao Law Firm, concerning the validity of the property
interest in the PRC.
We have not carried out detailed measurements to verify the correctness of the areas in respect of
the property but have assumed that the areas shown on the title documents and official site plans handed
to us are correct. All documents and contracts have been used as reference only and all dimensions,
measurements and areas are approximations. No on-site measurement has been taken.
We have inspected the exterior and, where possible, the interior of the property. However, we
have not carried out investigation to determine the suitability of the ground conditions and services for
any development thereon. Our valuation has been prepared on the assumption that these aspects are
satisfactory. Moreover, no structural survey has been made, but in the course of our inspection, we did not
note any serious defect. We are not, however, able to report whether the property is free of rot, infestation
or any other structural defect. No tests were carried out on any of the services.
The site inspection was carried out in September 2014 by Mr. Jimmy Gu who has 2 years’
experience in the valuation of properties in the PRC.
We have had no reason to doubt the truth and accuracy of the information provided to us by
Shougang Shuigang Group. We have also sought confirmation from Shougang Shuigang Group that
no material factors have been omitted from the information supplied. We consider that we have been
provided with sufficient information to arrive an informed view, and we have no reason to suspect that
any material information has been withheld.
50
APPENDIX III
VALUATION REPORT OF THE COMMERCIAL PROPERTIES
Unless otherwise stated, all monetary figures stated in this report are in Renminbi (RMB).
Our valuation certificate is attached.
Yours faithfully,
For and on behalf of
Jones Lang LaSalle Corporate Appraisal and Advisory Limited
Eddie T. W. Yiu
MRICS MHKIS RPS (GP)
Director
Note: Eddie T.W. Yiu is a Chartered Surveyor who has 20 years’ experience in the valuation of properties in Hong Kong and the
PRC as well as relevant experience in the Asia-Pacific region.
51
APPENDIX III
VALUATION REPORT OF THE COMMERCIAL PROPERTIES
VALUATION CERTIFICATE
Market value
in existing state
as at
31 August 2014
RMB
Property
Description and tenure
Particulars of
occupancy
-3/F, -2/F, 1/F
to 28/F and roof
of Chaoyang
Xingyuan
Shuigang
Building
No. 326 Zunyi
Road
Nanming District
Guiyang City
Guizhou Province
The PRC
The property comprises -3/F, -2/F, 1/F
to 28/F and roof of a hotel building
known as Chaoyang Xingyuan Shuigang
Building completed in December 2008.
The property was rented
to a third party for hotel
operating use as at the
valuation date.
217,000,000
The property has a total gross floor area
(“GFA”) of approximately 30,355.81
sq.m. and the details are set out as
follows:
GFA
Floor
(sq.m.)Usage
-3/F
2,222.27CPS
-2/F
1,993.33CPS
1/F to 28/F
26,122.38
Roof
Hotel
17.83Storage
Total:30,355.81
The land use rights of the property have
been granted for a term expiring on 7
April 2055 for commercial service use.
Notes:
1.
Pursuant to a State-owned Land Use Rights Certificate – Zhu Guo Yong (2010) Di No. 26346, the land use rights of a
parcel of land with a site area of approximately 2,135 sq.m. have been granted to Guizhou Bohong Chaoyang Tourism
Development Co., Ltd. (貴州博宏朝陽旅業發展有限公司,“Guizhou Bohong Chaoyang Tourism”), an indirectly owned
subsidiary of Shougang Shuicheng Gangtie (Group) Co., Ltd., for a term expiring on 7 April 2055 for commercial service
use.
2.
Pursuant to 30 Building Ownership Certificates (“BOCs”), -2/F, 1/F to 28/F and roof of the property with a total gross floor
area of approximately 28,133.54 sq.m. are owned by Guizhou Bohong Chaoyang Tourism. The details are set out as follows:
No.
BOC No.
Floor
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Di
Di
Di
Di
Di
Di
Di
Di
No.
No.
No.
No.
No.
No.
No.
No.
010239404
010239409
010239418
010239426
010239427
010239428
010239429
010239430
52
-2/F
1/F
2/F
3/F
4/F
5/F
6/F
7/F
Gross Floor Area
(sq.m.)
1,993.33
836.91
982.42
1,227.67
1,227.67
1,227.67
823.78
899.83
Issuance date
14
14
14
14
14
14
14
14
April
April
April
April
April
April
April
April
2011
2011
2011
2011
2011
2011
2011
2011
APPENDIX III
VALUATION REPORT OF THE COMMERCIAL PROPERTIES
No.
BOC No.
Floor
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Zhu
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Fang
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Quan
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Zheng
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Nan
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Ming
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Zi
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
Di
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
010239431
010239432
010239405
010239406
010239407
010239408
010239410
010239411
010239412
010239413
010239414
010239415
010239416
010239417
010239419
010239420
010239421
010239422
010239423
010239424
010239425
010239433
Gross Floor Area
(sq.m.)
8/F
9/F
10/F
11/F
12/F
13/F
14/F
15/F
16/F
17/F
18/F
19/F
20/F
21/F
22/F
23/F
24/F
25/F
26/F
27/F
28/F
Roof
Total:
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
899.83
17.83
Issuance date
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
28,133.54
3.
For the remaining part of the property (-3/F) with a gross floor area of approximately 2,222.27 sq.m., we have not been
provided with any Building Ownership Certificate.
4.
According to a Tenancy Agreement, the property (with a total lettable area of approximately 28,133.54 sq.m. as advised by
Guizhou Bohong Chaoyang Tourism) was rented to Guiyang Forest City Grand Hotel Co., Ltd. (貴陽林城大酒店有限責
任公司) for a term of 18 years commencing from 23 October 2009 and expiring on 22 October 2027 at a monthly rent of
RMB23 per sq.m. (with lettable area basis), exclusive of management fees, water and electricity charges. The rent will be
increased by 7% annually commencing from the sixth year of the tenancy.
5.
In the valuation of the property, we have attributed no commercial value to the part of the property mentioned in note
3 with a gross floor area of approximately 2,222.27 sq.m. which has not obtained any proper title certificate. However,
for reference purpose, we are of the opinion that the market value of such part of the property would be RMB2,200,000
assuming all relevant title certificates have been obtained and it could be freely transferred.
6.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which
contains, inter alia, the following:
7.
a.
Guizhou Bohong Chaoyang Tourism is in possession of the building ownership of -2/F, 1/F to 28/F and roof of
the property as mentioned in note 2 and has the rights to occupy, use, obtain income or otherwise dispose of such
portions of the property in accordance with the laws; and
b.
The portions of the property as mentioned in note 2 are not subject to any mortgages.
A summary of major certificates/approvals is shown as follows:
a.
State-owned Land Use Rights Certificate
Yes
b.
Building Ownership Certificate
Yes
53
APPENDIX III
8.
VALUATION REPORT OF THE COMMERCIAL PROPERTIES
Our key assumptions in the Income Approach are:
Daily Market Rent (per sq.m.)
Capitalization Rate
RMB1.054.8%
In undertaking our valuation, we have made reference to various recent lettings within the similar properties. These
comparables properties are selected as they have characteristics comparable to the property. The rental levels of those major
retail lettings range from RMB1 to RMB1.4 per sq.m. per day.
We have gathered and analyzed various recent sales of similar premises and noted that the yields implied in those sales are
generally within the range from 4.7% to 5.0%.
The above market rents assumed by us are consistent with the level of the recent lettings within the property and other
similar properties as mentioned above. The capitalization rate is reasonable having regard to the yields analyzed from sales
of comparable properties which we have collected.
54
APPENDIX IV
1.
GENERAL INFORMATION
RESPONSIBILITY STATEMENT
This circular, for which the Directors collectively and individually accept full responsibility,
includes particulars given in compliance with the Listing Rules for the purpose of giving information with
regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their
knowledge and belief, the information contained in this circular is accurate and complete in all material
respects and not misleading or deceptive, and there are no other matters the omission of which would
make any statement herein or this circular misleading.
2.
DISCLOSURE OF INTERESTS
(a)
Interests and short positions of the Directors in shares and underlying shares of the
Company and its associated corporations
As at the Latest Practicable Date, the interests and short positions of the Directors and the
chief executive of the Company in the shares, underlying shares or debentures of the Company or
its associated corporation (within the meaning of Part XV of the SFO) which (a) were required to
be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the
SFO (including interests and short positions which were taken or deemed to have taken under such
provisions of the SFO); or (b) were required, pursuant to Section 352 of the SFO, to be entered in
the register of the Company referred to therein; or (c) were required, pursuant to the Model Code
for Securities Transactions by Directors of Listed Issuers (the “Model Code”) contained in the
Listing Rules, to be notified to the Company and the Stock Exchange were as follows:
55
APPENDIX IV
GENERAL INFORMATION
(i)
Long positions in the Shares and underlying Shares
Total interests
as to %
of the issued
share capital of
the Company
Number of Shares/underlying Shares
as at the Latest
Name of Director
Interests
in Shares
Derivative
interests*
Total
interests
Practicable
Date
Li Shaofeng
Beneficial owner
–
Luo Zhenyu
Beneficial owner
–
Wang Tian
Beneficial owner
4,000,000
Yuan Wenxin
Beneficial owner
4,000,000
Leung Shun Sang, Tony
Beneficial owner
8,278,000
Tam King Ching, Kenny
Beneficial owner
–
Zhou Jianhong
Beneficial owner
–
Yip Kin Man, Raymond
Beneficial owner
–
11,000,000
9,000,000
11,094,000
15,094,000
19,368,000
2,286,000
2,286,000
2,286,000
11,000,000
9,000,000
15,094,000
19,094,000
27,646,000
2,286,000
2,286,000
2,286,000
0.95%
0.78%
1.31%
1.65%
2.39%
0.19%
0.19%
0.19%
*
(ii)
Capacity in which
interests were held
The interests are unlisted physically settled options granted pursuant to the Company’s share
option scheme adopted on 7 June 2002 (the “2002 Scheme”). Upon exercise of the share options
in accordance with the 2002 Scheme, Shares are issuable. The share options are personal to the
respective Directors.
Long positions in the shares and underlying shares of Global Digital Creations
Holdings Limited (“GDC”), an associated corporation of the Company
Interests as to
% of the issued
share capital of GDC
Capacity in which
Number of
as at the Latest
Name of Director
interests were held
shares in GDC
Practicable Date
Wang Tian
Beneficial owner
820
Leung Shun Sang, Tony
Beneficial owner
30,008,200
Zhou Jianhong
Beneficial owner
400,410
56
0.00%
1.97%
0.02%
APPENDIX IV
GENERAL INFORMATION
Save as disclosed above, as at the Latest Practicable Date, none of the Directors and
chief executive of the Company had any interest or short position in the shares, underlying
shares and debentures of the Company or any of its associated corporation (within the
meaning of Part XV of the SFO) which were required (a) to be notified to the Company and
the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests
or short positions which they were taken or deemed to have under such provisions of the
SFO); or (b) pursuant to Section 352 of the SFO, to be entered in the register of the Company
referred to therein; or (c) pursuant to the Model Code, to be notified to the Company and the
Stock Exchange.
Save as disclosed in this circular, as at the Latest Practicable Date, none of the
Directors or proposed Director was a director or employee of a company which has an
interest in the Shares and underlying Shares which would fall to be disclosed under the
provisions of Divisions 2 and 3 of Part XV of the SFO.
(b)
Directors’ service contracts
As at the Latest Practicable Date, none of the Directors had any existing or proposed service
contracts with any member of the Group or any associated company of the Company (excluding
contracts expiring or determinable within one year without payment of compensation other than
statutory compensation).
(c)
As at the Latest Practicable Date:
(i)
none of the Directors had any direct or indirect interest in any assets which had been,
since the date to which the latest published audited accounts of the Group were made
up, acquired or disposed of by, or leased to the Company or any of its subsidiaries, or
are proposed to be acquired or disposed of by, or leased to, the Company or any of its
subsidiaries; and
(ii)
none of the Directors was materially interested in any contract, save for service
contracts as disclosed in paragraph (b) above, or arrangement entered into by the
Company or any of its subsidiaries which contract or arrangement is subsisting at the
date of this circular and which is significant in relation to the business of the Group.
57
APPENDIX IV
(d)
GENERAL INFORMATION
Directors’ interests in competing businesses
As at the Latest Practicable Date, the interests of the Directors in the businesses (other than
those businesses where the Directors were appointed as directors to represent the interests of the
Company and/or any member of the Group) which were considered to compete or were likely to
compete, either directly or indirectly, with the businesses of the Group were as follows:
Name of Director
Name of entity
whose business
was considered
to compete or
likely to compete
with the businesses
of the Group
Li Shaofeng
Shougang Holding#
#
Description of
business of
the entity which
was considered
to compete or
likely to compete
with the businesses
of the Group
Nature of interest
of the Director
in the entity
Property investment
Director
Such business may be carried out through the subsidiary(ies) or associate(s) of the entity concerned or by
way of other forms of investments.
The Board is independent from the board of the above-mentioned entity and is accountable
to the Shareholders. Coupled with the diligence of its independent non-executive Directors whose
views carry significant weight in the Board’s decisions, the Group is capable of carrying on its
businesses independently of, and at arm’s length from, the business of this entity.
Save as disclosed above, as at the Latest Practicable Date, in so far as the Directors were
aware, none of the Directors or their respective associates had any interest in a business that
competed or was likely to compete with the businesses of the Group.
3.
SUBSTANTIAL SHAREHOLDERS
(a)
As at the Latest Practicable Date, according to the register kept by the Company pursuant
to Section 336 of the SFO, the following persons and companies (other than the Directors
or chief executive of the Company) had an interest or short position in the Shares and
the underlying Shares which fell to be disclosed to the Company under the provisions of
Divisions 2 and 3 of Part XV of the SFO:
58
APPENDIX IV
GENERAL INFORMATION
Long positions in the Shares/underlying Shares
Interests as to
% of the issued
share capital
Number of of the Company
Capacity in which Shares/underlying as at the Latest
Name of Shareholder
interests were held
Shares Practicable Date
Shougang Holding
Interests of
controlled
corporations
Note(s)
430,491,315
37.36%
1
430,491,315
37.36%
1
133,048,717
11.54%
2,3
91,491,193
7.94%
2
Li Ka-shing
Interests of controlled
corporations, founder of
discretionary trusts
133,048,717
11.54%
3
Li Ka-Shing Unity Trustee
Company Limited (“TUT1”)
133,048,717
11.54%
3
Li Ka-Shing Unity Trustee
Trustee, beneficiary
Corporation Limited (“TDT1”) of a trust
133,048,717
11.54%
3
Li Ka-Shing Unity Trustcorp
Trustee, beneficiary
Limited (“TDT2”) of a trust
133,048,717
11.54%
3
Wheeling Holdings Limited
(“Wheeling”)
Beneficial owner
Cheung Kong (Holdings) Limited Interests of
(“Cheung Kong”) controlled
corporations
Max Same Investment Limited
(“Max Same”)
Beneficial owner
Trustee
Notes:
1.
Shougang Holding indicated in its disclosure form dated 18 February 2010 (being the latest disclosure form
filed up to the Latest Practicable Date) that as at 12 February 2010, its interests was the Shares held by
Wheeling, a wholly-owned subsidiary of Shougang Holding.
2.
Cheung Kong indicated in its disclosure form dated 26 February 2005 (being the latest disclosure form filed
up to the Latest Practicable Date) that as at 23 February 2005, 91,491,193 Shares were held by Max Same,
a wholly-owned subsidiary of Cheung Kong and 41,557,524 Shares were held by Botany Limited which in
turn was held as to 87.5% by Cheung Kong. Accordingly, Cheung Kong was interested in an aggregate of
133,048,717 Shares.
59
APPENDIX IV
3.
(b)
GENERAL INFORMATION
Mr. Li Ka-shing indicated in his disclosure form dated 17 July 2012 (being the latest disclosure form filed
up to the Latest Practicable Date) that as at 16 July 2012, his interests in the Company were held by Cheung
Kong which in turn was held as to 40.43% by TUT1. TUT1 was wholly-owned by Li Ka-Shing Unity
Holdings Limited (“Unity Holdco”) which in turn was held as to 33.33% by Mr. Li Ka-shing. TDT1 and
TDT2, both wholly-owned subsidiaries of Unity Holdco, were deemed to be interested in the Shares which
TUT1 was interested in. The long position in the 133,048,717 Shares held by Cheung Kong, Mr. Li Kashing, TUT1, TDT1 and TDT2 were the same block of shares.
As at the Latest Practicable Date, so far as is known to any Director, the following persons
and companies were, directly or indirectly, interested in 10% or more of the nominal value of
any class of share capital carrying rights to vote in all circumstances at general meetings of
any member of the Group or had any option in respect of such capital:
Name of member of the Group
Name of registered
shareholder
Equity interest
上海恆岳投資管理有限公司
Guo Yu
(Shanghai Hengyue Investment
Management Company Limited*)
% of attributable
interest
RMB500,000
深圳市悅康融匯貿易發展有限公司 北京瑞紹斯貿易有限公司RMB200,000
(Ecko Trading Development (Beijing Ruishaosi Trading
Company Limited*) Company Limited*)
10.00%
10.00%
* For identification purpose only
Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief
executive of the Company was aware of any other person or corporation who had an interest or short
position in the Shares or underlying Shares which would fall to be disclosed to the Company under
the provisions of Divisions 2 and 3 of Part XV of the SFO, or who/which was, directly or indirectly,
interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all
circumstances at general meetings of any other member of the Group, or any options in respect of such
capital.
4.
MATERIAL CONTRACTS
The Company has not entered into any material contracts (not being contracts entered into in the
ordinary course of business) within the two years immediately preceding the date of this circular which
are or may be material.
5.LITIGATION
As at the Latest Practicable Date, no member of the Group was engaged in any litigation or
arbitration proceedings of material importance and no litigation or claim of material importance was
known to the Directors to be pending or threatened by or against any member of the Group.
60
APPENDIX IV
6.
GENERAL INFORMATION
EXPERTS’ QUALIFICATION AND CONSENTS
The following is the qualification of the experts who have given their opinions or advices contained
in this circular:
NameQualification
Messis Capital Limited
Type 1 (dealing in securities) and Type 6 (advising on
corporate finance) regulated activities under the SFO
Greater China Appraisal Limited
Independent professional valuer
Jones Lang LaSalle Corporate
Appraisal and Advisory Limited
Professional property valuer
The above experts have given and have not withdrawn their written consents to the issue of this
circular with the inclusion of their letters and/or reports, as the case may be, and references to their names
and logos in the form and context in which they appear.
As at the Latest Practicable Date, the above experts did not have any direct or indirect interest
in any assets which had been acquired, disposed of by, or leased to any member of the Group, or was
proposed to be acquired, or disposed of by, or leased to any member of the Group, since 31 December
2013, the date to which the latest audited financial statements of the Group were made up; and were
not beneficially interested in the share capital of any member of the Group and did not have any right
(whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in
any member of the Group.
7.MISCELLANEOUS
(a)
The registered office of the Company is at Canon’s Court, 22 Victoria Street, Hamilton, HM
12, Bermuda and the principal place of business of the Company in Hong Kong is at Rooms
1101-04, 11th Floor, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong.
(b)
The Company’s Hong Kong branch share registrar and transfer office is Tricor Tengis
Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(c)
The company secretary of the Company is Ms. Cheng Man Ching, a fellow member of each
of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of
Chartered Secretaries and an associate member of the Hong Kong Institute of Bankers. She
holds a master degree in business administration and a master degree in arts.
(d)
The English text of this circular shall prevail over its respective Chinese text for the purpose
of interpretation.
61
APPENDIX IV
8.
GENERAL INFORMATION
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the Company’s principal
office in Hong Kong at Rooms 1101-04, 11th Floor, Harcourt House, 39 Gloucester Road, Wanchai,
Hong Kong during normal business hours on any weekday other than public holidays from the date of this
circular up to and including the date of the Special General Meeting:
(a)
the bye-laws of the Company;
(b)
the annual reports of the Company for years ended 31 December 2011, 2012 and 2013;
(c)
the interim report of the Company for the six months ended 30 June 2014;
(d)
the letter from the Independent Board Committee, the text of which is set out on pages 19 to
20 of this circular;
(e)
the letter of advice from Messis Capital Limited to the Independent Board Committee and
the Independent Shareholders, the text of which is set out on pages 21 to 41 of this circular;
(f)
the written consent referred to in the paragraph headed “Experts’ Qualification and
Consents” in this appendix;
(g)
the valuation report in respect of the Equipment, the text of which is set out in Appendix II
to this circular;
(h)
the valuation report in relation to the Commercial Properties, the text of which is set out in
Appendix III to this circular;
(i)
the original finance lease agreement dated 30 September 2014 entered into between South
China Leasing and Shougang Guigang which together with the Supplemented Agreement
constitute the Finance Lease Agreement;
(j)
the Supplemental Agreement;
(k)
the equipment purchase agreement entered into between South China Leasing and Shougang
Guigang on 30 September 2014 in respect of the purchase of the Equipment;
(l)
the Master Loan Facility Agreement; and
(m)
this circular.
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NOTICE OF SPECIAL GENERAL MEETING
首 長 四 方（ 集 團 ）有 限 公 司
*
SHOUGANG CONCORD GRAND (GROUP) LIMITED
(Incorporated in Bermuda with limited liability)
(Stock Code: 730)
NOTICE OF SPECIAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that a special general meeting of Shougang Concord Grand
(Group) Limited (the “Company”) will be held at Rooms 1101-04, 11th Floor, Harcourt House, 39
Gloucester Road, Wanchai, Hong Kong on Friday, 14 November 2014 at 11:00 a.m. for the purpose of
considering and, if thought fit, passing the following resolutions as ordinary resolutions of the Company:
ORDINARY RESOLUTIONS
(1)“THAT:
(a)
the finance lease agreement dated 30 September 2014 entered into between South
China International Leasing Co., Ltd. (“South China Leasing”) and 首鋼貴陽特殊鋼
有限責任公司 (Shougang Guiyang Special Steel Co., Ltd.*) (“Shougang Guigang”)
as supplemented by the supplemental agreement dated 23 October 2014 entered into
between South China Leasing and Shougang Guigang (both the original finance
lease agreement and the supplemental agreement, collectively, the “Finance Lease
Agreement”), a copy of each of the agreements of the Finance Lease Agreement is
tabled at the meeting and marked “A” and initialled by the chairman of the meeting
for identification purpose, pursuant to which South China Leasing agreed to provide
finance lease to Shougang Guigang for a term of 3 years, and the transactions
contemplated thereunder, be and is hereby approved, confirmed and ratified; and
(b)
any one director of the Company, or any two directors of the Company if the
affixation of the common seal is necessary, be and is/are hereby authorised to execute
any other documents for and on behalf of the Company, and to sign all such security
documents, other documents, instruments and agreements and to do all such acts or
things deemed by him/her/them to be incidental to, ancillary to or in connection with
the matters contemplated in the Finance Lease Agreement.”
(2)“THAT:
(a)
the agreement dated 10 October 2014 (the “Master Loan Facility Agreement”)
entered into between the Company and 首鋼水城鋼鐵（集團）有限責任公司
(Shougang Shuicheng Gangtie (Group) Co., Ltd.*)(“Shougang Shuigang”), a copy of
* For identification purpose only
63
NOTICE OF SPECIAL GENERAL MEETING
which is tabled at the meeting and marked “B” and initialled by the chairman of the
meeting for identification purpose, pursuant to which the Company agreed to provide,
or procure its subsidiaries to provide, loan facilities to Shougang Shuigang and/or its
subsidiaries in an aggregate principal amount of up to HK$250,000,000 for a term
of 3 years, and the transactions contemplated thereunder, be and is hereby approved,
confirmed and ratified;
(b)
the annual caps of the loan facilities that can be granted under the Master Loan
Facility Agreement as set out in the circular of the Company dated 28 October 2014
be and is hereby approved; and
(c)
any one director of the Company, or any two directors of the Company if the
affixation of the common seal is necessary, be and is/are hereby authorised to execute
any other documents for and on behalf of the Company, and to sign all such security
documents, other documents, instruments and agreements and to do all such acts or
things deemed by him/her/them to be incidental to, ancillary to or in connection with
the matters contemplated in the Master Loan Facility Agreement.”
By Order of the Board
Shougang Concord Grand (Group) Limited
Li Shaofeng
Chairman
Hong Kong, 28 October 2014
Notes:
1.
Any member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend
and, on a poll, vote instead of him/her. A proxy need not be a member of the Company.
2.
The instrument appointing a proxy shall be in writing under the hand of the appointer or his/her attorney duly authorised in
writing or, if the appointer is a corporation, either under its common seal or under the hand of any officer, attorney or other
person authorised to sign the same.
3.
In order to be valid, a form of proxy together with the power of attorney or other authority (if any) under which it is signed
or a notarially certified copy of such power or authority, must be deposited with the Company’s Hong Kong branch share
registrar and transfer office, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not
less than 48 hours before the time appointed for holding the meeting or any adjourned meeting thereof (as the case may be).
4.
Completion and return of the form of proxy will not preclude a member of the Company from attending and voting in person
at the meeting or any adjourned meeting thereof (as the case may be) should they so wish, and in such event, the form of
proxy shall be deemed to be revoked.
5.
Where there are joint registered holders of any share, any one of such joint holders may vote, either in person or by proxy,
in respect of such shares as if he/she was solely entitled thereto, but if more than one of such joint holders are present at
the meeting, whether in person or by proxy, the joint registered holder present whose name stands first on the register of
members of the Company in respect of the shares shall be accepted to the exclusion of the votes of the other registered
holders.
64