1. business and industrial
2. company
3. merger and acquisition

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other
professional adviser.
If you have sold or transferred all your shares in SMI Culture Group Holdings Limited (the ‘‘Company’’), you should at once hand this circular and the accompanying form of proxy to the
purchaser or transferee, or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for 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.
This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.
SMI Culture Group Holdings Limited
星美文化集團控股有限公司
(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 2366)
(i) MAJOR AND CONNECTED TRANSACTION
IN RESPECT OF THE ACQUISITION OF 35% EQUITY INTEREST IN
AND SHAREHOLDER’S LOANS TO GRAND ASTUTE LIMITED;
(ii) PROPOSED CHANGE OF DOMICILE;
(iii) PROPOSED CANCELLATION OF SHARE PREMIUM ACCOUNT;
(iv) PROPOSED CAPITAL REORGANISATION; AND
(v) PROPOSED RIGHTS ISSUE ON THE BASIS OF
8 RIGHTS SHARES FOR EVERY
1 NEW SHARE HELD ON THE RECORD DATE
Joint financial advisers to the Company
Optima Capital Limited
Underwriter of the Rights Issue
Independent financial adviser to the Independent Board Committee
and the Independent Shareholders
Capitalised terms used in this cover have the same meanings as those defined in this circular.
The New Shares will be dealt in on an ex-rights basis from Tuesday, 30 December 2014. Dealings in the Rights Shares in the nil-paid form will take place from Friday, 9 January 2015 to Friday,
16 January 2015 (both dates inclusive). If the conditions of the Rights Issue are not fulfilled or waived (as the case may be) or the Underwriting Agreement is terminated by the Underwriter, the
Rights Issue will not proceed. Any persons contemplating dealings in the Existing Shares or the New Shares prior to the date on which the conditions of the Rights Issue are fulfilled or waived
(as the case may be), and/or dealings in the nil-paid Rights Shares, are accordingly subject to the risk that the Rights Issue may not become unconditional or may not proceed.
A letter from the Board is set out on pages 16 to 55 of this circular. A letter from Hercules Capital, the Independent Financial Adviser, is set out on pages 58 to 88 of this circular and a letter of
recommendation from the Independent Board Committee to the Independent Shareholders is set out on pages 56 to 57 of this circular.
A notice convening the EGM to be held at 10 : 00 a.m. on Friday, 21 November 2014 at Victoria Room III, 3/F, Regal Hong Kong Hotel, 88 Yee Wo Street, Causeway Bay, Hong Kong is set
out on pages EGM-1 to EGM-6 of this circular. Whether or not you are able to attend the EGM in person, you are requested to complete the accompanying form of proxy in accordance with
the instructions printed thereon and return it to the branch share registrar of the Company in Hong Kong, Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place,
33 Lockhart Road, Wanchai, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case
may be). Completion and return of the accompanying form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof (as the case may be)
should you so wish and in such event, the form of proxy shall be deemed to be revoked.
It should be noted that the Underwriting Agreement in respect of the Rights Issue contains provisions entitling the Underwriter by notice in writing to the Company at any time prior to the Latest
Time for Termination to terminate the obligations of the Underwriter thereunder on the occurrence of certain events including force majeure. These events are set out under the section headed
‘‘Termination of the Underwriting Agreement’’ on pages 14 to 15 of this circular. If the Underwriter terminates the Underwriting Agreement in accordance with the terms thereof, the Rights Issue will
not proceed. In addition, the Rights Issue is conditional on all conditions set out on pages 41 to 42 of this circular being fulfilled or waived (as applicable). If such conditions have not been satisfied or
waived (as the case may be) in accordance with the Underwriting Agreement on or before the time and dates specified therein, the Underwriting Agreement shall terminate and no party will have any
claim against any other party for costs, damages, compensation or otherwise save for any antecedent breaches.
27 October 2014
CONTENTS
Page
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Termination of the Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Letter from Hercules Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58
— Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I-1
Appendix II — Financial information of the Target Group . . . . . . . . . . . . . . . . . . . . .
II-1
Appendix III — Unaudited pro forma financial information
of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III-1
Appendix IV — Valuation report on the Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IV-1
Appendix V — Summary of the proposed memorandum of continuance
and bye-laws and differences with the memorandum of
association and articles of association . . . . . . . . . . . . . . . . . . . . . . . .
V-1
Appendix VI — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VI-1
Appendix I
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EGM-1
–i–
EXPECTED TIMETABLE
The expected timetable for the Acquisition, the Change of Domicile, the Cancellation of
Share Premium Account, the Capital Reorganisation, the Rights Issue and the associated
trading arrangement is set out below:
2014
Latest time for return of form of proxy for the EGM . . . . . . . . . . . . . . 10 : 00 a.m. on
Wednesday, 19 November
Expected time and date of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . 10 : 00 a.m. on
Friday, 21 November
Announcement of poll results of the EGM . . . . . . . . . . . . . . . . . Friday, 21 November
Expected effective date of the Cancellation of
Share Premium Account (Note) . . . . . . . . . . . . . . . . . . . . . . Friday, 21 November
Expected effective date of the Change of Domicile . . . . . . . . . . . . Friday, 5 December
(Bermuda Time)
Expected effective date of the Capital Reorganisation . . . . . . . . Monday, 29 December
First day for free exchange of existing certificates for the
Existing Shares into new certificates for the New Shares
. . . . Monday, 29 December
Commencement of dealing in the New Shares . . . . . . . . . . . . . . . . . . . . . 9 : 00 a.m. on
Monday, 29 December
Original counter for trading in the Existing Shares
in board lots of 5,000 Existing Shares (in the form
of existing share certificate) temporarily closes . . . . . . . . . . . . . . . . . . 9 : 00 a.m. on
Monday, 29 December
Temporary counter for trading in the New Shares
in board lots of 2,500 New Shares (in the form
of existing share certificate) opens . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 : 00 a.m. on
Monday, 29 December
Last day of dealing in the New Shares
on a cum-rights basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 29 December
Commencement of dealing in the New Shares
on an ex-rights basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 : 00 a.m. on
Tuesday, 30 December
–1–
EXPECTED TIMETABLE
2015
Latest time for lodging transfer of the
New Shares in order to be qualified for the Rights Issue
. . . . . . . . . . . 4 : 30 p.m. on
Friday, 2 January
Register of members closes to determine entitlements
under the Rights Issue (both dates inclusive) . . . . . . . . . . . . . Monday, 5 January to
Tuesday, 6 January
Record Date for the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 6 January
Register of members re-opens . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 7 January
Despatch of the Prospectus Documents.
. . . . . . . . . . . . . . . . . Wednesday, 7 January
First day of dealing in the nil-paid Rights Shares . . . . . . . . . . . . . .
Friday, 9 January
Original counter for trading in the New Shares in
board lots of 5,000 New Shares (in the form of
new share certificate) re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 : 00 a.m. on
Tuesday, 13 January
Parallel trading in the New Shares (in the form
of new share certificate and existing
share certificate) commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 : 00 a.m.
Tuesday, 13 January
Designated broker starts to stand in the market
to provide matching services for odd lots of the New Shares . . . . . . . . 9 : 00 a.m., on
Tuesday, 13 January
Latest time for splitting the nil-paid Rights Shares . . . . . . . . . . . . . . . . . 4 : 30 p.m. on
Tuesday, 13 January
Last day of dealing in the nil-paid Rights Shares . . . . . . . . . . . . . . Friday, 16 January
Latest time for acceptance of and payment for the
Rights Shares and application for the excess Rights Shares . . . . . . . . . . 4 : 00 p.m. on
Wednesday, 21 January
Latest time for termination of the Underwriting Agreement . . . . . . . . . . . 4 : 00 p.m. on
Monday, 26 January
Acquisition Completion Date . . . . . . . . . . . . . . . . . . . . . . . . . .
Monday, 26 January
Announcement of results of the Rights Issue . . . . . . . . . . . . . . .
Tuesday, 27 January
–2–
EXPECTED TIMETABLE
Despatch of refund cheques for wholly and partially
unsuccessful applications for the excess Rights Shares . . . . .
Wednesday, 28 January
Despatch of certificates for the fully-paid Rights Shares . . . . .
Wednesday, 28 January
Expected time and date for the commencement of dealing
in the fully-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 : 00 a.m. on
Thursday, 29 January
Temporary counter for trading in the New Shares
in board lots of 2,500 New Shares (in the form of
existing share certificate) closes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 : 00 p.m.
Monday, 2 February
Parallel trading in the New Shares (in the form of new
share certificate and existing share certificate) ends . . . . . . . . . . . . . . . 4 : 00 p.m. on
Monday, 2 February
Last day for the designated broker to provide
matching services for odd lot of the New Shares . . . . . . . . . . . . . . . . . 4 : 00 p.m. on
Monday, 2 February
Last day for free exchange of existing share certificates
for the Existing Shares into new share certificates
for the New Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 4 February
Save as specified above, all times and dates set out in the timetable above refer to Hong
Kong time.
Note:
The Cancellation of Share Premium Account shall become effective upon passing of the relevant special
resolution at the EGM.
This timetable is indicative only and may be varied (i) due to additional time required for
compliance with regulatory requirements in the Cayman Islands or Bermuda; or (ii) due to the
time required for fulfilment of the conditions precedent under the Acquisition Agreement; or
(iii) by agreement between the Company and the Underwriter. Any consequential changes to
the expected timetable will be announced by the Company.
–3–
EXPECTED TIMETABLE
EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE OF AND
PAYMENT FOR THE RIGHTS SHARES AND FOR APPLICATION AND PAYMENT
FOR EXCESS RIGHTS SHARES
The Latest Time for Acceptance will not take place if there is a tropical cyclone
warning signal no. 8 or above, or a ‘black’ rainstorm warning:
i.
in force in Hong Kong at any local time before 12 : 00 noon and no longer in force
after 12 : 00 noon on Wednesday, 21 January 2015. Instead the Latest Time for
Acceptance will be extended to 5 : 00 p.m. on the same Business Day; or
ii.
in force in Hong Kong at any local time between 12 : 00 noon and 4 : 00 p.m. on
Wednesday, 21 January 2015. Instead the Latest Time of Acceptance will be
rescheduled to 4 : 00 p.m. on the following Business Day which does not have
either of those warnings in force at any time between 9 : 00 a.m. and 4 : 00 p.m.
If the Latest Time for Acceptance does not take place on Wednesday, 21 January 2015,
the dates mentioned in the ‘Expected timetable’ section may be affected. The Company will
notify the Shareholders by way of announcement(s) on any change to the expected timetable
as soon as practicable.
–4–
DEFINITIONS
In this circular, unless the context otherwise requires, the following expressions shall have
the following meanings:
‘‘Acquisition’’
the acquisition of the Sale Shares and the Sale Loans by the
Purchaser from the Vendor pursuant to the terms and conditions
of the Acquisition Agreement
‘‘Acquisition
Agreement’’
the conditional sale and purchase agreement dated 8 August 2014
(as amended by a supplemental agreement dated 24 October 2014)
entered into between the Purchaser, the Vendor and Mr. Qin in
relation to the Acquisition
‘‘Acquisition
Completion’’
completion of the Acquisition in accordance with the terms and
conditions of the Acquisition Agreement
‘‘Acquisition
Completion Date’’
26 January 2015 (or such later date as the Purchaser, the Vendor
and Mr. Qin may agree in writing)
‘‘Adjusted Share(s)’’
the ordinary share(s) of HK$1.56 each in the share capital of the
Company immediately upon the Re-denomination becoming
effective
‘‘Announcement’’
the announcement of the Company dated 8 August 2014 in
relation to, among other things, the Acquisition, the Change of
Domicile, the Cancellation of Share Premium Account, the
Capital Reorganisation and the Rights Issue
‘‘associates’’
has the meaning ascribed thereto under the Listing Rules
‘‘Board’’
the board of Directors
‘‘Business Day’’
a day (excluding Saturday, Sunday and public holiday) on which
licensed banks in Hong Kong are open for general business
throughout their normal business hours
‘‘BVI’’
British Virgin Islands
‘‘Cancellation of Share
Premium Account’’
the proposed cancellation of the entire amount standing to the
credit of the share premium account of the Company
‘‘Capital Reduction’’
the proposed reduction of the par value of each issued Adjusted
Share from HK$1.56 to HK$0.10 by cancelling the capital paidup thereon to the extent of HK$1.46 on each of the issued
Adjusted Shares
‘‘Capital
Reorganisation’’
the proposed reorganisation of the share capital of the Company
by way of (i) the Share Consolidation; (ii) the Re-denomination;
(iii) the Capital Reduction; and (iv) the Diminution and Increase
as referred to in this circular
–5–
DEFINITIONS
‘‘CCASS’’
the Central Clearing and Settlement System established and
operated by HKSCC
‘‘Century QX’’
世紀全信科技產業發展有限公司(Century Quan Xin Technology
Company Limited*), a company established under the laws of
the PRC with limited liabilities
‘‘Change of Domicile’’
the proposed change of domicile of the Company from the
Cayman Islands to Bermuda
‘‘CMBC’’
China Minseng Banking Corp., Ltd,
‘‘Companies Act’’
the Companies Act 1981 of Bermuda
‘‘Company’’
SMI Culture Group Holdings Limited, a company incorporated
in the Cayman Islands with limited liability, the issued Shares of
which are listed on the Stock Exchange (stock code: 2366)
‘‘connected persons’’
has the meaning ascribed to it in the Listing Rules
‘‘Consolidated
Share(s)’’
the ordinary share(s) of US$0.20 each in the share capital of the
Company immediately after the Share Consolidation but prior to
the Re-denomination, the Capital Reduction and the Diminution
and Increase
‘‘Contributed Surplus
Account’’
the account designated as the contributed surplus account of the
Company within the meaning of the Companies Act upon the
Change of Domicile becoming effective
‘‘controlling
shareholder’’
has the meaning ascribed thereto in the Listing Rules
‘‘Diminution and
Increase’’
subject to and upon the Capital Reduction becoming effective,
the proposed cancellation of all the authorised but unissued
share capital of the Company and the proposed increase in the
authorised share capital of the Company to HK$1,000,000,000
divided into 10,000,000,000 New Shares
‘‘Director(s)’’
director(s) of the Company
*
For identification purpose only
–6–
DEFINITIONS
‘‘EGM’’
the extraordinary general meeting of the Company to be held at
Victoria Room III, 3/F, Regal Hong Kong Hotel, 88 Yee Wo
Street, Causeway Bay, Hong Kong on Friday, 21 November 2014
at 10 : 00 a.m., or any adjournment thereof (as the case may be)
for, amongst others, (i) the Independent Shareholders to consider
and, if thought fit, approve the Acquisition Agreement and the
Rights Issue (including the Underwriting Agreement) and the
transactions respectively contemplated thereunder; and (ii) the
Shareholders to consider and, if thought fit, approve the Change
of Domicile, the Cancellation of Share Premium Account and the
Capital Reorganisation
‘‘Element Link’’
Element Link Limited, a company incorporated in Hong Kong
with limited liability
‘‘Emperor Securities’’ or
‘‘Underwriter’’
Emperor Securities Limited, a licensed corporation to carry out
business in type 1 (dealing in securities) and type 4 (advising on
securities) regulated activities under the SFO
‘‘Enlarged Group’’
the Company and its subsidiaries upon Acquisition Completion
and, for the purpose of the Underwriting Agreement, including
the Target Group
‘‘Everway’’
Everway (HK) Limited, a company incorporated in Hong Kong
with limited liability
‘‘Excluded
Shareholder(s)’’
Overseas Shareholder(s) whom the Directors, based on legal
advice provided by the Company’s legal advisers, consider it
necessary or expedient not to offer the Rights Shares to such
Shareholder(s) on account either of legal restrictions under the
laws of the relevant place(s) or the requirements of the relevant
regulatory body or stock exchange in such place(s)
‘‘Existing Share(s)’’
the ordinary share(s) of the Company of US$0.10 each in the
existing share capital of the Company, before the Capital
Reorganisation becoming effective
‘‘Film Will’’
Film Will Limited, a company incorporated in the BVI with
limited liability
‘‘First Settlement
Agreement’’
a settlement agreement entered into in May 2014 between Stellar
Mega and CMBC in relation to the settlement of a loan in the
principal amount of RMB90,000,000
‘‘Group’’
the Company and its subsidiaries
‘‘HKSCC’’
Hong Kong Securities Clearing Company Limited
–7–
DEFINITIONS
‘‘Hong Kong’’
the Hong Kong Special Administrative Region of the PRC
‘‘Independent Board
Committee’’
the committee of the Board comprising all the independent nonexecutive Directors established for the purpose of giving
recommendations to the Independent Shareholders on the
terms and conditions of the Acquisition Agreement and the
Rights Issue
‘‘Independent Financial
Adviser’’ or ‘‘Hercules
Capital’’
Hercules Capital Limited, a licensed corporation to carry out
business in type 6 (advising on corporate finance) regulated
activities under the SFO, who has been appointed as the
independent financial adviser by the Company for the purpose
of giving recommendations to the Independent Board Committee
and the Independent Shareholders on the terms and conditions of
the Acquisition Agreement and the Rights Issue
‘‘Independent
Shareholders’’
in respect of voting on the resolutions in relation to the
Acquisition and the Rights Issue (including the Underwriting
Agreement), Independent Shareholders shall be Shareholders
other than Mr. Qin, the Vendor, SMI Corporation, SMI
Investment and their respective associates
‘‘Irrevocable
Undertaking’’
the irrevocable undertaking dated 8 August 2014 (as
supplemented by an extension letter dated 24 October 2014)
executed by SMI Investment in favour of the Company and the
Underwriter in relation to the Rights Issue
‘‘Last Trading Day’’
11 June 2014, being the last trading day of the Existing Shares on
the Stock Exchange before the release of the Announcement
‘‘Latest Practicable
Date’’
24 October 2014, being the latest practicable date prior to the
despatch of this circular for ascertaining certain information
referred to in this circular
‘‘Latest Time for
Acceptance’’
4 : 00 p.m. on Wednesday, 21 January 2015, or such later time or
date as may be agreed between the Underwriter and the
Company in writing, being the latest time for acceptance of the
offer of the Rights Shares
‘‘Latest Time for
Termination’’
4 : 00 p.m. on the third Business Day immediately after the Latest
Time for Acceptance or such later time as may be agreed between
the Company and the Underwriter
‘‘Listing Rules’’
the Rules Governing the Listing of Securities on the Stock
Exchange
–8–
DEFINITIONS
‘‘Memorandum of
Understanding’’
the non-legally binding memorandum of understanding dated
3 December 2013 entered into between the Purchaser and the
Vendor setting out preliminary understanding in relation to the
acquisition of certain equity interest in the Target
‘‘Mr. Qin’’
Mr. Qin Hui
‘‘New Share(s)’’
the ordinary share(s) of HK$0.10 each in the share capital of the
Company immediately upon the Capital Reorganisation
becoming effective
‘‘Orvelle’’
Orvelle Limited, a company incorporated in the BVI with limited
liability
‘‘Overseas
Shareholder(s)’’
Shareholder(s) whose name(s) appear(s) on the register of
members of the Company at the close of business on the
Record Date and whose address(es) as shown on such register
is(are) outside Hong Kong
‘‘Posting Date’’
7 January 2015 or such other date as the Underwriter may agree
with the Company, as the date of despatch of the Prospectus
Documents to the Qualifying Shareholders or the Prospectus for
information only to the Excluded Shareholder(s) (as the case may
be)
‘‘PRC’’
the People’s Republic of China, which for the purposes of this
circular, excludes Hong Kong, the Macau Special Administrative
Region of the PRC and Taiwan
‘‘Properties’’
two parcels of land located at No. 9 Feng He Yi Yuan and No. 1
Feng Xiang Er Yuan, Yang Song Town, Huai Rou District,
Beijing, the PRC with a total site area of about 175,106.84 sq.m.
and various buildings and structures erected thereon
‘‘Prospectus’’
the prospectus to be despatched to the Shareholders containing
details of the Rights Issue
‘‘Prospectus
Documents’’
the Prospectus, the provisional allotment letters for the Rights
Shares and the form of application for excess Rights Shares
‘‘Purchaser’’
Tin Yan Development Ltd., a company incorporated in the BVI
with limited liability, an indirect wholly-owned subsidiary of the
Company
‘‘Qualifying
Shareholder(s)’’
Shareholder(s) whose name(s) appear(s) on the register of
members of the Company as at the close of business on the
Record Date, other than Excluded Shareholders
–9–
DEFINITIONS
‘‘Re-denomination’’
the re-denomination of the par value of each Consolidated Share
from US$0.20 to HK$1.56
‘‘Record Date’’
Tuesday, 6 January 2015 or such other date as may be agreed
between the Underwriter and the Company, being the record
date to determine entitlements to the Rights Issue
‘‘Repayment
Agreement’’
a repayment agreement dated 24 October 2014 entered into
among Stellar Mega, Shanghai Jiu Sheng and Mr. Qin, details of
which have been set out in the paragraph headed ‘‘The Settlement
Agreements and the Repayment Agreement’’ in the ‘‘Letter from
the Board’’ in this circular
‘‘Rights Issue’’
the proposed issue by way of rights on the basis of eight (8)
Rights Shares for every one (1) New Share in issue on the Record
Date at a price of HK$0.35 per Rights Share
‘‘Rights Share(s)’’
not less than 2,250,230,736 New Shares (assuming no further
issue of Shares on or before the Record Date) and not more than
2,251,214,560 New Shares (assuming the Warrants are exercised
in full on or before the Record Date) proposed to be allotted and
issued in respect of the Rights Issue
‘‘Sale Loans’’
35% of all obligations, liabilities and debts owing or incurred by
the Target to the Vendor as at the Acquisition Completion Date
‘‘Sale Shares’’
35 shares in the issued share capital of the Target, representing
35% equity interest in the Target
‘‘Second Settlement
Agreement’’
a settlement agreement entered into in May 2014 between
Century QX, Stellar Mega and CMBC in relation to the
settlement of a loan in the principal amount of RMB130,000,000
‘‘Settlement
Agreements’’
collectively, the First Settlement Agreement and the Second
Settlement Agreement
‘‘SFO’’
the Securities and Futures Ordinance (Chapter 571 of the Laws
of Hong Kong)
‘‘Shanghai Jiu Sheng’’
上海久盛投資有限公司 (Shanghai Jiu Sheng Investment
Company Limited*), a company established under the laws of
the PRC with limited liability
‘‘Share(s)’’
the Existing Share(s), the Consolidated Share(s), the Adjusted
Share(s) and/or the New Share(s), as the case may be
*
For identification purpose only
– 10 –
DEFINITIONS
‘‘Share Consolidation’’
the proposed consolidation of every two (2) issued and unissued
Existing Shares of US$0.10 each in the existing share capital of
the Company into one (1) Consolidated Share of US$0.20 each
‘‘Shareholder(s)’’
holder(s) of the Share(s)
‘‘SMI Corporation’’
SMI Corporation Limited, a company incorporated in Bermuda
with limited liability and the issued shares of which are listed on
the Stock Exchange (stock code: 198)
‘‘SMI Investment’’
SMI Investment (HK) Limited, a substantial shareholder of the
Company holding 168,597,281 Existing Shares as at the Latest
Practicable Date
‘‘Specified Event’’
an event occurring or matter arising on or after the date of the
Underwriting Agreement and prior to the Latest Time for
Termination which render any of the warranties contained in
the Underwriting Agreement untrue, inaccurate or misleading
‘‘sq.m.’’
square metres
‘‘Stellar Beverage’’
星美小鎮
（北京）餐飲管理有限公司 (Stellar Town (Beijing)
Beverage Management Company Limited*), a company
established under the laws of the PRC with limited liability
‘‘Stellar Hotel’’
星美小鎮
（北京）酒店管理有限公司 (Stellar Town (Beijing) Hotel
Management Company Limited*), a company established under
the laws of the PRC with limited liability
‘‘Stellar Mega’’
星美今晟影視城管理有限公司 (Stellar Mega Jincheng MovieMaking Base Management Company Limited*), a sino-foreign
joint venture established under the laws of the PRC with limited
liability
‘‘Stellar Megamedia’’
Stellar Megamedia International Pte. Ltd.,
incorporated in Singapore with limited liability
‘‘Stellar Tourism’’
星美小鎮
（北京）旅遊開發有限公司 (Stellar Town (Beijing)
Tourism Company Limited*), a company established under the
laws of the PRC with limited liability
‘‘Stock Exchange’’
The Stock Exchange of Hong Kong Limited
‘‘Subscription Price’’
HK$0.35 per Rights Share
‘‘substantial
shareholder’’
has the meaning ascribed thereto in the Listing Rules
*
For identification purpose only
– 11 –
a
company
DEFINITIONS
‘‘Takeovers Code’’
the Hong Kong Code on Takeovers and Mergers
‘‘Target’’
Grand Astute Limited, a company incorporated in the BVI with
limited liability, the entire equity interest of which is owned by
the Vendor
‘‘Target Group’’
the Target and its subsidiaries
‘‘Underwriting
Agreement’’
the underwriting agreement entered into between the Company
and the Underwriter dated 8 August 2014 (as supplemented by an
extension letter dated 24 October 2014) in relation to the Rights
Issue
‘‘Underwritten Shares’’
not less than 1,575,841,616 Rights Shares and not more than
1,576,825,440 Rights Shares to be fully underwritten by the
Underwriter pursuant to the terms of the Underwriting
Agreement
‘‘Untaken Shares’’
Underwritten Shares not taken up by the Latest Time for
Acceptance
‘‘U.S.’’
the United States of America
‘‘Vendor’’
Nicks International Limited, a company incorporated in the BVI
with limited liability
‘‘Warrants’’
warrants of the Company with rights to subscribe for 245,957
Existing Shares at HK$61.44 per Existing Share (subject to
adjustment) until 7 July 2015 issued pursuant to the subscription
agreement dated 27 May 2010 and entered into between the
Company and First Media Holdings, Ltd., details of which are
contained in the announcements of the Company dated 27 May
2010, 25 February 2013, 11 March 2013 and 18 July 2013
respectively
‘‘Xing Mei Culture’’
北京星美聖典文化傳播有限公司 (Beijing Xing Mei Sheng Dian
Culture Media Company Limited*), a wholly-foreign-owned
enterprise established in the PRC with limited liability
‘‘HK$’’ or ‘‘HKD’’
Hong Kong dollar(s), the lawful currency of Hong Kong
‘‘RMB’’
Renminbi, the lawful currency of the PRC
‘‘US$’’ or ‘‘USD’’
United States dollar(s), the lawful currency of the U.S.
‘‘%’’
per cent.
*
For identification purpose only
– 12 –
DEFINITIONS
For ease of reference and unless otherwise specified in this circular, sums in HK$ and
RMB in this circular is translated at the rate RMB1.0 = HK$1.23. This does not mean that
HK$ could be converted into RMB, or vice versa, based on such exchange rate.
– 13 –
TERMINATION OF THE UNDERWRITING AGREEMENT
If, prior to the Latest Time for Termination:
(A) one or more of the following events or matters shall occur, arise, exist, or come into
effect:
(i)
the introduction of any new regulation or any change in existing law or regulation
(or the judicial interpretation thereof) or other occurrence of any nature whatsoever
after the signing of the Underwriting Agreement;
(ii) the occurrence of any local, national or international event or change (whether or not
forming part of a series of events or changes occurring after the signing of the
Underwriting Agreement or continuing after the signing of the Underwriting
Agreement), of a political, military, financial, economic or other nature, or in the
nature of any local, national or international outbreak or escalation of hostilities or
armed conflict, or affecting local securities markets;
(iii) any material adverse change after the signing of the Underwriting Agreement in the
business or in the financial or trading position of any member of the Enlarged Group;
(iv) any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion,
epidemic, terrorism, strike or lock-out occurred after the signing of the Underwriting
Agreement;
(v)
the commencement by any third party of any litigation, proceeding or claim against
any member of the Enlarged Group after the signing of the Underwriting Agreement.
For the purpose of this paragraph, proceeding includes any action by any
governmental, public or regulatory authority (including investment exchange or
any authority or body which regulates investment business or takeovers or which is
concerned with regulatory, licensing, competition and taxation matters);
(vi) after signing of the Underwriting Agreement, there occurs or comes into effect the
imposition of any moratorium, suspension or material restriction on trading in the
Shares generally on the Stock Exchange whether due to exceptional financial
circumstances or otherwise;
(vii) there is, after signing of the Underwriting Agreement, any change or any
development involving a prospective change in market conditions (including,
without limitation, a change in fiscal or monetary policy or foreign exchange or
currency markets, suspension or restriction of trading in securities, imposition of
economic sanctions, on Hong Kong, the PRC or other jurisdiction relevant to any
member of the Enlarged Group and a change in currency conditions for the purpose
of this paragraph includes a change in the system under which the value of the Hong
Kong currency is pegged with that of the currency of the U.S.) occurs; or
– 14 –
TERMINATION OF THE UNDERWRITING AGREEMENT
(viii) this circular and/or the Prospectus when published contain(s) information (either as
to business prospects or the condition of the Enlarged Group or as to its compliance
with any laws or the Listing Rules or the Takeovers Code or any applicable
regulations) which has not prior to the date of the Underwriting Agreement been
publicly announced or published by the Company,
which event or events is or are in the absolute opinion of the Underwriter:
(a) likely to have a material and adverse effect on the business, financial or trading
position or prospects of the Enlarged Group as a whole; or
(b) likely to have a material adverse effect on the success of the Rights Issue or the level
of the Rights Shares taken up; or
(c)
make it inappropriate, inadvisable or inexpedient to proceed further with the Rights
Issue; or
(B) the Underwriter in its absolute discretion not being satisfied that Acquisition Completion
will take place in accordance with the provisions of the Acquisition Agreement before the
Latest Time for Termination,
the Underwriter shall be entitled by notice in writing to the Company, served prior to the
Latest Time for Termination, to terminate the Underwriting Agreement.
The Underwriter shall be entitled by notice in writing to rescind the Underwriting
Agreement if prior to the Latest Time for Termination:
(i)
any breach of any of the warranties or undertakings or any omission to observe any
of the obligations or undertakings contained in the Underwriting Agreement comes
to the knowledge of the Underwriter; or
(ii) any Specified Event comes to the knowledge of the Underwriter.
Any such notice shall be served by the Underwriter prior to the Latest Time for
Termination.
– 15 –
LETTER FROM THE BOARD
SMI Culture Group Holdings Limited
星美文化集團控股有限公司
(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 2366)
Directors:
Executive Directors:
Mr. Hao Bin (Chairman)
Mr. Yuan Xin
Mr. Chan Chi To, Antony
Mr. Kong Dalu
Registered Office:
Cricket Square
Hutchins Drive
P O Box 2681
Grand Cayman KY1-1111
Cayman Islands
Non-executive Directors:
Mr. Chi Chenxi
Ms. Hu Gin Ing
Head office and principal place of
business in Hong Kong:
19/F., Prosperity Tower
No. 39 Queen’s Road Central
Central,
Hong Kong
Independent Non-executive Directors:
Mr. Du Jiang
Mr. Liu Xianbo
Mr. Wu Chien-Chiang
Mr. Jiang Jinsheng
Hong Kong, 27 October 2014
To the Shareholders, and for information only,
the holder of the Warrants
Dear Sir or Madam,
(i) MAJOR AND CONNECTED TRANSACTION
IN RESPECT OF THE ACQUISITION OF 35% EQUITY INTEREST IN
AND SHAREHOLDER’S LOANS TO GRAND ASTUTE LIMITED;
(ii) PROPOSED CHANGE OF DOMICILE;
(iii) PROPOSED CANCELLATION OF SHARE PREMIUM ACCOUNT;
(iv) PROPOSED CAPITAL REORGANISATION; AND
(v) PROPOSED RIGHTS ISSUE ON THE BASIS OF
8 RIGHTS SHARES FOR EVERY
1 NEW SHARE HELD ON THE RECORD DATE
– 16 –
LETTER FROM THE BOARD
INTRODUCTION
On 8 August 2014, the Board announced that, among other things,
(i)
the Purchaser (an indirect wholly-owned subsidiary of the Company), the Vendor
and Mr. Qin entered into the Acquisition Agreement (which, for the purpose of this
paragraph only, refers to the original Acquisition Agreement dated 8 August 2014),
pursuant to which the Purchaser conditionally agreed to purchase and the Vendor
conditionally agreed to sell the Sale Shares, representing 35% equity interest in the
Target, and the Sale Loans, representing 35% of all obligations, liabilities and debts
owing or incurred by the Target to the Vendor as at the Acquisition Completion
Date, at the consideration of HK$360,000,000;
(ii) it proposed to change the domicile of the Company from the Cayman Islands to
Bermuda by way of deregistration in the Cayman Islands and continuation as an
exempted company under the laws of Bermuda;
(iii) it proposed to cancel the entire amount standing to the credit of the share
premium account of the Company and to transfer the credit arising from such
cancellation to an account of the Company designated as the Contributed Surplus
Account of the Company before the Change of Domicile becoming effective;
(iv) it proposed to implement the Capital Reorganisation after the Change of
Domicile becoming effective; and
(v) the Company proposed to raise approximately HK$788 million (before expenses)
by issuing not less than 2,250,230,736 Rights Shares and not more than
2,251,214,560 Rights Shares at the Subscription Price of HK$0.35 per Rights
Share on the basis of eight (8) Rights Shares for every one (1) New Share held by
the Qualifying Shareholders on the Record Date. The Rights Shares will only be
available to the Qualifying Shareholders.
On 24 October 2014, the Board further announced that, among other things, the
Purchaser, the Vendor and Mr. Qin entered into a supplemental agreement to amend certain
terms, including but not limited to certain conditions precedent to the Acquisition
Completion, as stipulated in the Acquisition Agreement (which, for the purpose of this
paragraph only, refers to the original Acquisition Agreement dated 8 August 2014).
The Acquisition constitutes a major transaction for the Company under Chapter 14 of
the Listing Rules. As at the Latest Practicable Date, (i) SMI Corporation was interested in
approximately 29.97% of the existing issued share capital of the Company through SMI
Investment (a direct wholly-owned subsidiary of SMI Corporation); and (ii) the ultimate
beneficial owner of the Vendor, Mr. Qin, was interested in approximately 63.98% of the
existing issued share capital of SMI Corporation. Therefore, the Vendor is a connected
person of the Company and the Acquisition also constitutes a connected transaction of the
Company under Chapter 14A of the Listing Rules.
– 17 –
LETTER FROM THE BOARD
The Acquisition is subject to the approval of the Independent Shareholders at the
EGM by way of poll. As at the Latest Practicable Date, Mr. Qin, by virtue of his interest in
SMI Corporation, was deemed to be interested in the 168,597,281 Existing Shares held by
SMI Investment, representing approximately 29.97% of the existing issued share capital of
the Company. Mr. Qin, the Vendor, SMI Corporation, SMI Investment and their respective
associates shall abstain from voting at the EGM in respect of the Acquisition.
As the completion of the Rights Issue would increase the existing issued share capital
of the Company by more than 50%, pursuant to Rule 7.19(6) of the Listing Rules, the
Rights Issue is conditional on, among other things, the approval by the Independent
Shareholders at the EGM by way of poll.
Pursuant to Rule 7.19(6)(a) of the Listing Rules, any controlling shareholders and their
associates or, where there are no controlling shareholders, the Directors (excluding the
independent non-executive Directors) and the chief executive (as defined under the Listing
Rules) of the Company and their respective associates shall abstain from voting in favour of
the resolution relating to the Rights Issue. As at the Latest Practicable Date, the Company
did not have any controlling shareholder and none of the Directors had any interest in any
Existing Shares. As the Rights Issue and the Acquisition are inter-conditional upon each
other, by virtue of Mr. Qin’s interest in the Acquisition, Mr. Qin, the Vendor, SMI
Corporation, SMI Investment and their respective associates shall abstain from voting at
the EGM in respect of the Rights Issue.
Each of the proposed Change of Domicile, Cancellation of Share Premium Account
and Capital Reorganisation is conditional upon, among other things, the approval by the
Shareholders by way of poll at the EGM. None of the Shareholders or their associates
would have any interest in the Change of Domicile, the Cancellation of Share Premium
Account and the Capital Reorganisation, which is different from that of other
Shareholders. Accordingly, no Shareholders would be required to abstain from voting in
favour of the resolutions relating to the Change of Domicile, the Cancellation of Share
Premium Account and the Capital Reorganisation at the EGM.
The Independent Board Committee comprising all independent non-executive
Directors, namely Mr. Du Jiang, Mr. Liu Xianbo, Mr. Wu Chien-Chiang and Mr. Jiang
Jinsheng, has been established to give recommendations to the Independent Shareholders
on the terms and conditions of the Acquisition Agreement and the Rights Issue. Hercules
Capital has been appointed as the Independent Financial Adviser to advise the Independent
Board Committee and the Independent Shareholders in these regards.
The purpose of this circular is to provide you with (i) the details of the Acquisition; (ii)
the details of the Change of Domicile; (iii) the details of the Cancellation of Share Premium
Account; (iv) the details of the Capital Reorganisation; (v) the details of the Rights Issue
(including the Underwriting Agreement); (vi) the recommendation of the Independent
Board Committee to the Independent Shareholders; (vii) the letter of advice from Hercules
Capital to the Independent Board Committee and the Independent Shareholders in relation
to the Acquisition and the Rights Issue; (viii) the financial information of the Group; (ix)
the valuation report on the Properties from the independent property valuer; (x) the
– 18 –
LETTER FROM THE BOARD
financial information of the Target Group; (xi) the unaudited pro forma financial
information of the Enlarged Group; and (xii) the notice convening the EGM and other
information required under the Listing Rules.
THE ACQUISITION
The Acquisition Agreement
Date:
8 August 2014 (as amended by a supplemental agreement dated
24 October 2014)
Purchaser:
Tin Yan Development Ltd., an indirect wholly-owned subsidiary
of the Company
Vendor:
Nicks International Limited, a company incorporated in the BVI
with limited liability
Guarantor:
Mr. Qin, who shall guarantee, in favour of the Purchaser, the due
and punctual performance of the Vendor under the Acquisition
Agreement
To the best of the Directors’ knowledge, information and belief, having made all
reasonable enquiries, the Vendor is an investment holding company. As at the Latest
Practicable Date, (i) SMI Corporation, a company incorporated in Bermuda with limited
liability and the issued shares of which are listed on the Stock Exchange (stock code: 198),
was interested in approximately 29.97% of the existing issued share capital of the Company
through SMI Investment; and (ii) the ultimate beneficial owner of the Vendor, Mr. Qin was
interested in approximately 63.98% of the existing issued share capital of SMI Corporation.
Therefore, the Vendor is a connected person of the Company.
Assets to be acquired
Pursuant to the Acquisition Agreement, the assets to be acquired by the Purchaser are
the Sale Shares, representing 35% equity interest in the Target, and the Sale Loans,
representing 35% of all obligations, liabilities and debts owing or incurred by the Target to
the Vendor as at the Acquisition Completion Date.
Consideration
Pursuant to the Acquisition Agreement, the consideration of HK$360,000,000 is to be
satisfied by cash payable on Acquisition Completion by the Purchaser to the Vendor (or its
nominee(s)) and shall be apportioned as follows:
(i)
the consideration for the Sale Loans shall be the face amount of the Sale Loans on
a dollar-for-dollar basis; and
(ii) the consideration for the Sale Shares shall be the balance thereof.
– 19 –
LETTER FROM THE BOARD
The consideration was determined after arm’s length negotiation between the
Purchaser and the Vendor with reference to (i) the unaudited net liabilities of the Target
Group of approximately RMB28.2 million (equivalent to approximately HK$34.7 million)
as at 31 December 2013; (ii) the preliminary revaluation surplus of the Properties as at
31 December 2013 of approximately HK$996.3 million; and (iii) the Sale Loans of
approximately HK$32.7 million as at the date of the initial Acquisition Agreement
(i.e. 8 August 2014).
Based on the amount of the Sale Loans of approximately HK$32.7 million as at the
date of the initial Acquisition Agreement, the consideration for the Sale Shares was
estimated at approximately HK$327.3 million as at the same date.
As the Sale Loans are interest-free loans without any option right, the Directors
consider that the fair value of the Sale Loans should have been fairly reflected by their face
value and that the consideration for the Sale Loans being the same as their face value is fair
and reasonable.
On the other hand, in assessing the fairness and reasonableness of the consideration for
the Sale Shares, the Directors have conducted alternative parametric analysis. As the
principal assets of the Target Group are the Properties and the leasing business thereof has
been contributing a majority of the Target Group’s total turnover (i.e. the film studio rental
and related income consistently accounting for above 80% of the Target Group’s total
turnover for the three years ended 31 December 2013), the Directors consider that the
annual rental yield, which signifies the rate of return from the property investment of the
Target Group, is a good alternative parameter in this respect. The annual rental yield for
the year ended 31 December 2013 is calculated by dividing the film studio rental and related
income for the year ended 31 December 2013 attributable to the Sale Shares
(i.e. RMB64.5 million (or equivalent to approximately HK$79.3 million) x 90% x 35%)
by the consideration for the Sale Shares of approximately HK$327.3 million. The annual
rental yield for the year ended 31 December 2013 is estimated to be approximately 7.6%,
which the Directors consider to be fair and reasonable.
Based on the above, the Directors consider that the consideration is fair and
reasonable and the Acquisition is in the interests of the Company and the Shareholders as a
whole.
Conditions precedent
Acquisition Completion shall be conditional upon the fulfilment or wavier (as the case
may be) of the following conditions:
(i)
the Purchaser having been satisfied with the results of the due diligence review on
the assets, liabilities, operation and financial aspects of the Target Group;
(ii) the passing by the Independent Shareholders at the EGM of the ordinary
resolution(s) to approve the Acquisition Agreement and the transactions
contemplated thereunder;
– 20 –
LETTER FROM THE BOARD
(iii) all necessary consents and approvals required to be obtained on the parts of the
Vendor and the Target in respect of the Acquisition having been obtained;
(iv) all necessary consents and approvals required to be obtained on the part of the
Purchaser in respect of the Acquisition having been obtained;
(v) the Underwriting Agreement having become unconditional (other than the
condition requiring the Acquisition Agreement to become unconditional and
not having been terminated) and not having been terminated;
(vi) the Purchaser having obtained a legal opinion in respect of the Acquisition
prepared by the PRC legal adviser appointed by the Purchaser in form and
substance satisfactory to the Purchaser;
(vii) the Purchaser having
valuer appointed by
Purchaser showing
HK$1,200 million as
obtained a valuation report on the Properties prepared by a
the Purchaser in form and substance satisfactory to the
the value of the Properties being not less than
at 30 June 2014;
(viii) the Target Group having repaid all the loan amounts as set out under the First
Settlement Agreement and the Second Settlement Agreement;
(ix) Stellar Mega, Shanghai Jiu Sheng and Mr. Qin having entered into the Repayment
Agreement in form and substance satisfactory to the Purchaser and completed the
transactions contemplated thereunder (save and except for the settlement of the
Incurred Interest (as defined in the paragraph headed ‘‘The Settlement
Agreements and the Repayment Agreement’’ below) by Mr. Qin quarterly as
stipulated under the Repayment Agreement);
(x) the warranties set out in the Acquisition Agreement and given by the Vendor
being true and accurate and not misleading since the date of the Acquisition
Agreement; and
(xi) the Purchaser having been satisfied that there has not been any material adverse
change on any member of the Target Group since the date of the Acquisition
Agreement.
The Purchaser may in its absolute discretion at any time waive the conditions set out in
(i) and (x) above by notice in writing. Neither the Purchaser nor the Vendor may waive any
of the conditions set out in (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix) and (xi) above.
If any of the conditions set out in (i), (ii), (iii), (iv), (vi), (vii), (viii), (ix), (x) and (xi)
above is not fulfilled or waived (as the case may be) by 2 January 2015 and/or the condition
set out in (v) above is not fulfilled by 26 January 2015 (in each case, or such later date as the
Purchaser, the Vendor and Mr. Qin may agree in writing), the Acquisition shall terminate
and none of the parties to the Acquisition Agreement shall have any further obligations
towards the other thereunder except for antecedent breaches (if any).
The Underwriting Agreement however provides that the Purchaser may not waive any
of the conditions or grant or agree to any extension of time under the Acquisition
Agreement without the prior written consent of the Underwriter.
– 21 –
LETTER FROM THE BOARD
The Settlement Agreements and the Repayment Agreement
As disclosed in the accountants’ report on the financial information of the Target
Group included in Appendix II to this circular, the Target Group had previously pledged
certain of its buildings and land plots in the PRC to secure the general banking facilities of
an amount up to RMB130 million (equivalent to approximately HK$159.9 million) granted
by CMBC to Century QX, its related company, as a guarantor to Century QX. As advised
by the Vendor, one of the shareholders of Century QX was previously a senior management
personnel of Stellar Mega. In applying for the banking facilities with CMBC, Century QX
was required to provide collateral and had approached the Target Group for assistance. As
the banking facilities provided to Century QX was utilised by the then shareholders of
Stellar Mega, the Target Group had agreed to provide such guarantee and pledge such
buildings and land plots to secure the banking facilities for Century QX. The Target Group
also had an outstanding bank loan amount of approximately RMB78.8 million (equivalent
to approximately HK$96.9 million) owed to CMBC as at 30 June 2014. Certain legal claims
had been filed by CMBC with respect to such outstanding bank loans of the Target Group
and Century QX, details of which have been set out in the section headed ‘‘Management
Discussion and Analysis of the Target Group’’ in Appendix II to this circular and the
section headed ‘‘Litigation’’ in Appendix VI to this circular.
The First Settlement Agreement was entered into between Stellar Mega and CMBC,
and the Second Settlement Agreement was entered into between the Stellar Mega, Century
QX and CMBC in May 2014, thereby Stellar Mega agreed to settle all of the outstanding
bank loans of itself and Century QX due to CMBC, details of which have been set out in the
section headed ‘‘Litigation’’ in Appendix VI to this circular.
In August 2014, Stellar Mega entered into an entrusted loan agreement (the ‘‘Entrusted
Loan Agreement’’) with 北京星美輝煌影視文化投資管理中心(有限合伙) (Beijing Xing Mei
Hui Huang Media Investment Management Centre (Limited Partnership)*) (‘‘Xing Mei Hui
Huang’’), a company established in the PRC whose interests are held by Minsheng Royal
Asset Management Company Limited and Shanghai Win Capital Pte. Ltd. (both being
independent third parties to the Company, the Vendor and the Target Group), and CMBC,
pursuant to which Xing Mei Hui Huang agreed to grant an entrusted loan (the ‘‘Entrusted
Loan’’) in an amount of RMB180 million (equivalent to approximately HK$221.4 million)
with a fixed interest rate of 20% per annum and a term of two years through CMBC to
Stellar Mega. The Entrusted Loan will be used to settle in full the aforesaid outstanding
bank loans of Stellar Mega and Century QX as set out in the Settlement Agreements. The
guarantee provided by the Target Group to Century QX will be discharged after the
Entrusted Loan is released.
*
For identification purpose only
– 22 –
LETTER FROM THE BOARD
To compensate the amounts which were owed by Century QX and incurred by the
Target Group as a result of the Settlement Agreements and the Entrusted Loan, the
Repayment Agreement was entered into among Stellar Mega, Mr. Qin and Shanghai Jiu
Sheng (one of the shareholders of which was previously a senior management personnel of
Stellar Mega) on 24 October 2014, the principal terms of which are set out below:
(a) Mr. Qin agreed to undertake part of the Entrusted Loan in an amount of
approximately RMB101.2 million (equivalent to approximately HK$124.5
million) (being the difference between the Entrusted Loan of RMB180 million
(equivalent to approximately HK$221.4 million) and the outstanding bank loan
amount owed by the Target Group to CMBC as at 30 June 2014 of approximately
RMB78.8 million (equivalent to approximately HK$96.9 million)) and any
interest incurred therefrom (the ‘‘Incurred Interest’’), in form of a loan due from
Mr. Qin to the Target Group (the ‘‘Loan Undertaking’’); and
(b) Shanghai Jiu Sheng agreed to transfer its outstanding debts owed by the Target
Group of approximately RMB55.2 million (equivalent to approximately HK$67.9
million) to Mr. Qin (the ‘‘Debt Transfer’’).
Upon completion of the Loan Undertaking and the Debt Transfer, Mr. Qin shall owe
an amount of approximately RMB46.0 million (equivalent to approximately HK$56.6
million) and the Incurred Interest to the Target Group and Mr. Qin agreed that he or an
associated company as designated by him shall settle (i) the amount of approximately
RMB46.0 million (equivalent to approximately HK$56.6 million) prior to the Acquisition
Completion; and (ii) the Incurred Interest quarterly which is in accordance with the terms of
the Entrusted Loan Agreement.
Acquisition Completion
The Acquisition and the Rights Issue are inter-conditional upon each other. The
Acquisition Completion shall take place on the Acquisition Completion Date and
contemporaneously with the completion of the Rights Issue. Upon Acquisition
Completion, the Target will be equity accounted for in the consolidated financial
statements of the Group.
Upon Acquisition Completion, the Purchaser and the Vendor shall enter into a
shareholders’ agreement to govern the shareholding and management of the Target and its
relationship with the Vendor as the other shareholder of the Target, pursuant to which
(i) the Purchaser and the Vendor shall give the other party a right of first refusal and a tagalong right in the event the other party wishes to sell its interest in the Target to a third
party; and (ii) the board of the Target shall comprise five directors, two of whom shall be
appointed by the Purchaser and three of whom shall be appointed by the Vendor.
– 23 –
LETTER FROM THE BOARD
Shareholding structure of the Target Group
(i)
Set out below is the shareholding structure of the Target Group before Acquisition
Completion:
Mr. Qin
100%
Stellar Megamedia
(Singapore)
100%
The Vendor
(BVI)
100%
The Target
(BVI)
100%
100%
Film Will
(BVI)
Orvelle
(BVI)
100%
Independent
third party (Note)
100%
Element Link
(HK)
10%
Everway
(HK)
60%
30%
Stellar Mega
(PRC)
100%
100%
Xing Mei Culture
(PRC)
Stellar Tourism
(PRC)
95%
95%
5%
Stellar Hotel
(PRC)
Stellar Beverage
(PRC)
5%
Note:
The holder of 10% equity interest in Stellar Mega is 深圳星美聖典文化傳媒集團有限公司 (Shenzhen Xing
Mei Sheng Dian Culture Media Group Company Limited*) (‘‘SZ Xing Mei Culture’’), an independent
third party to the Company and the Vendor.
*
For identification purpose only
– 24 –
LETTER FROM THE BOARD
(ii) Set out below is the shareholding structure of the Target Group immediately after
Acquisition Completion:
Mr. Qin
100%
Stellar
Megamedia
(Singapore)
The Company
100%
100%
The Vendor
(BVI)
The Purchaser
(BVI)
65%
35%
The Target
(BVI)
100%
100%
Film Will
(BVI)
Orvelle
(BVI)
100%
Independent
third party (Note)
100%
Element Link
(HK)
10%
Everway
(HK)
60%
30%
Stellar Mega
(PRC)
100%
100%
Xing Mei Culture
(PRC)
Stellar Tourism
(PRC)
95%
95%
5%
Stellar Hotel
(PRC)
Stellar Beverage
(PRC)
5%
Note:
The holder of 10% equity interest in Stellar Mega is SZ Xing Mei Culture, an independent third party to
the Company and the Vendor.
– 25 –
LETTER FROM THE BOARD
Information on the Target Group
The Target Group
The Target is an investment holding company incorporated in the BVI with limited
liability and is wholly owned by the Vendor. Its principal asset is its investment in Film Will
and Orvelle, the investment holding companies incorporated in the BVI with limited
liability which, together, indirectly hold 90% equity interest in Stellar Mega through their
respective interests in Element Link and Everway.
Stellar Mega is a sino-foreign equity joint venture established under the laws of the
PRC with limited liability on 23 October 1995. It is owned as to 10% by SZ Xing Mei
Culture (an independent third party), 60% by Element Link and 30% by Everway. It owns
two parcels of land located at No. 9 Feng He Yi Yuan and No. 1 Feng Xiang Er Yuan,
Yang Song Town, Huai Rou District, Beijing, the PRC with a total site area of about
175,106.84 sq.m. and a television programme and film production complex (consisting of a
hotel and a restaurant) erected thereon (i.e. the Properties). The principal assets of Stellar
Mega are the Properties and its investments in Xing Mei Culture, Stellar Tourism, Stellar
Hotel and Stellar Beverage. Stellar Mega is principally engaged in the provision of
television programme and film production facilities leasing services. Since its establishment,
Stellar Mega has participated in the production of over 600 movies and television
programmes in total by leasing to the relevant production companies the television
programme and film production complex. Stellar Mega has also invested in the productions
of certain films and television programmes. Since 2011, Stellar Mega has invested in three
television drama series and one movie. The movie and two of the television drama series
have been completed whereas the remaining television drama series was still under planning
stage as at the Latest Practicable Date. The film royalty income amounted to nil,
approximately RMB2.9 million (equivalent to approximately HK$3.6 million) and RMB1.8
million (equivalent to approximately HK$2.2 million) in each of the three years ended 31
December 2013 and approximately RMB19.3 million (equivalent to approximately
HK$23.7 million) in the six months ended 30 June 2014 as set out in the accountants’
report of the Target Group in Appendix II to this circular.
Xing Mei Culture is a wholly-foreign-owned enterprise established in the PRC with
limited liability on 3 September 2014 and its scopes of business include organising art and
cultural exchange activities (excluding performances), stage light and audio design, craft
design, product design, conferencing services, organising exhibitions, literary and artistic
production, enterprise management, sales of daily necessities and electronic products,
corporate image planning and ticketing agency services (excluding flight ticket sales agency
services). As at the Latest Practicable Date, Xing Mei Culture had not commenced any
business operation.
Stellar Tourism is a company established under the laws of the PRC with limited
liability on 29 September 2009 and is principally engaged in the tourism business of the
Target Group. It charges the visitors admission fee to the Properties.
– 26 –
LETTER FROM THE BOARD
Stellar Hotel is a company established under the laws of the PRC with limited liability
on 1 June 2009 and is principally engaged in the operation of the aforesaid hotel of the
Target Group primarily for the accommodation of the production crews during their
shooting.
Stellar Beverage is a company established under the laws of the PRC with limited
liability on 7 June 2010 and is principally engaged in the operation of the aforesaid
restaurant located in the television programme and film production complex.
Financial information on the Target Group
Set out below is the audited consolidated financial information of the Target Group
for the two years ended 31 December 2013 as prepared in accordance with the Hong Kong
Financial Reporting Standards as extracted from the accountants’ report on the Target
Group contained in Appendix II to this circular:
For the year ended 31 December
2012
2013
(Audited)
(Audited)
Profit before taxation
RMB31,488,000
(equivalent to approximately
HK$38,730,000)
RMB31,950,000
(equivalent to approximately
HK$39,298,500)
Profit after taxation
RMB24,519,000
(equivalent to approximately
HK$30,158,000)
RMB24,062,000
(equivalent to approximately
HK$29,596,000)
As at 31 December 2013
(Audited)
Net liabilities
RMB28,232,000
(equivalent to approximately
HK$34,725,000)
Reasons for the Acquisition
The Group is principally engaged in the provision of media services including
television programmes related services, television advertising services, outdoor advertising
services, and other public relations services in the PRC. For the fifteen months ended
31 December 2012 and the year ended 31 December 2013, the Group recorded the
consolidated losses from operations of approximately HK$458.8 million and HK$595.6
million, respectively. The Group has been striving to become one of the leading
entertainment media industry players in the PRC. In view of the unsatisfactory
performance of the Group, the Group has been actively looking for attractive investment
– 27 –
LETTER FROM THE BOARD
opportunities and striving to extend its business reach and enhance profitability to
maximise its Shareholder’s value. The Directors believe that the Acquisition provides a
prime opportunity for the Group to achieve such goals.
The Target Group is principally engaged in provision of the television programme and
film production facilities leasing and other ancillary services and the principal assets include
the Properties. According to the audited consolidated financial statements of the Target
Group, the Target Group recorded profit after taxation of approximately HK$30.2 million
and HK$29.6 million for the years ended 31 December 2012 and 2013, respectively. It also
achieved a compounded annual growth rate in net profit of approximately 11.9% for the
three years ended 31 December 2013. Notwithstanding the fact that the Company will only
obtain a minority interest in the Target upon Acquisition Completion and will not have
control over the Target Group, taking into account the profitable performance of the
Target Group, the Directors believe that the Acquisition would allow the Group to benefit
from the 35% profit derived from the Target Group and, if possible, it also represents a
good opportunity for the Group to enhance its existing business by utilising the production
facilities of the Target Group.
As at the Latest Practicable Date, Mr. Qin, by virtue of his interest in SMI
Corporation, was deemed to be interested in the 168,597,281 existing Shares held by SMI
Investment (a direct wholly-owned subsidiary of SMI Corporation), representing
approximately 29.97% of the issued share capital of the Company. Each member of the
Target Group is an associate of Mr. Qin, a substantial shareholder of the Company, and
thus a connected person of the Company since Mr. Qin is currently and will be interested in
100% and 65% equity interest in the Target before and after Acquisition Completion
respectively. In the event that the Company enters into a contract relating to the leasing of
the production facilities of the Target Group, the transaction will constitute a connected
transaction or a continuing connected transaction of the Company under Chapter 14A of
the Listing Rules and the Company will comply with the relevant requirements under the
Listing Rules. As at the Latest Practicable Date, the Company and the Target Group had
not entered into any contracts relating to the leasing of the production facilities of the
Target Group.
The Directors are of the view that the business of the Target Group is in line with, and
will create a synergy effect on, the existing business of the Group and consider that the
terms of the Acquisition Agreement are fair and reasonable so far as the Independent
Shareholders are concerned and the Acquisition is in the interests of the Company and the
Shareholders as a whole.
PROPOSED CHANGE OF DOMICILE
The Board proposes to change the domicile of the Company from the Cayman Islands
to Bermuda by way of deregistration in the Cayman Islands and continuation as an
exempted company under the laws of Bermuda. The Board also proposes to implement the
Capital Reorganisation after the Change of Domicile becoming effective, details of which
are set out in the section headed ‘‘Proposed Capital Reorganisation’’ on pages 30 to 35 of
this circular.
– 28 –
LETTER FROM THE BOARD
Effect of the Change of Domicile
Other than the expenses to be incurred, the Change of Domicile will not alter the
underlying assets, investments, management or financial position of the Company nor the
proportionate interests of the Shareholders. The Company’s legal advisers as to the laws of
the Cayman Islands and Bermuda are of the view that the continuation of the Company
into Bermuda does not create a new legal entity or prejudice or affect the continuity of the
Company. The Company will continue to maintain a principal place of business in Hong
Kong.
The Change of Domicile also will not involve formation of a new holding company,
withdrawal of listing of the Existing Shares, any issue of new Shares, any transfer of assets
of the Company or any change in the existing shareholding of the Company.
Implementation of the Change of Domicile will not affect the Company’s listing status
on the Stock Exchange.
In connection with the Change of Domicile, it is proposed that a memorandum of
continuance and a new set of bye-laws will be adopted by the Company to replace the
existing memorandum of association and the articles of association of the Company
respectively in order to comply with the Companies Act.
Reasons for the Change of Domicile
As advised by the Company’s legal adviser as to the laws of the Cayman Islands, if the
Company proceeds with the Capital Reorganisation, which includes, amongst other things,
the Capital Reduction in the Cayman Islands, the sanction by the Grand Court of the
Cayman Islands would be required, and such sanction cannot be obtained in a commercially
expedient time frame. If the Capital Reorganisation is to be effected after the Change of
Domicile becoming effective, the legal adviser of the Company as to the laws of Bermuda
advised that no court order is required in Bermuda for the Capital Reorganisation. The
Board considers that it would be more time effective for the Company to carry out the
Capital Reorganisation in Bermuda by first implementing the Change of Domicile. The
Change of Domicile and the Capital Reorganisation aim at facilitating the Rights Issue.
Please refer to the paragraph headed ‘‘Reasons for the Rights Issue’’ below for the reasons
for and benefits of the Rights Issue.
In view of the above, the Board believes that the Change of Domicile is beneficial to
and in the interests of the Company and the Shareholders as a whole.
Conditions of the Change of Domicile
The Change of Domicile is conditional upon:
(i)
the passing of the necessary special resolution(s) by the Shareholders at the EGM
to approve (a) the Change of Domicile; and (b) the adoption of the memorandum
of continuance and new bye-laws of the Company(s);
– 29 –
LETTER FROM THE BOARD
(ii) compliance with the relevant requirements under the Listing Rules and the
relevant legal procedures and requirements under the laws of the Cayman Islands
and the laws of Bermuda in respect of the Change of Domicile; and
(iii) the obtaining of all necessary approvals from the relevant regulatory authorities
or otherwise as may be required in respect of the Change of Domicile, if required.
The Change of Domicile is not conditional upon the Capital Reorganisation nor the
Rights Issue. However, the Capital Reorganisation and the Rights Issue are conditional
upon the Change of Domicile becoming effective.
PROPOSED CANCELLATION OF SHARE PREMIUM ACCOUNT
The Board proposes to cancel the entire amount standing to the credit of the share
premium account of the Company and to transfer the credit arising from such cancellation
to an account of the Company designated as the Contributed Surplus Account of the
Company before the Change of Domicile becoming effective. As at the Latest Practicable
Date, the Company had a credit balance of approximately HK$1,092,929,000 standing in its
share premium account.
An account of the Company designated as the Contributed Surplus Account of the
Company, subject to the approval of the Shareholders at the EGM by way of special
resolution, shall be the Contributed Surplus Account of the Company within the meaning of
the Companies Act upon the Change of Domicile becoming effective.
Conditions of the Cancellation of Share Premium Account
The Cancellation of Share Premium Account is conditional upon:
(i)
the passing of a special resolution by the Shareholders to approve the
Cancellation of Share Premium Account at the EGM; and
(ii) the passing of a special resolution by the Shareholders at the EGM to approve the
Change of Domicile.
PROPOSED CAPITAL REORGANISATION
The Company proposes to implement the Capital Reorganisation after the Change of
Domicile becoming effective which involves the following:
(i)
the proposed Share Consolidation whereby every two (2) issued and unissued
Existing Shares of US$0.10 each in the existing share capital of the Company be
consolidated into one (1) Consolidated Share of US$0.20 each;
(ii) the total number of Consolidated Shares in the issued share capital of the
Company immediately following the Share Consolidation will be rounded down
to a whole number and any fraction in the issued share capital of the Company
arising from the Share Consolidation will be cancelled;
– 30 –
LETTER FROM THE BOARD
(iii) the proposed Re-denomination whereby the authorised and issued Consolidated
Shares be re-denominated (at the exchange rate of US$1.0 to HK$7.8) to
HK$780,000,000 and HK$438,794,993.52, respectively, such that the par value of
each Consolidated Share will be changed from US$0.20 to HK$1.56;
(iv) the proposed Capital Reduction whereby the par value of each issued Adjusted
Share be reduced from HK$1.56 to HK$0.10 by cancelling the capital paid-up
thereon to the extent of HK$1.46 on each of the issued Adjusted Shares;
(v) the proposed Diminution and Increase whereby subject to and forthwith upon the
Capital Reduction taking effect, all the authorised but unissued share capital of
the Company (which shall include the authorised but unissued share capital
arising from the Capital Reduction) be cancelled and forthwith upon such
cancellation, the authorised share capital of the Company be increased to
HK$1,000,000,000 by the creation of such number of additional New Shares as
shall be sufficient to increase the authorised share capital of the Company to
HK$1,000,000,000 divided into 10,000,000,000 New Shares;
(vi) the credits arising from the Capital Reduction, which amounted to approximately
HK$410,667,109 based on the number of the Existing Shares in issue on the Latest
Practicable Date, be transferred to the Contributed Surplus Account; and
(vii) the amount standing to the credit of the Contributed Surplus Account be applied
to set off the accumulated losses of the Company by the amount of such credit or
be applied in any other manner as may be permitted under the bye-laws of the
Company and all applicable laws of Bermuda.
Effects of the Capital Reorganisation
As at the Latest Practicable Date, the authorised share capital of the Company was
US$100,000,000 comprising 1,000,000,000 Existing Shares of US$0.10 each, of which
562,557,684 Existing Shares have been issued and fully paid or credited as fully paid.
Immediately following the Capital Reorganisation, the authorised share capital of the
Company will be HK$1,000,000,000 divided into 10,000,000,000 New Shares of HK$0.10
each, of which 281,278,842 New Shares will be in issue and the aggregate nominal value of
the issued share capital of the Company will be HK$28,127,884.20 (assuming that no
further Existing Shares are issued or repurchased from the Latest Practicable Date until the
effective date of the Capital Reorganisation). Based on the number of the Existing Shares in
issue as at the Latest Practicable Date, a credit of approximately HK$410,667,109 will arise
as a result of the Capital Reduction. Such credit, together with any credit arising as a result
of the cancellation of any fraction in the issued share capital of the Company arising from
the Share Consolidation, will be transferred to the Contributed Surplus Account which,
together with the amount already in the Contributed Surplus Account as a result of the
Cancellation of Share Premium Account, will then be applied by the Board to set off against
the accumulated losses of the Company as at the date of the Capital Reorganisation
becoming effective by the amount of such credit or be applied in any other manner as may
be permitted under the bye-laws of the Company and all applicable laws of Bermuda. The
– 31 –
LETTER FROM THE BOARD
total accumulated losses of the Company were approximately HK$1,596,232,000 as at
31 December 2013 as shown in the audited consolidated financial statements of the
Company for the year ended 31 December 2013.
Assuming the Rights Issue has not become unconditional and no Existing Shares are
issued or repurchased from the Latest Practicable Date until the effective date of the
Capital Reorganisation, the share capital structure of the Company will be as follows:
As at
Immediately
the Latest after (i) the Share
Practicable Date
Consolidation
Authorised share capital
Par value
Number of authorised
shares
Amount of issued
share capital
Number of issued shares
Immediately
after the Capital
Reorganisation
US$100,000,000
US$100,000,000
HK$780,000,000
HK$780,000,000
HK$1,000,000,000
US$0.10
US$0.20
HK$1.56
HK$0.10
HK$0.10
1,000,000,000
500,000,000
500,000,000
7,800,000,000
10,000,000,000
US$56,255,768.4 HK$438,794,993.52
HK$28,127,884.2
HK$28,127,884.2
281,278,842
281,278,842
281,278,842
US$43,744,231.6 HK$341,205,006.48
HK$751,872,115.8
HK$971,872,115.8
7,518,721,158
9,718,721,158
US$56,255,768.4
562,557,684
Amount of unissued
share capital
US$43,744,231.6
Number of unissued
shares
437,442,316
Note:
Immediately
after (i) the Share
Consolidation and
(ii) the Redenomination
Immediately
after (i) the Share
Consolidation,
(ii) the Redenomination and
(iii) the Capital
Reduction
281,278,842
218,721,158
218,721,158
The above share capital structure of the Company is for illustration purpose only and is prepared on
the basis that there will be no fractional Share arising from the Share Consolidation.
All New Shares will rank pari passu in all respects with each other.
As at the Latest Practicable Date, save for the Warrants entitling the holder(s) thereof
to subscribe for 245,957 Existing Shares, the Company had no other outstanding warrants,
options or convertible securities.
Under the laws of Bermuda, the Directors may apply the credit in the Contributed
Surplus Account in any manner permitted by the laws of Bermuda and the bye-laws of the
Company.
Implementation of the Capital Reorganisation will not, of itself, alter the underlying
assets, business operations, management or financial position of the Company, except for
the changes arising from the payment of the related expenses, or the proportionate interests
of the Shareholders. The Board believes that the Capital Reorganisation will not have any
material adverse effect on the financial position of the Group and that on the date the
– 32 –
LETTER FROM THE BOARD
Capital Reorganisation is to become effective, there are no reasonable grounds for believing
that the Company is, or after the Capital Reorganisation, would be, unable to pay its
liabilities as they become due. No capital will be lost as a result of the Capital
Reorganisation and, except for the expenses involved in relation to the Capital
Reorganisation which is expected to be insignificant in the context of the net asset value
of the Company. The net asset value of the Company will remain unchanged before and
after the Capital Reorganisation becoming effective. The Capital Reorganisation does not
involve any diminution of any liability in respect of any unpaid capital of the Company or
the repayment to the Shareholders of any paid up capital of the Company nor will it result
in any change in the relative rights of the Shareholders.
Fractional entitlement to the New Shares
Fractions of the New Shares, if any, arising from the Capital Reorganisation will be
aggregated and sold (if a premium, net of expenses, can be obtained) for the benefit of the
Company.
Conditions of the Capital Reorganisation
The Capital Reorganisation is conditional upon:
(i)
the Change of Domicile becoming effective;
(ii) the passing of the necessary special resolutions by the Shareholders approving the
Capital Reorganisation at the EGM;
(iii) the Stock Exchange granting the listing of, and permission to deal in, the New
Shares in issue upon the Capital Reorganisation becoming effective;
(iv) the compliance with the relevant procedures and requirements under the laws of
Bermuda and the Listing Rules to effect the Capital Reorganisation; and
(v) the obtaining of all necessary approvals from the regulatory authorities or
otherwise as may be required in respect of the Capital Reorganisation.
For the avoidance of doubt, the Capital Reorganisation is not conditional upon the
Acquisition or the Rights Issue.
Reasons for the Capital Reorganisation
As set out under the paragraph headed ‘‘Rights Issue — Subscription Price’’ on pages
37 to 38 of this circular, the Directors are of the view that the Subscription Price of
HK$0.35 would attract the Qualifying Shareholders to participate in the Rights Issue.
However, pursuant to the new bye-laws which shall be adopted by the Company and
become effective upon the Change of Domicile, the Company shall not issue Shares at a
price below par value. In order to lower the par value of the Shares for facilitating the
– 33 –
LETTER FROM THE BOARD
Rights Issue, it is necessary to implement the Capital Reorganisation. Please refer to the
paragraph headed ‘‘Reasons for the Rights Issue’’ on pages 47 to 49 of this circular for the
reasons for and benefits of the Rights Issue.
In addition, the Board is of the opinion that the Capital Reorganisation will provide
the Company with greater flexibility in possible fund raising activities in future.
Furthermore, the credit in the Contributed Surplus Account arising from the Capital
Reduction will enable the Company to set off its accumulated losses to facilitate future
dividends and distributions.
In view of the above, the Board considers that the Capital Reorganisation is beneficial
to and in the interests of the Company and the Shareholders as a whole.
Listing and dealings
Application will be made to the Stock Exchange for the granting of the listing of, and
permission to deal in, the New Shares arising from the Capital Reorganisation.
Subject to the granting of the listing of, and permission to deal in, the New Shares on
the Stock Exchange, the New Shares will be accepted as eligible securities by HKSCC for
deposit, clearance and settlement in CCASS with effect from the commencement date of
dealings in the New Shares on the Stock Exchange or such other date as determined by
HKSCC. Settlement of transactions between participants of the Stock Exchange on any
trading day is required to take place in CCASS on the second settlement day thereafter. All
activities under CCASS are subject to the General Rules of CCASS and CCASS
Operational Procedures in effect from time to time.
The New Shares will be identical in all respects and rank pari passu in all respects with
each other as to all future dividends and distributions which are declared, made or paid. All
necessary arrangements will be made for the New Shares to be admitted into CCASS.
Odd lots arrangements and matching services
In order to facilitate the trading of odd lots (if any) of the New Shares arising from the
Capital Reorganisation, the Company has procured Emperor Securities to match the
purchase and sale of odd lots of the New Shares at the relevant market price per New Share
for the period from 9 : 00 a.m. on Tuesday, 13 January 2015 to 4 : 00 p.m. on Monday, 2
February 2015 (both dates inclusive). Holders of odd lots of the New Shares should note
that successful matching of the sale and purchase of odd lots of the New Shares is not
guaranteed. The Shareholders who wish to take advantage of this matching service either to
dispose of their odd lots Shares or to top up their odd lots of New Shares to full board lot,
may contact Mr. Eric Leung of Emperor Securities Limited on 23–24/F., Emperor Group
Centre, 288 Hennessy Road, Wanchai, Hong Kong (telephone: (852) 2836 2652 and
facsimile: (852) 2893 1540). Any Shareholder, who is in any doubt about the odd lot
arrangement, is recommended to consult his/her/its own professional advisers.
– 34 –
LETTER FROM THE BOARD
Free exchange of share certificates
Subject to the Capital Reorganisation becoming effective, Shareholders may submit
existing certificates for the Existing Shares to the Company’s branch share registrar in
Hong Kong, Union Registrars Limited, 18/F Fook Lee Commercial Centre, Town Place, 33
Lockhart Road, Wanchai, Hong Kong for exchange from Monday, 29 December 2014 to
Wednesday, 4 February 2015 (both dates inclusive), at the expense of the Company for
certificates in the New Shares. Thereafter, certificates for the Existing Shares will be
accepted for exchange only on payment of a fee of HK$2.50 (or such higher amount as may
from time to time be allowed by the Stock Exchange) for each share certificate of the
Existing Shares cancelled or each new share certificate issued for the New Shares, whichever
number of certificates cancelled/issued is higher. The existing certificates will be valid for
trading and settlement up to 4 : 00 p.m. on Monday, 2 February 2015 (or such other date
which may be announced by the Company) and will continue to be good evidence of legal
title and may be exchanged for certificates of the New Shares at any time in accordance with
the foregoing.
The new share certificates for the New Shares will be issued in blue colour in order to
distinguish them from the existing share certificates, which are in orange colour.
Trading arrangement for the New Shares:
Subject to the Capital Reorganisation becoming effective, the arrangements proposed
for dealings in the New Shares are expected to be as follows:
(i)
from 9 : 00 a.m. on Monday, 29 December 2014, the original counter for trading in
the Existing Shares in board lots of 5,000 Existing Shares will be temporarily
closed and a temporary counter for trading in the New Shares in board lots of
2,500 New Shares will be set up and opened;
(ii) with effect from 9 : 00 a.m. on Tuesday, 13 January 2015, the original counter for
trading in the New Shares will be re-opened in board lots of 5,000 New Shares;
(iii) during the period from Tuesday, 13 January 2015 to Monday, 2 February 2015
(both dates inclusive), there will be parallel trading at the above two counters; and
(iv) the temporary counter for trading in the New Shares in board lots of 2,500 New
Shares will be removed after the close of trading at 4 : 00 p.m. on 2 February 2015.
Thereafter, trading will only be in board lots of 5,000 New Shares with new share
certificates and the existing share certificates for the Existing Shares will cease to
be marketable and will not be acceptable for dealing and settlement purposes.
However, such certificates will remain effective as documents of title on the basis
of 8 Existing Shares for one New Share.
– 35 –
LETTER FROM THE BOARD
RIGHTS ISSUE
Issue statistics
Basis of Rights Issue:
Eight (8) Rights Shares for every one (1) New Share held on the
Record Date
Number of Shares in
issue:
562,557,684 Existing Shares as at the Latest Practicable Date
(equivalent to 281,278,842 New Shares assuming Capital
Reorganisation becoming effective)
Number of Warrants in
issue:
245,957 Existing Shares to be issued assuming the Warrants are
exercised in full (equivalent to 122,978 New Shares)
Number of Rights
Shares:
Not less than 2,250,230,736 Rights Shares, representing
approximately 88.89% of the enlarged issued share capital of
the Company upon completion of the Capital Reorganisation
and the Rights Issue and assuming no issue of Shares before the
Record Date; and not more than 2,251,214,560 Rights Shares,
representing approximately 88.89% of the enlarged issued share
capital of the Company upon completion of the Capital
Reorganisation and the Rights Issue and assuming all the
Warrants are exercised in full.
Enlarged issued share
capital upon
completion of the
Rights Issue:
Not less than 2,531,509,578 New Shares and not more than
2,532,616,380 New Shares
Subscription Price:
HK$0.35 per Rights Share
Underwriter:
Emperor Securities Limited
As at the Latest Practicable Date, save for the Warrants entitling the holder(s) thereof
to subscribe for 245,957 Existing Shares, the Company had no other outstanding warrants,
options or convertible securities.
Qualifying Shareholders
To qualify for the Rights Issue, a Shareholder must be registered as a member of the
Company on the Record Date and not be an Excluded Shareholder.
In order to be registered as members of the Company on the Record Date, all transfers
of the Existing Shares or the New Shares (together with the relevant share certificate(s) and/
or instrument(s) of transfer) must be lodged with the branch share registrar of the Company
in Hong Kong, Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre,
– 36 –
LETTER FROM THE BOARD
Town Place, 33 Lockhart Road, Wanchai, Hong Kong, by 4 : 30 p.m. on
Friday, 2 January 2015. The Latest Time for Acceptance is expected to be at 4 : 00 p.m.
on Wednesday, 21 January 2015.
The Company will send the Prospectus Documents, including the Prospectus, the
provisional allotment letter(s) and the form(s) of application for excess Rights Shares to the
Qualifying Shareholders. The Company will send the Prospectus to the Excluded
Shareholders (if any) for their information purpose only.
Rights of Overseas Shareholders and Excluded Shareholders
If there are any Overseas Shareholders at the close of business on the Record Date,
such Overseas Shareholders may not be eligible to take part in the Rights Issue. As at the
Latest Practicable Date, the Company had one Overseas Shareholder with registered
address situated in Singapore.
In determining who will be the Excluded Shareholders on the Record Date, the
Company will comply with Rule 13.36 of the Listing Rules and make enquiries regarding
the feasibility of extending the offer of the Rights Shares to the Overseas Shareholders. If,
based on legal opinions provided by the legal adviser to the Company, the Directors
consider that it is necessary or expedient not to offer the Rights Shares to the Overseas
Shareholders on account either of the legal restrictions under the laws of the place of their
respective registered addresses or the requirements of the relevant regulatory body or stock
exchange in such places, the Rights Issue will not be available to such Overseas
Shareholders. The Excluded Shareholders, so long as they are Independent Shareholders,
will be entitled to attend and vote at the EGM to consider and, if thought fit, pass the
proposed resolution in relation to the Rights Issue and the other resolutions to be proposed
at the EGM.
Arrangements will be made for the Rights Shares which would otherwise have been
provisionally allotted to the Excluded Shareholders to be sold in the market in their nil-paid
form as soon as practicable after dealings in the nil-paid Rights Shares commence and in
any event before the last day for dealings in the nil-paid Rights Shares, if a premium (net of
expenses) can be obtained. The net proceeds of such sale, less expenses, will be paid pro rata
to the Excluded Shareholders in Hong Kong dollars as soon as practicable except that the
Company will retain individual amounts of HK$100 or less for its own benefit. Any unsold
entitlements of the Excluded Shareholders will be made available for excess applications by
the Qualifying Shareholders.
Closure of register of members
The register of members of the Company will be closed from Monday, 5 January 2015
to Tuesday, 6 January 2015, both dates inclusive for determining entitlements under the
Rights Issue.
No transfer of Shares will be registered during such period.
– 37 –
LETTER FROM THE BOARD
Subscription Price
HK$0.35 per Rights Share will be payable in full by a Qualifying Shareholder upon
acceptance of the relevant provisional allotment of the Rights Shares and, where applicable,
application for excess Rights Shares or a transferee of each nil-paid Rights Share applying
for the Rights Shares.
The Subscription Price represents:
(i)
a discount of approximately 83.33% to the equivalent closing price of HK$2.10
per New Share based on the closing price of HK$1.050 per Existing Share as
quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 76.09% to the equivalent average closing price of
HK$1.464 per New Share based on the average closing price of HK$0.732 per
Existing Share for the five consecutive trading days up to and including the Last
Trading Day;
(iii) a discount of approximately 73.28% to the equivalent average closing price of
HK$1.310 per New Share based on the average closing price of HK$0.655 per
Existing Share for the ten consecutive trading days up to and including the Last
Trading Day;
(iv) a discount of approximately 45.31% to the equivalent closing price of HK$0.64
per New Share based on the closing price of HK$0.32 per Existing Share as
quoted on the Stock Exchange on the Latest Practicable Date; and
(v) a discount of approximately 35.66% to the theoretical ex-rights price of
approximately HK$0.544 per New Share based on the closing price of
HK$1.050 per Existing Share as quoted on the Stock Exchange on the Last
Trading Day.
Based on the theoretical ex-rights price of approximately HK$0.544 per New Share
with reference to the closing price of HK$1.05 per Existing Share as quoted on the Stock
Exchange on the Last Trading Day, the theoretical price of each nil-paid Rights Share shall
be HK$0.194 (being the difference between the theoretical ex-rights price and the
Subscription Price).
The Subscription Price was arrived at after arm’s length negotiation between the
Company and the Underwriter with reference to the market price of the Existing Shares
under the prevailing market conditions. In view of the low trading volume of the Shares as
well as the global economic uncertainties, some Qualifying Shareholders may be reluctant
to participate in the Rights Issue. As the Rights Shares are offered to all Qualifying
Shareholders, the Directors intend to set the Subscription Price at a level that would
encourage the Qualifying Shareholders to participate in the Rights Issue. The Directors
(including the members of the Independent Board Committee after having taken into
account the advice from the Independent Financial Adviser as set out in the ‘‘Letter from
Hercules Capital’’ in this circular) believe that the Subscription Price of HK$0.35,
– 38 –
LETTER FROM THE BOARD
representing a substantial discount to the prevailing market price, would attract the
Shareholders to participate in the Rights Issue and consider the terms of the Rights Issue,
including the Subscription Price, are fair and reasonable so far as the Company and the
Shareholders as a whole are concerned. The net price per Rights Share, after deducting all
the expenses incurred and to be incurred for the Acquisition, the Capital Reorganisation
and the Rights Issue, upon full acceptance of the Rights Shares will be approximately
HK$0.335.
Basis of provisional allotments and fractional entitlements
Eight (8) Rights Shares (in nil-paid form) will be allotted for every one (1) New Share
held by the Qualifying Shareholders at the close of business on the Record Date.
On the basis of such allotment, no fractional entitlements to the Rights Shares will
arise under the Rights Issue.
Status of the Rights Shares
When allotted, issued and fully paid, the Rights Shares will rank pari passu in all
respects with the then New Shares in issue. Holders of the fully-paid Rights Shares will be
entitled to receive all future dividends and distributions which may be declared, made or
paid after the date of allotment and issue of the fully-paid Rights Shares.
Certificates for the Rights Shares and refund cheques
Subject to the fulfilment of the conditions of the Rights Issue and the Underwriting
Agreement not having been terminated in accordance with the terms thereof, certificates for
all the fully-paid Rights Shares are expected to be posted on or before
Wednesday, 28 January 2015 by ordinary post to those entitled thereto at their own risk.
Refund cheques in respect of wholly or partially unsuccessful applications for excess Rights
Shares (if any) are also expected to be posted on or before Wednesday, 28 January 2015 by
ordinary post at the own risk of the Shareholders.
Application for excess Rights Shares
The Qualifying Shareholders are entitled to apply for any unsold entitlements of the
Excluded Shareholders and any Rights Shares provisionally allotted but not accepted by the
Qualifying Shareholders. Application may be made only by the Qualifying Shareholders
and only by completing the form of application for excess Rights Shares and lodging the
same with a separate remittance for the excess Rights Shares being applied for. The
Directors will allocate the excess Rights Shares at their discretion on a pro-rata basis in
proportion to the number of excess Rights Shares being applied for under each application.
No preference will be given to topping up odd lots to whole board lots. Shareholders
who have been offered odd lots of the Rights Shares should note that there is no guarantee
that such odd lots of the Rights Shares will be topped up to create whole board lots
pursuant to applications for excess Rights Shares.
– 39 –
LETTER FROM THE BOARD
Shareholders with their Shares held by a nominee company should note that the Board
will regard the nominee company as a single Shareholder according to the register of
members of the Company. Accordingly, the Shareholders should note that the aforesaid
arrangement in relation to the allocation of the excess Rights Shares will not be extended to
beneficial owners individually. Shareholders with their Shares held by a nominee company
are advised to consider whether they would like to arrange for the registration of the
relevant Shares in the name of the beneficial owner(s) prior to the Record Date.
Shareholders and investors should consult their professional advisers if they are in any
doubt as to their status.
Shareholders whose Shares are held by their nominee(s) and who would like to have
their names registered on the register of members of the Company prior to the Record Date
must lodge all necessary documents with the branch share registrar of the Company in Hong
Kong, Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place,
33 Lockhart Road, Wanchai, Hong Kong by no later than 4 : 30 p.m. on Friday,
2 January 2015.
Application for listing
The Company will apply to the Stock Exchange for the listing of, and permission to
deal in, the Rights Shares in both nil-paid and fully-paid forms. The nil-paid and fully-paid
Rights Shares are expected to have a board lot size of 5,000.
Dealings in the Rights Shares (in both nil-paid and fully-paid forms) will be subject to
the payment of stamp duty and other applicable fees and charges in Hong Kong.
Rights Shares will be eligible for admission into CCASS
Subject to the grant of listing of, and permission to deal in, the Rights Shares in both
their nil-paid and fully-paid forms on the Stock Exchange as well as compliance with the
stock admission requirements of HKSCC, the Rights Shares in both their nil-paid and fullypaid forms will be accepted as eligible securities by HKSCC for deposit, clearance and
settlement in CCASS with effect from the respective commencement dates of dealings in the
Rights Shares in their nil-paid and fully-paid forms on the Stock Exchange or such other
dates as determined by HKSCC. Settlement of transactions between participants of the
Stock Exchange on any trading day is required to take place in CCASS on the second
trading day thereafter. All activities under CCASS are subject to the General Rules of
CCASS and CCASS Operational Procedures in effect from time to time. Shareholders
should seek advice from their stockbrokers or other professional advisers for details of
those settlement arrangements and how such arrangements will affect their rights and
interests.
All necessary arrangements will be made to enable the Rights Shares in both their nilpaid and fully-paid forms to be admitted into the CCASS.
– 40 –
LETTER FROM THE BOARD
Conditions of the Rights Issue
The Rights Issue is conditional upon:
(i)
the passing of the necessary resolution(s), by no later than the Posting Date, at the
EGM by (a) the Shareholders (or if required, the Independent Shareholders) to
approve, inter alia, the Cancellation of Share Premium Account, the Change of
Domicile, the Capital Reorganisation and the transactions respectively
contemplated thereunder, and (b) the Independent Shareholders to approve,
inter alia, the Acquisition Agreement, the Rights Issue and the Underwriting
Agreement and the transactions respectively contemplated thereunder;
(ii) the Change of Domicile and the Capital Reorganisation having become effective;
(iii) the Listing Committee of the Stock Exchange granting or agreeing to grant
(subject to allotment) and not having withdrawn or revoked listing of and
permission to deal in all the New Shares and the Rights Shares (in their nil-paid
and fully-paid forms) by no later than the Posting Date;
(iv) the filing and registration of the Prospectus Documents (together with any other
documents required by applicable law or regulation to be annexed thereto) with
the Registrar of Companies in Hong Kong by no later than the Posting Date;
(v) the posting of the Prospectus Documents to the Qualifying Shareholders by no
later than the Posting Date;
(vi) the Underwriting Agreement not being terminated by the Underwriter pursuant to
the terms thereof on or before the Latest Time for Termination;
(vii) the Acquisition Agreement becoming unconditional (other than any condition
requiring the Underwriting Agreement to become unconditional) and not having
been terminated;
(viii) the compliance of all legal and regulatory requirements of Bermuda;
(ix) the Irrevocable Undertaking becoming unconditional;
(x) SMI Investment
Undertaking;
complying
with
its
obligations
under
the
Irrevocable
(xi) the Underwriter being satisfied (in its absolute discretion) with the results of the
due diligence review conducted or to be conducted by the Group on the affairs
and status of the Target Group including without limitation to assets, liabilities,
indebtedness, operation and financial aspects of the Target Group;
(xii) the Underwriter being satisfied (in its absolute discretion) with the legal opinion
to be issued by a firm of lawyers practising the laws of the PRC in relation to the
transactions contemplated under the Acquisition Agreement as referred to in the
Acquisition Agreement;
– 41 –
LETTER FROM THE BOARD
(xiii) no Specified Event having occurred prior to the Latest Time for Termination; and
(xiv) there being no breach of the undertakings and obligations of the Company under
the terms of the Underwriting Agreement.
If the conditions (i), (vii) and (ix) are not satisfied by 2 January 2015 and/or the
conditions (ii) to (vi), (viii) and (x) to (xiv) are not satisfied (and/or waived in whole or in
part by the Underwriter) by the Latest Time for Acceptance (in each case, or such later date
or dates as the Underwriter may agree with the Company in writing) and/or the conditions
(vi), (vii), (xiii) and (xiv) do not remain fulfilled (unless waived by the Underwriter pursuant
to the Underwriting Agreement) up to the Latest Time for Termination, the Underwriting
Agreement shall terminate (save in respect of any provisions in relation to fees and expenses
payable to the Underwriter, indemnity, notices and governing law) and no party will have
any claim against any other party for costs, damages, compensation or otherwise (save in
respect of any rights or obligations which may have accrued under the Underwriting
Agreement prior to such termination), and the Rights Issue will not proceed.
As at the Latest Practicable Date, none of the above conditions has been fulfilled.
Irrevocable Undertaking
As at the Latest Practicable Date, SMI Investment held 168,597,281 Existing Shares
(or 84,298,640 New Shares upon the Capital Reorganisation becoming effective),
representing approximately 29.97% of the existing issued share capital of the Company.
Pursuant to the Irrevocable Undertaking, SMI Investment has irrevocably undertaken to
the Company and the Underwriter, among other things, that it will remain as the beneficial
owner of the Shares held by it until and including the Record Date and it has agreed to
subscribe (the ‘‘Subscription Undertaking’’) for a total of 674,389,120 Rights Shares, being
its full entitlement under the Rights Issue.
The Subscription Undertaking of SMI Investment shall be conditional upon the
fulfilment of the following conditions:
(i)
the passing of the requisite resolution(s) by the shareholders of SMI Corporation
(other than those, if any, who are required to abstain from voting under the Listing
Rules or the applicable laws, rules and regulations) approving the Irrevocable
Undertaking and the transaction(s) contemplated thereunder at a general meeting of
SMI Corporation to be convened for such purpose in compliance with the
requirements of the Listing Rules; and
(ii) (if required) the compliance by SMI Corporation of any other requirements under the
Listing Rules or otherwise of the Stock Exchange (if any) which require compliance at
any time prior to Latest Time for Acceptance in relation to the Irrevocable
Undertaking.
If the above conditions are not wholly fulfilled by 2 January 2015 (or such later date as
the Underwriter may agree in writing), the obligation of SMI Investment under the
Subscription Undertaking shall cease to have any further force and effect.
– 42 –
LETTER FROM THE BOARD
As advised by SMI Corporation, the Company understands that SMI Corporation has
no intention to subscribe for any excess Rights Shares under the Rights Issue.
UNDERWRITING ARRANGEMENT
Underwriting Agreement
Date:
8 August 2014 (as supplemented by an extension letter dated
24 October 2014)
Underwriter:
Emperor Securities Limited
Number of
Underwritten Shares:
The Underwriter has conditionally agreed to underwrite the
Rights Shares not subscribed by the Qualifying Shareholders
(excluding 674,389,120 Rights Shares agreed to be taken up by
SMI Investment pursuant to the Irrevocable Undertaking) on a
fully underwritten basis, being not less than 1,575,841,616 Rights
Shares and not more than 1,576,825,440 Rights Shares, subject
to the terms and conditions of the Underwriting Agreement.
Commission and
expenses:
The Company shall pay to the Underwriter:
(i)
a commission of 4.5% of the aggregate Subscription Price in
respect of the maximum number of Underwritten Shares
underwritten by the Underwriter; and
(ii) all costs and other out-of-pocket expenses properly incurred
by the Underwriter in respect of the Rights Issue.
Emperor Securities is principally engaged in securities brokerage business. To the best
of the Directors’ knowledge, information and belief, having made all reasonable enquiries,
Emperor Securities and its ultimate holding company are third parties independent of the
Company and its connected persons.
The Company had not approached any other underwriters in respect of the Rights
Issue as (i) the small market capitalisation of the Company, being HK$591 million as at the
Last Trading Day, and the maximum number of the Underwritten Shares could make it
difficult for the Company to negotiate with the other underwriters on the terms of the
Underwriting Agreement; (ii) the Company’s long standing relationship with Emperor
Securities whom it believes is a reputable securities firm which assisted the Company to
successfully complete the rights issues of the Company in the past two years; and (iii) the
Company is mindful of the laws and regulations in Hong Kong pertaining to the need to
preserve the confidentiality of the inside information. As the information relating to the
Rights Issue is highly price sensitive, taking into account the above-mentioned factors, the
Company decided not to approach multiple potential underwriters with whom it does not
have prior business relationship.
– 43 –
LETTER FROM THE BOARD
The Directors consider that the terms of the Underwriting Agreement including the
rate of commission are on normal commercial terms and fair and reasonable so far as the
Company and the Shareholders are concerned.
The Board is of the opinion that the terms of the Underwriting Agreement and the
amount of commission given to the Underwriter are fair as compared to the market practice
and commercially reasonable as agreed between the parties to the Underwriting Agreement.
Termination of the Underwriting Agreement
If, prior to the Latest Time for Termination:
(A) one or more of the following events or matters shall occur, arise, exist, or come into
effect:
(i)
the introduction of any new regulation or any change in existing law or regulation
(or the judicial interpretation thereof) or other occurrence of any nature
whatsoever after the signing of the Underwriting Agreement;
(ii) the occurrence of any local, national or international event or change (whether or
not forming part of a series of events or changes occurring after the signing of the
Underwriting Agreement or continuing after the signing of the Underwriting
Agreement), of a political, military, financial, economic or other nature, or in the
nature of any local, national or international outbreak or escalation of hostilities
or armed conflict, or affecting local securities markets;
(iii) any material adverse change after the signing of the Underwriting Agreement in
the business or in the financial or trading position of any member of the Enlarged
Group;
(iv) any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion,
epidemic, terrorism, strike or lock-out occurred after the signing of the
Underwriting Agreement;
(v) the commencement by any third party of any litigation, proceeding or claim
against any member of the Enlarged Group after the signing of the Underwriting
Agreement. For the purpose of this paragraph, proceeding includes any action by
any governmental, public or regulatory authority (including investment exchange
or any authority or body which regulates investment business or takeovers or
which is concerned with regulatory, licensing, competition and taxation matters);
(vi) after signing of the Underwriting Agreement, there occurs or comes into effect the
imposition of any moratorium, suspension or material restriction on trading in
the Shares generally on the Stock Exchange whether due to exceptional financial
circumstances or otherwise;
– 44 –
LETTER FROM THE BOARD
(vii) there is, after signing of the Underwriting Agreement, any change or any
development involving a prospective change in market conditions (including,
without limitation, a change in fiscal or monetary policy or foreign exchange or
currency markets, suspension or restriction of trading in securities, imposition of
economic sanctions, on Hong Kong, the PRC or other jurisdiction relevant to any
member of the Enlarged Group and a change in currency conditions for the
purpose of this paragraph includes a change in the system under which the value
of the Hong Kong currency is pegged with that of the currency of the U.S.)
occurs; or
(viii) this circular and/or the Prospectus when published contain(s) information (either
as to business prospects or the condition of the Enlarged Group or as to its
compliance with any laws or the Listing Rules or the Takeovers Code or any
applicable regulations) which has not prior to the date of the Underwriting
Agreement been publicly announced or published by the Company,
which event or events is or are in the absolute opinion of the Underwriter:
(a) likely to have a material and adverse effect on the business, financial or trading
position or prospects of the Enlarged Group as a whole; or
(b) likely to have a material adverse effect on the success of the Rights Issue or the
level of the Rights Shares taken up; or
(c)
make it inappropriate, inadvisable or inexpedient to proceed further with the
Rights Issue; or
(B) the Underwriter in its absolute discretion not being satisfied that Acquisition
Completion will take place in accordance with the provisions of the Acquisition
Agreement before the Latest Time for Termination,
the Underwriter shall be entitled by notice in writing to the Company, served prior to the
Latest Time for Termination, to terminate the Underwriting Agreement.
The Underwriter shall be entitled by notice in writing to rescind the Underwriting
Agreement if prior to the Latest Time for Termination:
(i)
any breach of any of the warranties or undertakings or any omission to observe
any of the obligations or undertakings contained in the Underwriting Agreement
comes to the knowledge of the Underwriter; or
(ii) any Specified Event comes to the knowledge of the Underwriter.
Any such notice shall be served by the Underwriter prior to the Latest Time for
Termination.
– 45 –
LETTER FROM THE BOARD
USE OF PROCEEDS
The estimated gross proceeds from the Rights Issue will be approximately HK$788
million and the estimated net proceeds of the Rights Issue (after deducting the estimated
expenses directly attributable to the Acquisition, the Capital Reorganisation and the Rights
Issue) will be approximately HK$754 million. The Company intends to use the net proceeds
from the Rights Issue as to (i) approximately HK$360 million for the Acquisition; (ii)
approximately HK$350 million for investment in production of films and television
programmes; and (iii) the remaining balance of approximately HK$44 million for
repayment of (a) loans from SMI Corporation (as detailed in the announcement of the
Company dated 21 February 2014) and (b) other loans.
As at the Latest Practicable Date, the Company has been in preliminary negotiations
with certain parties on the investment in the productions of eight films and six television
programmes with an aggregate amount of RMB128.9 million (equivalent to approximately
HK$158.4 million) and RMB155.5 million (equivalent to approximately HK$191.3 million)
to be invested by the Company respectively. The productions of these films and the
television programmes are at preliminary planning stage and the estimated total amounts
required for the productions of these films and the television programmes are
RMB473 million (equivalent to approximately HK$581.8 million) and RMB311 million
(equivalent to approximately HK$382.5 million) respectively.
As at the Latest Practicable Date, no memorandum of understanding, letter of intent
or binding agreement in relation to the investment in the productions of the abovementioned films and television programmes has been entered into between the Company
and the relevant parties. Nonetheless, either the title, the main casts, the director or the
scriptwriter(s) has/have been confirmed in principle for all of these films and television
programmes. In particular, twelve of these films and television programmes have been
named, whereas the main casts, directors or scriptwriters have been determined or proposed
for five, seven and nine of these films and television programmes respectively. It is expected
that the production permits in respect of these films and television programmes will be
granted by the State Administration of Press, Publication, Radio, Film and Television of
the PRC in 2014 and the shootings of these films and television programmes will commence
shortly thereafter. The Company has made preliminary verbal confirmations with the
relevant parties as to its committed investment amount and that the funds will be deployed
immediately after receiving the proceeds from the Rights Issue which is expected to be in
January 2015.
In addition, the Company is currently in the progress of preliminary negotiation with a
number of producers in relation to investment in productions of some other films and
television programmes. In the event that the investments in the aforesaid films and
television programmes are not materialised, the Company will apply the proceeds of
HK$350 million on investment in the productions of other films and television programmes.
As disclosed in the joint announcement of the Company and SMI Corporation dated
5 September 2014 (the ‘‘Joint Announcement’’), SMI Culture Workshop Company Limited,
a wholly-owned subsidiary of the Company, has entered into certain assignment agreements
– 46 –
LETTER FROM THE BOARD
(the ‘‘Assignment Agreements’’) with SMI Corporation or its subsidiary respectively relating
to the rights, titles, benefits and interests of certain movies, details of which have been set
out in the Joint Announcement. The Directors confirm that the proceeds from the Rights
Issue will not be used for the transactions contemplated under the Assignment Agreements.
The Directors further submit that neither of the Assignment Agreements is conditional on
the Acquisition Completion and/or the completion of the Rights Issue.
REASONS FOR THE RIGHTS ISSUE
As set out in the paragraph headed ‘‘The Acquisition — Reasons for the Acquisition’’
on pages 27 to 28 of this circular, the Group has been striving to become one of the leading
entertainment media industry players in the PRC. However, it has recorded consolidated
losses for the last two consecutive financial years. Despite the operational challenges faced
by the Group in recent years, the Board continues to hold the views that the economic
prosperity of the PRC in recent years has laid a solid groundwork for the country’s cultural
development. In particular, the cultural industry promotion programme covering, among
others, television programme and film production, performing arts, cultural creativity,
large-scale events and digital content launched by the PRC government a few years ago
reiterated the promotion of the country’s culture industry as a key national policy.
In addition, according to the State Administration of Press, Publication, Radio, Film
and Television of the PRC, the total box office revenue in the PRC has been rising at a
compounded annual growth rate of almost 30% from 2010 to 2013. As for the three months
ended 31 March 2014, the total box office revenue in the PRC reached approximately
RMB6.8 billion (equivalent to approximately HK$8.4 billion), representing an annual
growth rate of approximately 30% as compared to the same period in 2013. Local films
have historically been contributing to approximately 50% to 70% of the total box office
revenue in the PRC.
With a view to leveraging on the growing appetite for quality films and television
programmes, seizing the opportunities brought by the development of the Chinese cultural
industry and capitalising on its investment and production expertise in its existing business
of investment in, and planning, production and distribution of television programme series,
the Group has decided to continue to enhance its core focus on investing into high-quality
television programmes and at the same time seek breakthroughs in the horizontal expansion
into the film sector in order to achieve further advancement given the continuous growth in
the film industry in the PRC.
The Company has been looking for business opportunities which are consistent with its
long-term development plan and are in the interests of the Company and its Shareholders.
To this end, the Company started to invest in production of films in early 2014. The
Directors are of the view that the entertainment consumption in the PRC is undergoing
unprecedented growth and that it is imperative for the Group to enhance its revenue sources
by investing further in productions of films and television programmes and therefore, as
aforesaid, the Company has identified the investment opportunities with respect to the
14 films and television programmes.
– 47 –
LETTER FROM THE BOARD
The Directors have reviewed the information of each of the above-mentioned films and
television programmes and consider that the ideas of these films and television programmes
are compelling from market perspectives and the investment therein could possibly bring
attractive return to the Company. As such, the Company is inclined to investing into the
productions of these films and television programmes as soon as practicable.
Moreover, as set out in the paragraph headed ‘‘The Acquisition — Reasons for the
Acquisition’’ on pages 27 to 28 of this circular, the Directors believe that the Acquisition
will allow the Group to benefit from the 35% profit derived from the Target Group and, if
possible, also represents a good opportunity for the Group to enhance its existing business
by utilising the production facilities of the Target Group.
In light of these, the Directors consider that that there is an imperative need to conduct
the fund raising activity to support the Company’s aforesaid investment plans and the
Acquisition. Furthermore, the repayment of the loans from SMI Corporation and other
loans from parts of the net proceeds from the Rights Issue will help improve the financial
position of the Group.
After considering alternative fund raising methods such as placing of new Shares and
debt-financing, the Directors believe that it would be in the best interests of the Group and
the Shareholders as a whole to enlarge the capital base and strengthen the financial position
of the Group by the Rights Issue. The Directors have considered, among other things, that
(i) placing of new Shares, if compared to the Rights Issue, may not be a fair option to the
Shareholders as it may disallow the existing Shareholders to participate in the fund raising
exercise and maintain their respective shareholdings in the Company; and (ii) debtfinancing may not be obtained by the Group at preferential terms given its current financial
position and, if compared to the Rights Issue, may be subject to lengthy due diligence by
and negotiations with the lenders, and that even if loans are granted, the increased interest
burden thereby may cause adverse financial impact on the Company. The Directors
estimate that the gearing ratio of the Group will be increased from 5.0% as at
31 December 2013 to 24.4% if the amount of HK$350 million for the investment in the
productions of the films and television programmes is to be funded by loans. The Directors
also consider that the Rights Issue is a preferable fund raising exercise to bank loans as the
Rights Issue is able to provide a predictable time frame and a definite amount of cash
proceeds (as the amount is to be underwritten by the Underwriter) whereas the executive
Directors can foresee difficulty in obtaining bank loans of the required amount in a timely
manner.
Notwithstanding the fact that there will be possible dilution effect as detailed under the
paragraph headed ‘‘Effects on Shareholding Structure of the Company’’ on pages 50 to 51
of this circular, the Rights Issue will not only strengthen the financial positions of the
Company, but also provide an equal opportunity to all Qualifying Shareholders to
participate in this fund raising activity. The Rights Issue would allow the Qualifying
Shareholders, who decide to take up in full their provisional allotment of Rights Shares, to
participate in and share the growth of the Company without diluting their shareholdings. In
addition, it provides the Qualifying Shareholders with an attractive opportunity to accept
the provisional allotment of the Rights Shares at a significant discount to the current
– 48 –
LETTER FROM THE BOARD
market price of the Shares (i.e. the Subscription Price) and allows the Qualifying
Shareholders to sell the nil-paid Rights Shares in the market for economic benefit. Under
the Rights Issue, each Qualifying Shareholder is entitled to subscribe for the Rights Shares
at the same price in proportion to his/her/its existing shareholding in the Company and that
the Subscription Price will encourage the Shareholders to participate in the Rights Issue.
In view of the above, the Directors consider the terms of the Rights Issue are in the
interests of the Company and the Shareholders as a whole and hence put forward the Rights
Issue to the Independent Shareholders to consider. The Independent Board Committee has
been established to give recommendations to the Independent Shareholders on the terms
and conditions of the Acquisition Agreement and the Rights Issue. Hercules Capital has
been appointed by the Company as the Independent Financial Advisor to advise the
Independent Board Committee and the Independent Shareholders in these regards. This
circular containing, among other things, information about the Rights Issues as required
under the Listing Rules (including but not limited to the recommendations from the
Independent Board Committee and the Independent Financial Adviser on the terms and
conditions of the Rights Issue) is despatched to the Shareholders to assist them to decide
how to vote at the EGM. As such, the Independent Shareholders are able to reflect their
views to the Company by voting at the EGM.
As at the Latest Practicable Date, the Company did not have any plans for any further
fund raising other than the Rights Issue. If the Rights Issue does not proceed, the
Acquisition and the investment in the above-mentioned films and television programmes
will not proceed, the above-mentioned loans will be repaid by the Group’s internal
resources and/or other debt/equity financing exercises of the Company, and the Company
will focus on its existing business and extend its business reach when appropriate
opportunities arise.
– 49 –
LETTER FROM THE BOARD
EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY
To the best of the Directors’ knowledge, based on the information available to the
Company having made enquiries to the extent practicable, the following table shows the
shareholding structure of the Company as at the Latest Practicable Date, immediately
before and after completion of the Rights Issue:
Scenario 1 :
Assuming no further issue of the Existing Shares or the New Shares
under the Warrants on or before the Record Date:
Immediately after the
Capital Reorganisation
becoming effective and
assuming no
Shareholder has taken
up the Rights Shares
(other than
SMI Investment)
No. of Shares
%
Immediately after the
Capital Reorganisation
Immediately after the becoming effective and
assuming all
Capital Reorganisation
Shareholders have
becoming effective but
taken up the Rights
before completion of
As at the Latest
Shares
the Rights Issue
Practicable Date
No. of Shares
% No. of Shares
% No. of Shares
%
SMI Investment (Note1)
The Underwriter (Note2)
Other public
Shareholders (Note3)
168,597,281
—
29.97
—
84,298,640
—
393,960,403
70.03
196,980,202
TOTAL
562,557,684 100.00
Scenario 2 :
29.97
—
758,687,760
—
70.03 1,772,821,818
29.97
758,687,760
— 1,575,841,616
70.03
29.97
62.25
196,980,202
7.78
281,278,842 100.00 2,531,509,578 100.00 2,531,509,578 100.00
Assuming the Warrants are exercised in full on or before the Record
Date:
Immediately after
Immediately after full
Immediately after full
SMI Investment(Note1)
full exercise of the
exercise of the Warrants
Warrants and the
and the Capital
Capital Reorganisation
becoming effective and
exercise of the Warrants
Reorganisation
Immediately after full
and the Capital
becoming effective
assuming no
exercise of the Warrants
Reorganisation
and assuming all
Shareholder has taken
up the Rights Shares
but before the Capital
becoming effective but
Shareholders
As at the Latest
Reorganisation
before completion of
have taken up
(other than
Practicable Date
becoming effective
the Rights Issue
the Rights Shares
SMI Investment)
No. of Shares
%
No. of Shares
%
No. of Shares
%
No. of Shares
%
No. of Shares
%
29.96
168,597,281
29.97
168,597,281
29.96
84,298,640
29.96
758,687,760
29.96
758,687,760
Warrant holder(s)
—
—
245,957
0.04
122,978
0.04
1,106,802
0.04
122,978
0.00
The Underwriter(Note2)
—
—
—
—
—
—
—
1,576,825,440
62.26
393,960,403
70.03
393,960,403
70.00
196,980,202
70.00
1,772,821,818
70.00
196,980,202
7.78
562,557,684
100.00
562,803,641
100.00
281,401,820
100.00
2,532,616,380
100.00
2,532,616,380
100.00
Other public
Shareholders
TOTAL
Notes:
1
SMI Investment is a direct wholly-owned subsidiary of SMI Corporation. SMI Investment is the
beneficial owner of 168,597,281 Existing Shares. SMI Corporation is therefore deemed to be
interested in such 168,597,281 Existing Shares through SMI Investment under the SFO.
– 50 –
LETTER FROM THE BOARD
SMI Corporation is owned as to 63.98% by Mr. Qin. By virtue of his interest in SMI Corporation,
Mr. Qin is therefore deemed to be interested in 168,597,281 Existing Shares.
2
In circumstances where the Rights Issue is to become unconditional and the Underwriter is obliged
to take up the Underwritten Shares in their entirety, the underwriting commitment would extend to
a stake of approximately 62.25% to 62.26% in the share capital of the Company as enlarged by the
issue of the Rights Shares. The Underwriter has confirmed that it has sub-underwritten its
underwriting obligations under the Underwriting Agreement to sub-underwriters and in the event
that the Underwriter being called upon to subscribe for or procure subscribers for any Untaken
Shares pursuant to the Underwriting Agreement: (i) the Underwriter shall use all reasonable
endeavors to procure that each of the subscribers of the Untaken Shares (including any direct and
indirect sub-underwriters) shall be third party independent of, not acting in concert with and not
connected with the Directors, chief executive or substantial shareholders of the Company (within
the meaning of the Listing Rules) or any of its subsidiaries and their respective associates; (ii) the
Underwriter will procure each of the subscribers of the Untaken Shares (including any direct and
indirect sub-underwriters) and their respective associates, will not hold 10% or more of the voting
rights of the Company immediately upon completion of the Rights Issue; (iii) the Underwriter will
not, and will procure each of the subscribers of the Untaken Shares (including any direct and
indirect sub-underwriters) will not, together with any party acting in concert (within the meaning of
the Takeovers Code) with it or its associates, hold 30% or more of the voting rights of the Company
immediately upon completion of the Rights Issue; (iv) in the event that there is insufficient public
float of the Company within the meaning of the Listing Rules immediately upon completion of the
Rights Issue solely because of the Underwriter’s performance of its obligations pursuant to the
Underwriting Agreement, the Underwriter agrees to take such appropriate steps as may be
reasonably required to maintain the minimum public float for the Shares in compliance with Rule
8.08(1) of the Listing Rules.
3
In the event that the Shareholders (other than SMI Investment) do not take up their respective
entitlements under the Rights Issue, their interests in the Company will be diluted by approximately
88.9%.
In the event that Shareholders had not taken up their respective entitlements under any of the rights
issue of the Company in the last three years which include the rights issues as announced by the
Company on 27 October 2011, 2 November 2012, 16 May 2013 and also did not take up their
respective entitlements under the Rights Issue, their interests in the Company would be decreased
from approximately 52.38% to approximately 0.10% upon completion of the Rights Issue,
representing a cumulative dilutive effect of approximately 99.8%.
FUND RAISING EXERCISE OF THE COMPANY IN THE PAST 12 MONTHS
The Company has not carried out any other fund raising activities during the
12 months immediately preceding the Latest Practicable Date.
Adjustment in relation to the Warrants
The Capital Reorganisation and the Rights Issue will lead to adjustments to the
subscription price under the Warrants pursuant to their terms after the Record Date. The
Company will inform the holder(s) of the aforesaid securities and the Shareholders by
announcement, if and when necessary.
– 51 –
LETTER FROM THE BOARD
TAXATION
Qualifying Shareholders are recommended to consult their professional advisers if they
are in any doubt as to the tax implications of the holding or disposal of, or dealing in, the
Rights Shares in both their nil-paid and fully-paid forms, as regards the Excluded
Shareholders, their receipt of the net proceeds of sale of the Rights Shares otherwise falling
to be issued to them under the Rights Issue. It is emphasised that none of the Company, its
Directors or any other parties involved in the Rights Issue accepts responsibility for any tax
effects or liabilities of the holders of the Rights Shares resulting from the purchase, holding
or disposal of, or dealing in, the Rights Shares in both their nil-paid and fully-paid forms.
FINANCIAL EFFECT OF THE ACQUISITION, THE CAPITAL REORGANISATION
AND THE RIGHTS ISSUE
Upon Acquisition Completion, the Target
consolidated financial statements of the Group.
information of the Enlarged Group illustrating the
Capital Reorganisation and the Rights Issue is set
will be equity accounted for in the
The unaudited consolidated financial
financial impact of the Acquisition, the
out in Appendix III to this circular.
Based on the unaudited pro forma consolidated financial information of the Enlarged
Group as set out in Appendix III to this circular, the total assets of the Group would be
increased by approximately HK$787.6 million to approximately HK$1,901.1 million; and
its total liabilities would be increased by approximately HK$33.1 million to approximately
HK$325.0 million, as a result of the Acquisition, the Capital Reorganisation and the Rights
Issue.
LISTING RULES IMPLICATION
The Acquisition constitutes a major transaction for the Company under Chapter 14 of
the Listing Rules. As at the Latest Practicable Date, (i) SMI Corporation was interested in
approximately 29.97% of the existing issued share capital of the Company through SMI
Investment (a direct wholly-owned subsidiary of SMI Corporation); and (ii) the ultimate
beneficial owner of the Vendor, Mr. Qin, was interested in approximately 63.98% of the
existing issued share capital of SMI Corporation. Therefore, the Vendor is a connected
person of the Company and the Acquisition also constitutes a connected transaction of the
Company under Chapter 14A of the Listing Rules.
The Acquisition is subject to the approval of the Independent Shareholders at the
EGM by way of poll. As at the Latest Practicable Date, Mr. Qin, by virtue of his interest in
SMI Corporation, was deemed to be interested in the 168,597,281 Existing Shares,
representing approximately 29.97% of the issued share capital of the Company. Mr. Qin,
the Vendor, SMI Corporation, SMI Investment and their respective associates shall abstain
from voting at the EGM in respect of the Acquisition. No Director has a material interest in
the Acquisition and would be required to abstain from voting on the relevant board
resolution to approve the Acquisition.
– 52 –
LETTER FROM THE BOARD
As the completion of the Rights Issue would increase the existing issued share capital
of the Company by more than 50%, pursuant to Rule 7.19(6) of the Listing Rules, the
Rights Issue is conditional on, among other things, the approval by the Independent
Shareholders at the EGM by way of poll.
Pursuant to Rule 7.19(6)(a) of the Listing Rules, any controlling shareholders and their
associates or, where there are no controlling shareholders, the Directors (excluding the
independent non-executive Directors) and the chief executive (as defined under the Listing
Rules) of the Company and their respective associates shall abstain from voting in favour of
the resolution relating to the Rights Issue. As at the Latest Practicable Date, the Company
did not have any controlling shareholder and none of the Directors has any interest in any
Existing Shares. As the Rights Issue and the Acquisition are inter-conditional upon each
other, by virtue of Mr. Qin’s interest in the Acquisition, Mr. Qin, the Vendor, SMI
Corporation, SMI Investment and their respective associates shall abstain from voting at
the EGM in respect of the Rights Issue.
Each of the proposed Change of Domicile, Cancellation of Share Premium Account
and Capital Reorganisation is conditional upon, among other things, the approval by the
Shareholders by way of poll at the EGM. None of the Shareholders or their associates
would have any interest in the Change of Domicile, the Cancellation of Share Premium
Account and the Capital Reorganisation, which is different from that of other
Shareholders. Accordingly, no Shareholders would be required to abstain from voting in
favour of the resolutions relating to the Change of Domicile, the Cancellation of Share
Premium Account and the Capital Reorganisation at the EGM.
WARNING OF THE RISKS OF DEALING IN THE SHARES AND THE RIGHTS SHARES
The New Shares will be dealt in on an ex-rights basis from Tuesday, 30 December 2014.
Dealings in the Rights Shares in their nil-paid form will take place from
Friday, 9 January 2015 to Friday, 16 January 2015 (both dates inclusive). If the
conditions of the Rights Issue are not fulfilled or waived (as applicable) or the
Underwriting Agreement is terminated or rescinded (as the case may be) by the
Underwriter, the Rights Issue will not proceed.
Any Shareholders or other persons contemplating selling or purchasing the Rights
Shares in their nil-paid form during the period from Friday, 9 January 2015 to
Friday, 16 January 2015 (both dates inclusive) who are in any doubt about their position
are recommended to consult their professional advisers. Any Shareholders or other persons
dealing in the Shares up to the date when the conditions of the Rights Issue are fulfilled or
waived (as applicable) (and the Latest Time for Termination) and any persons dealing in the
nil-paid Rights Shares during the period from Friday, 9 January 2015 to
Friday, 16 January 2015 (both dates inclusive) will accordingly bear the risk that the
Rights Issue could not become unconditional or does not proceed.
– 53 –
LETTER FROM THE BOARD
EGM
The EGM, the notice of which is set out on pages EGM-1 to EGM-6 of this circular,
will be held at Victoria Room III, 3/F, Regal Hong Kong Hotel, 88 Yee Wo Street,
Causeway Bay, Hong Kong on Friday, 21 November 2014 at 10 : 00 a.m. (or any
adjournment thereof) for (i) the Independent Shareholders to consider and, if thought fit,
approve the Acquisition Agreement and the Rights Issue (including the Underwriting
Agreement) and the transactions respectively contemplated thereunder; and (ii) the
Shareholders to consider and, if thought fit, approve the Change of Domicile, the
Cancellation of Share Premium Account and the Capital Reorganisation. The voting at the
EGM will be taken by way of poll.
Whether or not you are able to attend the EGM in person, you are requested to
complete the accompanying form of proxy in accordance with the instructions printed
thereon and return it to the branch share registrar of the Company in Hong Kong, Union
Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart
Road, Wanchai, Hong Kong, as soon as possible and in any event not later than 48 hours
before the time appointed for holding the EGM or any adjournment thereof (as the case
may be). Completion and return of the accompanying form of proxy will not preclude you
from attending and voting in person at the meeting or any adjournment thereof (as the case
may be) should you so wish and in such event, the form of proxy shall be deemed to be
revoked.
RECOMMENDATION
Your attention is drawn to the letter from the Independent Board Committee set out
on pages 56 to 57 of this circular which contains its recommendation to the Independent
Shareholders in relation to the respective terms of the Acquisition and the Rights Issue
(including the Underwriting Agreement). Your attention is also drawn to the letter from
Hercules Capital set out on pages 58 to 88 of this circular which contains its
recommendations to the Independent Board Committee and the Independent
Shareholders in relation to the respective terms of the Acquisition and the Rights Issue,
and the principal factors and reasons taken into account in arriving at its recommendations.
You are advised to read the letter from the Independent Board Committee and the letter
from Hercules Capital as set out in this circular before deciding how to vote on the
resolutions to be proposed at the EGM.
The Board considers that (i) the Acquisition and the Rights Issue (including the
Underwriting Agreement) are on normal commercial terms; (ii) the respective terms of the
Acquisition and the Rights Issue (including the Underwriting Agreement) are fair and
reasonable so far as the Independent Shareholders are concerned; and (iii) each of the
Acquisition and the Rights Issue (including the Underwriting Agreement) are in the
interests of the Company and the Shareholders as a whole. Accordingly, the Board
recommends the Independent Shareholders to vote in favour of the ordinary resolutions to
be proposed at the EGM to approve the Acquisition and the Rights Issue (including the
Underwriting Agreement) and the respective transactions contemplated thereunder.
– 54 –
LETTER FROM THE BOARD
The Directors (including the independent non-executive Directors) also believe the
proposed Change of Domicile, the Cancellation of Share Premium Account and the Capital
Reorganisation are all in the interests of the Company and the Shareholders as a whole.
Accordingly, the Directors recommend that Shareholders should vote in favour of all the
resolutions proposed at the EGM to approve the aforesaid.
ADDITIONAL INFORMATION
Your attention is drawn to the further information contained in the appendices to this
circular.
By order of the Board of
SMI Culture Group Holdings Limited
Hao Bin
Chairman & Executive Director
– 55 –
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
The following is the text of the letter of recommendation from the Independent Board
Committee to the Independent Shareholders in relation to the Acquisition and the Rights Issue
prepared for the purpose of incorporation in this circular.
SMI Culture Group Holdings Limited
星美文化集團控股有限公司
(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 2366)
27 October 2014
To the Independent Shareholders,
Dear Sir or Madam,
MAJOR AND CONNECTED TRANSACTION; AND
PROPOSED RIGHTS ISSUE
We refer to the circular of the Company dated 27 October 2014 (the ‘‘Circular’’), of
which this letter forms part. Unless the context requires otherwise, capitalised terms used
herein shall have the same meanings as those defined in the Circular.
We have been appointed by the Board as members of the Independent Board
Committee to advise you on the terms and conditions of the Acquisition and the Rights
Issue (including the Underwriting Agreement). Hercules Capital has been appointed as the
Independent Financial Adviser to advise you and us in these regards. Details of their advice,
together with the principal factors and reasons they have taken into consideration in giving
such advice, are set out on pages 58 to 88 of the Circular. Your attention is also drawn to
the ‘‘Letter from the Board’’ in the Circular and the additional information set out in the
appendices thereto.
– 56 –
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
Having considered the terms and conditions of the Acquisition Agreement and the
Rights Issue, and taking into account the advice of Hercules Capital, in particular the
principal factors, reasons and recommendations as set out in their letter, we consider that
the Acquisition and the Rights Issue (including the Underwriting Agreement) are on normal
commercial terms and the respective terms of the Acquisition and the Rights Issue
(including the Underwriting Agreement) 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. We therefore recommend you to vote in favour of the ordinary resolutions to be
proposed at the EGM to approve the Acquisition and the Rights Issue (including the
Underwriting Agreement) and the transactions respectively contemplated thereunder.
Mr. Du Jiang
Yours faithfully,
Independent Board Committee
Mr. Liu Xianbo
Mr. Wu Chien-Chiang Mr. Jiang Jinsheng
Independent non-executive Directors
– 57 –
LETTER FROM HERCULES CAPITAL
The following is the full text of a letter of advice from Hercules Capital prepared for the
purpose of inclusion in this circular, setting out its advice to the Independent Board Committee
and the Independent Shareholders in respect of the Acquisition and the Rights Issue.
1503 Ruttonjee House
11 Duddell Street
Central
Hong Kong
27 October 2014
To the Independent Board Committee and
the Independent Shareholders
Dear Sirs,
MAJOR AND CONNECTED TRANSACTION IN RESPECT OF THE
ACQUISITION OF 35% EQUITY INTEREST IN AND
SHAREHOLDER’S LOANS TO GRAND ASTUTE LIMITED
AND
PROPOSED RIGHTS ISSUE ON THE BASIS OF 8 RIGHTS SHARES
FOR EVERY 1 NEW SHARE HELD ON THE RECORD DATE
1.
INTRODUCTION
We refer to our engagement as the independent financial adviser to advise the
Independent Board Committee and the Independent Shareholders in relation to the
Acquisition and the Rights Issue, details of which are set out in the Letter from the Board
contained in the circular of the Company dated 27 October 2014 to the Shareholders (the
‘‘Circular’’), of which this letter forms part. Capitalised terms used in this letter have the
same meanings as defined elsewhere in the Circular unless the context requires otherwise.
On 8 August 2014, the Purchaser, an indirect wholly-owned subsidiary of the
Company, the Vendor and Mr. Qin entered into the original Acquisition Agreement,
pursuant to which the Purchaser conditionally agreed to purchase, and the Vendor
conditionally agreed to sell, the Sale Shares, representing 35% equity interest in the Target,
and the Sale Loans, representing 35% of all obligations, liabilities and debts owing or
incurred by the Target to the Vendor as at the Acquisition Completion Date, at a total
consideration of HK$360.0 million.
– 58 –
LETTER FROM HERCULES CAPITAL
On 24 October 2014, the Board announced that, among other things, the Purchaser,
the Vendor and Mr. Qin entered into a supplemental agreement to amend certain terms,
including but not limited to certain conditions precedent to the Acquisition Completion, as
stipulated in the original Acquisition Agreement dated 8 August 2014.
The Acquisition constitutes a major transaction for the Company under Chapter 14 of
the Listing Rules. As at the Latest Practicable Date, (i) SMI Corporation was interested in
approximately 29.97% of the existing issued share capital of the Company through SMI
Investment, a direct wholly-owned subsidiary of SMI Corporation; and (ii) Mr. Qin, the
ultimate beneficial owner of the Vendor, was interested in approximately 63.98% of the
existing issued share capital of SMI Corporation. Therefore, the Vendor is a connected
person of the Company and the Acquisition also constitutes a connected transaction of the
Company under Chapter 14A of the Listing Rules. The Acquisition is subject to the
approval of the Independent Shareholders at the EGM by way of poll. As at the Latest
Practicable Date, Mr. Qin, by virtue of his interest in SMI Corporation, was deemed to be
interested in the 168,597,281 Existing Shares held by SMI Investment, representing
approximately 29.97% of the existing issued share capital of the Company. Mr. Qin, the
Vendor, SMI Corporation, SMI Investment and their respective associates shall abstain
from voting at the EGM in respect of the Acquisition.
Meanwhile, the Board also proposed to change the domicile of the Company from the
Cayman Islands to Bermuda, cancel the share premium account of the Company and
implement the Capital Reorganisation, immediately following which the authorised share
capital of the Company will be HK$1,000,000,000 divided into 10,000,000,000 New Shares
of HK$0.10 each, of which 281,278,842 New Shares will be in issue and the aggregate
nominal value of the issued share capital of the Company will be HK$28,127,884.20.
In order to finance the Acquisition and further development of the business of the
Group, the Company proposed to raise approximately HK$788.0 million, before expenses,
by issuing not less than 2,250,230,736 Rights Shares and not more than 2,251,214,560
Rights Shares at the Subscription Price of HK$0.35 per Rights Share to the Qualifying
Shareholders on the basis of eight Rights Shares for every one New Share held by the
Qualifying Shareholders on the Record Date.
As the completion of the Rights Issue would increase the existing issued share capital
of the Company by more than 50%, pursuant to Rule 7.19(6) of the Listing Rules, the
Rights Issue is conditional on, among other things, the approval by the Independent
Shareholders at the EGM by way of poll. Pursuant to Rule 7.19(6)(a) of the Listing Rules,
any controlling shareholders and their associates or, where there are no controlling
shareholders, the Directors (excluding the independent non-executive Directors) and the
chief executive (as defined under the Listing Rules) of the Company and their respective
associates shall abstain from voting in favour of the resolution relating to the Rights Issue.
As at the Latest Practicable Date, the Company did not have any controlling shareholder
and none of the Directors had any interest in any Existing Share. As the Rights Issue and
the Acquisition are inter-conditional upon each other, by virtue of Mr. Qin’s interest in the
Acquisition, Mr. Qin, the Vendor, SMI Corporation, SMI Investment and their respective
associates shall also abstain from voting at the EGM in respect of the Rights Issue.
– 59 –
LETTER FROM HERCULES CAPITAL
The Independent Board Committee comprising all independent non-executive
Directors, namely Mr. Du Jiang, Mr. Liu Xianbo, Mr. Wu Chien-Chiang and Mr. Jiang
Jinsheng, has been established to advise the Independent Shareholders on the Acquisition
and the Rights Issue. We, Hercules Capital Limited, have been appointed to advise the
Independent Board Committee and the Independent Shareholders in connection with the
Acquisition and the Rights Issue, in particular as to whether the terms of the Acquisition
and the Rights Issue are fair and reasonable and on normal commercial terms so far as the
Independent Shareholders are concerned and in the interests of the Company and the
Shareholders as a whole.
We are not associated with the Group, the Vendor, Mr. Qin or their respective
associates and do not have any shareholding in any member of the Group or right (whether
legally enforceable or not) to subscribe for, or to nominate persons to subscribe for,
securities in any member of the Group. Apart from normal professional fees payable to us
in connection with this appointment, no arrangements exist whereby we will receive any fee
or benefit from the Group, the Vendor, Mr. Qin or their respective associates.
2.
BASIS OF OUR OPINION
In formulating our opinion and recommendation, we have relied on the information
and representations supplied, and the opinions expressed, by the Directors and management
of the Company and have assumed that such information and statements, and
representations made to us or referred to in the Circular are true, accurate and complete
in all material respects as of the date hereof and will continue as such at the date of the
EGM. The Directors have jointly and severally accepted full responsibility for the accuracy
of the information contained in the Circular. We have no reasons to suspect that any
material information has been withheld by the Directors or management of the Company,
or is misleading, untrue or inaccurate, and consider that they may be relied upon in
formulating our opinion.
We consider that we have reviewed sufficient information to reach an informed view,
to justify reliance on the accuracy of the information contained in the Circular and to
provide a reasonable basis for our recommendation. We have not, however, for the
purposes of this exercise, conducted any independent detailed investigation or audit into the
businesses or affairs or future prospects of the Group and the related subject of, and parties
to, the Acquisition Agreement and the Underwriting Agreement. Our opinion is necessarily
based on the financial, economic, market and other conditions in effect and the information
made available to us as at the Latest Practicable Date. Shareholders should note that
subsequent developments (including any material change in market and economic
conditions) may affect and/or change this opinion.
We have not considered the tax consequences on the Independent Shareholders arising
from the subscription for, holding of, or dealing in, the Rights Shares or exercising any
right attached thereto or otherwise, since these are particular to their individual
circumstances. Independent Shareholders who are in any doubt as to their tax position,
or who are subject to overseas tax or Hong Kong taxation on securities dealing, should
consult their own professional advisers without delay.
– 60 –
LETTER FROM HERCULES CAPITAL
3.
INFORMATION AND PROSPECTS OF THE GROUP
The Group is principally engaged in the provision of media services including
television programme related services, television advertising services, outdoor advertising
services and other public relations services in the PRC.
The consolidated financial information of the Group for the fifteen months ended 31
December 2012, the year ended 31 December 2013 and the six months ended 30 June 2014 as
extracted from the annual report and the interim report of the Company is summarised as
follows:
For the
For the six months
year ended
ended 30 June
31 December
2014
2013
2013
HK$’000
HK$’000
HK$’000
(unaudited) (unaudited)
(audited)
Turnover
— television programme
related income
— television advertising
income
— outdoor advertising
income
— public relations
service income
For the
fifteen
months ended
31 December
2012
HK$’000
(audited)
5,056
—
8,951
252,377
46,632
96,661
182,451
217,157
—
—
—
6,198
—
—
—
3,110
51,688
96,661
191,402
478,842
Loss from operations
(28,971)
(363,004)
(595,635)
(458,798)
Loss before taxation
(30,396)
(418,665)
(673,170)
(576,397)
Loss for the period/year
attributable to owners of
the Company
(28,256)
(418,141)
(675,376)
(628,058)
– 61 –
LETTER FROM HERCULES CAPITAL
As at
30 June 2014
HK$’000
(unaudited)
Total assets
1,113,544
Total liabilities
(291,839)
Net assets
821,705
Net asset attributable to owners of the Company
821,350
The turnover of the Group for the fifteen months ended 31 December 2012 amounted
to approximately HK$478.8 million, of which approximately 52.7% was generated from the
television program related services and approximately 45.4% was generated from the
television advertising services. Owing to the reform of the governing authorities of the
television and film industry in the PRC, the sales activities of the Group in respect of the
television drama and related business were sluggish during the year ended 31 December
2013. The turnover of the Group generated from the television program related services
reduced significantly from approximately HK$252.4 million for the fifteen months ended 31
December 2012 to approximately HK$9.0 million for the year ended 31 December 2013. As
a result, the turnover of the Group for the year ended 31 December 2013 in the amount of
approximately HK$191.4 million was mainly generated from the television advertising
services. Resulted from the decrease in turnover, gross loss amounted to approximately
HK$35.9 million was recorded for the year ended 31 December 2013. Combining the effects
of impairment losses on intangible assets and other financial assets and provision for
inventories of approximately HK$387.3 million and HK$88.0 million respectively, the loss
from operations for the year ended 31 December 2013 amounted to approximately
HK$595.6 million. The loss of the Group attributable to owners of the Company amounted
to approximately HK$675.4 million and HK$628.1 million for the year ended 31 December
2013 and the fifteen months ended 31 December 2012 respectively.
The turnover of the Group for the six months ended 30 June 2014, which was mainly
generated from the television advertising services, amounted to approximately HK$51.7
million, representing a decrease of approximately 46.5% as compared to the previous
corresponding period. For the six months ended 30 June 2014, loss from operations reduced
sharply by approximately 92.0% to approximately HK$29.0 million as impairment losses
on intangible assets and other financial assets amounted to approximately HK$305.3
million were recognised during the last corresponding period while such losses were absent
for the current period. As a result of early redemption of the convertible notes and
settlement of loans during the six months ended 30 June 2013, the finance costs for the six
months ended 30 June 2014 reduced by approximately HK$53.2 million as compared to the
six months ended 30 June 2013. For the six months ended 30 June 2014, loss before taxation
– 62 –
LETTER FROM HERCULES CAPITAL
and loss for the period attributable to owners of the Company amounted to approximately
HK$30.4 million and HK$28.3 million respectively, representing a drop of approximately
92.7% and 93.2% respectively as compared to the previous corresponding period.
As at 30 June 2014, the non-current assets of the Group amounted to approximately
HK$474.8 million, of which approximately HK$436.3 million were intangible assets,
including purchased licence rights, while the current assets of the Group amounted to
approximately HK$638.8 million, which consisted of inventories of approximately
HK$458.0 million, accounts receivable of approximately HK$28.9 million, prepayments,
deposits and other receivables of approximately HK$140.1 million, amount due from an
associate of approximately HK$6.2 million and cash and cash equivalents of approximately
HK$5.6 million. The current liabilities of the Group amounted to approximately HK$285.2
million as at 30 June 2014, which mainly comprised loan from a shareholder of
approximately HK$21.0 million, other loans of approximately HK$13.0 million, accruals
and other payables of approximately HK$194.8 million and current taxation of
approximately HK$56.1 million. As at 30 June 2014, the non-current liabilities of the
Group amounted to approximately HK$6.7 million, of which approximately HK$6.3
million were deferred tax liabilities and approximately HK$0.4 million were obligation
under finance leases. The net asset of the Group attributable to owners of the Company
amounted to approximately HK$821.4 million as at 30 June 2014.
According to the annual report of the Company for the year ended 31 December 2013,
the Group shall focus its resources on television series production and distribution of film
library following the formation of the State Administration of Press, Publication, Radio,
Film and Television of the PRC under the approval of the super-ministry reform by the 12th
National People’s Congress in 2013. We were advised by the management of the Company
that in order to leverage on the growing appetite for quality films and television
programmes, seize the opportunities brought by the development of the Chinese cultural
and media industry and capitalise on the investment and production expertise in its existing
business of investment in, and planning, production and distribution of television
programme series, the Group would continue to enhance its core focus on investment in
high-quality television programmes and at the same time seek breakthroughs in the
horizontal expansion into the film sector so as to achieve further advancement given the
continuous growth in the film industry in the PRC. According to the interim report, the
Company started to invest in the production of certain films and television programmes in
early 2014, which targeted to be on-air by the end of 2014. The Company believes that
investment in the production of films and television programmes will be one of the most
significant principal business activities of the Group in the future.
As at the Latest Practicable Date, the Company was in preliminary negotiations with
certain parties on investment in the production of eight films and six television programmes
with an aggregate investment amount of approximately RMB128.9 million (equivalent to
approximately HK$158.5 million) and RMB155.5 million (equivalent to approximately
HK$191.3 million) respectively. We understand from the management of the Company that
the production of those films and television programmes are at preliminary planning stage.
We have obtained from the Company, and reviewed and discussed with the management of
the Company, the budget plan of the above productions and noted that the estimated total
– 63 –
LETTER FROM HERCULES CAPITAL
amounts required for the production of those films and television programmes would be
approximately RMB473.0 million (equivalent to approximately HK$581.8 million) and
RMB311.0 million (equivalent to approximately HK$382.5 million) respectively. The
estimated production costs have been prepared based on past experiences and with
reference to the type of the films and television programmes, the expected number of
production crews and casting and the potential filming locations. We have reviewed the cost
structures of films and television programmes produced/invested by the Group and noted
that the budget plan of the productions is of similar cost structure to the completed films
and television programmes. Given that the cost structure of the budget plan of productions
was similar to the completed films and television programmes produced/invested by the
Company in the past with similar nature and production scale, we considered that the
budget plan of the productions is fair and reasonable.
We were advised by the management of the Company that no memoranda of
understanding, letters of intent or binding agreements in relation to the investment in the
production of the abovementioned films and television programmes have been entered into
between the Company and the relevant parties as at the Latest Practicable Date.
Nonetheless, either the title, the main casts, the director or the scriptwriter(s) has/have
been confirmed in principle for all of those films and television programmes. In particular,
twelve of those films and television programmes have been named, whereas the main casts,
directors or scriptwriters have been determined or proposed for five, seven and nine of those
films and television programmes respectively. It is expected that the production permits in
respect of those films and television programmes will be granted by the State
Administration of Press, Publication, Radio, Film and Television of the PRC in 2014
and the shooting of those films and television programmes will commence shortly
thereafter. The Company has made preliminary verbal confirmations with the relevant
parties as to its committed investment amount and that the funds will be deployed
immediately after receiving the proceeds from the Rights Issue which is expected to be in
January 2015.
The Company has not carried out any fund raising activity during the twelve months
immediately preceding the Latest Practicable Date.
4.
OUTLOOK OF ENTERTAINMENT MEDIA INDUSTRY IN THE PRC
Based on the statistics released by the National Bureau of Statistics of China, the gross
domestic product (‘‘GDP’’) of the PRC for the six months ended 30 June 2014 was
approximately RMB26,904.4 billion, representing an increase of approximately 8.5% over
the last corresponding period. The OECD Economic Outlook, Volume 2014 Issue 1 issued
by the Organisation for Economic Cooperation and Development revealed that the GDP
growth in the PRC fell in early 2014 as investment slowed down in response to the credit
crunch. However, investment is expected to be supported by the urbanisation needs and the
opening up of sectors previously off limits to private investment. The OECD Economic
Outlook expected that the real GDP growth rate would be approximately 7.4% in 2014 and
7.3% in 2015. Despite a slowdown in GDP growth rate in the PRC in early 2014, the
statistics released by the National Bureau of Statistics of China showed that the per capita
– 64 –
LETTER FROM HERCULES CAPITAL
disposable income of urban population in the PRC for the three months ended 31 March
2014 further increased to approximately RMB8,155, representing a growth of
approximately 9.8% over the same period of the previous year.
According to the State Administration of Press, Publication, Radio, Film and
Television of the PRC, the movie box office receipts in the PRC has grown continuously
from approximately RMB4.3 billion in 2008 to approximately RMB21.8 billion in 2013,
representing a compound annual growth rate of approximately 38.4%. For the first half of
2014, the movie box office receipts in the PRC were approximately RMB13.7 billion,
representing an increase of approximately 25.0% as compared to the previous
corresponding period. With reference to the report of ‘‘2014–2018 Global Entertainment
and Media Industry Outlook’’ issued by PricewaterhouseCoopers in June 2014, the PRC has
become the world’s second largest film market and it was expected that the movie box office
receipts in the PRC would increase in a compound annual growth rate of approximately
13.5% since 2013 to approximately US$5.9 billion in 2018.
Based on the above, we concur with the view of the Directors that in the absence of any
unforeseeable adverse factors that may have a substantial adverse impact on the economy
of the PRC, the outlook of the entertainment media industry in the PRC shall remain
positive in the foreseeable future.
5.
THE ACQUISITION
On 8 August 2014, the Purchaser, an indirect wholly-owned subsidiary of the
Company, the Vendor and Mr. Qin entered into the original Acquisition Agreement,
pursuant to which the Purchaser conditionally agreed to purchase, and the Vendor
conditionally agreed to sell, the Sale Shares, representing 35% equity interest in the Target,
and the Sale Loans, representing 35% of all obligations, liabilities and debts owing or
incurred by the Target to the Vendor, as at the Acquisition Completion Date, at a total
consideration of HK$360.0 million.
On 24 October 2014, the Board announced that, among other things, the Purchaser,
the Vendor and Mr. Qin entered into a supplemental agreement to amend certain terms,
including but not limited to certain conditions precedent to the Acquisition Completion, as
stipulated in the original Acquisition Agreement dated 8 August 2014.
5.1 Information on the Target Group
The Target is an investment holding company incorporated in the BVI with
limited liability and is wholly-owned by the Vendor. The major assets of the Target are
its investments in Film Will and Orvelle, the investment holding companies
incorporated in the BVI with limited liability which, together, indirectly hold 90%
equity interest in Stellar Mega through their respective interests in Element Link and
Everway.
Stellar Mega is a sino-foreign equity joint venture established under the laws of
the PRC with limited liability and is owned as to 10% by SZ Xing Mei Culture, an
independent third party, 60% by Element Link and 30% by Everway. Stellar Mega is
– 65 –
LETTER FROM HERCULES CAPITAL
principally engaged in the provision of leasing services of television programme and
film production facilities. Since its establishment, Stellar Mega has leased its facilities
to production companies for the production of over 600 movies and television
programmes in total. Stellar Mega has also invested in the production of certain films
and television programmes. Since 2011, Stellar Mega has invested in three television
drama series and one movie, of which two of the television drama series and the movie
have been completed while the remaining television drama series was still under
planning stage as at the Latest Practicable Date.
The principal assets of Stellar Mega are the Properties and its investments in (i)
Stellar Tourism, a company established under the laws of the PRC with limited liability
and principally engaged in tourism business, which charges the visitors admission fee
to the Properties; (ii) Stellar Hotel, a company established under the laws of the PRC
with limited liability and principally engaged in the operation of a hotel primarily for
the accommodation of the production crews during their shooting; (iii) Stellar
Beverage, a company established under the laws of the PRC with limited liability and
principally engaged in the operation of a restaurant located in the television
programme and film production complex; and (iv) Xing Mei Culture, a whollyforeign-owned enterprise established in the PRC with limited liability and its scopes of
business include organising art and cultural exchange activities (excluding
performances), stage light and audio design, craft design, product design,
conferencing services, organising exhibitions, literary and artistic production,
enterprise management, sales of daily necessities and electronic products, corporate
image planning and ticketing agency services (excluding flight ticket sales agency
services). As at the Latest Practicable Date, Xing Mei Culture has not commenced any
business operation. The Properties comprise two parcels of land located at No. 9 Feng
He Yi Yuan and No. 1 Feng Xiang Er Yuan, Yang Song Town, Huai Rou District,
Beijing, the PRC with a total site area of about 175,106.84 sq.m. and a television
programme and film production complex (consisting of a hotel and a restaurant)
erected thereon. With reference to the valuation report as set out in Appendix IV to the
Circular, the market value of the Properties was HK$1,280 million as at 1 September
2014.
– 66 –
LETTER FROM HERCULES CAPITAL
The audited consolidated financial information of the Target Group for the six
months ended 30 June 2014 and the two years ended 31 December 2013, as extracted
from the accountants’ report on the Target Group as set out in Appendix II to the
Circular, is summarised as follows:
For the six months ended
30 June
2014
2013
RMB’000
RMB’000
(audited) (unaudited)
Revenue
Profit before income tax
Profit for the period/year
attributable to equity
holder of the Target
For the year ended
31 December
2013
2012
RMB’000
RMB’000
(audited)
(audited)
26,538
28,510
27,570
6,930
77,300
31,950
71,622
31,488
21,397
4,477
21,656
22,067
As at
30 June 2014
RMB’000
(audited)
Total assets
Total liabilities
230,710
(235,746)
Net liabilities
(5,036)
Capital deficiency attributable to the equity holder
of the Target
(11,947)
For the year ended 31 December 2013, the Target Group recorded revenue of
approximately RMB77.3 million, representing an increase of approximately 7.9% as
compared to the previous year. For the year ended 31 December 2013, approximately
83.4% of the revenue were generated from film studio rental and related income while
the remaining were generated from food and beverage sales and other ancillary
services, ticketing and touring income and hotel accommodation and related services.
For the year ended 31 December 2013, profit before income tax of the Target Group
amounted to approximately RMB32.0 million, representing an increase of
approximately 1.5% as compared to the previous year, while the profit attributable
to equity holder of the Target amounted to approximately RMB21.7 million,
representing a decrease of approximately 1.9% as compared to the previous year.
For the six months ended 30 June 2014, the Target Group recorded revenue of
approximately RMB26.5 million, representing a decrease of approximately 3.7% as
compared to the previous corresponding period. For the six months ended 30 June
2014, approximately 79.5% of the revenue were generated from film studio rental and
related income while the remaining were generated from food and beverage sales and
– 67 –
LETTER FROM HERCULES CAPITAL
other ancillary services, ticketing and touring income and hotel accommodation and
related services. For the six months ended 30 June 2014, profit before income tax of the
Target Group amounted to approximately RMB28.5 million, representing an increase
of approximately 311.4% as compared to the previous corresponding period. The
increase was mainly attributable to the increases in film royalty income of
approximately RMB19.3 million and government grants of approximately RMB4.0
million. The profit attributable to equity holder of the Target for the six months ended
30 June 2014 amounted to approximately RMB21.4 million, representing an increase
of approximately 377.9% as compared to the previous corresponding period.
As at 30 June 2014, the non-current assets of the Target Group amounted to
approximately RMB207.7 million, which consisted of property, plant and equipment
of approximately RMB186.9 million, intangible assets of approximately RMB12.6
million and land lease prepayments of approximately RMB8.2 million, while the
current assets of the Target Group amounted to approximately RMB23.0 million, of
which approximately RMB8.1 million were prepayment and other receivables,
approximately RMB2.5 million were amounts due from related companies,
approximately RMB4.6 million were amount due from immediate holding company
and approximately RMB7.7 million were cash and cash equivalents. The current
liabilities of the Target Group amounted to approximately RMB235.7 million as at 30
June 2014, which mainly included accounts and other payables and accruals of
approximately RMB22.3 million, amounts due to related companies of approximately
RMB55.7 million, loan from immediate holding company of approximately RMB74.1
million, secured bank loan of approximately RMB78.8 million and tax payable of
approximately RMB4.7 million. As at 30 June 2014, the net liabilities of the Target
Group amounted to approximately RMB5.0 million and the capital deficiency
attributable to the equity holder of the Target amounted to approximately RMB11.9
million.
As at 30 June 2014, the Target Group had given a guarantee to CMBC in respect
of the banking facilities granted to Century QX, a related company of the Target
Group. Subsequently, the Target Group entered into an entrusted loan agreement on
20 August 2014 for borrowing an entrusted loan of RMB180.0 million (equivalent to
approximately HK$221.4 million) with a term of two years and a fixed interest rate of
20% per annum for the settlement of, among others, the banking facilities granted to
Century QX. The abovementioned guarantee provided by the Target Group will be
discharged.
5.2 Reasons for the Acquisition
The Group has been striving to become one of the leading entertainment media
industry players in the PRC. However, the performance of the Group was
unsatisfactory and continuous losses have been recorded for the last two financial
years. In order to enhance the profitability of the Group to maximise the Shareholders’
value, the Group has been actively looking for attractive investment opportunities and
striving to extend its business reach.
– 68 –
LETTER FROM HERCULES CAPITAL
The Target Group is principally engaged in the leasing of television programme
and film production facilities and provision of other ancillary services and its principal
assets include the Properties. With reference to the audited financial information of the
Target Group as set out in Appendix II to the Circular, the Target Group recorded
profit for the three years ended 31 December 2013, with a compound annual growth
rate of approximately 11.9%, and the six months ended 30 June 2014. The Directors
consider that the Acquisition would allow the Group to benefit from the 35% profit
generated from the Target Group and, if possible, represents a good opportunity for
the Group to enhance its existing business by utilising the production facilities of the
Target Group.
Having considered (i) the business nature of the Group and the Target Group; (ii)
the profitable track records of the Target Group for the past few years; (iii) the positive
business outlook of the entertainment media industry in the PRC as detailed in the
section headed ‘‘Outlook of entertainment media industry in the PRC’’ above; and (iv)
the potential synergistic value for the business development of the Group to be brought
by the Acquisition, we concur with the view of the Directors that the Acquisition is in
line with the Company’s development plan and the entering into of the Acquisition
Agreement is in the interests of the Company and the Shareholders as a whole.
5.3 Consideration
The consideration for the Acquisition of HK$360.0 million shall be satisfied by
cash payable on Acquisition Completion by the Purchaser to the Vendor (or its
nominee(s)) and shall be apportioned as follows:
(i)
the consideration for the Sale Loans shall be the face amount of the Sale
Loans on a dollar-for-dollar basis; and
(ii) the consideration for the Sale Shares shall be the balance thereof.
The consideration was determined after arm’s length negotiation between the
Purchaser and the Vendor with reference to (i) the unaudited net liabilities of the
Target Group of approximately RMB28.2 million (equivalent to approximately
HK$34.7 million) as at 31 December 2013; (ii) the preliminary revaluation surplus of
the Properties as at 31 December 2013 of approximately HK$996.3 million; and (iii)
the Sale Loans of approximately HK$32.7 million as at the date of the original
Acquisition Agreement (i.e. 8 August 2014).
– 69 –
LETTER FROM HERCULES CAPITAL
5.3.1 Consideration for the Sale Shares
To assess the fairness and reasonableness of the consideration of the Sale
Shares, we have considered the following factors:
5.3.1.1Valuation of the Properties
We have performed works as required under Note 1(d) to Rule 13.80 of
the Listing Rules in respect of the valuation of the Properties, including
interviewing with Norton Appraisals Limited (‘‘Norton’’), the independent
valuer for carrying out the valuation of the Properties, through telephone, as
to its experiences in valuing similar properties in the PRC and its
relationships with the Company, other parties to the Acquisition
Agreement, and core connected persons of either the Company or the
Purchaser or the Vendor, and discussing with Norton regarding its terms of
engagement for the valuation, in particular to its scope of work. We noted
that its scope of work was appropriate for it to form the opinion required to
be given and there were no limitations on the scope of work which might
adversely impact the degree of assurance given by Norton in the valuation
report.
We have also reviewed the valuation report of the Properties prepared
by Norton as set out in Appendix IV to the Circular and discussed with
Norton regarding the methodology, basis and assumptions adopted in
arriving at the valuation of the Properties as at 1 September 2014. We noted
that depreciated replacement cost approach was adopted by Norton in
arriving at the open market value of the Properties. The depreciated
replacement cost approach requires a valuation of the market value of the
land in its existing use and an estimate of the new replacement cost of the
buildings and structures from which deductions are then allowed for the age,
condition and functional obsolescence. For the land portion of the
Properties, Norton has made reference to comparable sales evidence as
available in the market. We were advised by Norton that market approach is
not applicable for the valuation of the buildings and structures of the
Properties as no comparable transactions relating to assets of nature similar
to that of the buildings and structures of the Properties located nearby could
be identified while income approach is inappropriate as it involves making
subjective assumptions which are subject to uncertainties. On the other hand,
depreciated replacement cost approach generally furnishes a reliable
indication of value for property with specific nature and design of
buildings, in the absence of identifiable market sales comparables. Given
the nature of use and other particulars of the Properties, Norton considered
that the depreciated replacement cost approach was the most appropriate
valuation method in arriving at the valuation of the Properties. Moreover,
Norton advised us that such approach was in compliance with the standards
and guidelines set out in The HKIS Valuation Standards on Properties (2012
Edition) published by The Hong Kong Institute of Surveyors and the
– 70 –
LETTER FROM HERCULES CAPITAL
requirements set out in Chapter 5 and Practice Note 12 of the Listing Rules.
Having considered the aforementioned limitations in applying the direct
comparison approach and income approach in assessing the value of the
Properties, we concur with Norton that the depreciated replacement cost
approach is an appropriate method in arriving at the valuation of the
Properties.
We understand that in valuing the Properties, Norton has assumed that
(i) the Target Group has valid and enforceable title to the Properties which
are freely transferable, and has free and uninterrupted right to use the same,
for the whole of the unexpired land use terms granted subject to payment of
annual land use fees and all requisite land premium payable have been fully
settled; (ii) the Target Group sells the Properties on the open market without
the benefit of a deferred terms contract, leaseback, joint venture,
management agreement or any similar arrangement which would serve to
affect the values of the Properties; (iii) there are no options or rights of preemption concerning or effecting sale of the Properties and no forced sale
situations in any manner; and (iv) the Properties are free from encumbrances,
restrictions and outgoings of an onerous nature which could affect their
values. We consider that the abovementioned assumptions are common in
practice and fair and reasonable for the purposes of assessing the fair value
of the Properties. Given that the abovementioned assumptions are common
in practice and no changes in specific assumption are likely to affect the
valuation of the Properties significantly, no sensitivity analysis on the
valuation of the Properties have been conducted.
We also understand from Norton that it had carried out on-site
inspections, made relevant enquiries and searches for the purpose of the
valuation and no irregularities were noted during the course of the valuation.
Norton has made reference to comparable sales evidence as available in the
market for the valuation of the land portion of the Properties. We have
discussed with Norton the selection criteria of, and reviewed, the comparable
transactions used by Norton for the valuation of the land portion of the
Properties and noted that all the comparable transactions are of similar
nature and located in vicinity of the Properties. As such, we consider that the
comparable transactions used in valuing the land portion of the Properties
are reasonable and comparable to the land portion of the Properties. We
have also discussed with Norton, and reviewed, the calculation of the
replacement cost of the buildings and structures of the Properties prepared
by Norton after their physical inspection of the Properties. Given the
valuation methodology applied by Norton is normal and usual among
professional asset valuers and is in compliance with the standards published
by the Hong Kong Institute of Surveyors, we consider that the methodology
and basis for determining the valuation of the Properties by Norton is
appropriate.
– 71 –
LETTER FROM HERCULES CAPITAL
In light of the above and the fact that no unusual matters had come to
our attention that led us to believe that the valuation of the Properties was
not prepared on a reasonable basis, we are of the view that the valuation of
the Properties is fair and reasonable and it is appropriate for the Company to
take into account the valuation of the Properties performed by Norton in
assessing the value of the Target Group.
5.3.1.2Valuation of the Target Group
In forming our opinion on the consideration for the Acquisition, we
have considered the commonly adopted comparison approaches in
evaluation of a company, namely price-to-earnings approach, net assets
approach and dividends approach. However, given that no dividends were
declared by the Target for the past two years, we consider that the dividends
approach is not applicable for assessing the value of the Target Group. We
have identified certain companies which are listed on the Stock Exchange and
classified as engaged in the entertainment industry. However, no companies
listed on the Stock Exchange with over 50% of its revenue generated from the
operation of film studio, which is the same as the principal activity of the
Target Group, were identified. As such, it is not practicable to assess the
value of the Target Group by the price-to-earnings approach and net assets
approach. Meanwhile, we have identified only one company listed on the
Stock Exchange which is engaged in, among others, the operation of film
studio. Therefore, we considered that the comparison of the annual rental
yield is not applicable as the sample size is too small and is not
representative.
We have also considered to assess the value of the Target Group by
discounted cash flow method. However, given valuations using discounted
cash flow method involve various subjective assumptions and parameters
which may largely affect the value of the subject, we consider that it is
inappropriate to use discounted cash flow method to assess the value of the
Target Group.
Alternatively, we have assessed the consideration of the Sale Shares by
reference to the adjusted net asset value of the Target Group, which in our
opinion should be able to reflect the fair value of the Target Group as (i) the
value of the Properties would be adjusted with reference to the valuation as
at 1 September 2014; and (ii) most of the other assets and liabilities of the
Target Group are monetary assets and liabilities and thus they should have
been recorded in fair values in the Target Group’s accounts. Based on the
audited financial information of the Target Group as set out in Appendix II
to the Circular, the audited consolidated net liabilities of the Target Group
attributable to equity holder of the Target as at 30 June 2014 amounted to
approximately RMB11.9 million (equivalent to approximately HK$14.6
million). By adjusting for the valuation surplus of the Properties attributable
to equity holder of the Target of approximately HK$971.8 million, which
– 72 –
LETTER FROM HERCULES CAPITAL
represents the Target’s share (i.e. 90%) of the difference between the
valuation of the Properties of approximately HK$1,280.0 million and the
carrying value of the Properties of approximately RMB162.8 million
(equivalent to approximately HK$200.2 million) in the accounts of the
Target Group as at 30 June 2014, the adjusted consolidated net asset value of
the Target Group attributable to equity holder of the Target as at 30 June
2014 would be approximately HK$957.2 million. Accordingly, the adjusted
net asset value of the Target Group attributable to the Sale Shares would be
amounted to approximately HK$335.0 million.
As at 30 June 2014, the Sale Loans amounted to approximately
RMB25.9 million (equivalent to approximately HK$31.9 million).
Assuming the amount of the Sale Loans remains at approximately
RMB25.9 million as at the date of the Acquisition Completion, the
consideration for the Sale Shares will then be amounted to approximately
HK$328.1 million, which represents a discount of approximately 2.1% to the
adjusted net asset value of the Target Group attributable to the Sale Shares
of approximately HK$335.0 million.
Having considered that no sufficient comparables, which are listed on
the Stock Exchange and have similar principal activity as the Target Group,
were identified and the discounted cash flow valuation method involves
various subjective assumptions and parameters which may largely affect the
value of the subject while the adjusted net asset value of the Target Group
can generally reflect the fair value of the Target Group, we consider that the
approach of assessing the consideration of the Sale Shares by reference to the
adjusted net asset value of the Target Group is fair and reasonable. As the
consideration of the Sale Shares represents a discount to the adjusted net
asset value of the Target Group, we consider that the consideration for the
Sale Shares is fair and reasonable so far as the Independent Shareholders are
concerned and on normal commercial terms.
5.3.2 Consideration for the Sale Loans
Having considered that the Sale Loans are interest-free loans without any
option right and the fair value of the Sale Loans should have been fairly reflected
by their face value, we consider that the consideration for the Sale Loans, which
will be equal to the face value of the Sale Loans as at the Acquisition Completion
Date, is fair and reasonable.
– 73 –
LETTER FROM HERCULES CAPITAL
6.
THE RIGHTS ISSUE
In arriving at our opinion regarding the Rights Issue, we have considered the following
principal factors and reasons:
6.1 Reasons for the Rights Issue and proposed use of proceeds
The purpose of the Rights Issue is to finance the Acquisition and further
development of the Company. The Rights Issue and the Acquisition are interconditional.
The estimated gross proceeds and net proceeds (after deducting the estimated
expenses directly attributable to the Acquisition, the Capital Reorganisation and the
Rights Issue) from the Rights Issue will be approximately HK$788 million and
HK$754 million respectively. The Company intends to use the net proceed from the
Rights Issue as to (i) approximately HK$360 million for the Acquisition; (ii)
approximately HK$350 million for investment in production of films and television
programmes; and (iii) the remaining balance of approximately HK$44 million for
repayment of loans from SMI Corporation and other loans.
As set out in the sections headed ‘‘Outlook of the entertainment media industry in
the PRC’’ and ‘‘Information and prospects of the Group’’ in this letter, the Directors
are optimistic about the prospects of the entertainment media industry in the PRC in
the foreseeable future and is striving to become one of the leading entertainment media
industry players in the PRC. The Company has been looking for business opportunities
which are consistent with its long-term development plan. Therefore, the Company has
proposed to invest in the Target Group with proven profitable history so as to benefit
from the 35% profit derived from the Target Group. Meanwhile, the Group also
executed its investment plans to invest in production of television programmes and
films, details of which are set out in the section headed ‘‘Information and prospects of
the Group’’ in this letter.
Having considered (i) the reasons for and benefit of the Acquisition; (ii) the
positive outlook of the entertainment media industry in the PRC; (iii) the development
plan of the Group regarding the investment in production of television programmes
and films; and (iv) the fact that the repayment of loans from SMI Corporation and
other loans will improve the financial position of the Group, we concur with the view
of the Directors that it is in the interest of the Company to conduct a fund raising
activity to support the Acquisition and the development of the Group.
During our discussion with the management of the Company, we understood that
apart from the Rights Issue, the Company has also considered other alternative means
for fund raising such as bank borrowings and share placement. However, given the
current financial performance of the Group and the amount of required funding, the
Directors expected that bank borrowings with preferential terms might not be offered
and the approval of the bank borrowings might be subject to lengthy due diligence and
negotiations with the lenders. Besides, bank borrowings will inevitably increase interest
expenses of the Group and impose pressure on the Group’s financial position.
– 74 –
LETTER FROM HERCULES CAPITAL
Therefore, it will be in the interest of the Company to raise equity capital so as to
strengthen its capital base. Meanwhile, placing of new Shares will result in excessive
dilution to the shareholdings and value per Share of the existing Shareholders. On the
other hand, the Rights Issue will be effected on a pro-rata basis and offer all the
Qualifying Shareholders an equal opportunity to participate in the enlargement of the
capital base of the Company without diluting their corresponding shareholdings and to
participate in the long-term growth of the Company at a price lower than the current
market level. Moreover, the Qualifying Shareholders who do not take up their
entitlements in full are also given the opportunity to realise their nil-paid Rights Shares
for monetary reward by trading them in the market. On this basis, we concur with the
view of the Directors that the Rights Issue is an appropriate means for the Group to
obtain the required funding and is in the interests of the Company and the
Shareholders as a whole.
6.2 Principal terms of the Rights Issue
6.2.1 Issue Statistics
Basis of the Rights Issue:
eight Rights Shares for every one New Share
held on the Record Date
Number of Shares in issue:
562,557,684 Existing Shares as at the Latest
Practicable Date (equivalent to 281,278,842
New Shares assuming Capital Reorganisation
becoming effective)
Number of Warrants in
issue:
245,957 Existing Shares to be issued assuming
the Warrants are exercised in full (equivalent
to 122,978 New Shares)
Number of Rights Shares:
not less than 2,250,230,736 Rights Shares,
representing approximately 88.89% of the
enlarged issued share capital of the
Company upon completion of the Capital
Reorganisation and the Rights Issue and
assuming no issue of Shares before the
Record Date; and not more than
2,251,214,560 Rights Shares, representing
approximately 88.89% of the enlarged
issued share capital of the Company upon
completion of the Capital Reorganisation
and the Rights Issue and assuming all the
Warrants are exercised in full
Enlarged issued share capital
upon completion of the
Rights Issue:
not less than 2,531,509,578 New Shares and
not more than 2,532,616,380 New Shares
– 75 –
LETTER FROM HERCULES CAPITAL
Subscription Price:
HK$0.35 per Rights Share
Underwriter:
Emperor Securities Limited
As at the Latest Practicable Date, save for the Warrants entitling the
holder(s) thereof to subscribe for 245,957 Existing Shares, the Company had no
other outstanding warrants, options or convertible securities.
When allotted, issued and fully paid, the Rights Shares will rank pari passu
in all respects with the then New Shares in issue. Holders of fully paid Rights
Shares will be entitled to receive all future dividends and distributions which may
be declared, made or paid after the date of allotment and issue of the fully-paid
Rights Shares.
The Rights Issue is conditional upon, inter alia, the Underwriting Agreement
not being terminated by the Underwriter pursuant to the terms thereof on or
before the Latest Time for Termination and the Acquisition Agreement becoming
unconditional (other than any condition requiring the Underwriting Agreement to
become unconditional) and not having been terminated.
As at the Latest Practicable Date, SMI Investment held 168,597,281 Existing
Shares (or 84,298,640 New Shares upon the Capital Reorganisation becoming
effective), representing approximately 29.97% of the existing issued share capital
of the Company. Pursuant to the Irrevocable Undertaking, SMI Investment has
irrevocably undertaken to the Company and the Underwriter, among other
things, that it will remain as the beneficial owner of the Shares held by it until and
including the Record Date and it has agreed to subscribe for a total of 674,389,120
Rights Shares, being its full entitlement under the Rights Issue. As advised by
SMI Corporation, the Company understands that SMI Corporation has no
intention to subscribe for any excess Rights Shares under the Rights Issue.
6.2.2 Subscription Price
The Subscription Price represents:
(i)
a discount of approximately 45.31% to the equivalent closing price of
HK$0.64 per New Share based on the closing price of HK$0.32 per
Existing Share as quoted on the Stock Exchange on the Latest
Practicable Date;
(ii) a discount of approximately 83.33% to the equivalent closing price of
HK$2.10 per New Share based on the closing price of HK$1.050 per
Existing Share as quoted on the Stock Exchange on the Last Trading
Day;
– 76 –
LETTER FROM HERCULES CAPITAL
(iii) a discount of approximately 76.09% to the equivalent average closing
price of HK$1.464 per New Share based on the average closing price of
HK$0.732 per Existing Share for the five consecutive trading days up to
and including the Last Trading Day;
(iv) a discount of approximately 73.28% to the equivalent average closing
price of HK$1.310 per New Share based on the average closing price of
HK$0.655 per Existing Share for the ten consecutive trading days up to
and including the Last Trading Day; and
(v) a discount of approximately 35.66% to the theoretical ex-rights price of
approximately HK$0.544 per New Share based on the closing price of
HK$1.050 per Existing Share as quoted on the Stock Exchange on the
Last Trading Day.
Based on the theoretical ex-rights price of approximately HK$0.544 per New
Share with reference to the closing price of HK$1.05 per Existing Share as quoted
on the Stock Exchange on the Last Trading Day, the theoretical price of each nilpaid Rights Share, being the difference between the theoretical ex-rights price and
the Subscription Price, shall be HK$0.194.
The Subscription Price was arrived at after arm’s length negotiation between
the Company and the Underwriter with reference to the market price of the
Existing Shares under the prevailing market conditions. In view of the low trading
volume of the Shares as well as the global economic uncertainties, some
Qualifying Shareholders may be reluctant to participate in the Rights Issue. As
the Rights Shares are offered to all Qualifying Shareholders, the Directors intend
to set the Subscription Price at a level that would encourage the Qualifying
Shareholders to participate in the Rights Issue.
In order to assess the fairness and reasonableness of the Subscription Price,
we have reviewed the movements in adjusted closing price of the New Shares
(assuming that the Capital Reorganisation has becoming effective) during the
period from 9 August 2013, being 12 months immediately preceding the date of
the Underwriting Agreement, to the Latest Practicable Date (the ‘‘Review
Period’’).
– 77 –
LETTER FROM HERCULES CAPITAL
Chart 1 — Adjusted closing prices of the New Shares during the Review Period
3.0
Subscription Price = HK$0.35
Adjusted Closing Price (HK$)
2.5
2.0
1.5
1.0
0.5
0.0
/9
/8
3
01
2
Source:
2
/9
/9
3
01
/9
/9
/9
/9
/9
/9
/9
/9
/9
/9
24 24
10 3/11 /12 4/1 4/2 4/3 4/4 4/5 4/6 4/7 /8/ /9/
1
1
1
1
1
1
4
1
4
3
1
1
20
20 201 201
20
20
20
20
20
20 20
20
/
13
the website of the Stock Exchange
As illustrated in the above chart, the New Shares were traded above the
Subscription Price throughout the Review Period with an average of
approximately HK$1.48. The highest adjusted closing price and the lowest
adjusted closing price of the New Shares in the Review Period were HK$2.48 on
17 February 2014 and HK$0.64 on 19 September 2014, 22 September 2014, 23
September 2014, 22 October 2014 and the Latest Practicable Date respectively.
The Subscription Price represents a discount of approximately 85.89%, 45.31%
and 76.34% to the highest, lowest and average adjusted closing prices of the New
Shares of the Review Period respectively.
The adjusted closing prices of the New Shares fluctuated in the range of
HK$1.78 and HK$2.08 during the period from 9 August 2013 to 29 August 2013
and then gradually decreased to HK$1.40 on 13 November 2013 and rebounded to
HK$1.68 on 4 December 2013 following the publication of the announcement of
the Company dated 3 December 2013 regarding the entering into of the
Memorandum of Understanding. Since then, the adjusted closing price of the
New Shares decreased steadily to HK$1.40 on 19 December 2013 and fluctuated
in the range of HK$1.40 and HK$1.48 during the period from 20 December 2013
to 10 February 2014. The adjusted closing price of the New Shares rallied to the
highest level of the Review Period of HK$2.48 on 17 February 2014 and gradually
dropped to HK$1.72 on 20 May 2014. On 21 May 2014, the adjusted closing price
of the New Shares further decreased to the lowest level of HK$1.08 before the
publication of the Announcement. The Company published an announcement on
22 May 2014 stating that save for the entering into of the Memorandum of
Understanding and the possibility of conducting a fund raising exercise, the
Company was not aware of any reason for the reduction in the adjusted price of
the New Shares. Subsequently, the adjusted closing price of the New Shares
– 78 –
LETTER FROM HERCULES CAPITAL
fluctuated in the range of HK$1.08 and HK$1.28 during the period from 22 May
2014 to 4 June 2014 and then skyrocketed to HK$2.10 on the Last Trading Day.
On the same day, the Company published an announcement to (i) clarify that
there had been no official approach from the investment fund of Tencent
Holdings Limited with respect to the subscription of new Shares as reported by
press coverage in Hong Kong and the PRC; and (ii) announce that the Company
was close to finalise the terms of the Acquisition and the Rights Issue. After the
publication of the Announcement, the adjusted closing price of the New Shares
dropped to HK$1.02 on 11 August 2014 and further decreased to HK$0.64 on the
Latest Practicable Date.
We have also reviewed the historical trading volume of the Shares during the
Review Period. The average daily trading volume of the Shares, the percentages of
daily trading volume of the Shares as compared to the total number of issued
Shares and the Shares held by the public during the Review Period are shown in
Table 1 below.
Table 1 — Historical average daily trading volume of the Shares
Average
daily
trading
volume
% of average
daily trading
volume to the
total number
of Shares
(Note 1)
% of average
daily trading
volume to the
total number
of Shares in
public hands
(Note 2)
6,892,526
382,489
843,656
296,040
1,034,129
1.2252%
0.0680%
0.1500%
0.0526%
0.1838%
1.7495%
0.0971%
0.2141%
0.0751%
0.2625%
643,611
8,982,086
2,826,463
300,271
15,180,799
14,005,942
—
24,418,911
17,655,088
4,537,970
0.1144%
1.5967%
0.5024%
0.0534%
2.6985%
2.4897%
—
4.3407%
3.1384%
0.8067%
0.1634%
2.2799%
0.7174%
0.0762%
3.8534%
3.5552%
—
6.1983%
4.4814%
1.1519%
Month
2013
August (Note 3)
September
October
November
December
2014
January
February
March
April
May
June (Note 4)
July (Note 4)
August (Note 4)
September
October (Note 5)
– 79 –
LETTER FROM HERCULES CAPITAL
Source:
the website of the Stock Exchange
Notes:
1.
Calculated based on 562,557,684 Shares in issue as at the Latest Practicable Date.
2.
Calculated based on 393,960,403 Shares held in public hands as at the Latest Practicable
Date.
3.
Represents trading volume for the period from 9 August 2013 to 31 August 2013.
4.
The trading of the Shares was suspended during the period from 12 June 2014 to 8
August 2014 pending for the publication of the Announcement.
5.
Represents trading volume for the period from 1 October 2014 to the Latest Practicable
Date.
Table 1 demonstrates that during the Review Period, the average daily
trading volume of the Shares were in the range of approximately 0.0526% to
4.3407% as to the total number of issued Shares as at the Latest Practicable Date
and approximately 0.0751% to 6.1983% as to the total number of Shares held in
public hands as at the Latest Practicable Date. The above statistics revealed that
the liquidity of the Shares was relatively low.
To further evaluate the fairness and reasonableness of the Rights Issue, we
also considered a broad comparison of rights issues conducted by other
companies listed on the Main Board and the Growth Enterprise Market of the
Stock Exchange. Based on the information available from the Stock Exchange’s
website, we have reviewed, so far as we are aware of, all the rights issues
announced by the companies listed on the main board or Growth Enterprise
Market of the Stock Exchange (the ‘‘Comparables’’) during the period from 12
December 2013, being 6 months immediately preceding the Last Trading Day, to
the Latest Practicable Date (the ‘‘Comparable Period’’) for comparison purposes.
Having considered the recent volatility of the Hong Kong stock market and that
the Comparable Period (i) has covered the prevailing market conditions and
sentiments in the Hong Kong stock market; (ii) represented the recent structure of
the rights issues in Hong Kong; and (iii) allowed the Shareholders to have general
understanding of the recent rights issue transactions being conducted in the Hong
Kong stock market, we considered that the Comparable Period is adequate.
– 80 –
LETTER FROM HERCULES CAPITAL
Given that the terms of rights issues of the Comparables were determined
under similar market conditions and sentiments as those when the terms of the
Rights Issue were determined and reflect the recent trend of the rights issue
transactions in the market, we are of the opinion that the Comparables are fair
and representative samples for comparison purposes. We noted that the principal
businesses of the Comparables are not directly comparable to those carried on by
the Company. However, we consider that an industry comparison would not be
relevant as more emphasis would be put on other factors such as size of fund to be
raised, market conditions, share price and financial conditions of the company at
the time when the terms of rights issues are determined. Details of the trading
statistics of the Comparables are summarised in Table 2 below:
Table 2 — Trading statistics of the Comparables
Company name
(stock code)
Date of
announcement
(DD/MM/
YYYY)
Premium/(discount) of
subscription price over/(to)
the
the closing
theoretical
price on
ex-rights
the last
price
trading day
%
%
Basis of
entitlement
Commission
rate
%
Maximum
dilution
%
Excess
application
Yes/No
Noble Century Investment
Holdings Limited (2322)
12/12/2013
1 for 1 (with 2
bonus shares for
1 rights share)
(78.20)
(47.30)
3.50
75.01
No
Kader Holdings Company
Limited (180)
12/12/2013
3 for 7
(22.45)
(16.85)
2.50
(Note 1)
30.00
Yes
Lai Sun Garment
13/12/2013
(International) Limited (191)
4 for 25
(40.00)
(36.50)
2.50
13.79
Yes
Wanda Commercial Properties
(Group) Co., Limited (169)
13/12/2013
3 for 10
(17.70)
(14.30)
2.30
(Note 1)
23.08
Yes
China Agri-Products Exchange
Limited (149)
19/12/2013
15 for 1 (with 1
bonus share for
15 rights shares)
(90.35)
(35.50)
2.50
94.12
Yes
Landing International
Development Limited (582)
20/12/2013
1 for 2
(16.67)
(11.76)
1.18
(Note 1)
33.33
Yes
Sea Corporation Limited (491)
03/01/2014
9 for 1
(76.49)
(24.50)
3.00
90.00
Yes
Oriental Unicorn Agricultural
Group Limited (8120)
03/03/2014
13 for 2
(57.33)
(15.21)
3.50
86.66
Yes
Sincere Watch (Hong Kong)
Limited (444)
04/03/2014
1 for 2
(67.91)
(58.53)
2.50
(Note 1)
33.20
Yes
New World Development
Company Limited (17)
13/03/2014
1 for 3
(36.30)
(30.00)
2.50
25.00
Yes
Computech Holdings Limited
(8081)
21/03/2014
1 for 2
(23.35)
(16.88)
3.50
33.33
Yes
Dah Sing Banking Group
Limited (2356)
26/03/2014
12 for 100
(33.33)
(30.86)
2.25
10.71
Yes
Dah Sing Financial Holdings
Limited (440)
26/03/2014
13 for 100
(33.99)
(31.30)
2.25
11.51
Yes
Fosun International Limited
(656)
09/04/2014
39 for 500
0.00
0.00
0.00
(Note 1)
7.24
Yes
– 81 –
LETTER FROM HERCULES CAPITAL
Company name
(stock code)
Date of
announcement
(DD/MM/
YYYY)
Premium/(discount) of
subscription price over/(to)
the
the closing
theoretical
price on
ex-rights
the last
price
trading day
%
%
Basis of
entitlement
Commission
rate
%
Maximum
dilution
%
Excess
application
Yes/No
CMMB Vision Holdings
Limited (471)
09/04/2014
2 for 1 (with 1
bonus share for
2 rights shares)
(56.10)
(24.20) 2.50 and 0.00
(Note 2)
75.00
No
Merdeka Resources Holdings
Limited (8163)
11/04/2014
4 for 1
(75.16)
(38.46)
3.50
80.00
No
China Primary Resources
Holdings Limited (8117)
11/04/2014
1 for 2
(56.70)
(46.60)
0.00
(Note 1)
33.35
Yes
Haitong International Securities 22/04/2014
Group Limited (665)
1 for 2
(11.21)
(7.77)
N/A
(Note 3)
33.36
Yes
National Arts Entertainment
and Culture Group Limited
(8228)
02/05/2014
6 for 1
(70.16)
(25.10)
2.50
85.72
Yes
Uni-President China Holdings
Limited (220)
11/05/2014
1 for 5
(29.60)
(26.00)
1.20
16.67
Yes
eForce Holdings Limited (943)
22/05/2014
16 for 1
(80.39)
(19.43)
3.00
94.12
Yes
HKT Trust and HKT Limited
(6823)
13/06/2014
18 for 100
(20.65)
(18.08)
2.20
15.24
No
Vision Fame International
Holdings Limited (1315)
19/06/2014
1 for 1
(20.00)
(11.11)
1.00
50.00
No
Applied Development Holdings
Limited (519)
03/07/2014
1 for 2
(67.30)
(57.90)
2.50
33.32
Yes
Sau San Tong Holdings Limited 10/07/2014
(8200)
3 for 1
(77.27)
(45.95)
2.50
75.00
Yes
Opes Asia Development Limited 11/07/2014
(810)
4 for 1
(67.21)
(29.10)
2.50
80.00
No
China Gamma Group Limited
(164)
13/07/2014
1 for 2
(59.76)
(49.74)
1.00
33.34
Yes
South East Group Limited (726) 11/08/2014
8 for 1
(71.43)
(21.88)
2.50
88.89
Yes
China New Economy Fund
Limited (80)
12/08/2014
1 for 2
(36.36)
(27.59)
2.50
33.30
No
China Renji Medical Group
Limited (648)
17/08/2014
1 for 2
(52.60)
(42.60)
4.00
33.33
No
China Yunnan Tin Minerals
Group Company Limited
(263)
18/08/2014
9 for 1
(65.22)
(14.57)
3.00
90.00
Yes
Guotai Junan International
Holdings Limited (1788)
18/08/2014
1 for 5
(9.56)
(8.15)
0.00
(Note 1)
16.68
Yes
Rui Kang Pharmaceutical
Group Investments Limited
(8037)
20/08/2014
1 for 2
(19.60)
(13.98)
2.50
33.33
No
VenturepharmLaboratories
Limited (8225)
25/08/2014
3 for 2
(71.42)
(50.00)
0.00
(Note 1)
63.12
Yes
– 82 –
LETTER FROM HERCULES CAPITAL
Premium/(discount) of
subscription price over/(to)
the
the closing
theoretical
price on
ex-rights
the last
price
trading day
%
%
Date of
announcement
(DD/MM/
YYYY)
Basis of
entitlement
Cheong Ming Investments
Limited (1196)
27/08/2014
1 for 4
(13.00)
Country Garden Holdings
Company Limited (2007)
27/08/2014
1 for 15
Midas International Holdings
Limited (1172)
02/09/2014
Commission
rate
%
Maximum
dilution
%
(10.70)
2.00
(Note 1)
20.00
Yes
(30.90)
(29.60)
1.75
6.27
Yes
1 for 2
(46.80)
(37.10)
2.50
33.33
Yes
Bright Smart Securities &
03/09/2014
Commodities Group Limited
(1428)
1 for 2
(27.54)
(20.00) 2.50 and 0.00
(Note 2)
33.32
Yes
Yuexiu Property Company
Limited (123)
03/09/2014
33 for 100
(25.15)
(20.38) 2.00% plus a
discretionary
incentive of
0.25%
at the sole
discretion of
the company
24.82
Yes
Easyknit Enterprises Holdings
Limited (616)
05/09/2014
8 for 1
(80.80)
(32.00)
1.00
88.89
Yes
First Credit Finance Group
Limited (8215)
18/09/2014
3 for 1
(78.00)
(47.00)
2.50
75.00
No
Agile Property Holdings
Limited (3383)
22/09/2014
1 for 5
(31.15)
(27.40)
1.75
16.66
Yes
Tonly Electronics Holdings
Limited (1249)
29/09/2014
1 for 2
(20.93)
(15.00)
0.00
(Note 1)
33.34
Yes
Unlimited Creativity Holdings
Limited (8079)
10/10/2014
5 for 2
(51.52)
(23.08)
2.50
71.42
No
China Taiping Insurance
Holdings Company Limited
(966)
10/10/2014
21 for 100
(33.70)
(29.60)
HK$9.5
million
(Note 1)
17.36
Yes
Agile Property Holdings
Limited (3383)
15/10/2014
1 for 8
(8.65)
(7.77)
1.75
(Note 1)
11.11
Yes
Roma Group Limited (8072)
20/10/2014
3 for 1
(56.73)
(25.00)
2.25
75.00
Yes
China Strategic Holdings
Limited (235)
22/10/2014
1 for 2
(59.80)
(49.69)
2.50
33.35
Yes
Shangri-La Asia Limited (69)
23/10/2014
1 for 7
0.00
0.00
1.00
(Note 1)
12.48
Yes
0.00
(90.35)
(44.42)
0.00
(58.53)
(26.98)
4.00
0.00
2.02
94.12
6.27
44.55
(83.33)
(35.66)
4.50
88.89
Company name
(stock code)
Maximum
Minimum
Average
The Company (2366)
08/08/2014
Source:
8 for 1
the website of the Stock Exchange
– 83 –
Excess
application
Yes/No
Yes
LETTER FROM HERCULES CAPITAL
Notes:
1.
These commission rates were offered by underwriters who were connected persons of the
respective companies.
2.
Commission rate of 2.50% was offered by underwriters who were independent third
parties of the respective companies while no commissions were charged by underwriters
who were connected persons of the respective companies.
3.
The commission rate was not mentioned in the announcement.
We noted from Table 2 that only two of the Comparables set the subscription
prices of their rights issues equal to their closing prices on the last trading day and
all other Comparables set the subscription prices of their rights issues at a
discount to the prevailing market prices of their shares before the relevant
announcements in respect of the rights issues were made. We consider, therefore,
it is a normal market practice for companies to set the subscription prices at a
discount to the prevailing market prices of their shares to encourage the
shareholders to participate in the rights issues.
As illustrated in Table 2, the subscription prices of the Comparables were set
at a range from discount of approximately 0.00% to 90.35% to their respective
closing prices as quoted on the last trading day prior to the date of the relevant
rights issue announcements. The discount of approximately 83.33% of the
Subscription Price to the adjusted closing price of the New Shares on the Last
Trading Day falls within the range of those of the Comparables and it is higher
than the average discount of the Comparables of approximately 44.42%.
The subscription prices of the Comparables represent a range from discount
of approximately 0.00% to 58.53% to their respective theoretical ex-rights prices
as quoted on the last trading day prior to the date of the relevant rights issue
announcements. The discount of approximately 35.66% of the Subscription Price
to the theoretical ex-rights prices of the Shares on the Last Trading Day falls
within the range of those of the Comparables and it is higher than the average
discount of the Comparables of approximately 26.98%.
Based on the above analysis and the facts that (i) the Shares were traded
above the Subscription Price throughout the Review Period; (ii) the volatility of
the market prices of the Shares was high during the Review Period; (iii) the
liquidity in trading of the Shares was thin during the Review Period; (iv) the
Group recorded consolidated loss for the last two financial years; (v) it is common
for listed companies in Hong Kong to set the subscription price of rights issues at
a discount to the market price in order to enhance the attractiveness of the rights
issue transactions; (vi) the discounts of the Subscription Price to the adjusted
closing price on the Last Trading Day and to the theoretical ex-rights price fall
within the range of the Comparables; and (vii) the interest of the Qualifying
Shareholders will not be prejudiced by the discount of the Subscription Price as
long as they are offered with an equal opportunity to participate in the Rights
Issue, we consider that a deep discount on the Subscription Price may encourage
– 84 –
LETTER FROM HERCULES CAPITAL
the Qualifying Shareholders to participate in the Rights Issue and is justifiable
and the Subscription Price is on normal commercial term and is fair and
reasonable so far as the Independent Shareholders are concerned.
6.2.3 Application for excess Rights Shares
As stated in the ‘‘Letter from the Board’’, the Qualifying Shareholders are
entitled to apply for any unsold entitlement of the Excluded Shareholders and any
Rights Share provisionally allotted but not accepted by the Qualifying
Shareholders. Applications may be made only by the Qualifying Shareholders
and only by completing the form of application for excess Rights Shares and
lodging the same with a separate remittance for the excess Rights Shares being
applied for. The Directors will allocate the excess Rights Shares at their discretion
on a pro-rata basis in proportion to the number of excess Rights Shares being
applied for under each application. No preference will be given to topping-up odd
lots to whole board lots.
As set out in Table 2, 38 out of 49 Comparables have the arrangement for
excess application. Since the arrangement for application for excess rights shares
is a common practice among the rights issues conducted recently and the
allocation basis adopted by the Company is in line with the normal market
practice of other rights issue transactions and the shareholding of each Qualifying
Shareholder, except those who do not take up their rights entitlements under the
provisional allotment and/or apply for excess Rights Shares, will be largely
maintained after the completion of the Rights Issue, we concur with the Directors
that the arrangement for allocation of the excess Rights Shares is fair and
equitable so far as the Independent Shareholders are concerned.
6.3 Underwriting arrangement
Pursuant to the Underwriting Agreement, the Underwriter has conditionally
agreed to underwrite the Rights Shares not subscribed by the Qualifying Shareholders
(excluding 674,389,120 Rights Shares agreed to be taken up by SMI Investment
pursuant to the Irrevocable Undertaking) on a fully underwritten basis, being not less
than 1,575,841,616 Rights Shares and not more than 1,576,825,440 Rights Shares,
subject to the terms and conditions of the Underwriting Agreement. The Company
shall pay the Underwriter (i) a commission of 4.5% of the aggregate Subscription Price
in respect of the maximum number of Rights Shares underwritten by the Underwriter;
and (ii) all costs and other out-of-pocket expenses properly incurred by the
Underwriter in respect of the Rights Issue.
As illustrated in Table 2, the underwriting commission of 4.5% to be charged by
the Underwriter under the Underwriting Agreement is out of the range of the
Comparables of nil to 4.0%. We understand from the management of the Company
that the Company had not approached other underwriters in respect of the Rights
Issue as (i) the small market capitalisation of the Company, being HK$591 million as
at the Last Trading Day, and the large number of the Underwritten Shares would make
it difficult for the Company to negotiate with the other underwriters on the terms of
– 85 –
LETTER FROM HERCULES CAPITAL
the Underwriting Agreement; (ii) the Company’s long standing relationship with
Emperor Securities whom it believes is a reputable securities firm which has assisted
the Company to successfully complete the rights issues of the Company in the past two
years; and (iii) the Company is mindful of the laws and regulations in Hong Kong
pertaining to the need to preserve the confidentiality of inside information. As the
information relating to the Rights Issue is highly price-sensitive, taking into account
the above-mentioned factors, the Company decided not to approach multiple potential
underwriters with whom it does not have prior business relationship.
We are of the view that the underwriting commission rate is relatively high as
compared to other rights issue transactions conducted recently. However, in view of (i)
the consecutive loss making records of the Group; (ii) the size of the Underwritten
Shares and the small market capitalisation of the Company; (iii) the reasons for the
Rights Issue; and (iv) the fact that the underwriting commission rate was determined
after arm’s length negotiations between the Company and the Underwriter, who is a
third party independent of the Company and its connected persons, we consider that
the underwriting commission rate is fair and reasonable so far as the Independent
Shareholders are concerned although it is higher than the market rate.
It should be noted that the Rights Issue will not proceed if the Underwriter
exercises its termination rights under the Underwriting Agreement. Details of the
provisions granting the Underwriter such termination rights are included in the ‘‘Letter
from the Board’’. We have reviewed the announcement of the Comparables and
consider such provisions are on normal commercial terms and in line with the market
practice.
6.4 Dilution effect of the Rights Issue on shareholding interests
All Qualifying Shareholders are entitled to subscribe for the Rights Shares. For
those Qualifying Shareholders who take up their full entitlements under the Rights
Issue and do not apply for excess Rights Shares, their shareholding interests in the
Company will remain unchanged after the Rights Issue.
As set out in Table 2, the maximum dilution of the Comparables ranged from
approximately 6.27% to approximately 94.12% with an average dilution of
approximately 44.55%. For those Qualifying Shareholders who do not subscribe for
their full entitlements under the Rights Issue, depending on the extent to which they
subscribe for the Rights Shares, their shareholding interests in the Company upon
completion of the Rights Issue will be diluted by up to a maximum of approximately
88.9%, which falls within the range, but higher than the average, of the Comparables.
However, such Shareholders will have the opportunity to realise their nil-paid rights to
subscribe for the Rights Shares in the market during the dealing of nil-paid Rights
Shares on the Stock Exchange in board lots of 5,000, subject to the then prevailing
market conditions. Meanwhile, the Qualifying Shareholders who wish to increase their
shareholdings in the Company through the Rights Issue may, subject to availability,
acquire additional nil-paid Rights Shares in the market or apply for excess Rights
Shares.
– 86 –
LETTER FROM HERCULES CAPITAL
We would like to draw the Independent Shareholders’ attention to the fact that, in
case all the Qualifying Shareholders (other that SMI Investment) decide not to take up
the provisional allotments of the Rights Issue and the Underwriter has taken up all the
provisional allotments in its capacity as the Underwriter, the percentage of
shareholding of the public Shareholders will be reduced from approximately 70.03%
as at the Latest Practicable Date to approximately 7.78% immediately upon
completion of the Rights Issue.
We are of the view that the arrangement for the Rights Issue is in line with the
recent market practice for rights issues and the dilution effect is not prejudicial as all
Qualifying Shareholders are offered an equal opportunity to participate in the
enlargement of the capital base of the Company and Independent Shareholders’
interests in the Company will not be diluted if they elect to exercise their full
entitlements under the Rights Issue.
7.
FINANCIAL
EFFECTS
OF
THE
ACQUISITION,
REORGANISATION AND THE RIGHTS ISSUE
THE
CAPITAL
7.1 Earnings
Upon the Acquisition Completion, the results of the Target Group will be
accounted for in the consolidated financial statements of the Group by equity method.
Meanwhile, the Capital Reorganisation and the Rights Issue shall not have any
significant impact on the earnings of the Group. Therefore, had the Acquisition, the
Capital Reorganisation and the Rights Issue been completed on 1 January 2013, the
loss of the Group attributable to equity holders of the Company would have decreased
as the Target Group recorded profit for the year ended 31 December 2013.
7.2 Net Asset Value
With reference to the unaudited pro forma financial information of the Enlarged
Group as set out in Appendix III to the Circular, had the Acquisition, the Capital
Reorganisation and the Rights Issue been completed on 30 June 2014, the net asset
value of the Group attributable to the equity holders of the Company would have
increased from approximately HK$821.4 million to approximately HK$1,575.8
million.
7.3 Cashflow
The net proceeds from the Rights Issue are estimated to be approximately
HK$754.0 million, of which HK$360.0 million will be used to settle the cash
consideration of the Acquisition.
7.4 Gearing
With reference to the unaudited pro forma financial information of the Enlarged
Group as set out in Appendix III to the Circular, had the Acquisition, the Capital
Reorganisation and the Rights Issue been completed on 30 June 2014, the total assets
– 87 –
LETTER FROM HERCULES CAPITAL
of the Group would have increased by approximately HK$787.6 million to
approximately HK$1,901.1 million while the total liabilities of the Group would
have increased by approximately HK$33.1 million to approximately HK$325.0
million. As such, the gearing of the Group (as expressed as the ratio of total
liabilities to total assets) would have decreased from approximately 0.26 to
approximately 0.17.
Based on the above analysis, we are of the view that the Acquisition, the Capital
Reorganisation and the Rights Issue would have a positive effect on the Group’s
earnings, net asset value, cashflow and gearing.
8.
RECOMMENDATION
Having considered the abovementioned principal factors and reasons, we consider that
the Acquisition and the Rights Issue (including the Underwriting Agreement) are on normal
commercial terms and the respective terms of the Acquisition and the Rights Issue
(including the Underwriting Agreement) 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. Accordingly, we recommend the Independent Board Committee to advise the
Independent Shareholders, as well as the Independent Shareholders, to vote in favour of the
resolutions to approve the Acquisition and the Rights Issue (including the Underwriting
Agreement) at the EGM.
Yours faithfully,
For and on behalf of
Hercules Capital Limited
Louis Koo
Managing Director
Amilia Tsang
Director
Notes:
1.
Mr. Louis Koo is a licensed person under the SFO to engage in Type 6 (advising on corporate finance)
regulated activities and has over 20 years of experience in investment banking and corporate finance.
2.
Ms. Amilia Tsang is a licensed person under the SFO to engage in Type 6 (advising on corporate finance)
regulated activities and has over 15 years of experience in corporate finance, investment and corporate
management.
– 88 –
APPENDIX I
1.
FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP
The audited consolidated financial information of the Group (i) for the year ended
30 September 2011 is set out on pages 41 to 119 of the annual report of the Company for the
year ended 30 September 2011 published at http://www.hkexnews.hk/listedco/listconews/
SEHK/2012/0105/LTN20120105476.pdf on 5 January 2012; (ii) for the fifteen months
ended 31 December 2012 is set out on pages 68 to 207 of the annual report of the Company
for the fifteen months ended 31 December 2012 published at http://www.hkexnews.hk/
listedco/listconews/SEHK/2013/0429/LTN20130429959.pdf on 29 April 2013; and (iii) for
the year ended 31 December 2013 is set out on pages 57 to 187 of the annual report of the
Company for the year ended 31 December 2013 published at http://www.hkexnews.hk/
listedco/listconews/SEHK/2014/0430/LTN20140430448.pdf on 30 April 2014. The
unaudited consolidated financial information of the Group for the six months ended 30
June 2014 is set out on pages 15 to 44 of the interim report of the Company for the six
months ended 30 June 2014 (the ‘‘Interim Report 2014’’) published at
http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0910/LTN20140910282.pdf
on
10 September 2014. All of the aforesaid annual reports and the Interim Report 2014 are
also available on the website of the Company (http://www.smiculture2366.com).
2.
INDEBTEDNESS STATEMENT
As at the close of business on 30 September 2014, the total indebtedness, on an
Enlarged Group basis, amounted to approximately HK$40.1 million and comprised
unsecured other loans of approximately HK$13.0 million, unsecured loans from a
Shareholder of approximately HK$23.4 million, obligation under finance leases of
approximately HK$0.6 million and operating lease commitment of approximately
HK$3.1 million.
Save as aforesaid and apart from intra-group liabilities, as at the close of business on
30 September 2014, the Enlarged Group did not have any mortgages, charges, debentures,
loan capital, bank loans and overdrafts, debt securities or other similar indebtedness,
finance leases or hire purchase commitments, liabilities under acceptances or acceptance
creditors, or guarantees, or other material contingent liabilities outstanding.
3.
WORKING CAPITAL
The Directors, after due and careful enquiry, are of the opinion that after taking into
account internally generated funds of the Enlarged Group and the net proceeds from the
Rights Issue, the Enlarged Group will have sufficient working capital for its present
requirements for at least the next twelve months from the date of this circular, in the
absence of unforeseeable circumstances.
4.
MATERIAL ADVERSE CHANGE
As at the Latest Practicable Date, the Directors were not aware of any material adverse
change in the financial or trading position of the Group since 31 December 2013, the date to
which the latest audited consolidated financial statements of the Group were made up.
– I-1 –
APPENDIX I
5.
FINANCIAL INFORMATION OF THE GROUP
FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP
The Group has been principally engaged in the provision of media services including
television programmes related services, television advertising services, outdoor advertising
services, and other public relations services in the PRC. The Group has been striving to
become one of the leading entertainment media industry players in the PRC. However, the
Group’s financial performance was not satisfactory in recent years. The Group recorded
audited turnover of approximately HK$191.4 million for the year ended 31 December 2013,
a drop of approximately 60.0% from approximately HK$478.8 million for the fifteen
months ended 31 December 2012. The Group’s turnover continued to display a falling
momentum in the first half of 2014. As shown in the Interim Report 2014, the Group’s
unaudited turnover declined to approximately HK$51.7 million for the six months ended
30 June 2014 from approximately HK$96.7 million for the corresponding six-month period
in 2013. In view of the unsatisfactory performance of the Group, the Group has been
actively looking for attractive investment opportunities and striving to extend its business
reach and enhance profitability to maximise its Shareholder’s value. To this end, the Group
started to engage in the investment in the production of films and television programmes in
2014. The Company believes that the investment in the production of films and television
programmes will be one of the most significant principal business activities in the future.
Following the invested films and television programmes targeted to be on-air by the end of
2014, the Company is expected to have breakthrough in its performance.
In addition, as set out in the paragraph headed ‘‘Reasons for the Acquisition’’ in the
‘‘Letter from the Board’’ in this circular, the Group intends to enhance its profitability
through the Acquisition. Notwithstanding the fact that the Company will only obtain a
minority interest in the Target upon Acquisition Completion and will not have control over
the Target Group, taking into account the profitable performance of the Target Group, the
Directors believe that the Acquisition would allow the Group to benefit from the 35%
profit derived from the Target Group and, if possible, it also represents a good opportunity
for the Group to enhance its existing business by utilising the production facilities of the
Target Group.
Looking ahead, as disclosed in the Interim Report 2014, the Group (or the Enlarged
Group upon Acquisition Completion) will continue to increase its investment in the digital
contents, the digital entertainment and the filming facilities, so as to enhance the
Company’s core competitiveness and profitability, establish an innovative business model
for the sustainable development of a digital media company and maximise the investment
returns of the Shareholders.
Digital contents
The Company will focus on the production and distribution of films, television
dramas, micro films and internet dramas, set up a copyright database, and develop a fivechannel broadcast network incorporating virtual cinemas, mobile applications, network,
television and outdoor media, so as to maximise the revenue from copyright distribution.
– I-2 –
APPENDIX I
FINANCIAL INFORMATION OF THE GROUP
Digital entertainment
The Company will leverage on the valuable opportunities presented by the rapidlydeveloping mobile internet and to achieve strong profit growth in this sector. Building on its
remarkable capability of offering content products and ample resources from advertising
clients, the Company will actively expand into the mobile video business and develop a
market network comprising mainly mobile users and covering new media terminals such as
internet protocol televisions, digital televisions and personal computers. This will allow the
Company to scale up its base of high-valued clients.
Filming facilities
The Company intends to expand the business scope to include venue booking, pre- and
post-production, programme distribution, special and motion effects, props and backdrop,
education and training, artist talent management, tourism, hotel catering and organisation
of fashion events, with an aim to establish a comprehensive cultural media conglomerate
which can take the revenue of the production facilities to a whole new level. Looking
forward, the Company will strive to expand the scale of its performing operating assets and
boost its return of investment by identifying suitable sites to construct a new production
facility incorporating elements of cultural tourism.
– I-3 –
APPENDIX II
A.
FINANCIAL INFORMATION OF THE TARGET GROUP
ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE
TARGET GROUP
The following is the full text of a report prepared for the sole purpose of inclusion in this
circular received from Patrick Wong C.P.A. Limited, the independent reporting accountants.
Terms defined herein apply to this report only.
Tel: +852 3187 8200
Fax: +852 3187 8279
www. pwcpa.com.hk
1101, 11/F, China Insurance Group Building
141 Des Voeux Road Central
Hong Kong
27 October 2014
The Directors
SMI Culture Group Holdings Limited
19/F., Prosperity Tower
No. 39 Queen’s Road Central
Central
Hong Kong
Dear Sirs,
We set out below our report on the financial information of Grand Astute Limited
(‘‘the Target’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Target
Group’’) in Sections I and II below, including the consolidated and company statements of
financial position as at 31 December 2011, 2012 and 2013 and 30 June 2014, and the
consolidated statements of comprehensive income, the consolidated statements of changes
in equity and the consolidated statements of cash flows for each of the three years ended 31
December 2011, 2012 and 2013 and for the six months ended 30 June 2014 (the ‘‘Relevant
Periods’’) of the Target Group and notes thereto (hereinafter collectively referred to as the
‘‘Financial Information’’), together with the unaudited consolidated financial information
of the Target Group including the consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows
for the six months ended 30 June 2013 (the ‘‘30 June 2013 Corresponding Information’’) of
the Target Group, prepared for inclusion in the circular issued by SMI Culture Group
Holdings Limited (the ‘‘Company’’) dated 27 October 2014 (the ‘‘Circular’’) in connection
with the proposed acquisition of 35% equity interest in and shareholder’s loans to the
Target by a subsidiary of the Company.
– II-1 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The Target is an investment holding company incorporated in the British Virgin Island
(the ‘‘BVI’’) with limited liability. Its principal asset is its investment in Film Will Limited
and Orvelle Limited, the investment holding companies incorporated in the BVI with
limited liability which, together, indirectly hold 90% equity interest in Stellar Mega
Jinsheng Film Studio Management Company Limited (‘‘Stellar Mega’’), the principal
subsidiary of the Target Group, through their respective interests in Element Link Limited
and Everway (HK) Limited, which are limited liability companies incorporated in Hong
Kong.
Stellar Mega is a sino-foreign equity joint venture established under the laws of the
People’s Republic of China (the ‘‘PRC’’) with limited liability on 23 October 1995. It is
owned as to 10% by an independent third party, 60% by Element Link Limited and 30% by
Everway (HK) Limited. It is principally engaged in the provision of the television
programmes and film production facilities leasing services.
Details of the Target’s direct and indirect interests in its subsidiaries, including the
names of the subsidiaries, at the date of this report are set out in note 1 of the Financial
Information. All companies comprising the Target Group have adopted 31 December as
their financial year end date.
No statutory accounts have been prepared for the Target since its incorporation as it is
not required by the local government to prepare statutory accounts. The statutory financial
statements of Stellar Mega for the Relevant Periods prepared in accordance with the
relevant accounting principles and accounting rules applicable to enterprises established in
the PRC and were audited by Zhongbao Certified Public Accountants Co. Ltd., Certified
Public Accountants, registered in the PRC.
For the purpose of this report, the sole director of the Target has prepared the
consolidated financial statements of the Target Group for the Relevant Periods (the
‘‘Underlying Financial Statements’’) that give a true and fair view in accordance with Hong
Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the Hong Kong Institute of
Certified Public Accountants (the ‘‘HKICPA’’), based on the audited financial statements
or, where appropriate, unaudited management accounts of the companies now comprising
the Target Group.
The Financial Information has been prepared by the sole director of the Target based
on the Underlying Financial Statements. No adjustments on the Underlying Financial
Statements for the Relevant Periods are considered necessary for the purpose of preparing
the Financial Information.
– II-2 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The directors of the Company are responsible for the contents of the Circular including
the preparation and the true and fair presentation of the Financial Information in
accordance with the accounting policies set out in note 3 of the Financial Information
which comply with HKFRSs and the applicable disclosure provisions of the Rules
Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the
‘‘Listing Rules’’), and for such internal control as the directors of the Company determine is
necessary to enable the preparation of the Financial Information that is free from material
misstatement, whether due to fraud or error.
Our responsibility is to form an opinion on the Financial Information based on our
procedures and to report our opinion to you.
For the purpose of this report, we have carried out audit procedures in respect of the
Underlying Financial Statements in accordance with Hong Kong Standards on Auditing
issued by the HKICPA and have examined the Financial Information of the Target Group
and carried out appropriate procedures as we considered necessary in accordance with
Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ issued by the
HKICPA.
OPINION
In our opinion, the Financial Information, for the purpose of this report, gives a true
and fair view of the state of affairs of the Target Group and the Target as at 31 December
2011, 2012 and 2013 and 30 June 2014 and of the consolidated results and consolidated cash
flows of the Target Group for the Relevant Periods in accordance with the HKFRSs.
EMPHASIS OF MATTER — MATERIAL UNCERTAINTY REGARDING THE GOING
CONCERN ASSUMPTION
Without qualifying our opinion, we draw attention to note 3.1 of Financial
Information which indicates that the Target Group had net current liabilities of
approximately
RMB291,959,000,
RMB277,377,000,
RMB241,397,000
and
RMB212,720,000 and had accumulated losses of approximately RMB113,209,000,
RMB91,142,000, RMB69,486,000 and RMB48,089,000 as at 31 December 2011, 2012 and
2013 and 30 June 2014 respectively; and the Target had net current liabilities of
approximately RMB8,000 and RMB10,000 and had accumulated losses of approximately
RMB7,000 and RMB9,000 as at 31 December 2013 and 30 June 2014 respectively; and the
Target Group had operating lease commitments in respect of lease payments for land plots
in the PRC of approximately RMB6,360,000 (note 26 of the Financial Information) and
capital commitments of approximately RMB6,188,000 (note 27 of the Financial
Information) as at 30 June 2014. These conditions, along with other matters set out in
note 3.1 of the Financial Information, indicate the existence of a material uncertainty which
may cast significant doubt about the Target Group’s and Target’s ability to continue as a
going concern.
– II-3 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
CORRESPONDING FINANCIAL INFORMATION
For the purpose of this report, we have reviewed the 30 June 2013 Corresponding
Information, which is prepared in accordance with HKFRSs, in accordance with Hong
Kong Standard on Review Engagements 2410 ‘‘Review of Interim Financial Information
Performed by the Independent Auditor of the Entity’’ issued by the HKICPA. The sole
director of the Target is responsible for the preparation and presentation of the 30 June
2013 Corresponding Information in accordance with the accounting policies set out in note
3 of the Financial Information which comply with HKFRSs and the applicable disclosure
provisions of the Listing Rules. Our responsibility is to express a conclusion on the 30 June
2013 Corresponding Information based on our review. A review principally consists of
making enquiries, primarily of persons responsible for financial and accounting matters,
and applying analytical and other review procedures to the 30 June 2013 Corresponding
Information. A review is substantially less in scope than an audit conducted in accordance
with Hong Kong Standards on Auditing and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion on the 30 June 2013
Corresponding Information.
REVIEW CONCLUSION
Based on our review, nothing has come to our attention that causes us to believe that
the 30 June 2013 Corresponding Information, for the purpose of this report, is not
prepared, in all material respects, in accordance with the same basis adopted in respect of
the Financial Information.
– II-4 –
APPENDIX II
I.
FINANCIAL INFORMATION OF THE TARGET GROUP
FINANCIAL INFORMATION OF THE TARGET GROUP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Notes
Six months ended 30 June
2014
2013
RMB’000
RMB’000
(Unaudited)
46,084
(9,936)
71,622
(11,875)
77,300
(13,129)
26,538
(4,375)
27,570
(5,111)
6
36,148
12,260
59,747
3,402
64,171
3,648
22,163
29,381
22,459
462
7
(22,953)
—
(31,661)
—
(35,869)
—
(18,408)
(4,626)
(15,991)
—
8
9
25,455
(6,231)
31,488
(6,969)
31,950
(7,888)
28,510
(4,735)
6,930
(1,956)
19,224
24,519
24,062
23,775
4,974
2,736
448
2,325
Total comprehensive income
for the year
21,960
24,967
26,387
23,196
6,561
Profit attributable to:
Equity holder of the Target
Non-controlling interest
17,302
1,922
22,067
2,452
21,656
2,406
21,397
2,378
4,477
497
19,224
24,519
24,062
23,775
4,974
20,038
1,922
22,515
2,452
23,981
2,406
20,818
2,378
6,064
497
21,960
24,967
26,387
23,196
6,561
Revenue
Cost of revenue
Gross profit
Other revenue
Administrative and other
operating expenses
Finance cost
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income/(loss)
Exchange differences on
translating the Target and its
subsidiaries
Total comprehensive income
attributable to:
Equity holder of the Target
Non-controlling interest
6
Year ended 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
9
– II-5 –
(579)
1,587
APPENDIX II
I.
FINANCIAL INFORMATION OF THE TARGET GROUP
FINANCIAL INFORMATION OF THE TARGET GROUP
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Notes
Non-current assets
Land lease prepayments
Property, plant and equipment
Intangible assets
At 30 June
2014
RMB’000
8,872
203,501
—
8,603
196,931
17,224
8,334
189,905
14,926
8,200
186,856
12,628
212,373
222,758
213,165
207,684
14
15
40
9,151
101
9,243
122
8,421
144
8,074
19
3,000
3,000
3,000
—
19
99,138
41,081
26,348
2,500
19
16
—
1,461
112,790
—
3,856
57,281
—
2,222
40,113
4,626
7,682
23,026
17
18
20
20
1,095
37,853
185,787
14
1,650
17,208
235,772
28
2,472
14,705
184,284
49
6,080
16,251
55,689
60
20
21
—
180,000
—
404,749
(291,959)
—
80,000
—
334,658
(277,377)
—
80,000
—
281,510
(241,397)
74,141
78,790
4,735
235,746
(212,720)
(79,586)
(54,619)
(28,232)
(5,036)
—
(79,261)
—
(56,746)
—
(32,765)
—
(11,947)
Non-controlling interest
(79,261)
(325)
(56,746)
2,127
(32,765)
4,533
(11,947)
6,911
Capital deficiency
(79,586)
(54,619)
(28,232)
(5,036)
Current assets
Inventories
Prepayment and other receivables
Amount due from a noncontrolling interest
Amounts due from related
companies
Amount due from immediate
holding company
Cash and cash equivalents
Current liabilities
Accounts payable
Accruals and other payables
Amounts due to related companies
Amount due to the sole director
Loan from immediate holding
company
Bank loan (secured)
Tax payable
11
12
22
At 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Net current liabilities
Net liabilities
Capital deficiency attributable to the
equity holder of the Target
Share capital
Reserves
24
25
– II-6 –
APPENDIX II
I.
FINANCIAL INFORMATION OF THE TARGET GROUP
FINANCIAL INFORMATION OF THE TARGET GROUP
STATEMENTS OF FINANCIAL POSITION
Notes
At 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
At 30 June
2014
RMB’000
Non-current asset
Interests in subsidiaries
13
—
—
1
1
Current asset
Amount due from immediate
holding company
19
—
—
—
—
Current liabilities
Amounts due to subsidiaries
Amount due to the sole director
13
20
Net current liabilities
—
—
—
—
—
—
—
—
1
7
8
(8)
1
9
10
(10)
Net liabilities
—
—
(7)
(9)
—
—
—
—
—
(7)
—
(9)
—
—
(7)
(9)
Capital deficiency attributable to the
equity holder of the Target
Share capital
Accumulated losses
24
25
Capital deficiency
– II-7 –
APPENDIX II
I.
FINANCIAL INFORMATION OF THE TARGET GROUP
FINANCIAL INFORMATION OF THE TARGET GROUP
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Capital deficiency attributable to the equity owner of the Target
NonShare
Capital
Surplus
Translation
Accumulated
controlling
capital
reserve
reserve
reserve
losses
Sub-total
interest
Total
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
At 01/01/2011
—
101
5
31,106
(130,511)
(99,299)
(2,247)
(101,546)
Profit for the year
—
—
—
—
17,302
17,302
1,922
19,224
Other comprehensive income for the year
—
—
—
2,736
—
2,736
—
2,736
Total comprehensive income for the year
—
—
—
2,736
17,302
20,038
1,922
21,960
Balance at 31/12/2011 and 01/01/2012
—
101
5
33,842
(113,209)
(79,261)
Profit for the year
—
—
—
—
22,067
22,067
2,452
24,519
Other comprehensive income for the year
—
—
—
448
—
448
—
448
Total comprehensive income for the year
—
—
—
448
22,067
22,515
2,452
24,967
Balance at 31/12/2012 and 01/01/2013
—
101
5
34,290
(91,142)
(56,746)
2,127
(54,619)
Issue of share (note 24)
—
—
—
—
—
—
—
—
Profit for the year
—
—
—
—
21,656
21,656
2,406
24,062
Other comprehensive income for the year
—
—
—
2,325
—
2,325
—
2,325
Total comprehensive income for the year
—
—
—
2,325
21,656
23,981
2,406
26,387
Balance at 31/12/2013 and 01/01/2014
—
101
5
36,615
(69,486)
(32,765)
4,533
(28,232)
Profit for the period
—
—
—
—
21,397
21,397
2,378
23,775
Other comprehensive loss for the period
—
—
—
(579)
—
—
—
—
(579)
21,397
20,818
2,378
23,196
—
101
5
36,036
(48,089)
(11,947)
6,911
(5,036)
At 01/01/2013
—
101
5
34,290
(91,142)
(56,746)
2,127
(54,619)
Profit for the period
—
—
—
—
4,477
4,477
497
4,974
Other comprehensive income for the period
—
—
—
1,587
—
1,587
—
1,587
Total comprehensive income for the period
—
—
—
1,587
4,477
6,064
497
6,561
Balance at 30/06/2013
—
101
5
35,877
(86,665)
(50,682)
(579)
(325)
—
(79,586)
(579)
Total comprehensive (loss)/profit for the
period
Balance at 30/06/2014
(Unaudited)
For the six months ended 30 June 2013
– II-8 –
2,624
(48,058)
APPENDIX II
I.
FINANCIAL INFORMATION OF THE TARGET GROUP
FINANCIAL INFORMATION OF THE TARGET GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Cash flow from operating activities
Profit before income tax
Adjustments for:
Depreciation of property, plant
and equipment
Amortisation of land lease
prepayments
Amortisation of intangible
assets
Loss on disposal of property,
plant and equipment
Interest income
Interest expense
Impairment loss on inventories
Impairment loss on prepayment
and other receivables
Waiver of amounts due to
related companies
Operating profit before working
capital changes
Decrease/(increase) in inventories
Decrease/(increase) in prepayment
and other receivables
(Increase)/decrease in amounts
due from related companies
(Decrease)/increase in accounts
payable
Increase/(decrease) in accruals
and other payables
Decrease in amounts due to
related companies
Increase in amount due to the sole
director
Six months ended 30 June
2014
2013
RMB’000
RMB’000
(Unaudited)
25,455
31,488
31,950
28,510
6,930
4,744
12,329
13,753
6,557
6,797
269
269
269
134
134
—
1,161
2,298
2,298
1,149
51
(12)
—
30
853
(8)
—
—
53
(9)
—
—
645
—
—
—
—
—
—
—
—
(12,070)
19,112
282
46,092
(61)
15,666
(92)
48,314
(21)
81
(3)
4,626
—
41
(5)
—
—
42,203
(22)
15,046
(43)
822
(2,273)
1,557
(2,500)
15,610
3,608
2,479
(8,831)
58,057
14,733
(2,482)
555
822
9,918
(20,645)
(2,503)
(6,496)
4,204
(13,774)
(50,015)
(51,488)
(23,696)
(36,265)
8
14
21
11
Cash from operations
Income tax paid
19,899
(6,231)
33,905
(6,969)
10,700
(7,888)
10,835
—
Net cash from operating activities
13,668
26,936
2,812
10,835
– II-9 –
—
2,588
(1,956)
632
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Note
Year ended 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Six months ended 30 June
2014
2013
RMB’000
RMB’000
(Unaudited)
Cash flows from investing activities
Acquisition of fixed assets
Proceeds from disposals of fixed
assets
Acquisition of intangible assets
Additions of construction in
progress
Interest received
(13,442)
12
(4,910)
8
(1,724)
9
(3,232)
3
(245)
5
Net cash used in investing
activities
(16,888)
(24,989)
(6,771)
(3,586)
(2,678)
(3,915)
457
—
(1,720)
18
(18,385)
(5,059)
3
—
(361)
4
—
(2,438)
—
—
Cash flows from financing
activities
Repayment of bank loan
Issue of Share (note 24)
—
—
—
—
—
—
(1,210)
—
—
—
Net cash used in financing
activities
—
—
—
(1,210)
—
Net (decrease)/increase in cash and
cash equivalents
Effect of foreign exchange rate
changes
Cash and cash equivalents at
beginning of the year/period
Cash and cash equivalents at end of
the year/period
(3,220)
16
1,947
(3,959)
6,039
2,736
448
2,325
1,945
1,461
3,856
2,222
3,856
1,461
3,856
2,222
7,682
3,397
– II-10 –
(579)
(2,046)
1,587
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
II.
NOTES TO THE FINANCIAL INFORMATION AND THE 30 JUNE 2013
CORRESPONDING INFORMATION
1.
CORPORATE INFORMATION AND BASIS OF PRESENTATION
At each reporting date, particulars of the subsidiaries in which the Target has direct or indirect interests
are set out as follows:
Name of subsidiaries
Place of
incorporation/
establishment
and operation
Authorised/
registered capital
Fully paid capital
Proportion of ownership interest *
Principal activities
At
At 31 December
2011
2012
Interests held directly
Film Will Limited
Orvelle Limited
Interests held indirectly
Element Link Limited
Everway (HK) Limited
星美今晟影視城管理有限公司
(Stellar Mega Jinsheng Film
Studio Management Company
BVI
BVI
Hong Kong
Hong Kong
PRC
2013
30 June
2014
US$100
US$100
US$100
US$100
100%
100%
100%
100%
100%
100%
100%
100%
HK$100
HK$1
US$13,300,000
HK$100
HK$1
US$13,300,000
100%
100%
90%
100%
100%
90%
100%
100%
90%
100% Investment holding
100% Investment holding
90% Provision of the
television program
and film
Limited)
星美小鎮（北京）旅遊開發有限公司
PRC
RMB20,000,000
RMB20,000,000
90%
90%
90%
星美小鎮（北京）酒店管理有限公司
PRC
RMB500,000
RMB500,000
90%
90%
90%
星美小鎮（北京）餐飲管理有限公司
PRC
RMB200,000
RMB200,000
90%
90%
90%
*
Investment holding
Investment holding
production
facilities leasing
services
90% Operation of tourism
business
90% Operation of hotel
operation business
90%
Provision of food and
beverage services
Since Grand Astute Limited was incorporated on 31 October 2013, the proportion of ownership
interest held by the Target for the years ended 31 December 2011 and 2012 are assumed to be effective
based on the assumption that the Target was existed since the beginning of the year 2011 and there is
no change of the share holding structure.
There were no significant changes in the nature of the Target Group’s principal activities during the
Relevant Periods.
The Financial Information and the 30 June 2013 Corresponding Information set out in this report have
been prepared in accordance with HKFRSs which collectively includes all applicable individual Hong Kong
Financial Reporting Standards, Hong Kong Accounting Standards (‘‘HKASs’’) and Interpretation (‘‘Int’’)
issued by the HKICPA and the applicable disclosure provisions of the Listing Rules.
The Financial Information and the 30 June 2013 Corresponding Information are presented in Renminbi
(‘‘RMB’’), which is also the functional currency of the Target and all values are rounded to the nearest thousand
(‘‘RMB’000’’), unless otherwise stated.
2.
ADOPTION OF NEW OR AMENDED HKFRSs
During the Relevant Periods, the Target Group has adopted all the new or amended HKFRSs issued by
the HKICPA which are relevant to the Target Group and effective for the reporting periods.
– II-11 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
At the date of this report, certain new or amended HKFRSs have been published but are not yet effective,
and have not been adopted early by the Target Group.
Effective for annual
periods beginning on
or after
Amendments to HKFRSs Annual Improvements to HKFRSs 2010–2012 Cycle
Amendments to HKFRSs Annual Improvements to HKFRSs 2011–2013 Cycle
HKFRS 9 Financial Instruments
Amendments to HKFRS 9 and HKFRS 7 Mandatory Effective Date
of HKFRS 9 and Transition Disclosures
Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions
1
1
1
1
July 2014
July 2014
January 2015
January 2015
1 July 2014
The sole director of the Target is in the process of making an assessment of the potential impact of these
new or amended HKFRSs that have been issued but are not yet effective and the sole director of the Target so
far concluded that the application of these new or amended HKFRSs will have no material impact on the Target
Group’s Financial Information.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1
Basis of preparation
The significant accounting policies that have been used in the preparation of the Financial
Information and the 30 June 2013 Corresponding Information are set out below. These policies have been
consistently applied throughout the Relevant Periods presented unless otherwise stated.
The Financial Information and the 30 June 2013 Corresponding Information have been prepared
under historical cost convention. The measurement bases are fully described in the accounting policies
below.
The Financial Information and the 30 June 2013 Corresponding Information have been prepared on
a going concern basis which assumes the realisation of assets and satisfaction of liabilities in the ordinary
course of business notwithstanding that the Target Group had net current liabilities of approximately
RMB291,959,000, RMB277,377,000, RMB241,397,000 and RMB212,720,000 and had accumulated losses
of approximately RMB113,209,000, RMB91,142,000, RMB69,486,000 and RMB48,089,000 as at 31
December 2011, 2012 and 2013 and 30 June 2014 respectively; and the Target had net current liabilities of
approximately RMB8,000 and RMB10,000 and had accumulated losses of approximately RMB7,000 and
RMB9,000 as at 31 December 2013 and 30 June 2014 respectively; and the Target Group had operating
lease commitments in respect of lease payments for land plots in the People’s Republic of China (the
‘‘PRC’’) of approximately RMB6,360,000 (note 26) and capital commitments of approximately
RMB6,188,000 (note 27) as at 30 June 2014. These conditions indicate the existence of a material
uncertainty which may cast significant doubt about the Target Group’s and the Target’s ability to
continue as going concern and therefore that they may be unable to realise their assets and discharge their
liabilities in the normal course of businesses. The Financial Information has been prepared on a going
concern basis in the next twelve months, the validity of which depends upon the continuing financial
support from the ultimate holding company of the Target at a level sufficient to finance the commitments
as well as working capital requirements of the Target Group. The ultimate holding company of the Target
has agreed to provide adequate funds for the Target Group to meet its liabilities as they fall due.
The Financial Information and the 30 June 2013 Corresponding Information do not include any
adjustments that would result from a failure of the Target Group and the Target to operate as a going
concern. Should the Target Group and the Target be unable to continue in business as a going concern,
adjustments would have to be made in the Financial Information to restate the values of the assets to their
– II-12 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
recoverable amounts and to provide for any further liabilities which might arise, and to reclassify noncurrent assets as current assets. The effect of these potential adjustments has not been reflected in the
Financial Information and the 30 June 2013 Corresponding Information.
It should be noted that accounting estimates and assumptions are used in preparation of the
Financial Information and the 30 June 2013 Corresponding Information. Although these estimates are
based on management’s best knowledge and judgement of current events and actions, actual results may
ultimately differ from those estimates. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the Financial Information are disclosed in note 4.
3.2
Basis of consolidation
The Financial Information and the 30 June 2013 Corresponding Information comprise the financial
statements of the Target and its subsidiaries. Inter-company transactions and balances between group
companies together with unrealised profits are eliminated in full in preparing the Financial Information
and the 30 June 2013 Corresponding Information. Unrealised losses are also eliminated unless the
transaction provides evidence of impairment on the asset transferred, in which case the loss is recognised
in profit or loss.
3.3
Subsidiaries
Subsidiaries are entities over which the Target Group has control. Control is achieved when the
Target (i) has power over the investee; (ii) is exposed, or has rights, to variable returns from its investment
with the investee; and (iii) has the ability to use its power to affect its return. The Target reassesses
whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of these three elements. Subsidiaries are fully consolidated from the date on which control is
transferred to the Target Group. They are de-consolidated from the date that control ceases.
In the Target’s statements of financial position, subsidiaries are carried at cost less impairment loss.
The results of the subsidiaries are accounted for by the Target on the basis of dividends received and
receivable at each reporting date.
3.4
Foreign currency translation
In the individual financial statements of the consolidated entities, foreign currency transactions are
translated into the functional currency of the individual entity using the exchange rates prevailing at the
dates of the transactions. At each reporting date, monetary assets and liabilities denominated in foreign
currencies are translated at the foreign exchange rates ruling at that date. Foreign exchange gains and
losses resulting from the settlement of such transactions and from each reporting date retranslation of
monetary assets and liabilities are recognised in profit or loss.
Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated
at the rates prevailing on the date when the fair value was determined and are reported as part of the fair
value gain or loss. Non-monetary items that are measured at historical cost in a foreign currency are not
retranslated.
In the Financial Information and the 30 June 2013 Corresponding Information, all individual
financial statements of foreign operations, originally presented in a currency different from the Target
Group’s presentation currency, have been converted into RMB. Assets and liabilities have been translated
into RMB at the closing rates at each reporting date. Income and expenses have been converted into RMB
at the exchange rates ruling at the transaction dates, or at the average rates over the reporting period
provided that the exchange rates do not fluctuate significantly. Any differences arising from this
procedure have been recognised in other comprehensive income and accumulated separately in the
translation reserve in equity.
– II-13 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
When a foreign operation is disposed of, such exchange differences are reclassified from equity to
profit or loss as part of the gain or loss on disposal.
3.5
Government grants
A government grant is recognised until there is a reasonable assurance that the Target Group will
comply with the conditions attaching with it and that the grant will be received.
Grants relating to income are deferred and recognised in the profit or loss over the period necessary
to match them with the costs they are intended to compensate.
Government grants relating to the purchase of property, plant and equipment are included in noncurrent liabilities as deferred income and are credited to the profit or loss on a straight-line basis over the
expected lives of the related assets.
3.6
Revenue recognition
Revenue is recognised when it is probable that the economic benefits will flow to the Target Group
and when revenue and costs, if applicable, can be measured reliably on the following bases:
Rental income under operating leases is recognised over the lease term. Contingent rentals are
recognised on the accounting period when they are incurred.
Film studio related income, ticketing and touring income and revenue from hotel accommodation
and related services are recognised when the relevant services are rendered.
Revenue from food and beverage sales are recognized at the point of sales to customers.
Revenue from other ancillary services are recognised when the services are rendered.
Interest income is recognised on time-proportion basis using effective interest method.
3.7
Property, plant and equipment
Property, plant and equipment, other than construction in progress (‘‘CIP’’), are stated at
acquisition cost less accumulated depreciation and any impairment losses. The cost of an asset comprises
its purchase price and any directly attributable cost of bringing the asset to its working condition and
location for its intended use. Depreciation is provided to write off the cost of items of property, plant and
equipment over their estimated useful lives and after taking into account their estimated residual value,
using the straight-line method, at the following rates per annum:
Buildings
Leasehold improvements
Furniture, fixtures and office equipment
Motor vehicles
Kitchen equipment and utensils
Production equipment
Props and costumes
20 years
10–20 years
3–10 years
3–15 years
3–5 years
3–20 years
3 years
The assets’ estimated useful lives, depreciation method and estimated residual values are reviewed,
and adjusted if appropriate, at each reporting date.
CIP represents plant and building under construction and is stated at cost less any impairment
losses, and is not depreciated. Cost comprises the direct costs of construction as well as borrowing costs
capitalised during the periods of construction and installation. Capitalisation of these costs ceases and the
– II-14 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
construction in progress is transferred to the appropriate class of property, plant and equipment when
substantially all the activities necessary to prepare the assets for their intended use are completed. CIP is
reclassified to the appropriate category of property, plant and equipment when completed and ready for
use.
Gain or loss arising on retirement or disposal is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in profit or loss.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Target Group and the cost of the item can be measured reliably. All other costs, such as repairs and
maintenance are charged as an expense during the financial period in which they are incurred.
3.8
Land lease prepayments
Land lease prepayments represent the premium associate with the favourable operating lease to
acquire long-term interests in lessee-occupied properties. The prepayments are stated at cost and are
amortised over the period of the lease on a straight-line basis as an expense.
3.9
Intangible assets
Intangible assets that are acquired by the Target Group are stated at cost less accumulated
amortisation (where the estimated useful life is finite) and impairment losses.
Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line
basis over the assets’ estimated useful lives. The film products with finite useful lives are amortised from
the date they are available for use and their estimated useful lives are subject to a maximum of 8 years.
Both the period and method of amortisation are reviewed annually and whenever there is an
indication that method of amortization may not be appropriate.
3.10 Impairment of non-financial assets
The following assets are subject to impairment testing:
—
Land lease prepayments;
—
Property, plant and equipment;
—
Film products; and
—
The Target’s interests in subsidiaries.
These assets are tested for impairment whenever there are indications that the asset’s carrying
amount may not be recoverable.
An impairment loss is recognised as an expense immediately for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value,
reflecting market conditions less costs to sell, and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessment of time value of money and the risk specific to the asset.
– II-15 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
For the purposes of assessing impairment, where an asset does not generate cash inflows largely
independent from those from other assets, the recoverable amount is determined for the smallest group of
assets that generate cash inflows independently (i.e. a cash-generating unit). As a result, some assets are
tested individually for impairment and some are tested at cash-generating unit level.
Impairment loss is charged pro rata to the assets in the cash generating unit, except that the carrying
value of an asset will not be reduced below its individual fair value less cost to sell, or value in use, if
determinable.
3.11 Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Where the Target Group has the right to use of assets held under operating leases, payments made
under the leases are charged as an expense on a straight-line basis over the lease terms except where an
alternative basis is more representative of the time pattern of benefits to be derived from the leased assets.
Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease
payments made. Contingent rental are recognised as income in the accounting period in which they are
incurred.
Leases that transfer substantially all the rewards and risks of ownership of assets to the Target
Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the
cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded
together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets
held under capitalised finance leases, including prepaid land lease payments under finance leases, are
included in investment properties which is measured initially at cost including transaction costs and
subsequently stated at fair value to reflect market conditions at the end of the reporting period. The
finance costs of such leases are charged to profit or loss so as to provide a constant periodic rate of charge
over the lease terms.
3.12 Financial assets
The Target Group’s accounting policies for financial assets other than interests in subsidiaries are
set out below.
The Target Group’s financial assets are classified into loans and receivables.
Management determines the classification of its financial assets at initial recognition depending on
the purpose for which the financial assets were acquired and where allowed and appropriate, re-evaluates
this designation at each reporting date.
All financial assets are recognised when, and only when, the Target Group becomes a party to the
contractual provisions of the instrument. Regular way purchases of financial assets are recognised on
trade date. When financial assets are recognised initially, they are measured at fair value, plus, in the case
of investments not at fair value through profit or loss, directly attributable transaction costs.
Derecognition of financial assets occurs when the rights to receive cash flows from the investments
expire or are transferred and substantially all of the risks and rewards of ownership have been transferred.
At each reporting date, financial assets are reviewed to assess whether there is objective evidence of
impairment. If any such evidence exists, impairment loss is determined and recognised based on the
classification of the financial asset.
– II-16 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. Loans and receivables are subsequently measured at
amortised cost using the effective interest method, less any impairment losses. Amortised cost is
calculated taking into account any discount or premium on acquisition and includes fees that are an
integral part of the effective interest rate and transaction cost.
Impairment of financial assets
At each reporting date, financial assets are reviewed to determine whether there is any
objective evidence of impairment.
Objective evidence of impairment of individual financial asset includes observable data that
comes to the attention of the Target Group about one or more of the following loss events:
—
significant financial difficulty of the debtor;
—
a breach of contract, such as a default or delinquency in interest or principal payments;
—
it becoming probable that the debtor will enter bankruptcy or other financial
reorganisation;
—
significant changes in the technological, market, economic or legal environment that
have an adverse effect on the debtor; and
—
a significant or prolonged decline in the fair value of an investment in an equity
instrument below its cost.
Loss events in respect of a group of financial assets include observable data indicating that
there is a measurable decrease in the estimated future cash flows from the group of financial assets.
Such observable data includes but not limited to adverse changes in the payment status of debtors in
the Target Group and, national or local economic conditions that correlate with defaults on the
assets in the Target Group.
If there is objective evidence that an impairment loss on loans and receivables carried at
amortised cost has been incurred, the amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated future cash flows (excluding future credit
losses that have not been incurred) discounted at the financial asset’s original effective interest rate
(i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognised
in profit or loss in the period in which the impairment occurs.
If in subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised, the previously
recognised impairment loss is reversed to the extent that it does not result in a carrying amount of
the financial asset exceeding what the amortised cost would have been had the impairment not been
recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit
or loss during the period in which the reversal occurs.
Financial assets and accounts receivable that are stated at amortised cost, impairment losses
are written off against the corresponding assets directly. Where the recovery of accounts receivable
is considered doubtful but not remote, the impairment losses for doubtful receivables are recorded
using an allowance account. When the Target Group is satisfied that recovery of accounts receivable
is remote, the amount considered irrecoverable is written off against accounts receivable directly and
any amounts held in the allowance account in respect of that receivable are reversed. Subsequent
– II-17 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
recoveries of amounts previously charged to the allowance account are reversed against the
allowance account. Other changes in the allowance account and subsequent recoveries of amounts
previously written off directly are recognised in profit or loss.
3.13 Inventories
Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable
value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the
inventories to their present location and condition. Cost is calculated using first-in first-out method. Net
realisable value represents the estimated selling price in the ordinary course of business less the estimated
costs necessary to make the sale.
3.14 Accounting for income taxes
Income tax comprises current and deferred tax.
Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal
authorities relating to the current or prior reporting period, that are unpaid at each reporting date. They
are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate,
based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a
component of tax expense in profit or loss.
Deferred tax is calculated using the liability method on temporary differences at each reporting date
between the carrying amounts of assets and liabilities in the financial statements and their respective tax
bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax
assets are recognised for all deductible temporary differences, tax losses available to be carried forward as
well as other unused tax credits, to the extent that it is probable that taxable profit, including existing
taxable temporary differences, will be available against which the deductible temporary differences,
unused tax losses and unused tax credits can be utilised.
Deferred tax assets and liabilities are not recognised if the temporary difference arises from initial
recognition (other than in a business combination) of assets and liabilities in a transaction that affects
neither taxable nor accounting profit or loss.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries and associates, except where the Target Group is able to control the reversal of the temporary
differences and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the period
the liability is settled or the asset realised, provided they are enacted or substantively enacted at each
reporting date.
Changes in deferred tax assets or liabilities are recognised in profit or loss, or in other
comprehensive income or directly in equity if they relate to items that are charged or credited to other
comprehensive income or directly to equity.
Current tax assets and current tax liabilities are presented in net if, and only if,
(a)
the Target Group has the legally enforceable right to set off the recognized amounts; and
(b)
intends either to settle on a net basis, or to realise the asset and settle the liability
simultaneously.
– II-18 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The Target Group presents deferred tax assets and deferred tax liabilities in net if, and only if,
(a)
the entity has a legally enforceable right to set off current tax assets against current tax
liabilities; and
(b)
the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same
taxation authority on either:
(i)
the same taxable entity; or
(ii)
different taxable entities which intend either to settle current tax liabilities and assets on
a net basis, or to realise the assets and settle the liabilities simultaneously, in each future
period in which significant amounts of deferred tax liabilities or assets are expected to be
settled or recovered.
3.15 Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand as well as short-term bank deposits with
original maturities of three months or less which are subject to insignificant risk of changes in value.
3.16 Share capital
Ordinary shares are classified as equity. Share capital is determined using the nominal value of
shares that have been issued.
3.17 Retirement benefit costs
Retirement benefits to employees are provided through defined contribution plans. The
employees of the Target’s subsidiaries which operate in the PRC, are required to participate in the
employee retirement scheme operated by the relevant local government bureau in the PRC and to
make contributions for their eligible employees. The contributions payable by the subsidiary are
calculated based on a certain percentage of the salaries and wages of those eligible employees and
are recognised as an expense during the period to which they relate.
3.18 Financial liabilities
Financial liabilities are recognised when the Target Group becomes a party to the contractual
provisions of the instrument.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled
or expires.
Where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a new liability,
and the difference in the respective carrying amount is recognised in profit or loss.
Financial liabilities are recognised initially at fair value and subsequently measured at amortised
cost, using effective interest method.
– II-19 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
3.19 Provisions and contingent liabilities
Provisions are recognised when the Target Group has a present obligation (legal or constructive) as
a result of a past event, and it is probable that an outflow of economic benefits will be required to settle
the obligation and a reliable estimate of the amount of the obligation can be made. Where the time value
of money is material, provisions are stated at the present value of the expenditure expected to settle the
obligation.
All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot
be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow
of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the
occurrence or non-occurrence of one or more future uncertain events not wholly within the control of the
Target Group, are also disclosed as contingent liabilities unless the probability of outflow of economic
benefits is remote.
3.20 Related parties
(a)
(b)
A person or a close member of that person’s family is related to the Target Group if that person:
(i)
has control or joint control over the Target Group;
(ii)
has significant influence over the Target Group; or
(iii)
is a member of key management personnel of the Target Group or its parent.
An entity is related to the Target Group if any of the following conditions apply:
(i)
The entity and the Target Group are members of the same group (which means that each
parent, subsidiary and fellow subsidiary is related to the others).
(ii)
One entity is an associate or joint venture of the other entity (or an associate or joint venture
of a member of a group of which the other entity is a member).
(iii)
Both entities are joint ventures of the same third party.
(iv)
One entity is a joint venture of a third entity and the other entity is an associate of the third
entity.
(v)
The entity is a post-employment benefit plan for the benefit of the employees of the Target
Group or an entity related to the Target Group.
(vi)
The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of key
management personnel of the entity (or of a parent of the entity).
– II-20 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Close members of the family of a person are those family members who may be expected to
influence, or be influenced by, that person in their dealings with the entity and include:
4.
(i)
that person’s children and spouse or domestic partner;
(ii)
children of that person’s spouse or domestic partner; and
(iii)
dependents of that person or that person’s spouse or domestic partner.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Target Group makes estimates and assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equal to the related actual results. The estimates and assumptions that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year are discussed below:
Allowance for and write off of irrecoverable receivables
The Target Group’s management determines the allowance for irrecoverable receivables on a regular
basis. A considerable amount of judgement is required in assessing the ultimate realisation of the
outstanding receivables. These estimates are based on the credit history of its customers and current
market conditions. When the Target Group’s management determines that there are indicators of
significant financial difficulties of the debtors such as default or delinquency in payments, allowance for
debtors are estimated. The management of the Target Group reassesses the estimations at each reporting
date. When the Target Group’s management determines the debtors are uncollectible, they are written off
against the allowance account for debtors. Any amount held in the allowance account in respect of those
debtors is reversed.
Impairment of non-financial assets
The Target Group assesses whether there are any indicators of impairment for all non-financial
assets at each reporting date. They are tested for impairment when there are indicators that the carrying
amounts may not be recoverable. When value in use calculations are undertaken, management estimates
the expected future cash flows from the asset or cash-generating unit and determines a suitable discount
rate in order to calculate the present value of those cash flows.
Estimated impairment loss on intangible assets
Management regularly reviews the recoverability of the Target Group’s film products with reference
to its estimated future revenue less the relevant costs, its intended future use and current market
environment. Impairment for estimated irrecoverable amounts is recognised in the consolidated
statements of comprehensive income when there is objective evidence that the asset is impaired. In
determining whether impairment on film products is required, the Target Group takes into consideration
the present value of future cash flows expected to be received.
– II-21 –
APPENDIX II
5.
FINANCIAL INFORMATION OF THE TARGET GROUP
SEGMENT INFORMATION
An operating segment is a component of the Target Group that is engaged in business activities from
which the Target Group may earn revenues and incur expenses, and is identified on the basis of the internal
management reporting information that is provided to and regularly reviewed by the sole director of the Target
in order to allocate resources and assess performance of the segment. For the years presented, the sole director
of the Target has determined that the Target Group has only one singly business component/reportable segment
as the Target Group is only engaged in the business of operation of film studio which is the basis to allocate
resources and assess performance.
The geographical location of the specified non-current assets is based on the physical location of the
assets, in the case of property, plant and equipment, the location of the operation. In the opinion of the sole
director of the Target, the majority of the Target Group’s operation and centre of management are source from
its subsidiaries in Beijing, the PRC, which considered that the operation base of the Target Group is domiciled
in the PRC, as one geographical location and therefore, no analysis of geographical information is presented.
The total revenue from external customers is mainly sourced from the PRC. The total revenue is disclosed in
note 6.
6.
REVENUE AND OTHER REVENUE
Revenue derived from the Target Group’s principal activities recognised during the Relevant Periods and
for the six months ended 30 June 2013 is as follows:
Year ended 31 December
Six months ended 30 June
2011
2012
2013
2014
2013
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
Revenue
Film studio rental and related income
Food and beverage income and other
ancillary services
Ticketing and touring income
Hotel accommodation and related
services income
38,296
59,627
64,473
21,092
20,496
4,133
2,531
3,900
5,255
3,383
6,840
735
3,990
1,580
4,316
1,124
2,840
2,604
721
1,178
46,084
71,622
77,300
26,538
27,570
Other revenue recognised during the Relevant Periods and for the six months ended 30 June 2013 is as
follows:
Year ended 31 December
Six months ended 30 June
2011
2012
2013
2014
2013
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
Other revenue
Bank interest income
Government grants
Film royalty income
Waiver of amounts due to related
companies
Sundry income
12
135
—
8
483
2,900
9
1,732
1,828
3
4,001
19,299
5
86
—
12,070
43
—
11
—
79
—
6,078
—
371
12,260
3,402
3,648
29,381
462
– II-22 –
APPENDIX II
7.
FINANCIAL INFORMATION OF THE TARGET GROUP
FINANCE COST
Year ended 31 December
Six months ended 30 June
2011
2012
2013
2014
2013
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
Bank loan interest
8.
—
—
—
4,626
—
PROFIT BEFORE INCOME TAX
Year ended 31 December
Six months ended 30 June
2011
2012
2013
2014
2013
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
Profit before income tax is arrived at
after charging:
Auditor’s remuneration
— audit services
— other services
Cost of inventories recognised as
expenses
Depreciation of property, plant and
equipment
Amortization of land lease
prepayment
Amortization of intangible assets
Impairment loss on inventories
Impairment loss on prepayment and
other receivables
Loss on disposal of property, plant
and equipment
Employee benefit expenses (include
directors’ emoluments)
— Salaries and allowances
— Retirement benefit costs
Minimum lease payments under
operating leases for lands
9.
14
—
18
—
—
34
—
—
—
—
2,385
2,538
2,085
381
916
4,744
12,329
13,753
6,557
6,797
269
—
30
269
1,161
—
269
2,298
—
134
2,298
—
134
1,149
—
645
—
—
—
—
51
853
53
81
41
5,976
1,442
5,580
1,781
7,030
2,147
2,989
1,078
3,052
1,013
—
430
—
30
—
INCOME TAX EXPENSE
Year ended 31 December
Six months ended 30 June
2011
2012
2013
2014
2013
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
Current tax
— PRC Enterprise Income Tax
6,231
6,969
7,888
4,735
1,956
No Hong Kong profits tax has been provided as the Target Group had no estimated assessable profits
arising in or derived from Hong Kong for the Relevant Periods and for the six months ended 30 June 2013.
– II-23 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Under the Law of the People’s Republic of China on Enterprise Income Tax (the ‘‘EIT Law’’) and
Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25% from 1 January 2008
onwards. Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.
Reconciliation between income tax expense and accounting profit at applicable tax rates is as follows:
Year ended 31 December
Six months ended 30 June
2011
2012
2013
2014
2013
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
Profit before income tax
Tax
Tax
Tax
Tax
Tax
25,455
at the applicable tax rate of 25%
effect of non-deductible expenses
effect of non-taxable revenue
effect of unrecognised tax losses
effect of utilisation of tax losses
Income tax expenses
31,488
31,950
28,510
6,930
6,364
618
(899)
149
(1)
7,872
835
(1,560)
—
(178)
7,988
1,392
(1,543)
66
(15)
7,128
1,926
(4,467)
148
—
1,733
643
(466)
46
—
6,231
6,969
7,888
4,735
1,956
The expense/(credit) relating to components of other comprehensive income is as follows:
Year ended 31 December
2012
Income tax
2011
Income tax
Before-tax
amount
RMB’000
(expense)/ Net-of-tax Before-tax
credit
amount
amount
RMB’000 RMB’000 RMB’000
Six months ended 30 June
2013
Income tax
(expense)/ Net-of-tax Before-tax
credit
amount
amount
RMB’000 RMB’000 RMB’000
2014
Income tax
(expense)/ Net-of-tax Before-tax
credit
amount
amount
RMB’000 RMB’000 RMB’000
2013
Income tax
(expense)/ Net-of-tax
credit
amount
RMB’000 RMB’000
Before-tax
amount
RMB’000
(Unaudited)
(expense)/
credit
RMB’000
(Unaudited)
Net-of-tax
amount
RMB’000
(Unaudited)
1,587
—
1,587
Items that may be
reclassified
subsequently to profit
or loss:
Exchange differences on
translating the
Target and the
subsidiaries
10.
2,736
—
2,736
448
—
448
2,325
—
2,325
(579)
—
(579)
DIRECTOR’S REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS
10.1 Director’s emoluments
Year ended 31 December
Six months ended 30 June
2011
2012
2013
2014
2013
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
Fees
Other emoluments
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
– II-24 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
10.2 Five highest paid individuals
The five individuals whose emoluments were the highest in the Target Group for the Relevant
Periods included no director for the years ended 31 December 2011, 2012 and 2013 and for the six months
ended 30 June 2014 respectively (six months ended 30 June 2013 : nil). The emoluments payable to the five
highest paid individuals during the Relevant Periods and the six months ended 30 June 2013 are as
follows:
Year ended 31 December
Six months ended 30 June
2011
2012
2013
2014
2013
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
Salaries and allowance
Retirement benefits costs
333
105
358
144
477
268
219
101
284
143
438
502
745
320
427
The emoluments paid or payable to the five highest individuals, including the members of senior
management, fell within the following bands:
Year ended 31 December
Six months ended 30 June
2011
2012
2013
2014
2013
(Unaudited)
NIL to RMB1,000,000
5
5
5
5
5
During the Relevant Periods and the six months ended 30 June 2013, no emoluments were paid by
the Target Group to the sole director of the Target or employees for services rendered or as an inducement
to join or upon joining or as a compensation for loss of office. There was no arrangement under which the
sole director of the Target waived or agreed to waive any remuneration during the Relevant Periods and
the six months ended 30 June 2013.
– II-25 –
APPENDIX II
11.
FINANCIAL INFORMATION OF THE TARGET GROUP
LAND LEASE PREPAYMENTS
The Target Group
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Cost
At 1 January and 31 December
At 30 June
2014
RMB’000
12,352
12,352
12,352
12,352
Accumulated amortization
At 1 January
Charge for the year/period
3,211
269
3,480
269
3,749
269
4,018
134
At 31 December
3,480
3,749
4,018
4,152
Net book amount
At 31 December
8,872
8,603
8,334
8,200
Representing:
In the PRC under medium-term leases
8,872
8,603
8,334
8,200
The land lease prepayments represented the premium recognised when acquiring the land interests in
the PRC by operating lease arrangement with the local authority.
The Target Group has pledged its land plots in PRC with a net book value of approximately
RMB8,872,000, RMB8,603,000, RMB8,334,000 and RMB8,200,000 as at 31 December 2011, 2012 and
2013 and 30 June 2014 respectively, to secure general banking facilities granted to the Target Group and a
related company.
– II-26 –
APPENDIX II
12.
FINANCIAL INFORMATION OF THE TARGET GROUP
PROPERTY, PLANT AND EQUIPMENT
The Target Group
Furniture,
fixture
and office
equipment
RMB’000
Production
equipment
RMB’000
Kitchen
equipment
and utensils
RMB’000
Buildings
RMB’000
Leasehold
improvements
RMB’000
Cost
At 1 January 2011
Additions
Disposals
29,277
—
—
22,344
2,023
—
14,835
581
(8)
4,313
32
—
720
46
—
3,887
179
(2,709)
26,689
1,054
(635)
154,260
13,442
—
256,325
17,357
(3,352)
At 31 December 2011
29,277
24,367
15,408
4,345
766
1,357
27,108
167,702
270,330
Accumulated depreciation
At 1 January 2011
Charge for the year
Write back on disposals
13,313
1,317
—
9,031
1,402
—
3,585
136
—
26
154
—
3,175
64
(2,202)
26,689
351
(635)
—
—
—
64,929
4,744
(2,844)
At 31 December 2011
14,630
10,433
10,423
3,721
180
1,037
26,405
—
66,829
Net book amount
At 31 December 2011
14,647
13,934
4,985
624
586
320
703
167,702
203,501
Cost
At 1 January 2012
Additions
Disposals
Transfer
29,277
—
—
123,274
24,367
173
—
26,122
15,408
68
(5,955)
—
4,345
310
(2,213)
5,654
766
—
—
—
1,357
362
(544)
—
27,108
807
(122)
—
167,702
4,910
—
(155,050)
270,330
6,630
(8,834)
—
At 31 December 2012
152,551
50,662
9,521
8,096
766
1,175
27,793
17,562
268,126
Accumulated depreciation
At 1 January 2012
Charge for the year
Write back on disposals
14,630
6,778
—
10,433
2,858
—
10,423
1,288
(5,359)
3,721
584
(1,992)
180
155
—
1,037
46
(490)
26,405
620
(122)
—
—
—
66,829
12,329
(7,963)
At 31 December 2012
21,408
13,291
6,352
2,313
335
593
26,903
—
71,195
Net book amount
At 31 December 2012
131,143
37,371
3,169
5,783
431
582
890
17,562
196,931
Cost
At 1 January 2013
Additions
Disposals
Transfer
152,551
—
—
—
50,662
1,385
—
99
9,521
87
(444)
—
8,096
318
(55)
—
766
—
(5)
—
1,175
—
(14)
—
27,793
3,269
—
—
17,562
1,724
—
(99)
268,126
6,783
(518)
—
At 31 December 2013
152,551
52,146
9,164
8,359
761
1,161
31,062
19,187
274,391
Accumulated depreciation
At 1 January 2013
Charge for the year
Write back on disposals
21,408
7,274
—
13,291
3,000
—
6,352
995
(400)
2,313
578
(49)
335
146
(5)
593
50
(8)
26,903
1,710
—
—
—
—
71,195
13,753
(462)
At 31 December 2013
28,682
16,291
6,947
2,842
476
635
28,613
—
84,486
Net book amount
At 31 December 2013
123,869
35,855
2,217
5,517
285
526
2,449
19,187
189,905
Cost
At 1 January 2014
Additions
Disposals
152,551
—
—
52,146
—
—
9,164
8
(620)
8,359
13
(141)
761
—
(27)
1,161
30
(30)
31,062
310
(2)
19,187
3,232
—
274,391
3,593
(820)
At 30 June 2014
1,161
31,370
22,419
277,164
9,110
1,320
(7)
Motor
vehicles
RMB’000
Props and
costume
RMB’000
Construction
in progress
RMB’000
Total
RMB’000
152,551
52,146
8,552
8,231
734
Accumulated depreciation
At 1 January 2014
Charge for the period
Write back on disposals
28,682
3,637
—
16,291
1,483
—
6,947
328
(559)
2,842
288
(127)
476
65
(20)
635
25
(27)
28,613
731
(2)
—
—
—
84,486
6,557
(735)
At 30 June 2014
32,319
17,774
6,716
3,003
521
633
29,342
—
90,308
Net book amount
At 30 June 2014
120,232
34,372
1,836
5,228
213
528
2,028
22,419
186,856
– II-27 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The Target Group has pledged its buildings in PRC with a net book value of approximately
RMB14,647,000, RMB131,143,000, RMB123,869,000 and RMB120,232,000 as at 31 December 2011, 2012
and 2013 and 30 June 2014 respectively to secure general banking facilities granted to the Target Group
and a related company.
13.
INTERESTS IN SUBSIDIARIES
The Target
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
At 30 June
2014
RMB’000
Unlisted shares, at cost
—
—
1
1
Amounts due to subsidiaries
—
—
1
1
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
At 30 June
2014
RMB’000
Particulars of subsidiaries directly or indirectly held by the Target are set out in note 1.
The amounts due to subsidiaries are unsecured, interest-free and repayable on demand.
14.
INVENTORIES
The Target Group
Merchandise
15.
40
101
122
144
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
At 30 June
2014
RMB’000
PREPAYMENT AND OTHER RECEIVABLES
The Target Group
Prepayment
Other receivables
16.
1,636
7,515
252
8,991
435
7,986
297
7,777
9,151
9,243
8,421
8,074
CASH AND CASH EQUIVALENTS
The Target Group and the Target
Cash and cash equivalents represent cash at banks and on hand.
Cash at banks earn interests at the floating rates based on the daily bank deposits rates.
– II-28 –
APPENDIX II
17.
FINANCIAL INFORMATION OF THE TARGET GROUP
ACCOUNTS PAYABLE
The Target Group
The Target Group was granted by its suppliers’ credit period of 30 days. The following is the ageing
analysis of accounts payable at each reporting date:
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Over 90 days
18.
1,095
1,650
At 30 June
2014
RMB’000
2,472
6,080
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
At 30 June
2014
RMB’000
ACCRUALS AND OTHER PAYABLES
The Target Group
Accruals
Receipts in advance
Other payables
19.
731
11,458
25,664
652
8,775
7,781
835
6,846
7,024
1,389
2,536
12,326
37,853
17,208
14,705
16,251
AMOUNT(S) DUE FROM A NON-CONTROLLING INTEREST/RELATED COMPANIES/
IMMEDIATE HOLDING COMPANY
The Target Group and the Target
The sole director of the Target reviewed the carrying amount(s) no impairment loss is considered
necessary.
The amount(s) due is/are unsecured, interest-free and repayable on demand.
20.
AMOUNT(S) DUE TO RELATED COMPANIES/THE SOLE DIRECTOR AND LOAN FROM
IMMEDIATE HOLDING COMPANY
The Target Group and the Target
The amount(s) due is/are unsecured, interest-free and repayable on demand.
– II-29 –
APPENDIX II
21.
FINANCIAL INFORMATION OF THE TARGET GROUP
BANK LOANS (SECURED)
The Target Group
As at 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Floating-rate borrowing repayable within 1 year
or on demand:
Secured RMB bank loan
— interest bearing at 110% of the PBOC
one-year interest rate
— interest bearing at the PBOC two-year
interest rate
At 30 June
2014
RMB’000
80,000
80,000
80,000
78,790
100,000
—
—
—
180,000
80,000
80,000
78,790
The ranges of effective interest rates on the Target Group’s bank borrowings as at 31 December
2011, 2012, and 2013 and 30 June 2014, respectively, are as follows.
As at 31 December
2011
2012
Effective interest rates:
Floating-rate borrowing
6.65%–7.22%
6.60%
2013
At 30 June
2014
6.60%
6.60%
The Target Group’s land plots and buildings in PRC of carrying amounts of RMB23,519,000,
RMB139,746,000, RMB132,203,000 and RMB128,432,000 have been pledged to secure the above bank
loans and a bank loan borrowed by a related company during the years ended 31 December 2011, 2012
and 2013 and the period ended 30 June 2014, respectively.
– II-30 –
APPENDIX II
22.
FINANCIAL INFORMATION OF THE TARGET GROUP
INTANGIBLE ASSETS
The Target Group
Film products
At 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
23.
At 30 June
2014
RMB’000
Cost
At 1 January
Additions
—
—
—
18,385
18,385
—
18,385
—
At 31 December
—
18,385
18,385
18,385
Accumulated amortization
At 1 January
Charge for the year/period
—
—
—
1,161
1,161
2,298
3,459
2,298
At 31 December
—
1,161
3,459
5,757
Net book amount
At 31 December
—
17,224
14,926
12,628
DEFERRED TAX
The Target Group
At 31 December 2011, 2012 and 2013 and 30 June 2014, the Target Group had unused estimated tax
losses of approximately RMB3,390,000, RMB2,680,000, RMB3,721,000 and RMB4,074,000 respectively,
which was subject to the agreement of local tax authorities in the PRC and can be carried forward for five
years from the year in which the losses arose for offsetting against future taxable profits. No deferred tax
asset has been recognised due to the unpredictability of future profit streams.
24.
SHARE CAPITAL
Number of shares
At 31 December
2011
2012
2013
At 30 June
2014
Amount
At 31 December
2011
2012
USD
USD
2013
USD
At 30 June
2014
USD
Ordinary shares of US$1 each
Authorised:
At beginning of year
Increase
—
—
—
—
—
50,000
50,000
—
—
—
—
—
—
—
—
—
At end of year
—
—
50,000
50,000
—
—
—
—
Issued and fully paid:
At beginning of year
Issue of shares
—
—
—
—
—
100
100
—
—
—
—
—
—
100
100
—
At end of year
—
—
100
100
—
—
100
100
During the year ended 31 December 2013, totally 100 ordinary share was issued at par of US$1 each, had fully paid up, for restructuring
purpose.
– II-31 –
APPENDIX II
25.
FINANCIAL INFORMATION OF THE TARGET GROUP
RESERVES
The Target Group
The amount of the Target Group’s reserves and the movements therein for the current and prior
years are presented in the consolidated statements of changes in equity of the Financial Information
above.
The Target
Accumulated
losses
RMB’000
26.
At 1 January 2011, 31 December 2011, 31 December 2012 and 1 January 2013
Total comprehensive loss for the year
—
(7)
At 31 December 2013
Total comprehensive loss for the period
(7)
(2)
At 30 June 2014
(9)
OPERATING LEASE COMMITMENTS
The Target Group
At each reporting date, the Target Group had the following future minimum lease payments under
non-cancellable operating leases which fall due as follows:
At 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Within one year
In the second to fifth years inclusive
Over five years
At 30 June
2014
RMB’000
46
60
464
—
1,691
4,699
446
1,660
4,284
624
1,660
4,076
570
6,390
6,390
6,360
The Target Group leased two lands located in Beijing, the PRC, under operating leases of 15 to 50
years commencing from 1 January 2013 and 1 December 1997 respectively. None of these leases include
contingent rentals.
– II-32 –
APPENDIX II
27.
FINANCIAL INFORMATION OF THE TARGET GROUP
CAPITAL COMMITMENTS
The Target Group
At each reporting date, the Target Group had the following capital commitments:
At 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Contracted but not provided for:
Construction of properties
1,183
1,753
963,439
At 30 June
2014
RMB’000
6,188
Note:
On 25 November 2013, the Target Group has entered into a construction contract with an
independent third party for construction of film studio, hotel and apartments in Beijing, the PRC,
with a contract sum of RMB960,000,000. The construction fee would be paid by the Target Group.
As at 31 December 2013 and 30 June 2014, the outstanding committed amounts were
RMB960,000,000 and nil, respectively. Because the aforesaid construction contract was cancelled
according to a supplementary contract entered in May 2014 with the counterparty unconditionally.
28.
RELATED PARTY TRANSACTIONS
28.1 Save as disclosed elsewhere in the Financial Information, the Target Group had no material
transaction with related parties during the Relevant Periods and the six months ended 30 June 2013.
28.2 Compensation of key management personnel of the Target Group
The sole director of the Target is of the opinion that the key management personnel were the sole
director of the Target, details of whose emoluments are set out in note 10.1.
28.3 Guarantees to a related company
Name of company
Maximum liability under the guarantee
At 31 December
At 30 June
2011
2012
2013
2014
RMB’000
RMB’000
RMB’000
RMB’000
Particulars of
guarantee
世紀全信科技產業發 Guarantee given to a
bank for a general
展有限公司
banking facilities
(Century Quin Xin
amounting to
Technology
RMB130,000,000
Development
Company Limited)
(‘‘Century QX’’)
130,000
130,000
130,000
130,000
For the years ended 31 December 2011, 2012 and 2013 and period ended 30 June 2014, the Target
Group had not paid or incurred any liability for the purpose of fulfilling the guarantee or discharging the
security and the sole director of the Target considers that it is remote for the Target Group to pay and
incur any liability on the guarantees given to Century QX.
– II-33 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The Target Group entered into a short-term secured entrusted loan agreement in the amount of
RMB180,000,000 with interest at a fixed rate per annum. In the opinion of sole director of the Target,
having taken legal advice, the guarantee provided by Stellar Mega to Century QX will be discharged after
the entrusted loan is released.
28.4 Use of trademarks owned by a related company
Certain trademarks owned by a related company were used by the Target Group without
consideration. The sole director of the Target considers that there is no disagreement from the related
company for the use of the trademarks by the Target Group and no royalty would be paid or payable to
the related company.
29.
NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the year ended 31 December 2012, a secured bank loan of RMB100,000,000 was assigned to a
related company, which did not result in any cash flow.
During the year ended 31 December 2013, the amount due from a related company of approximately
RMB22,062,000 was assigned to a related company, which did not result in any cash flow.
During the period ended 30 June 2014, the amounts due from related companies of approximately
RMB26,348,000 and amounts due to related companies of approximately RMB33,322,000 were assigned to a
related company, which did not result in any cash flow.
During the period ended 30 June 2014, the amounts due to related companies of approximately
RMB74,141,000 was assigned to immediate holding company, which did not result in any cash flow.
During the period ended 30 June 2014, the other receivable of approximately RMB2,620,000 and amount
due from a non-controlling interest of approximately RMB3,000,000 were assigned to a related company, which
did not result any cash flow.
During the period ended 30 June 2014, the interest payable of RMB4,626,000 was assigned to the
immediate holding company, which did not result in any cash flow.
30.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Target Group is exposed to a variety of financial risks which result from its operating, investing and
financing activities. The Target Group’s major financial instruments include other receivables, amounts due
from group companies, cash and cash equivalents, accounts payable, accruals and other payables, amounts due
to group companies and secured bank loans. Details of these financial instruments are disclosed in the respective
notes. The risks associated with these financial instruments and the policies applied by the Target Group to
mitigate these risks are set out below. The sole director of the Target manages and monitors these exposures to
ensure appropriate measures are implemented in a timely and effective manner.
– II-34 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
30.1 Categories of financial assets and liabilities
The carrying amounts of the Target Group’s and the Target’s financial assets and liabilities
recognised at each reporting date may also be categorised as follows. See notes 3.12 and 3.18 for
explanations on how the category of financial instruments affects their subsequent measurement.
Financial assets
The Target Group
At 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
Loans and receivables:
Other receivables
Amount due from a non-controlling interest
Amounts due from related companies
Amount due from immediate holding
company
Cash and bank balances
At 30 June
2014
RMB’000
The Target
At 31 December
2011
2012
2013
RMB’000
RMB’000
RMB’000
At 30 June
2014
RMB’000
7,515
3,000
99,138
8,991
3,000
41,081
7,986
3,000
26,348
7,777
—
2,500
—
—
—
—
—
—
—
—
—
—
—
—
—
1,461
—
3,856
—
2,222
4,626
7,682
—
—
—
—
—
—
—
—
111,114
56,928
39,556
22,585
—
—
—
—
The Target Group
At 31 December
2011
2012
2013
At 30 June
2014
The Target
At 31 December
2011
2012
2013
At 30 June
2014
Financial liabilities
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
Financial liabilities measured at amortised
cost:
Accounts payable
Accruals and other payables
Amounts due to related companies
1,095
37,853
185,787
1,650
17,208
235,772
2,472
14,705
184,284
6,080
16,251
55,689
—
—
—
—
—
—
—
—
—
—
—
—
Amounts due to subsidiaries
Amount due to the sole director
Loan from immediate holding company
Bank loans (secured)
Financial guarantee contract
—
14
—
180,000
130,000
—
28
—
80,000
130,000
—
49
—
80,000
130,000
—
60
74,141
78,790
130,000
—
—
—
—
—
—
—
—
—
—
1
7
—
—
—
1
9
—
—
—
534,749
464,658
411,510
361,011
—
—
8
10
30.2 Currency risk
The Target Group is exposed to foreign currency risk in respect of its Hong Kong Dollars
denominated loan from immediate holding company. The management keeps on monitoring foreign
exchange exposure and considers hedging significant foreign currency exposure should the need arises.
The sole director of the Target considers that the Target Group’s exposure to the currency risk is
insignificant.
30.3 Interest rate risk
The Target Group’s exposure to interest rate risks relates primarily to the bank borrowing with a
floating interest rate. The interest rate and term of repayment of the Target Group’s borrowing are
disclosed in note 21 to the Financial Information. The Target Group’s objective is to obtain the most
favourable interest rates available for its borrowing. The Target Group currently has not used any interest
rate swap arrangements but will consider hedging interest rate risk should the need arise. The sole director
is of the opinion that the Target Group does not have significant cash flow and fair value interest rate risk
and no sensitivity analysis is performed.
– II-35 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
30.4 Credit risk
Credit risk refers to the risk that the counterparty to a financial instrument would fail to discharge
its obligation under the terms of the financial instrument and cause a financial loss to the Target Group.
To minimise the credit risk, management of the Target Group has delegated a team responsible for
determination of credit limits, credit approvals and other monitoring procedures to ensure that proper
follow-up action is taken. In addition, the Target Group reviews the recoverable amount of each
individual receivable at each reporting date to ensure that adequate impairment losses are recognised for
irrecoverable amounts. In this regard, the sole director of the Target Group considers the Target Group’s
credit risk is significantly reduced.
Majority of the Target Group’s bank balances are deposited with banks in the PRC and the Target
Group has limited the exposure to any single financial institution. The credit risk on liquid funds is limited
because the counterparties are banks with good credit-rating.
30.5 Liquidity risk
Liquidity risk relates to the risk that the Target Group will not be able to meet its obligations
associated with its financial liabilities. In the management of liquidity risk, the sole director of the Target
monitors and maintains a level of cash and cash equivalents deemed adequate to finance the Target
Group’s operations and to meet its debt obligations as they fall due.
The Target Group finances its working capital requirements mainly by the funds obtained from the
related companies, loan from immediate holding company, secured bank loans and the ultimate holding
company of the Target has agreed to provide adequate funds for the Target Group to meet its liabilities as
they fall due. At each reporting date, the maturity profile of the Target Group’s and the Target’s financial
liabilities based on contractual undiscounted payments was set out below:
The Target Group
At 31 December 2011
Accounts payable
Accruals and other payables
Amounts due to related
companies
Amount due to the sole director
Bank loans (secured)
Financial guarantee contract
Within
1 year or
on demand
RMB’000
More than
1 year but
less than
5 years
RMB’000
1,095
37,853
—
—
—
—
1,095
37,853
1,095
37,853
185,787
14
180,000
130,000
—
—
—
—
—
—
—
—
185,787
14
180,000
130,000
185,787
14
180,000
—
534,749
—
—
534,749
404,749
– II-36 –
Total
More than undiscounted
amount
5 years
RMB’000
RMB’000
Total
carrying
amount
RMB’000
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
At 31 December 2012
Accounts payable
Accruals and other payables
Amounts due to related
companies
Amount due to the sole director
Bank loan (secured)
Financial guarantee contract
At 31 December 2013
Accounts payable
Accruals and other payables
Amounts due to related
companies
Amount due to the sole director
Bank loan (secured)
Financial guarantee contract
At 30 June 2014
Accounts payable
Accruals and other payables
Amounts due to related
companies
Amount due to the sole director
Loan from immediate holding
company
Bank loan (secured)
Financial guarantee contract
Within
1 year or
on demand
RMB’000
More than
1 year but
less than
5 years
RMB’000
1,650
17,208
—
—
—
—
1,650
17,208
1,650
17,208
235,772
28
80,000
130,000
—
—
—
—
—
—
—
—
235,772
28
80,000
130,000
235,772
28
80,000
—
464,658
—
—
464,658
334,658
2,472
14,705
—
—
—
—
2,472
14,705
2,472
14,705
184,284
49
80,000
130,000
—
—
—
—
—
—
—
—
184,284
49
80,000
130,000
184,284
49
80,000
—
411,510
—
—
411,510
281,510
6,080
16,251
—
—
—
—
6,080
16,251
6,080
16,251
55,689
60
—
—
—
—
55,689
60
55,689
60
74,141
78,790
130,000
—
—
—
—
—
—
74,141
78,790
130,000
74,141
78,790
—
361,011
—
—
361,011
231,011
Within 1
year or on
demand
RMB’000
More than
1 year but
less than
5 years
RMB’000
Total
More than undiscounted
amount
5 years
RMB’000
RMB’000
Total
carrying
amount
RMB’000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
More than undiscounted
amount
5 years
RMB’000
RMB’000
Total
carrying
amount
RMB’000
The Target
At 31 December 2011
Amounts due to subsidiaries
Amount due to the sole director
– II-37 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
At 31 December 2012
Amounts due to subsidiaries
Amount due to the sole director
At 31 December 2013
Amounts due to subsidiaries
Amount due to the sole director
At 30 June 2014
Amounts due to subsidiaries
Amount due to the sole director
31.
Within 1
year or on
demand
RMB’000
More than
1 year but
less than
5 years
RMB’000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
7
—
—
—
—
1
7
1
7
8
—
—
8
8
1
9
—
—
—
—
1
9
1
9
10
—
—
10
10
Total
More than undiscounted
amount
5 years
RMB’000
RMB’000
Total
carrying
amount
RMB’000
CAPITAL MANAGEMENT
The Target Group’s objectives when managing capital are:
(a)
to safeguard the Target Group’s ability to continue as a going concern, so that it continues to
provide returns and benefits for shareholders and other stakeholders;
(b)
to support the Target Group’s stability and growth; and
(c)
to provide capital for the purpose of strengthening the Target Group’s risk management capability.
The Target Group actively and regularly reviews and manages its capital structure to ensure optimal
capital structure and shareholder returns, taking into consideration the future capital requirements of the
Target Group. To maintain or adjust the capital structure, the Target Group may adjust the dividend payment
to shareholders, return capital to shareholders or issue new shares. The Target Group currently does not adopt
any formal dividend policy. The capital structure of the Target Group comprises only ordinary shares amounted
to US$100 as at each of the reporting dates respectively.
32.
CONTINGENT LIABILITIES
32.1 Contingent liability in respect of guarantee given
The Target Group has given a single guarantee to China Minsheng Banking Corporation Limited
(‘‘CMBC’’) in respect of a banking facilities granted to Century QX. Century QX utilised the facilities up
to RMB130,000,000, RMB130,000,000, RMB130,000,000 and RMB130,000,000 as at 31 December 2011,
2012 and 2013 and 30 June 2014, respectively. The sole director of the Target is of the opinion that the fair
value of the guarantee cannot be reliably measured as its transaction price is zero and such guarantee is
rarely available in the market. Subsequent to 30 June 2014, the Target Group entered into a short-term
– II-38 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
secured entrusted loan agreement in the amount of RMB180,000,000 with interest at a fixed rate per
annum. In the opinion of the sole director of the Target, having taken legal advice, the guarantee provided
by Stellar Mega to Century QX will be discharged after the entrusted loan is released.
32.2 Contingent liability in respect of legal claims
Apart from the material litigation as stated in note 33 of the Financial Information, the Target
Group had no other material contingent liabilities as at 30 June 2014.
32.3 Contingent liability in respect of exceeding of maximum plot ratio allowed
The area of buildings and construction in progress constructed on the land plots of the Target
Group in PRC exceeded the maximum plot ratio allowed. The sole director, having taken legal advices, is
of the opinion that the local authority accepted the present condition of the buildings and construction in
progress on the land plots. Accordingly, the sole director considers that the Target Group would not be
penalised by the local authority. No provision for the penalty has been made in the Financial Information.
32.4 Contingent liability in respect of use of trademarks owned by a related company
Certain trademarks owned by a related company were used by the Target Group without
consideration. The sole director of the Target is of the opinion that the fair value of the royalty of using of
the trademarks cannot be reliably measured as its transaction price is zero and such royalty is rarely
available in the market.
33.
MATERIAL LEGAL PROCEEDINGS
As at the Latest Practicable Date, the sole director of the Target was aware of the following material
litigation involving the Target Group:
On 4 March 2010, Stellar Mega Jinsheng Film Studio Management Company Limited (‘‘Stellar Mega’’), a
subsidiary of the Target, was the defendant in three civil actions whereby the plaintiff, CMBC, claimed on
Stellar Mega’s non-repayment of two bank loans borrowed by Stellar Mega and one bank loan borrowed by
Century QX and guaranteed by Stellar Mega. The bank loans include interests outstanding in dispute amounts
to approximately RMB452,595,000 according to the judgements issued by Beijing First Intermediate People’s
Court (the ‘‘Court’’).
In 2010, the Court ordered Stellar Mega and Century QX to repay the aforesaid amount in dispute to
CMBC within 10 days from the date of judgments. As the disputed amount was not fully repaid, the Court
seized the land plots and buildings of Stellar Mega that were pledged for the aforesaid bank loans in 2013.
For one of the civil actions concerning the bank loans mentioned above, a debt settlement agreement
dated 28 December 2012 was entered into among CMBC, Stellar Mega, Century QX and other parties in
relation to the offsetting of the loans by a real estate project under the name of a related company.
CMBC, Century QX and Stellar Mega reached settlements for the remaining two civil actions in May
2014. Stellar Mega agreed to undertake the loan borrowed by Century QX and partially repay the principal
amount of the loans in dispute by cash. The remaining portion of the loans and outstanding interests of
approximately RMB12,903,000 to be repaid by Stellar Mega under other terms agreed with CMBC. The seizure
of the land plots and buildings of Stellar Mega was revocated on 19 June 2014.
The settlements of the loans in dispute will be financed by a short-term secured entrusted loan of
RMB180,000,000 with interest at a fixed rate per annum. According to the sole director of the Target, after
taking the legal advice, the guarantee provided by Stellar Mega to Century QX will be discharged, after the
entrusted loan is released.
– II-39 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The sole director of the Target considers that no further provision should be made in respect of this claim
as settlements have been reached and the loans and interest payable have been provided in the Financial
Information.
III. EVENTS AFTER THE REPORTING DATE
The Target Group entered into a short-term secured entrusted loan agreement in the
amount of RMB180,000,000 with interest at a fixed rate per annum. In the opinion of the
sole director of the Target, having taken legal advice, the guarantee provided by Stellar
Mega to Century QX will be discharged after the entrusted loan is released.
Subsequent to 30 June 2014, the Target Group established a subsidiary, namely, 北京
星美聖典文化傳播有限公司, which is domiciled and established in The People’s Republic of
China, with registered capital of RMB3,000,000 on 3 September 2014.
Subsequent to 30 June 2014, the Target Group is negotiating with an independent third
party for construction of film studio, hotel and apartments in Beijing, the PRC, with a
construction price of approximately RMB40,000,000. No formal agreement has been
entered in as at the Latest Practical Date.
IV. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared for the Target Group or the
Target in respect of any period subsequent to 30 June 2014.
Yours faithfully,
PATRICK WONG C.P.A. LIMITED
黃龍德會計師事務所有限公司
Certified Public Accountants
Wong Chun Sek, Edmund
Practising Certificate Number: P05815
Hong Kong
– II-40 –
APPENDIX II
B.
FINANCIAL INFORMATION OF THE TARGET GROUP
MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP
The Target Group is principally engaged in provision of the television programme and
film production facilities leasing and other ancillary services and its principal assets include
the Properties.
The Target is an investment holding company incorporated in the BVI with limited
liability. Its principal asset has been its indirect holding as to 90% equity interest in Stellar
Mega through certain BVI-incorporated and Hong Kong-incorporated investment holding
subsidiaries.
Stellar Mega is a sino-foreign equity joint venture established under the laws of the
PRC with limited liability on 23 October 1995 and is principally engaged in the provision of
television programme and film production facilities leasing services. Its principal assets are
the Properties and its holdings in Stellar Tourism, Stellar Hotel, Stellar Beverage and Xing
Mei Culture, which was newly established in September 2014.
Stellar Tourism is a company established under the laws of the PRC with limited
liability on 29 September 2009 and is principally engaged in the tourism business of the
Target Group. It charges the visitors admission fee to the Properties.
Stellar Hotel is a company established under the laws of the PRC with limited liability
on 1 June 2009 and is principally engaged in the operation of the hotel of the Target Group
primarily for the accommodation of the production crews during their shooting.
Stellar Beverage is a company established under the laws of the PRC with limited
liability on 7 June 2010 and is principally engaged in the operation of the restaurant located
in the television programme and film production complex of the Target Group.
Xing Mei Culture is a wholly-foreign-owned enterprise established in the PRC with
limited liability on 3 September 2014 and its scopes of business include organising art and
cultural exchange activities (excluding performances), stage light and audio design, craft
design, product design, conferencing services, organising exhibitions, literary and artistic
production, enterprise management, sales of daily necessities and electronic products,
corporate image planning and ticketing agency services (excluding flight ticket sales agency
services). As at the Latest Practicable Date, Xing Mei Culture had not commenced any
business operation.
Set out below is the management discussion and analysis of the Target Group’s
business and performance for the respective year ended 31 December 2011, 31 December
2012 and 31 December 2013, and the six months ended 30 June 2014.
– II-41 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
For the year ended 31 December 2011
Business and financial review
The Target Group’s revenue for the year ended 31 December 2011 was
approximately RMB46.1 million which primarily consisted of the film studio rental
and related income (i.e. approximately 83.1% of the Target Group’s revenue). Revenue
from food and beverage sales and other ancillary service contributed approximately
9.0% of the total revenue whereas ticketing and touring income accounted for
approximately 5.5%. The remaining portion of approximately 2.4% of the Target
Group’s total revenue was attributable to the revenue from hotel accommodation and
related services.
The gross profit of the Target Group was approximately RMB36.1 million,
representing a gross profit margin of approximately 78.4%.
Alongside the abovementioned revenue generated from the business operations of
the Target Group, the Target Group recorded other revenue of approximately
RMB12.3 million, primarily attributable to the one-off waiver of amounts due to
related companies of approximately RMB12.1 million.
The administrative and other operating expenses of the Target Group amounted
to approximately RMB23.0 million, which consist of, among other things, depreciation
of property, plant and equipment of approximately RMB4.7 million, cost of inventory
recognised as expenses of approximately RMB2.4 million, and staff costs (including
salaries and allowances and retirement benefit cost) of approximately RMB7.4 million.
The Target Group’s profit before income tax amounted to approximately RMB25.5
million. After deducting the income tax expense of approximately RMB6.2 million, the
Target Group’s profit for the year was approximately RMB19.2 million, representing a
net profit margin of approximately 41.7%.
Capital structure, liquidity and financial resources
The Target Group funded its operations mainly by the secured bank loans of
RMB180 million as at 31 December 2011 as secured by its land plots and buildings in
the PRC and the borrowings from related parties of approximately RMB185.8 million
as at 31 December 2011, being the amounts due to related companies and the Target’s
sole director, which are unsecured, interest-free and repayable on demand.
As at 31 December 2011, the Target Group had a balance of cash and bank
balance of approximately RMB1.5 million denominated in RMB and net current
liabilities of approximately RMB292.0 million, primarily attributable to the aforesaid
bank loans and borrowings from related parties. The Target Group also held a balance
of approximately RMB102.1 million owed by related parties, being the respective
amounts due from related companies and a non-controlling interest, which are
unsecured, interest-free and repayable on demand. Setting off the amounts due to and
due from related parties, the Target Group had a net amount due to related parties of
approximately RMB83.7 million. Excluding such net amount due to related parties, the
– II-42 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Target Group would record a reduction in its net current liabilities to approximately
RMB208.3 million. The Target Group did not have any long-term liabilities as at 31
December 2011.
As at 31 December 2011, the Target Group’s current ratio (‘‘Current Ratio’’,
represented by current assets as a percentage of current liabilities) and gearing ratio
(‘‘Gearing Ratio’’, represented by total liabilities as a percentage of total assets) were
approximately 27.9% and approximately 1.2 times respectively.
Employment and remuneration policy
The total number of employees of the Target Group was 179 as at 31 December
2011. The total staff costs of the Target Group, including salaries and allowances and
retirement benefit cost, amounted to approximately RMB7.4 million. The
remuneration package offered by the Target Group to its employees includes
contributions to defined contribution plans. Employees of the Target Group’s
operating subsidiaries in the PRC are required to participate in the employee
retirement scheme operated by the relevant local government bureau in the PRC and
the operating subsidiaries are required to make contributions for their eligible
employees which are calculated based on a certain percentage of the salaries and wages
of those eligible employees.
No emoluments had been paid by the Target Group to the sole director of the
Target or employees for services rendered or as an inducement to join or upon joining
or as a compensation for loss of office. There was no arrangement under which the sole
director of the Target waived or agreed to waive any remuneration during the year
ended 31 December 2011.
Significant investment held and future plans for material investments or capital assets
As at 31 December 2011, the principal assets of the Target Group included the
Properties, the net book value of which was approximately RMB37.5 million, being the
sum of the net book value of land lease prepayments, buildings and leasehold
improvements.
The Target Group also had capitalised construction in progress with net book
value of approximately RMB167.7 million, primarily the additions and improvements
of fixtures and equipment for the businesses of Stellar Mega and Stellar Tourism. As at
31 December 2011, the Target Group had capital commitments of approximately
RMB1.2 million for the work contracted but not yet provided with respect to the
construction of properties.
In addition, as at 31 December 2011, the Target Group had commitments for
future minimum lease payment of approximately RMB570,000 with respect to the land
leased by it, of which approximately RMB46,000 and approximately RMB60,000
would fall due within one year and two to five years respectively. The remaining
portion of approximately RMB464,000 would only be due at least five years later. Such
lease did not include any contingent rentals.
– II-43 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Save as aforesaid, the Target Group had not made any significant investments
during the year ended 31 December 2011. There was no specific plan for material
investments and acquisition of material capital assets as at 31 December 2011.
Acquisition or disposal of subsidiary
During the year ended 31 December 2011, the Target Group did not have any
significant acquisition or disposal of subsidiary or associated company.
Charges on assets
The Target Group has pledged its land plots and buildings in the PRC with an
aggregate net book value of approximately RMB23.5 million as at 31 December 2011
to secure the general banking facilities granted to Century QX, its related company (as
a guarantor to Century QX), as well as the bank loans granted to itself.
For the year ended 31 December 2011, the Target Group had not paid or incurred
any liability for the purpose of fulfilling this guarantee or discharging the security.
Contingent liabilities
Guarantee given to Century QX
The Target Group has given a single guarantee to CMBC in respect of banking
facilities granted to Century QX. Century QX utilised the facilities up to RMB130
million as at 31 December 2011. The sole director of the Target is of the opinion that
the fair value of such guarantee could not be reliably measured as the transaction value
is zero and such guarantee is rarely available in the market.
Legal claims
On 4 March 2010, Stellar Mega was the defendant in three civil actions whereby
the plaintiff, CMBC, claimed on Stellar Mega’s non-repayment of two bank loans
borrowed by Stellar Mega and one bank loan borrowed by Century QX and
guaranteed by Stellar Mega. The outstanding loan amounts and interests in dispute
amount to approximately RMB452.6 million in aggregate.
In 2010, the Beijing First Intermediate People’s Court ordered Stellar Mega and
Century QX to repay the aforesaid amounts in dispute to CMBC within ten days from
the date of judgements.
Settlements of the loans in dispute have been subsequently reached among
CMBC, Century QX, Stellar Mega and also other parties (as the case may be) in
December 2012 and May 2014 respectively, details of which are set out in the relevant
discussions on the financial information of the Target Group for the year ended 31
December 2012 and for the six months ended 30 June 2014 respectively in this
appendix.
– II-44 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The sole director of the Target, having taken legal advice, considers that no
further provision should be made in respect to this claim for the year ended 31
December 2011 as the loans and interest payable have been provided in the accounts.
Penalty and demolishment of buildings and construction in progress
The area of buildings and construction in progress constructed on the land plots
of the Target Group in the PRC exceeded the maximum plot ratio allowed. The sole
director of the Target, having taken legal advices, is of the opinion that the local
authority has accepted the present condition of the buildings and construction in
progress on the land plots. Accordingly, the sole director considers that the Target
Group would not be penalised by the local authority and no provision for the penalty
has been made in the accounts of the Target Group.
Use of trademarks owned by a related company
Certain trademarks owned by a related company were used by the Target Group
without consideration. The sole director of the Target considers that there has not been
any disagreement with the related company for the use of those trademarks by the
Target Group and is of the opinion that the fair value of the royalty of using those
trademarks could not be reliably measured as the transaction value is zero and such
royalty is rarely available in the market. As such, no royalty has been paid or would be
payable to the related companies as at 31 December 2011.
Save as aforesaid, the Target Group had no other material contingent liabilities as
at 31 December 2011.
Risk management and hedging policies
Foreign currency exchange risk
The Target Group’s business activities, assets and liabilities were primarily
denominated in RMB and therefore the Target Group’s exposure to foreign currency
exchange risk has been considered insignificant.
Interest rate risk
The Target Group’s exposure to interest rate risk relates primarily to the bank
borrowings with floating interest rates. The Target Group’s objective is to obtain the
most favourable interest rates available for its borrowing. As at 31 December 2011, the
Target Group had not used any interest rate swap arrangements but would consider
hedging interest rate risk should the need arise.
Credit risk
As at 31 December 2011, the Target Group had amounts due from related parties
of approximately RMB102.1 million and prepayment and other receivables of
approximately RMB9.2 million. In order to minimise the Target Group’s credit risk
– II-45 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
exposure, the management of the Target Group has delegated a team responsible for
determining credit limits, credit approvals and other monitoring procedures to ensure
that proper follow-up action is taken. The Target Group has also reviewed the
recoverable amount of each individual receivable at each reporting date to ensure that
adequate impairment losses have been recognised for irrecoverable amounts. During
the year ended 31 December 2011, an impairment loss on prepayment and other
receivables of approximately RMB645,000 was recorded.
With respect to the management of the credit risk on bank deposits, majority of
the Target Group’s bank balances have been deposited with banks with good creditrating in the PRC and the Target Group has limited it exposure to each financial
institution.
Liquidity risk
During the year ended 31 December 2011, the Target Group has funded its
working capital requirements mainly by the bank borrowings and the funds obtained
from related parties. The ultimate holding company of the Target has agreed to
provide adequate funds for the Target Group to meet its liabilities as they fall due.
Save as aforesaid, during the year ended 31 December 2011, the Target Group did
not have any formal hedging policies and no financial instruments, transactions or
arrangements were adopted for hedging purpose.
For the year ended 31 December 2012
Business and financial review
The Target Group’s revenue for the year ended 31 December 2012 was
approximately RMB71.6 million, which primarily consisted of the film studio rental
and related income (i.e. approximately 83.3% of the Target Group’s revenue). Revenue
from food and beverage sales and other ancillary service contributed approximately
5.4% of the total revenue whereas ticketing and touring income accounted for
approximately 7.3%. The remaining portion of approximately 4.0% of the Target
Group’s total revenue was attributable to the revenue from hotel accommodation and
related services.
The gross profit of the Target Group was approximately RMB59.7 million,
representing a gross profit margin of approximately 83.4%.
Alongside the abovementioned revenue generated from the business operations of
the Target Group, the Target Group recorded other revenue of approximately RMB3.4
million, primarily attributable to the film royalty income of approximately RMB2.9
million.
The administrative and other operating expenses of the Target Group amounted
to approximately RMB31.7 million, which consist of, among other things, depreciation
of property, plant and equipment of approximately RMB12.3 million, cost of
– II-46 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
inventory recognised as expenses of approximately RMB2.5 million, amortisation of
intangible assets of approximately RMB1.2 million and staff costs (including salaries
and allowances and retirement benefit costs) of approximately RMB7.4 million. The
Target Group’s profit before income tax amounted to approximately RMB31.5
million. After deducting the income tax expense of approximately RMB7.0 million, the
Target Group’s profit for the year was approximately RMB24.5 million, representing a
net profit margin of approximately 34.2%.
Capital structure, liquidity and financial resources
The Target Group funded its operations mainly by the secured bank loans of
RMB80 million as at 31 December 2012 as secured by its land plots and buildings in
the PRC, and the borrowings from related parties of approximately RMB235.8 million
as at 31 December 2012, being the amounts due to related companies and the Target’s
sole director, which are unsecured, interest-free and repayable on demand.
As at 31 December 2012, the Target Group had a balance of cash and bank
balance of approximately RMB3.9 million denominated in RMB and net current
liabilities of approximately RMB277.4 million, primarily attributable to the aforesaid
bank loans and borrowings from related parties. The Target Group also held a balance
of approximately RMB44.1 million owed by related parties, being the respective
amounts due from related companies and a non-controlling interest, which are
unsecured, interest-free and repayable on demand. Setting off the amounts due to and
due from related parties, the Target Group had a net amount due to related parties of
approximately RMB191.7 million. Excluding such net amount due to related parties,
the Target Group would record a significant reduction in its net current liabilities to
approximately RMB85.7 million. The Target Group did not have any long-term
liabilities as at 31 December 2012.
As at 31 December 2012, the Target Group’s Current Ratio and Gearing Ratio
were approximately 17.1% and approximately 1.2 times respectively.
Employment and remuneration policy
The total number of employees of the Target Group was 180 as at 31 December
2012. The total staff costs of the Target Group, including salaries and allowances and
retirement benefit cost, amounted to approximately RMB7.4 million. The
remuneration package offered by the Target Group to its employees includes
contributions to defined contribution plans. Employees of the Target Group’s
operating subsidiaries in the PRC are required to participate in the employee
retirement scheme operated by the relevant local government bureau in the PRC and
the operating subsidiaries are required to make contributions for their eligible
employees which are calculated based on a certain percentage of the salaries and wages
of those eligible employees.
– II-47 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
No emoluments had been paid by the Target Group to the sole director of the
Target or employees for services rendered or as an inducement to join or upon joining
or as a compensation for loss of office. There was no arrangement under which the sole
director of the Target waived or agreed to waive any remuneration during the year
ended 31 December 2012.
Significant investment held and future plans for material investments or capital assets
As at 31 December 2012, the principal assets of the Target Group included the
Properties, the net book value of which was approximately RMB177.1 million, being
the sum of the net book value of land lease prepayments, buildings and leasehold
improvements.
The Target Group also had capitalised construction in progress with net book
value of approximately RMB17.6 million, primarily the additions and improvements
of fixtures and equipment for the business of Stellar Mega. As at 31 December 2012,
the Target Group had capital commitments of approximately RMB1.8 million for the
work contracted but not yet provided with respect to the construction of properties.
Further, as at 31 December 2012, the Target Group had commitments for future
minimum lease payment of approximately RMB6.4 million with respect to the land
leased by it, of which approximately RMB1.7 million would fall due within two to five
years respectively. The remaining portion of approximately RMB4.7 million would
only be due at least five years later. Such lease did not include any contingent rentals.
In addition, the Target Group acquired certain intangible assets, being the patents
and rights to revenue relating to certain movies and television programmes which
Stellar Mega has invested in the productions thereof. The net book amount of the
intangible assets was approximately RMB17.2 million as at 31 December 2012.
Save as aforesaid, the Target Group had not made any significant investments
during the year ended 31 December 2012. There was no specific plan for material
investments and acquisition of material capital assets as at 31 December 2012.
Acquisition or disposal of subsidiary
During the year ended 31 December 2012, the Target Group did not have any
significant acquisition or disposal of subsidiary or associated company.
– II-48 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Charges on assets
The Target Group has pledged its land plots and buildings in the PRC with an
aggregate net book value of approximately RMB139.7 million as at 31 December 2012
to secure the general banking facilities granted to Century QX, its related company (as
a guarantor to Century QX), as well as the bank loans granted to itself.
For the year ended 31 December 2012, the Target Group had not paid or incurred
any liability for the purpose of fulfilling this guarantee or discharging the security.
Contingent liabilities
Guarantee given to Century QX
The Target Group has given a single guarantee to CMBC in respect of banking
facilities granted to Century QX. Century QX utilised the facilities up to RMB130
million as at 31 December 2012. The sole director of the Target is of the opinion that
the fair value of such guarantee could not be reliably measured as the transaction value
is zero and such guarantee is rarely available in the market.
Legal claims
On 4 March 2010, Stellar Mega was the defendant in three civil actions whereby
the plaintiff, CMBC, claimed on Stellar Mega’s non-repayment of two bank loans
borrowed by Stellar Mega and one bank loan borrowed by Century QX and
guaranteed by Stellar Mega. The outstanding loan amounts and interests in dispute
amount to approximately RMB452.6 million in aggregate.
In 2010, the Beijing First Intermediate People’s Court ordered Stellar Mega and
Century QX to repay the aforesaid amounts in dispute to CMBC within ten days from
the date of judgements.
One of the civil actions concerning the bank loans mentioned above was
subsequently settled by a debt settlement agreement dated 28 December 2012 entered
into among CMBC, Stellar Mega, Century QX and other parties in relation to the
offsetting of the loans by a real estate project under the name of Shanghai Jiu Sheng.
Settlements of the remaining two of the above-mentioned civil actions have been
subsequently reached among CMBC, Century QX and Stellar Mega in May 2014,
details of which are set out in the relevant discussion on the financial information of
the Target Group for the six months ended 30 June 2014 in this appendix.
The sole director of the Target, having taken legal advice, considers that no
further provision should be made in respect to this claim for the year ended 31
December 2012 as the loans and interest payable have been provided in the accounts.
– II-49 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Penalty and demolishment of buildings and construction in progress
The area of buildings and construction in progress constructed on the land plots
of the Target Group in the PRC exceeded the maximum plot ratio allowed. The sole
director of the Target, having taken legal advices, is of the opinion that the local
authority has accepted the present condition of the buildings and construction in
progress on the land plots. Accordingly, the sole director considers that the Target
Group would not be penalised by the local authority and no provision for the penalty
has been made in the accounts of the Target Group.
Use of trademarks owned by a related company
Certain trademarks owned by a related company were used by the Target Group
without consideration. The sole director of the Target considers that there has not been
any disagreement with the related company for the use of those trademarks by the
Target Group and is of the opinion that the fair value of the royalty of using those
trademarks could not be reliably measured as the transaction value is zero and such
royalty is rarely available in the market. As such, no royalty has been paid or would be
payable to the related companies as at 31 December 2012.
Save as aforesaid, the Target Group had no other material contingent liabilities as
at 31 December 2012.
Risk management and hedging policies
Foreign currency exchange risk
The Target Group’s business activities, assets and liabilities were primarily
denominated in RMB and therefore the Target Group’s exposure to foreign currency
exchange risk has been considered insignificant.
Interest rate risk
The Target Group’s exposure to interest rate risk relates primarily to the bank
borrowings with floating interest rates. The Target Group’s objective is to obtain the
most favourable interest rates available for its borrowing. As at 31 December 2012, the
Target Group had not used any interest rate swap arrangements but would consider
hedging interest rate risk should the need arise.
– II-50 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Credit risk
As at 31 December 2012, the Target Group had amounts due from related parties
of approximately RMB44.1 million and prepayment and other receivables of
approximately RMB9.2 million. In order to minimise the Target Group’s credit risk
exposure, the management of the Target Group has delegated a team responsible for
determining credit limits, credit approvals and other monitoring procedures to ensure
that proper follow-up action is taken. The Target Group has also reviewed the
recoverable amount of each individual receivable at each reporting date to ensure that
adequate impairment losses have been recognised for irrecoverable amounts. During
the year ended 31 December 2012, no impairment loss on prepayment and other
receivables was recorded.
With respect to the management of the credit risk on bank deposits, majority of
the Target Group’s bank balances have been deposited with banks with good creditrating in the PRC and the Target Group has limited it exposure to each financial
institution.
Liquidity risk
During the year ended 31 December 2012, the Target Group has funded its
working capital requirements mainly by the bank borrowings and the funds obtained
from related parties. The ultimate holding company of the Target has agreed to
provide adequate funds for the Target Group to meet its liabilities as they fall due.
Save as aforesaid, during the year ended 31 December 2012, the Target Group did
not have any formal hedging policies and no financial instruments, transactions or
arrangements were adopted for hedging purpose.
For the year ended 31 December 2013
Business and financial review
The Target Group’s revenue for the year ended 31 December 2013 was
approximately RMB77.3 million, which primarily consisted of the film studio rental
and related income (i.e. approximately 83.4% of the Target Group’s revenue). Revenue
from food and beverage sales and other ancillary service contributed approximately
4.4% of the total revenue whereas ticketing and touring income accounted for
approximately 8.8%. The remaining portion of approximately 3.4% of the Target
Group’s total revenue was attributable to the revenue from hotel accommodation and
related services.
The gross profit of the Target Group was approximately RMB64.2 million,
representing a gross profit margin of approximately 83.0%.
– II-51 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Alongside the abovementioned revenue generated from the business operations of
the Target Group, the Target Group recorded other revenue of approximately RMB3.6
million, primarily attributable to the film royalty income and government grants of
approximately RMB1.8 million and approximately RMB1.7 million respectively.
The administrative and other operating expenses of the Target Group amounted
to approximately RMB35.9 million, which consist of, among other things, depreciation
of property, plant and equipment of approximately RMB13.8 million, cost of
inventory recognised as expenses of approximately RMB2.1 million, amortisation of
intangible assets of approximately RMB2.3 million and staff costs (including salaries
and allowances and retirement benefit costs) of approximately RMB9.2 million. The
Target Group’s profit before income tax amounted to approximately RMB32.0
million. After deducting the income tax expense of approximately RMB7.9 million, the
Target Group’s profit for the year was approximately RMB24.1 million, representing a
net profit margin of approximately 31.1%.
Capital structure, liquidity and financial resources
The Target Group funded its operations mainly by the secured bank loans of
RMB80 million as at 31 December 2013 as secured by its land plots and buildings in
the PRC, and the borrowings from related parties of approximately RMB184.3 million
as at 31 December 2013, being the amounts due to related companies and the Target’s
sole director, which are unsecured, interest-free and repayable on demand.
As at 31 December 2013, the Target Group had a balance of cash and bank
balance of approximately RMB2.2 million denominated in RMB and net current
liabilities of approximately RMB241.4 million, primarily attributable to the aforesaid
bank loans and borrowings from related parties. The Target Group also held a balance
of approximately RMB29.3 million owed by related parties, being the respective
amounts due from related companies and a non-controlling interest, which are
unsecured, interest-free and repayable on demand. Setting off the amounts due to and
due from related parties, the Target Group had a net amount due to related parties of
approximately RMB155.0 million. Excluding such net amount due to related parties,
the Target Group would record a significant reduction in its net current liabilities to
approximately RMB86.4 million.
As at 31 December 2013, the Target Group’s Current Ratio and Gearing Ratio
were approximately 14.2% and approximately 1.1 times respectively.
– II-52 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Employment and remuneration policy
The total number of employees of the Target Group was 182 as at 31 December
2013. The total staff costs of the Target Group, including salaries and allowances and
retirement benefit cost, amounted to approximately RMB9.2 million. The
remuneration package offered by the Target Group to its employees includes
contributions to defined contribution plans. Employees of the Target Group’s
operating subsidiaries in the PRC are required to participate in the employee
retirement scheme operated by the relevant local government bureau in the PRC and
the operating subsidiaries are required to make contributions for their eligible
employees which are calculated based on a certain percentage of the salaries and wages
of those eligible employees.
No emoluments had been paid by the Target Group to the sole director of the
Target or employees for services rendered or as an inducement to join or upon joining
or as a compensation for loss of office. There was no arrangement under which the sole
director of the Target waived or agreed to waive any remuneration during the year
ended 31 December 2013.
Significant investment held and future plans for material investments or capital assets
As at 31 December 2013, the principal assets of the Target Group included the
Properties, the net book value of which was approximately RMB168.1 million, being
the sum of the net book value of land lease prepayments, buildings and leasehold
improvements.
The Target Group also had capitalised construction in progress with net book
value of approximately RMB19.2 million, primarily the improvements of fixtures for
the business of Stellar Mega. As at 31 December 2013, the Target Group had capital
commitments of approximately RMB963.4 million for the work contracted but not yet
provided with respect to the construction of properties, primarily attributable to the
contract sum of RMB960 million under a construction contract entered into between
the Target Group and an independent third party in November 2013 for the
construction of film studio, hotel and apartments in Beijing, the PRC. Such
construction contract has been subsequently terminated in May 2014.
Further, as at 31 December 2013, the Target Group had commitments for future
minimum lease payment of approximately RMB6.4 million with respect to the land
leased by it, of which approximately RMB446,000 and approximately RMB1.7 million
would fall due within one year and two to five years respectively. The remaining
portion of approximately RMB4.3 million would only be due at least five years later.
Such lease did not include any contingent rentals.
In addition, the Target Group had intangible assets, being the patents and rights
to revenue relating to certain movies and television programmes which Stellar Mega
has previously invested in the productions thereof, with a net book value of
approximately RMB14.9 million as at 31 December 2013.
– II-53 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Save as aforesaid, the Target Group had not made any significant investments
during the year ended 31 December 2013. There was no specific plan for material
investments and acquisition of material capital assets as at 31 December 2013.
Acquisition or disposal of subsidiary
During the year ended 31 December 2013, the Target Group did not have any
significant acquisition or disposal of subsidiary or associated company.
Charges on assets
The Target Group has pledged its land plots and buildings in the PRC with an
aggregate net book value of approximately RMB132.2 million as at 31 December 2013
to secure the general banking facilities granted to Century QX, its related company (as
a guarantor to Century QX), as well as the bank loans granted to itself.
For the year ended 31 December 2013, the Target Group had not paid or incurred
any liability for the purpose of fulfilling this guarantee or discharging the security.
Contingent liabilities
Guarantee given to Century QX
The Target Group has given a single guarantee to CMBC in respect of banking
facilities granted to Century QX. Century QX utilised the facilities up to RMB130
million as at 31 December 2013. The sole director of the Target is of the opinion that
the fair value of such guarantee could not be reliably measured as the transaction value
is zero and such guarantee is rarely available in the market.
Legal claims
On 4 March 2010, Stellar Mega was the defendant in three civil actions whereby
the plaintiff, CMBC, claimed on Stellar Mega’s non-repayment of two bank loans
borrowed by Stellar Mega and one bank loan borrowed by Century QX and
guaranteed by Stellar Mega. The outstanding loan amounts and interests in dispute
amount to approximately RMB452.6 million in aggregate.
In 2010, the Beijing Intermediate People’s Court ordered Stellar Mega and
Century QX to repay the aforesaid amounts in dispute to CMBC within ten days from
the date of judgements.
One of the civil actions concerning the bank loans mentioned above was
subsequently settled by a debt settlement agreement dated 28 December 2012 entered
into among CMBC, Stellar Mega, Century QX and other parties in relation to the
offsetting of the loans by a real estate project under the name of Shanghai Jiu Sheng.
Settlements of the remaining two of the above-mentioned civil actions have been
– II-54 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
subsequently reached among CMBC, Century QX and Stellar Mega in May 2014,
details of which are set out in the relevant discussion on the financial information of
the Target Group for the six months ended 30 June 2014 in this appendix.
The sole director of the Target, having taken legal advice, considers that no
further provision should be made in respect to this claim for the year ended 31
December 2013 as the loans and interest payable have been provided in the accounts.
Penalty and demolishment of buildings and construction in progress
The area of buildings and construction in progress constructed on the land plots
of the Target Group in the PRC exceeded the maximum plot ratio allowed. The sole
director of the Target, having taken legal advices, is of the opinion that the local
authority has accepted the present condition of the buildings and construction in
progress on the land plots. Accordingly, the sole director considers that the Target
Group would not be penalised by the local authority and no provision for the penalty
has been made in the accounts of the Target Group.
Use of trademarks owned by a related company
Certain trademarks owned by a related company were used by the Target Group
without consideration. The sole director of the Target considers that there has not been
any disagreement with the related company for the use of those trademarks by the
Target Group and is of the opinion that the fair value of the royalty of using those
trademarks could not be reliably measured as the transaction value is zero and such
royalty is rarely available in the market. As such, no royalty has been paid or would be
payable to the related companies as at 31 December 2013.
Save as aforesaid, the Target Group had no other material contingent liabilities as
at 31 December 2013.
Risk management and hedging policies
Foreign currency exchange risk
The Target Group’s business activities, assets and liabilities were primarily
denominated in RMB and therefore the Target Group’s exposure to foreign currency
exchange risk has been considered insignificant.
Interest rate risk
The Target Group’s exposure to interest rate risk relates primarily to the bank
borrowings with floating interest rates. The Target Group’s objective is to obtain the
most favourable interest rates available for its borrowing. As at 31 December 2013, the
Target Group had not used any interest rate swap arrangements but would consider
hedging interest rate risk should the need arise.
– II-55 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Credit risk
As at 31 December 2013, the Target Group had amounts due from related parties
of approximately RMB29.3 million and prepayment and other receivables of
approximately RMB8.4 million. In order to minimise the Target Group’s credit risk
exposure, the management of the Target Group has delegated a team responsible for
determining credit limits, credit approvals and other monitoring procedures to ensure
that proper follow-up action is taken. The Target Group has also reviewed the
recoverable amount of each individual receivable at each reporting date to ensure that
adequate impairment losses have been recognised for irrecoverable amounts. During
the year ended 31 December 2013, no impairment loss on prepayment and other
receivables was recorded.
With respect to the management of the credit risk on bank deposits, majority of
the Target Group’s bank balances have been deposited with banks with good creditrating in the PRC and the Target Group has limited it exposure to each financial
institution.
Liquidity risk
During the year ended 31 December 2013, the Target Group has funded its
working capital requirements mainly by the bank borrowings and the funds obtained
from related parties. The ultimate holding company of the Target has agreed to
provide adequate funds for the Target Group to meet its liabilities as they fall due.
Save as aforesaid, during the year ended 31 December 2013, the Target Group did
not have any formal hedging policies and no financial instruments, transactions or
arrangements were adopted for hedging purpose.
For the six months ended 30 June 2014
Business and financial review
The Target Group’s revenue for the six months ended 30 June 2014 was
approximately RMB26.5 million, which primarily consisted of the film studio rental
and related income (i.e. approximately 79.5% of the Target Group’s revenue). Revenue
from food and beverage sales and other ancillary service contributed approximately
2.8% of the total revenue whereas ticketing and touring income accounted for
approximately 15.0%. The remaining portion of approximately 2.7% of the Target
Group’s total revenue was attributable to the revenue from hotel accommodation and
related services.
The gross profit of the Target Group was approximately RMB22.2 million,
representing a gross profit margin of approximately 83.5%.
– II-56 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Alongside the abovementioned revenue generated from the business operations of
the Target Group, the Target Group recorded other revenue of approximately
RMB29.4 million, primarily attributable to the film royalty income, government grants
and sundry income of approximately RMB19.3 million, approximately RMB4.0
million and approximately RMB6.1 million respectively.
The administrative and other operating expenses of the Target Group amounted
to approximately RMB18.4 million, which consist of, among other things, depreciation
of property, plant and equipment of approximately RMB6.6 million, cost of inventory
recognised as expenses of approximately RMB381,000, amortisation of intangible
assets of approximately RMB2.3 million and staff costs (including salaries and
allowances and retirement benefit costs) of approximately RMB4.1 million. The Target
Group’s profit before income tax amounted to approximately RMB28.5 million for the
six months ended 30 June 2014. After deducting the income tax expense of
approximately RMB4.7 million, the Target Group’s profit for the period was
approximately RMB23.8 million, representing a net profit margin of approximately
89.6%.
Capital structure, liquidity and financial resources
The Target Group funded its operations mainly by the secured bank loans as
secured by its land plots and buildings in the PRC, and the borrowings from related
parties, being the amounts due to related companies, the Target’s sole director and the
Target’s immediate holding company, which are unsecured, interest-free and repayable
on demand.
As at 30 June 2014, the Target Group had a balance of cash and bank balance of
approximately RMB7.7 million denominated in RMB and net current liabilities of
approximately RMB212.7 million, primarily attributable to the aforesaid bank loans
and borrowings from related parties. The Target Group’s bank loans on its balance
sheet as at 30 June 2014 amounted to approximately RMB78.8 million. As at 30 June
2014, the Target Group’s borrowings from related parties amounted to approximately
RMB129.9 million. The Target Group’s balance of amounts due from related parties
was approximately RMB7.1 million, being the aggregate amounts due from related
companies and immediate holding company, which are unsecured, interest-free and
repayable on demand. Such amounts due from related parties shall be settled in full
before Acquisition Completion.
Setting off the amounts due to and due from related parties, the Target Group had
a net amount due to related parties of approximately RMB122.8 million as at 30 June
2014. Excluding such net amount due to related parties, the Target Group would
record a significant reduction in its net current liabilities to approximately RMB89.9
million. The Target Group did not have any long-term liabilities as at 30 June 2014.
As at 30 June 2014, the Target Group’s Current Ratio and Gearing Ratio were
approximately 9.8% and approximately 1.0 times respectively.
– II-57 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
As disclosed in the paragraph headed ‘‘The Settlement Agreements and the
Repayment Agreement’’ in the ‘‘Letter from the Board’’ in this circular and subject to
the completion of the transactions contemplated under the Settlement Agreements, the
Entrusted Loan Agreement and the Repayment Agreement, the Target Group’s bank
loans of approximately RMB78.8 million shall be settled in full by way of entering into
the Entrusted Loan Agreement. Part of the Entrusted Loan in an amount of
RMB101.2 million (as well as the interest incurred therefrom, i.e. the Incurred Interest)
shall be undertaken by Mr. Qin as a loan owed to the Target Group. The Entrusted
Loan, which has a term of two years, shall be recorded as non-current liabilities of the
Target Group. The Target Group’s amounts due to Shanghai Jiu Sheng, its related
company, shall also be undertaken by Mr. Qin. As a result of these arrangements, it is
expected that the Target Group’s liquidity shall improve and the Target Group shall
move into a net current asset position.
Employment and remuneration policy
The total number of employees of the Target Group was 172 as at 30 June 2014.
The total staff costs of the Target Group for the six months ended 30 June 2014,
including salaries and allowances and retirement benefit cost, amounted to
approximately RMB4.1 million. The remuneration package offered by the Target
Group to its employees includes contributions to defined contribution plans.
Employees of the Target Group’s operating subsidiaries in the PRC are required to
participate in the employee retirement scheme operated by the relevant local
government bureau in the PRC and the operating subsidiaries are required to make
contributions for their eligible employees which are calculated based on a certain
percentage of the salaries and wages of those eligible employees.
No emoluments had been paid by the Target Group to the sole director of the
Target or employees for services rendered or as an inducement to join or upon joining
or as a compensation for loss of office. There was no arrangement under which the sole
director of the Target waived or agreed to waive any remuneration during the six
months ended 30 June 2014.
Significant investment held and future plans for material investments or capital assets
As at 30 June 2014, the principal assets of the Target Group included the
Properties, the net book value of which was approximately RMB162.8 million, being
the sum of the net book value of land lease prepayments, buildings and leasehold
improvements.
– II-58 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
The Target Group also had capitalised construction in progress with net book
value of approximately RMB22.4 million, primarily the additions and improvements
of fixtures and equipment for the business of Stellar Mega. As at 30 June 2014, the
Target Group had capital commitments of approximately RMB6.2 million for the
work contracted but not yet provided with respect to the construction of properties. A
construction contract entered into in November 2013 between the Target Group and
an independent third party for the construction of film studio, hotel and apartments
with contract sum of RMB960 million was terminated in May 2014.
Further, as at 30 June 2014, the Target Group had commitments for future
minimum lease payment of approximately RMB6.4 million with respect to the land
leased by it, of which approximately RMB624,000 and approximately RMB1.7 million
would fall due within one year and two to five years respectively. The remaining
portion of approximately RMB4.1 million would only be due at least five years later.
Such lease did not include any contingent rentals.
In addition, the Target Group had intangible assets, being the patents and rights
to revenue relating to certain movies and television programmes which Stellar Mega
has previously invested in the productions thereof, with a net book value in aggregate
of approximately RMB12.6 million as at 30 June 2014.
Save as aforesaid, the Target Group had not made any significant investments
during the six months ended 30 June 2014. There was no specific plan for material
investments and acquisition of material capital assets as at 30 June 2014.
Acquisition or disposal of subsidiary
During the six months ended 30 June 2014, the Target Group did not have any
significant acquisition or disposal of subsidiary or associated company.
Charges on assets
The Target Group has pledged its land plots and buildings in the PRC with an
aggregate net book value of approximately RMB128.4 million as at 30 June 2014 to
secure the general banking facilities granted to Century QX, its related company (as a
guarantor to Century QX), as well as the bank loans granted to itself.
For the six months ended 30 June 2014, the Target Group had not paid or
incurred any liability for the purpose of fulfilling this guarantee or discharging the
security.
– II-59 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Contingent liabilities
Guarantee given to Century QX
The Target Group has given a single guarantee to CMBC in respect of banking
facilities granted to Century QX. Century QX utilised the facilities up to RMB130
million as at 30 June 2014. The sole director of the Target is of the opinion that the fair
value of such guarantee could not be reliably measured as the transaction value is zero
and such guarantee is rarely available in the market.
The Target Group will subsequently discharge its guarantee to Century QX after
the Entrusted Loan is released, details of which have been set out in the paragraph
headed ‘‘The Settlement Agreements and the Repayment Agreement’’ in the ‘‘Letter
from the Board’’ in this circular.
Penalty and demolishment of buildings and construction in progress
The area of buildings and construction in progress constructed on the land plots
of the Target Group in the PRC exceeded the maximum plot ratio allowed. The sole
director of the Target, having taken legal advices, is of the opinion that the local
authority has accepted the present condition of the buildings and construction in
progress on the land plots. Accordingly, the sole director considers that the Target
Group would not be penalised by the local authority and no provision for the penalty
has been made in the accounts of the Target Group.
Legal claims
On 4 March 2010, Stellar Mega was the defendant in three civil actions whereby
the plaintiff, CMBC, claimed on Stellar Mega’s non-repayment of two bank loans
borrowed by Stellar Mega and one bank loan borrowed by Century QX and
guaranteed by Stellar Mega. The outstanding loan amounts and interests in dispute
amount to approximately RMB452.6 million in aggregate.
In 2010, the Beijing Intermediate People’s Court ordered Stellar Mega and
Century QX to repay the aforesaid amounts in dispute to CMBC within ten days from
the date of judgements. One of the civil actions concerning the bank loans mentioned
above was subsequently settled by a debt settlement agreement dated 28 December
2012 entered into among CMBC, Stellar Mega, Century QX and other parties in
relation to the offsetting of the loans by a real estate project under the name of
Shanghai Jiu Sheng.
As the amounts in dispute were not fully repaid, the Beijing Intermediate People’s
Court seized the land plots and buildings of Stellar Mega that had been pledged for the
aforesaid bank loans in 2013.
– II-60 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
In May 2014, CMBC, Century QX and Stellar Mega reached settlements for the
remaining two of the above-mentioned civil actions, pursuant to which, Stellar Mega
agreed to repay the outstanding bank loans of itself and Century QX. The seizure of
the land plots and buildings of Stellar Mega was revocated on 19 June 2014. The
settlements of the loans in dispute are financed by the Entrusted loan. Please refer to
the paragraph headed ‘‘The Settlement Agreements and the Repayment Agreement’’ in
the ‘‘Letter from the Board’’ in this circular and the section headed ‘‘Litigation’’ in
Appendix VI to this circular for details.
The sole director of the Target, having taken legal advice, considers that no
further provision should be made in respect of this claim as settlements have been
reached and the loan amounts and interest payable have been provided in the accounts.
Use of trademarks owned by a related company
Certain trademarks owned by a related company were used by the Target Group
without consideration. The sole director of the Target considers that there has not been
any disagreement with the related company for the use of those trademarks by the
Target Group and is of the opinion that the fair value of the royalty of using those
trademarks could not be reliably measured as the transaction value is zero and such
royalty is rarely available in the market. As such, no royalty has been paid or would be
payable to the related companies as at 30 June 2014. Subsequently in September 2014,
the related company issued a consent that the trademarks owned by it and its
subsidiaries could be used by Stellar Mega and the subsidiaries of Stellar Mega at no
cost until expiration of the relevant trademarks.
Save as aforesaid, the Target Group had no material contingent liabilities as at 30
June 2014.
Risk management and hedging policies
Foreign currency exchange risk
As at 30 June 2014, the Target Group was exposed to foreign currency risk in
respect of a loan from immediate holding company denominated in HKD. The
management of the Target Group has kept on monitoring the foreign exchange
exposure and would consider hedging significant foreign currency exposure should the
need arises. The sole director of the Target considers that the Target Group’s exposure
to the currency risk is insignificant.
Interest rate risk
The Target Group’s exposure to interest rate risk relates primarily to the bank
borrowings with floating interest rates. The Target Group’s objective is to obtain the
most favourable interest rates available for its borrowing. As at 30 June 2014, the
Target Group had not used any interest rate swap arrangements but would consider
hedging interest rate risk should the need arise.
– II-61 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET GROUP
Credit risk
As at 30 June 2014, the Target Group had amounts due from related parties of
approximately RMB7.1 million and prepayment and other receivables of
approximately RMB8.1 million. In order to minimise the Target Group’s credit risk
exposure, the management of the Target Group has delegated a team responsible for
determining credit limits, credit approvals and other monitoring procedures to ensure
that proper follow-up action is taken. The Target Group has also reviewed the
recoverable amount of each individual receivable at each reporting date to ensure that
adequate impairment losses have been recognised for irrecoverable amounts. During
the six months ended 30 June 2014, no impairment loss on prepayment and other
receivables was recorded. With respect to the total amount due from related parties of
approximately RMB7.1 million, an amount of approximately RMB4.6 million was due
from immediate holding company and would be settled by Mr. Qin under the
arrangement of the Repayment Agreement prior to the Acquisition Completion.
With respect to the credit risk on bank deposits, majority of the Target Group’s
bank balances have been deposited with banks with good credit-rating in the PRC and
the Target Group has limited it exposure to each financial institution.
Liquidity risk
During the six months ended 30 June 2014, the Target Group has funded its
working capital requirements mainly by the bank borrowings and the funds obtained
from related parties. The ultimate holding company of the Target has agreed to
provide adequate funds for the Target Group to meet its liabilities as they fall due.
Save as aforesaid, during the six months ended 30 June 2014, the Target Group
did not have any formal hedging policies and no financial instruments, transactions or
arrangements were adopted for hedging purpose.
– II-62 –
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
A.
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED
GROUP
1.
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE
ENLARGED GROUP AS AT 30 JUNE 2014
The following unaudited pro forma financial information of the Enlarged Group
(hereinafter referred to as the ‘‘Unaudited Pro Forma Financial Information’’) have been
prepared by the Directors in accordance with Rule 4.29 of the Listing Rules and on the
basis of the notes set out below for the purpose of illustrating the effect of the Acquisition,
the Capital Reorganisation and the Right Issue on the financial position of the Group as at
30 June 2014.
The Unaudited Pro Forma Financial Information is prepared, in accordance with the
accounting policies of the Group under Hong Kong Financial Reporting Standards
(‘‘HKFRSs’’), based on the unaudited condensed consolidated statement of financial
position of the Group as at 30 June 2014 extracted from the Interim Report 2014, as if the
Acquisition, the Capital Reorganisation and the Right Issue had been completed on 30 June
2014.
The Unaudited Pro Forma Financial Information is based on the aforesaid historical
data after giving effect to the pro forma adjustments described in the accompanying notes.
A narrative description of the pro forma adjustments of the Acquisition, the Capital
Reorganisation and the Right Issue that are (i) directly attributable thereto; and (ii)
factually supportable, is summarised in the accompanying notes.
The Unaudited Pro Forma Financial Information should be read in conjunction with
other financial information contained in this circular.
The Unaudited Pro Forma Financial Information has been prepared by the Directors
for illustrative purpose only and is based on certain assumptions, estimates, uncertainties
and other currently available financial information. Accordingly, because of its nature, the
Unaudited Pro Forma Financial Information may not give a true picture of the financial
position of the Enlarged Group had the Acquisition, the Capital Reorganisation and the
Right Issue been completed on 30 June 2014 or on any future date. Further, the Unaudited
Pro Forma Financial Information does not purport to predict the Group’s future financial
position.
– III-1 –
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
2.1 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
FINANCIAL POSITION OF THE ENLARGED GROUP AS AT 30 JUNE 2014
The Group
as at
30 June 2014
(Note 2)
(Unaudited)
HK$’000
ASSETS AND LIABILITIES
Non-current assets
Fixed assets
Intangible assets
Goodwill
Interest in an associate
Other financial assets
Current assets
Inventories
Accounts receivable
Prepayments, deposits and other
receivables
Amount due from an associate
Cash and cash equivalents
Current liabilities
Obligation under finance leases
Loan from a shareholder
Other loans
Accruals and other payables
Current taxation
(Note 3)
(Unaudited)
HK$’000
Pro forma adjustments
(Note 4)
(Note 5)
(Unaudited)
(Unaudited)
HK$’000
HK$’000
1,452
436,287
21,076
—
15,954
Pro forma
Enlarged
Group as at
30 June 2014
(Note 6)
(Unaudited)
HK$’000
(Unaudited)
HK$’000
1,452
436,287
21,076
327,322
15,954
327,322
474,769
802,091
457,962
28,856
457,962
28,856
140,139
6,182
5,636
787,581
140,139
38,860
433,217
32,678
(360,000)
638,775
1,099,034
235
21,039
13,026
194,765
56,117
235
21,039
13,026
227,913
56,117
33,148
285,182
318,330
Net current assets
353,593
780,704
Total assets less current liabilities
828,362
1,582,795
372
6,285
372
6,285
6,657
6,657
Net assets
821,705
1,576,138
EQUITY
Capital and reserves
Share capital
Reserves
438,795
382,555
Total equity attributable to equity
shareholders of the Company
Non-controlling interests
821,350
355
1,575,783
355
Total equity
821,705
1,576,138
Non-current liability
Obligation under finance leases
Deferred tax liabilities
(410,667)
410,667
– III-2 –
787,581
(33,148)
815,709
760,074
APPENDIX III
3.
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE
ENLARGED GROUP
1.
On 8 August 2014, the Acquisition Agreement (as amended by a supplemental
agreement dated 24 October 2014) was entered into between the Purchaser, (being
Tin Yan Development Ltd., an indirect wholly-owned subsidiary of the
Company), the Vendor, (being Nicks International Limited, the immediate
holding company of the Target), and Mr. Qin (being a guarantor in favour of
the Purchaser). Pursuant to the Acquisition Agreement, the Purchaser
conditionally agreed to acquire (i) 35% of the issued share capital of the Target
(i.e. the Sales Shares) and (ii) 35% of all obligations, liabilities and debts owning
or incurred by the Target Group to the Vendor as at the Acquisition Completion
Date (i.e. the Sale Loans) at a consideration of HK$360,000,000, which will be
satisfied fully by cash (i.e. the Acquisition).
2.
The balances have been extracted from the unaudited condensed consolidated
statement of financial position of the Group as at 30 June 2014 as set out in the
Interim Report 2014.
3.
The adjustment represents the proposed Capital Reduction whereby the par value
of each issued Adjusted Share, that is, the ordinary Shares of HK$1.56 each in the
share capital of the Company after proposed Share Consolidation of every two
Shares into one and immediately upon the Re-denomination from USD to HKD
becoming effective, be reduced by cancelling the capital paid-up thereon to the
extent of HK$1.46 on each of the issued Adjusted shares. The credits arising from
the Capital Reduction, which amounted to approximately HK$410,667,000 based
on the number of Existing Shares in issue on the date of the Announcement on 8
August 2014, be transferred to the Contributed Surplus Account.
4.
The adjustment represents proceeds from the proposed Rights Issue which is
assumed to be approximately HK$787,581,000, based on 2,250,230,736 Rights
Shares to be issued (assuming no issue of new Shares, no repurchase of Shares and
no exercise of the 245,957 outstanding Warrants) at the Subscription Price of
HK$0.35 per Rights Share. The actual number of Rights Shares to be issued will
be determined according to the actual number of issued Shares on the Record
Date that may be different from that assumed in the preparation of the unaudited
pro forma consolidated financial position presented above.
– III-3 –
APPENDIX III
5.
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
The adjustments represent the total consideration of HK$360,000,000 paid by the
Group for the Acquisition and the recognition of the Target Group as an
associate by the Group. Pursuant to the terms of the Acquisition Agreement, the
total payment to the Vendor for the Acquisition is HK$360,000,000 and is to be
satisfied by cash payable on the Acquisition Completion Date and shall be
apportioned as follows:
(i)
the consideration for the Sale Loans shall be the face amount of the Sale
Loans on a dollar-for-dollar basis; and
(ii) the consideration for the Sale Shares shall be the balance thereof.
According to the Acquisition Agreement, the Sale Loans will be transferred by the
Vendor to the Purchaser at the time when the Sale Shares are transferred. The
advances made by the Vendor to the Target Group would be represented as
‘‘Amount due from an associate’’ on the Acquisition Completion Date.
6.
The adjustment represents the transaction costs directly in connection with the
Acquisition, the Capital Reorganisation and the Right Issue which are assumed to
be approximately HK$33,148,000, with reference to the estimated professional
fees and other direct costs. The transaction costs comprise approximately
HK$26,942,000 for the Capital Reorganisation and the Rights Issue and
approximately HK$6,206,000 for the Acquisition. The Directors consider the
estimation of the transaction costs to be fair and reasonable. The transaction costs
are assumed to be outstanding and are included in ‘‘Accruals and other payables’’.
7.
The Notice of the State Administration of Taxation on Strengthening the
Administration of Enterprise Income Tax on Non-resident Enterprises Equity
Transfer Income (‘‘Circular 698’’) stipulates the PRC tax treatment and reporting
obligations on ‘‘indirect’’ equity transfers undertaken by non-resident enterprises
(‘‘offshore investors’’). Circular 698 also introduces anti-abuse and anti-avoidance
rules where the dominant purpose of using the offshore entities is to avoid PRC
tax obligations. In such a case, the PRC tax authorities can apply a 10%
withholding tax on capital gains derived by the offshore investors on the indirect
transfer. However, Circular 698 does not provide for clear guidance on how the
capital gains withholding tax of 10% is to be applied in practice in connection to
indirect transfer.
Under Circular 698, reporting obligations, if any, with respect to the transfer
effected as a result of the Acquisition Agreement will fall on the Vendor.
Although it is not aware of any express requirement for Stellar Mega and its
subsidiaries to report to any PRC tax authority under Circular 698 for transfer of
a similar nature and in the context of the Acquisition Agreement, there is still a
degree of uncertainty with respect to the application and interpretation of
Circular 698. In any event, the Vendor has agreed to provide indemnities to the
– III-4 –
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
Company in relation to, among other things, tax liabilities of the Target Group
under the Acquisition Agreement including any liabilities arising out of Circular
698.
4.
8.
The unaudited pro forma condensed consolidated statement of financial position
as at 30 June 2014 does not take into account the proceeds from and exercise of
Warrants on or before the Record Date.
9.
Apart from the above, no adjustment has been made to reflect any operation
results or other transactions of the Enlarged Group entered into subsequent to 30
June 2014.
INTRODUCTION TO STATEMENT OF UNAUDITED PRO FORMA ADJUSTED
CONDENSED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP
ATTRIBUTABLE TO SHAREHOLDERS
The statement of unaudited pro forma adjusted condensed consolidated net tangible
assets of the Group attributable to the Shareholders has been prepared by the Directors in
accordance with Rule 4.29 of the Listing Rules to illustrate the effect of the Rights Issue on
the unaudited consolidated net tangible assets of the Group as if the Acquisition, the
Capital Reorganisation and the Rights Issue had taken place on 30 June 2014.
The statement of unaudited pro forma adjusted condensed consolidated net tangible
assets of the Group attributable to the Shareholders is prepared based on the unaudited net
assets of the Group attributable to the Shareholders as at 30 June 2014, as extracted from
the Interim Report 2014 and is adjusted for the effect of the Acquisition, the Capital
Reorganisation and the Rights Issue.
The statement of unaudited pro forma adjusted condensed consolidated net tangible
assets of the Group attributable to the Shareholders has been prepared for illustrative
purposes only, based on the judgements and assumptions of the Directors and, because of
its hypothetical nature, it may not reflect the true picture of the consolidated net tangible
assets of the Group attributable to the Shareholders immediately after completion of the
Acquisition, the Capital Reorganisation and the Rights Issue.
– III-5 –
APPENDIX III
5.
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
STATEMENT OF UNAUDITED PRO FORMA ADJUSTED CONDENSED
CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP ATTRIBUTABLE
TO THE SHAREHOLDERS
Unaudited
Consolidated net
tangible assets of
the Group
attributable to the
Shareholders per
New Share as at
Unaudited
consolidated net
assets of the
Group attributable
to the
Shareholders as at
Adjustments for
30 June 2014
(Note 2)
HK$’000
Intangible Assets
(Note 3)
HK$’000
30 June 2014
HK$’000
30 June 2014
(Note 4)
HK$
821,350
(457,363)
363,987
0.647
Unaudited
consolidated net
tangible assets of
the Group
attributable to the
Shareholders as at
Unaudited pro
consolidated net
tangible assets of
the Group
attributable to the
Shareholders per
Existing Share as
at
Estimated net
proceeds from the
Unaudited pro
forma adjusted
consolidated net
tangible assets of
the Group
attributable to the
Shareholders as at
forma adjusted
consolidated net
tangible assets of
the Group
attributable to the
Shareholders per
New Share as at
30 June 2014
(Note 5)
HK$
Rights Issue
(Note 6)
HK$’000
30 June 2014
(Note 7)
HK$’000
30 June 2014
(Note 8)
HK$
1.294
754.433
1,118,420
0.442
Issue 2,250,230,736 Rights
Shares at the Subscription
price of HK$0.35 per
Rights Share(Note 1)
6.
NOTES TO STATEMENT OF UNAUDITED PRO FORMA ADJUSTED
CONDENSED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP
ATTRIBUTABLE TO SHAREHOLDERS
1.
The Rights Issue of 2,250,230,736 Rights Shares is calculated on the basis of eight
Rights Shares for every one New Share held on the Record Date, subject to the
Capital Reorganisation becoming effective. It is based on 281,278,842 New Shares
in issue immediately before the proposed Rights Issue (assume no further issue of
the Existing Shares or New Shares under the Warrants on or before the Record
Date).
2.
The unaudited consolidated net assets of the Group attributable to the
Shareholders as at 30 June 2014 is extracted from the Interim Report 2014.
3.
These represent the unaudited amounts of the Group’s intangible assets of
purchased license rights, customer contract costs and goodwill of approximately
HK$457,363,000 in total, which are attributable to the Shareholders as at
30 June 2014. The amounts are extracted from the Interim Report 2014.
4.
The calculation of unaudited consolidated net tangible assets of the Group
attributable to the Shareholders per Existing Share is based on 562,557,684
Existing Shares in issue as at 30 June 2014 before completion of the Capital
Reorganisation and the Rights Issue.
5.
The calculation of consolidated net tangible assets of the Group attributable to
the Shareholders per New Share is based on 281,278,842 New Shares in issue as at
30 June 2014 as if the Capital Reorganisation had become effective as at 30 June
2014.
6.
The estimated net proceeds from the Rights Issue is calculated based on
2,250,230,736 Rights Shares to be issued at the subscription price of HK$0.35
per Rights Share and after deduction of the estimated related expense including
– III-6 –
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
financial advisory fee and other professional fees, which are directly attributable
to the Acquisition, the Capital Reorganisation and the Rights Issue of
approximately HK$33,148,000. The transaction costs comprise approximately
HK$26,942,000 for the Capital Reorganisation and the Rights Issue and
approximately HK$6,206,000 for the Acquisition.
7.
The amount of unaudited pro forma adjusted consolidated net tangible assets of
the Group attributable to the Shareholders as at 30 June 2014 does not take into
account the proceeds from and exercise of Warrants on or before the Record
Date.
8.
The unaudited pro forma adjusted consolidated net tangible assets of the Group
attributable to the Shareholders per New Share immediately after completion of
the Acquisition, the Capital Reorganisation and the Rights Issue is calculated
based on 2,531,509,578 New Shares which comprise 281,278,842 New Shares in
issue as at 30 June 2014 and 2,250,230,736 Rights Shares expected to be issued
upon completion of the Rights Issue.
9.
For details of the Capital Reorganisation and the Rights Issue, please refer to the
sections headed ‘‘Proposed Capital Reorganisation’’ and ‘‘Rights Issue’’ in the
‘‘Letter from the Board’’ contained in this circular.
10. Apart from the above, no adjustment has been made to reflect any operation
results or other transactions of the Group entered into subsequent to 30 June
2014.
– III-7 –
APPENDIX III
B.
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
The following is the full text of a report prepared for the sole purpose of inclusion in this
circular received from Patrick Wong C.P.A. Limited, the independent reporting accountants.
Terms defined herein apply to this report only.
Tel: +852 3187 8200
Fax: +852 3187 8279
www. pwcpa.com.hk
1101, 11/F, China Insurance Group Building
141 Des Voeux Road Central
Hong Kong
27 October 2014
The Directors
SMI Culture Group Holdings Limited
19/F., Prosperity Tower
No. 39 Queen’s Road Central
Central
Hong Kong
Dear Sirs,
We have completed our assurance engagement to report on the compilation of pro
forma financial information of SMI Culture Group Holdings Limited (the ‘‘Company’’) and
its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’) by the directors for
illustrative purposes only. The pro forma financial information consists of unaudited pro
forma condensed consolidated statement of financial position and statement of unaudited
pro forma adjusted condensed consolidated net tangible assets of the Group as at 30 June
2014 and related notes as set out on pages III-1 to III-7 of the Company’s circular dated 27
October 2014 (the ‘‘Circular’’). The applicable criteria on the basis of which the directors
have compiled the pro forma financial information are described on pages III-1 to III-7to
the Circular.
The pro forma financial information has been compiled by the directors to illustrate
the impact of the proposed acquisition of 35% of the issued share capital of Grand Astute
Limited (the ‘‘Target’’) and its subsidiaries (hereinafter collectively referred to as the
‘‘Target Group’’) and the shareholder’s loans to the Target, by a wholly-owned subsidiary of
the Company (the ‘‘Proposed Acquisition’’), on the Group’s financial position and the
impact of the Rights Issue on the Group’s consolidated net tangible assets as at 30 June
2014 as if the Proposed Acquisition, Capital Reorganization and Rights Issue had taken
place at 30 June 2014. As part of this process, information about the Group’s financial
position has been extracted by the directors from the Group’s unaudited condensed
consolidated financial statements for the period ended 30 June 2014, on which no audit
report has been published.
– III-8 –
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
Directors’ Responsibilities for the Pro Forma Financial Information
The directors are responsible for compiling the pro forma financial information in
accordance with Rule 4.29 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with reference to Accounting
Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment
Circulars (‘‘AG 7’’) issued by the Hong Kong Institute of Certified Public Accountants (the
‘‘HKICPA’’).
Reporting Accountants’ Responsibilities
Our responsibility is to express an opinion, as required by Rule 4.29(7) of the Listing
Rules, on the pro forma financial information and to report our opinion to you. We do not
accept any responsibility for any reports previously given by us on any financial
information used in the compilation of the pro forma financial information beyond that
owed to those to whom those reports were addressed by us at the dates of their issue.
We conducted our engagement in accordance with Hong Kong Standard on Assurance
Engagements (‘‘HKSAE’’) 3420, Assurance Engagements to Report on the Compilation of
Pro Forma Financial Information Included in a Prospectus, issued by the HKICPA. This
standard requires that the reporting accountant comply with ethical requirements and plan
and perform procedures to obtain reasonable assurance about whether the directors have
compiled the pro forma financial information in accordance with Rule 4.29 of the Listing
Rules and with reference to AG 7 ‘‘Preparation of Pro Forma Financial Information for
Inclusion in Investment Circulars’’ issued by the HKICPA.
For purposes of this engagement, we are not responsible for updating or reissuing any
reports or opinions on any historical financial information used in compiling the pro forma
financial information, nor have we, in the course of this engagement, performed an audit or
review of the financial information used in compiling the pro forma financial information.
The purpose of pro forma financial information included in the Circular is solely to
illustrate the impact of a significant event or transaction on unadjusted financial
information of the Group as if the event had occurred or the transaction had been
undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do
not provide any assurance that the actual outcome of the event or transaction at 30 June
2014 would have been as presented.
A reasonable assurance engagement to report on whether the pro forma financial
information has been properly compiled on the basis of the applicable criteria involves
performing procedures to assess whether the applicable criteria used by the directors in the
compilation of the pro forma financial information provide a reasonable basis for
presenting the significant effects directly attributable to the event or transaction, and to
obtain sufficient appropriate evidence about whether:
—
The related pro forma adjustments give appropriate effect to those criteria; and
– III-9 –
APPENDIX III
—
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
The pro forma financial information reflects the proper application of those
adjustments to the unadjusted financial information.
The procedures selected depend on the reporting accountant’s judgment, having regard
to the reporting accountant’s understanding of the nature of the Group, the event or
transaction in respect of which the pro forma financial information has been compiled, and
other relevant engagement circumstances.
The engagement also involves evaluating the overall presentation of the pro forma
financial information.
We believe that the evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Opinion
In our opinion:
(a) the pro forma financial information has been properly compiled on the basis
stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c)
the adjustments are appropriate for the purposes of the pro forma financial
information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.
PATRICK WONG C.P.A. LIMITED
黃龍德會計師事務所有限公司
Certified Public Accountants
– III-10 –
APPENDIX IV
VALUATION REPORT ON THE PROPERTIES
The following is the text of a letter and valuation certificate, prepared for the purpose of
incorporation in this circular received from Norton Appraisals Limited, an independent valuer,
in connection with its valuation as at 1 September 2014 of the Properties.
Unit 2401-02, 24/F., Jubilee Centre
46 Gloucester Road
Wanchai, Hong Kong
Tel: (852) 2810 7337 Fax: (852) 2810 6337
27 October 2014
The Directors
SMI Culture Group Holdings Limited
19/F., Prosperity Tower
No. 39 Queen’s Road Central
Central, Hong Kong
Dear Sirs,
Re:
Land, various buildings and structures in the Stellar Mega Jincheng Movie-Making
Base located at 鳳和一園9號和鳳翔二園1號 (No. 9 Feng He Yi Yuan and No. 1 Feng
Xiang Re Yuan), Yang Song Town, Huai Rou District, Beijing, the PRC
In accordance with the instructions of SMI Culture Group Holdings Limited
(hereinafter referred to as the ‘‘Company’’) and together with its subsidiaries (the
‘‘Group’’) for us to value the captioned property interest held by 星美今晟影視城管理有
限公司 (‘‘Stellar Mega Jincheng’’) in the People’s Republic of China (the ‘‘PRC’’), we
confirm that we have made relevant enquiries and obtained such further information as we
consider necessary for the purpose of providing you with our opinion of value of such
property interest as at 1st September, 2014 (hereinafter referred to as the ‘‘date of
valuation’’) for public document purpose.
Our valuation of the property interest is our opinion of its ‘‘Market Value’’ which we
would define as intended to mean ‘‘the estimated amount for which a property should
exchange on the date of valuation between a willing buyer and a willing seller in an arm’slength transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion’’.
Inspection of the property was carried out in January 2014, June 2014 and September
2014 by Chau Hon Sum (Hanson) who has obtained a degree in Economics, is a member of
Hong Kong Statistical Society and has around 3 years experience in the valuation of
property in the PRC. During the course of our inspections, we did not note any serious
defects. However, no structural survey has been made and we are therefore unable to report
as to whether the property is free from rot, infestation or other defects. No tests were
carried out on any of the services.
– IV-1 –
APPENDIX IV
VALUATION REPORT ON THE PROPERTIES
In valuing the property interest, we have relied on the advice given by the Group and
the Group’s legal advisor, Duan & Duan, on the PRC laws, and assumed that the Stellar
Mega Jincheng has valid and enforceable title to the property interest which is freely
transferable, and has free and uninterrupted right to use the same, for the whole of the
unexpired land use terms granted subject to payment of annual land use fees and all
requisite land premium payable have been fully settled.
Due to the specific nature of the property and lack of similar/relevant comparable
available in the market, we have adopted the Depreciated Replacement Cost (‘‘DRC’’)
Approach in valuing the captioned property interest. The DRC Approach requires a
valuation of the market value of the land in its existing use and an estimate of the new
replacement cost of the buildings and structures from which deductions are then allowed for
the age, condition and functional obsolescence. For the land portion, we have made
reference to comparable sales evidence as available in the market.
Our valuation has been made on the assumption that the Stellar Mega Jincheng sells
the property on the open market without the benefit of a deferred terms contract, leaseback,
joint venture, management agreement or any similar arrangement which would serve to
affect the value of such property interest. In addition, no account has been taken of any
option or right of pre-emption concerning or effecting sale of the property and no forced
sale situation in any manner is assumed in our valuation.
In the course of our valuation, we have relied to a considerable extent on the
information given by the Group and the Group’s legal advisor, Duan & Duan, in respect of
the title to the property in the PRC. We have also accepted advice given to us on such
matters as planning approvals or statutory notices, tenure, identification of land and
buildings, completion date of buildings, particulars of occupancy, site and floor areas and
all other relevant matters.
We have had no reason to doubt the truth and accuracy of the information provided to
us by the Group. We are also advised by the Group that no material facts have been omitted
from the information provided. We consider that we have been provided with sufficient
information to reach an informed view, and we have no reason to suspect that any material
information has been withheld.
No allowance has been made in our valuation for any charges, mortgages or amounts
owing on any of the property valued nor for any expenses 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.
– IV-2 –
APPENDIX IV
VALUATION REPORT ON THE PROPERTIES
Our valuation has been prepared in accordance with The HKIS Valuation Standards
(2012 Edition) published by The Hong Kong Institute of Surveyors and the requirement as
stated in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited.
Unless otherwise stated, all sums stated in our valuation certificate are in Hong Kong
Dollars. The exchange rate adopted in our valuation is approximately HK$1 = RMB0.79
which was approximately the prevailing exchange rate as at the date of valuation.
Our Valuation Certificate is enclosed herewith.
Yours faithfully,
For and on behalf of
Norton Appraisals Limited
Paul M. K. Wong MHKIS, RPS (G.P.)
Director
Note:
Mr. Paul M. K. Wong is a Registered Professional Surveyor who has more than 23 years’ experience in
valuation of properties in Hong Kong and in the PRC.
– IV-3 –
APPENDIX IV
VALUATION REPORT ON THE PROPERTIES
Valuation Certificate
Particulars of
occupancy
Property
Description and tenure
Land, various
buildings and
structures in the Stellar
Mega Jincheng MovieMaking Base located at
鳳和一園9號和鳳翔二
園1號 (No. 9 Feng He
Yi Yuan and No. 1
Feng Xiang Re Yuan),
Yang Song Town,
Huai Rou District,
Beijing, the PRC
The property is
The Stellar Mega Jincheng Movie-Making
Base (known as 飛騰影視城) comprises a total currently ownersite area of approximately 380 mu (253,335 occupied.
sq.m.), which is one of the movie making and
post production base in the Northern China,
located at Yang Song Town, Huai Rou
District, Beijing.
The property comprises two parcels of land
with a total site area of 175,106.84 sq.m. and
various buildings and structures completed in
1996, 1997, 2001, 2002, 2009, 2010 and 2012
respectively. Details of the buildings are
listed as follows:
Items
Gross Floor Area
(sq.m.)
North
Factory, staff quarter,
and film studio
Boiler room
Ancillary utility
Complex (綜合樓)
Substation
22,357.95*
246.60
3,772.97
10,590.00
150.00
South
Ancillary utility
Antique Buildings
Film studio
11,415.00
13,088.64
3,265.10
Total:
64,886.26
*
As advised by the Group, 2,899.45 sq.m.
had been demolished and 3,540.92 sq.m. is
planned to demolish. Both of them are
excluded from our valuation.
The structures are mainly on landscape,
antique road, esplanade and town walls.
The land use rights of the property have been
granted for a term up to 24th December, 2051
for 影視基地 (Commercial, Culture and
Entertainment uses). The annual land use fee
for the property is RMB175,107.
– IV-4 –
Capital Value in
existing
state as at
1st September, 2014
HK$1,280,000,000
APPENDIX IV
VALUATION REPORT ON THE PROPERTIES
Notes:
i)
Pursuant to 2 State-owned Land Use Rights Certificates Nos. 京懷國用(2001出)字第0155 and 0156號 (the
‘‘Nos. Jing Huai Guo Yong 2001 Chu Zi Di 0155 and 0156’’) issued by 懷柔縣國土資源和房屋管理局 (the
‘‘Huai Rou Land Resources and Housing Bureau’’) on 31st December, 2001, the land use rights of the
property, having a total site area of 175,106.84 sq.m., have been granted to 飛騰(中國)制作有限公司
(‘‘FeiTeng China’’) for a term up to 24th December, 2051 for commercial, culture and entertainment uses.
ii)
Pursuant to 2 State-owned Land Use Rights Nos. 京懷國用(2014出)字第00036和00037號 (the ‘‘Nos. Jing
Huai Guo Yong 2014 Chu Zi 00036 and 00037’’) issued by 北京市懷柔區人民政府 (the ‘‘Government of
Huai Rou District of Beijing City’’) on 15th July, 2014, the land use rights of the property, having a total
site area of 175,106.84 sq.m., have been granted to Stellar Mega Jincheng for a term up to 24th December,
2051 for commercial, culture and entertainment uses.
iii)
Pursuant to a Construction Land Use Planning Certificate No. 1997懷規地字043號 (the ‘‘No. 1997 Huai
Gui Di Zi 043’’) issued by 懷柔縣規劃管理局 (the ‘‘Huai Rou Planning Bureau’’) dated 27th June, 1997,
FeiTeng China has been permitted to develop commercial, culture and entertainment uses to the land with
a site area of 175,000 sq.m. and to manage 代徵用地 (the ‘‘Confiscated Land’’) with a site area of 60,365
sq.m. for road, river and greening uses.
iv)
Pursuant to the Business Licence No. 企獨京總副字第010776號 (the ‘‘No. Qi Du Jing Zhong Fu Zi Di
010776’’) dated 15th May, 2001, FeiTang China has been established with a registered capital of
USD13,300,000 for an operation period commencing from 23rd October, 1995 to 22nd October, 2045.
v)
Pursuant to the Business Licence No. 110000410107760 dated 24th January, 2001, 飛騰制作有限公司
(‘‘FeiTeng’’) has been established with a registered capital of USD13,300,000 for an operation period
commencing from 23rd October, 1995 to 22nd October, 2045.
vi)
Pursuant to the Business Licence No. 110000410107760 dated 10th January, 2014, Stellar Mega Jincheng
has been established with a registered capital of USD13,300,000 for an operation period commencing from
23rd October, 1995 to 22nd October, 2045.
vii)
Pursuant to a Construction and Engineering Planning Certificate No. 2004規(懷)建字0079號 (the ‘‘No.
2004 Gui Huai Jian Zi 0079’’) issued by 北京市規劃委員會 (the ‘‘Beijing Planning Bureau’’) dated 14th
December, 2004, approval has been granted to FeiTeng to develop 137 blocks of 仿明清建築 (the ‘‘antique
building’’) with a total gross floor area of 15,682 sq.m..
viii) Pursuant to a Construction and Engineering Planning Certificate No. 96懷規建字3號 (the ‘‘No. 96 Huai
Gui Jiang Zi Di 3’’) issued by 北京市懷柔縣規劃管理局 (the ‘‘Huai Rou Planning Bureau’’) dated 19th
January, 1996, approval has been granted to FeiTeng to develop 5 blocks of staff quarter with a gross
floor area of 6,828.07 sq.m..
ix)
Pursuant to a Construction and Engineering Planning Certificate No. 2001懷規建市政字0038號 (the ‘‘No.
2001 Huai Gui Jiang Shi Zheng Zi 0038’’) issued by 懷柔縣規劃管理局 (the ‘‘Huai Rou Planning Bureau’’)
dated 21st November, 2001, approval has been granted to FeiTeng China to develop a boiler room with a
gross floor area of 246.6 sq.m..
x)
Pursuant to a Construction and Engineering Planning Certificate No. 2006規(懷)建字0062號 (the ‘‘No.
2006 Gui Huai Jiang Zi 0062’’) issued by 北京市規劃委員會 (the ‘‘Beijing Planning Bureau’’) dated 17th
August, 2006, approval has been granted to FeiTeng to develop 11 blocks of film studio with a total gross
floor area of 3,265.1 sq.m..
– IV-5 –
APPENDIX IV
VALUATION REPORT ON THE PROPERTIES
xi)
Pursuant to a Commencing Construction Certificate No. 2009施建字0778號 (the ‘‘No. 2009 Shi Jiang Zi
0778’’) issued by 北京市住房和城鄉建設委員會 (the ‘‘Beijing Housing and Construction Association’’)
dated 20th July, 2009, construction works with a total gross floor area of 3,265.1 sq.m. have been
permitted.
xii)
Pursuant to a Construction and Engineering Planning Certificate No. 95懷規建字139號 (the ‘‘No. 95 Huai
Gui Jiang Zi 139’’) issued by 北京市懷柔縣規劃管理局 (the ‘‘Huai Rou Planning Bureau’’) dated 15th
December, 1995, approval has been granted to FeiTeng to develop film studio and substation with a total
gross floor area of 10,419.85 sq.m. and a fence with the length of 1,800 m.
xiii) Pursuant to a Construction and Engineering Planning Certificate No. 2008規(懷)建字0021號 (the ‘‘No.
2008 Gui Huai Jiang Zi 0021’’) issued by 北京市規劃委員會 (the ‘‘Beijing Planning Bureau’’) dated 5th
June, 2008, approval has been granted to FeiTeng to develop a 綜合樓 (the ‘‘Complex’’) with a gross floor
area of 10,590 sq.m..
xiv) Pursuant to a Commencing Construction Certificate No. 2009施建字0687號 (the ‘‘No. 2009 Shi Jiang Zi
0687’’) issued by 北京市住房和城鄉建設委員會 (the ‘‘Beijing Housing and Construction Association’’)
dated 25th June, 2009, construction works with a total gross floor area of 10,590 sq.m. have been
permitted.
xv)
Pursuant to a Construction and Engineering Planning Certificate No. (96)懷規建字012號 (the ‘‘No. 96
Huai Gui Jiang Zi 012’’) issued by 北京市懷柔縣規劃管理局 dated 13th March, 1996, approval has been
granted to FeiTeng to develop 2 blocks of factory with a total gross floor area of 2,410 sq.m..
xvi) Pursuant to a Construction and Engineering Planning Certificate No. 2000懷規建字249號 (the ‘‘No. 2000
Huai Gui Jiang Zi 249’’) issued by 懷柔縣規劃管理局 (the ‘‘Huai Rou Planning Bureau’’) dated 14th
November, 2000, approval has been granted to FeiTeng China to develop a factory and car parking spaces
with a total gross floor area of 2,119.36 sq.m..
xvii) Pursuant to a Construction and Engineering Planning Certificate No. 2001懷規建字0068號 (the ‘‘No. 2001
Huai Gui Jiang Zi 0068’’) issued by 懷柔縣規劃管理局 (the ‘‘Huai Rou Planning Bureau’’) dated 24th
April, 2001, approval has been granted to FeiTeng China to develop 2 blocks of props room and car
parking spaces and with a total gross floor area of 1,000 sq.m..
xviii) Pursuant to a Construction and Engineering Planning Certificate No. 97懷規建字085號 (the ‘‘No. 97 Huai
Gui Jiang Zi 085’’) issued by 北京市懷柔縣規劃管理局 (the ‘‘Huai Rou Planning Bureau’’) dated 25th
June, 1997, approval has been granted to FeiTeng China to develop 標局 (the ‘‘House of bodyguard’’) with
a gross floor area of 2,188 sq.m..
xix) Pursuant to a Real Estate Ownership Certificate No. 京房權証懷涉外字第20022號 (the ‘‘No. Jing Fang
Quan Zheng Huai She Wai Zi Di 20022’’) issued by 北京市懷柔區國土資源和房屋管理局 (the ‘‘Huai Rou
Land Resources and Housing Bureau’’) dated 2nd March, 2005, the titles of the property are vested in the
FeiTeng, with a total gross floor area of 22,357.95 sq.m..
xx)
Pursuant to a Real Estate Ownership Certificate No. 京房權証懷涉外字第20021號 (the ‘‘No. Jing Fang
Quan Zheng Huai She Wai Zi Di 20021’’) issued by 北京市懷柔區國土資源和房屋管理局 (the ‘‘Huai Rou
Land Resources and Housing Bureau’’) dated 28th December, 2004, the titles of the property are vested in
FeiTeng, with a total gross floor area of 13,088.64 sq.m..
xxi) We have provided with a legal opinion on the title to the property issued by the Group’s PRC legal
advisers which contains, inter-alia, the following information:
(a)
Stellar Mega Jincheng has obtained the land use rights and buildings ownership of the property;
– IV-6 –
APPENDIX IV
VALUATION REPORT ON THE PROPERTIES
(b)
The property is subject to an encumbrance of《公司委託貸款公司》(編號：公委貸字第
1400000106372號) (the ‘‘Mortgage Agreement Mo Gong Wei Dai Zi Di 1400000106372’’) dated
20th August 2014;
(c)
Stellar Mega Jincheng has the rights to legally occupy and use the property within the remaining
land use term; and
(d)
Stellar Mega Jincheng can freely transfer, grant, lease and refinance the property.
xxii) In accordance with the information provided by the Group, the status of title and grant of major
approvals and licenses are as follows:
Certificates for the Use of State-owned Land
Building Ownership Certificates
Business License
– IV-7 –
Yes
Yes
Yes
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
Set out below is a summary of the provisions of the new memorandum of continuance
(‘‘New Memorandum’’) and the bye-laws of the Company (‘‘Bye-laws’’) upon continuation
into Bermuda and their differences with the memorandum of association (‘‘Memorandum’’)
and articles of association (‘‘Articles’’) of the Company prior to the Change of Domicile.
1.
THE MEMORANDUM AND THE NEW MEMORANDUM
The Memorandum states, inter alia, that the liability of each member of the Company
is limited to the amount from time to time unpaid on such member’s shares, that the objects
for which the Company is established are unrestricted and that the Company shall have and
be capable of from time to time and at all times exercising any and all of the powers at any
time or from time to time exercisable by a natural person or body corporate, irrespective of
any question of corporate benefit provided that the Company shall only carry on the
businesses for which a licence is required under the laws of the Cayman Islands when so
licensed under the terms of such laws.
Upon continuance of the Company into Bermuda, the Company will adopt the New
Memorandum which, upon filing with and registration by the Bermuda Registrar, will in
effect be the Company’s new memorandum of association. The New Memorandum states,
inter alia, that the liability of members of the Company is limited to the amount, if any, for
the time being unpaid on the shares respectively held by them and that the Company is an
exempted company as defined in the Companies Act. The New Memorandum also sets out
the objects of the Company from the date of continuance are unrestricted and that the
Company has the capacity, rights, powers and privileges of a natural person. As an
exempted company, the Company will be carrying on business outside Bermuda.
In accordance with and subject to section 42A of the Companies Act, the New
Memorandum empowers the Company to purchase its own shares and pursuant to its Byelaws, this power is exercisable by the Board upon such terms and subject to such conditions
as it thinks fit.
2.
THE ARTICLES AND THE BYE-LAWS
(a) Directors
(i) Power to allot and issue shares and warrants
Summary
Subject to the Companies Act, the New Memorandum and the Bye-laws
and any special rights conferred on the holders of any shares or class of
shares, any share in the Company (whether forming part of the present
capital or not) may be issued with or have attached thereto such rights, or
such restrictions, whether with regard to dividend, voting, return of capital,
or otherwise, as the Company may by ordinary resolution determine or if
there has not been any such determination or so far as the same may not
– V-1 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
make specific provision, as the Board may determine. Subject to the
Companies Act, the New Memorandum and the Bye-laws and any special
rights conferred on the holders of any shares or class of shares, any
preference shares may be issued or converted into shares that are liable to be
redeemed at a determinable date or at the option of the Company or the
holder, on such terms and in such manner as the Company before the issue or
conversion may by ordinary resolution of the members of the Company
determine. The Board may issue warrants conferring the right upon the
holders thereof to subscribe for any class of shares or securities in the capital
of the Company on such terms as it may from time to time determine.
Subject to the provisions of the Companies Act, the Bye-laws, any
direction that may be given by the Company in general meeting and, where
applicable, the rules of any Designated Stock Exchange (as defined in the
Bye-laws) and without prejudice to any special rights or restrictions for the
time being attached to any shares or any class of shares, the unissued shares
in the Company (whether forming part of the original or any increased
capital) shall be at the disposal of the Board, which may offer, allot, grant
options over or otherwise dispose of them to such persons, at such times, for
such consideration and upon such terms and conditions as it in its absolute
discretion determine, but so that no shares shall be issued at a discount.
Neither the Company nor the Board shall be obliged, when making or
granting any allotment of, offer of, option over or disposal of shares, to
make, or make available, any such offer, option or shares to members or
others with registered addresses in any particular territory or territories being
a territory or territories where, in the absence of a registration statement or
other special formalities, this would or might, in the opinion of the Board, be
unlawful or impracticable or that based on legal opinions provided by legal
advisers, the Board considers it necessary or expedient not to offer the shares
to such Members on account either of legal restrictions under the laws of the
relevant place or the requirements of the relevant regulatory body or stock
exchange in that place. Members affected as a result of the foregoing sentence
shall not be, or be deemed to be, a separate class of members for any purpose
whatsoever.
Material differences
The corresponding provisions of the Articles relating to the power of
Directors to allot and issue shares and warrants are similar save and except
that (i) instead of ordinary resolution, a special resolution is required for the
issue of share that is liable to be redeemed, whether at the option of the
Company or the holder thereof; and (ii) there is no provision to allow the
Board to disregard overseas shareholders when making allotment of shares
generally.
– V-2 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
(ii) Power to dispose of the assets of the Company or any of its subsidiaries
Summary
There are no specific provisions in the Bye-laws relating to the disposal
of the assets of the Company or any of its subsidiaries.
Note:
The Directors may, however, exercise all powers and do all acts and things which
may be exercised or done or approved by the Company and which are not
required by the Bye-laws or the laws of Bermuda to be exercised or done by the
Company in general meeting.
Material differences
The Articles do not contain any prohibition or restriction on the
disposal of the assets of the Company or any of its subsidiaries.
(iii) Compensation or payments for loss of office
Summary
Payments to any Director or past Director of any sum by way of
compensation for loss of office or as consideration for or in connection with
his retirement from office (not being a payment to which the Director is
contractually entitled) must be approved by the Company in general meeting.
Material differences
The Articles contain the same provision.
(iv) Loans and provision of security for loans to Directors
Summary
There are no provisions in the Bye-laws relating to the making of loans
to Directors. However, the Companies Act contains restrictions on
companies making loans or providing security for loans to their Directors.
Material differences
There are provisions in the Articles prohibiting the making of loans to a
Director of the Company or to his Associates (as defined in the Articles).
– V-3 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
(v) Financial assistance to purchase shares of the Company
Summary
Subject to compliance with the rules and regulations of the Designated
Stock Exchange (as defined in the Bye-laws) and any other relevant
regulatory authority, the Company may give financial assistance for the
purpose of or in connection with a purchase made or to be made by any
person of any shares in the Company.
Material differences
The Company is also empowered under the Articles to give financial
assistance.
(vi) Disclosure of interests in contracts with the Company or any of its subsidiaries
Summary
A Director may hold any other office or place of profit with the
Company (except that of auditor of the Company) in conjunction with his
office of Director for such period and, subject to the Companies Act, upon
such terms as the Board may determine, and may be paid such remuneration
(whether by way of salary, commission, participation in profits or otherwise)
in respect of any such other office or place of profit in addition to any
remuneration provided for by or pursuant to any other Bye-law. A Director
may be or become a director or other officer of, or a member of, any
company promoted by the Company or any other company in which the
Company may be interested, and shall not be liable to account for any
remuneration, profits or other benefits received by him as a director, officer
or member of, or from his interest in, such other company. Subject as
otherwise provided by the Bye-laws, the Directors may exercise or cause to be
exercised the voting power conferred by the shares in any other company held
or owned by the Company, or exercisable by them as directors of such other
company in such manner in all respects as it thinks fit, including the exercise
thereof in favour of any resolution appointing the Directors or any of them
to be directors or officers of such other company, or voting or providing for
the payment of remuneration to the directors or officers of such other
company.
Subject to the Companies Act and to the Bye-laws, no Director or
proposed or intending Director shall be disqualified by his office from
contracting with the Company, either with regard to his tenure of any office
or place of profit or as vendor, purchaser or in any other manner whatsoever,
nor shall any such contract or any other contract or arrangement in which
any Director is in any way interested be liable to be avoided, nor shall any
– V-4 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
Director so contracting or being so interested be liable to account to the
Company or the members of the Company for any remuneration, profit or
other benefits realised by any such contract or arrangement by reason of such
Director holding that office or the fiduciary relationship thereby established
provided that such Director shall disclose the nature of his interest in any
contract or arrangement in which he is interested in accordance with the Byelaw. A Director who to his knowledge is in any way, whether directly or
indirectly, interested in a contract or arrangement or proposed contract or
arrangement with the Company shall declare the nature of his interest at the
meeting of the Board at which the question of entering into the contract or
arrangement is first taken into consideration, if he knows his interest then
exists, or in any other case at the first meeting of the Board after he knows
that he is or has become so interested.
A Director shall not vote (nor be counted in the quorum) on any
resolution of the Board approving any contract or arrangement or other
proposal in which he or any of his associates is materially interested but this
prohibition shall not apply to any of the following matters, namely:
(aa) any contract or arrangement for the giving to such Director or his
associate(s) any security or indemnity in respect of money lent by
him or any of his associates or obligations incurred or undertaken
by him or any of his associates at the request of or for the benefit of
the Company or any of its subsidiaries;
(bb) any contract or arrangement for the giving of any security or
indemnity to a third party in respect of a debt or obligation of the
Company or any of its subsidiaries for which the Director or his
associate(s) has himself/themselves assumed responsibility in whole
or in part whether alone or jointly under a guarantee or indemnity
or by the giving of security;
(cc) any contract or arrangement concerning an offer of shares or
debentures or other securities of or by the Company or any other
company which the Company may promote or be interested in for
subscription or purchase, where the Director or his associate(s) is/
are or is/are to be interested as a participant in the underwriting or
sub-underwriting of the offer;
(dd) any contract or arrangement in which the Director or his
associate(s) is/are interested in the same manner as other holders
of shares or debentures or other securities of the Company by
virtue only of his/their interest in shares or debentures or other
securities of the Company; or
– V-5 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
(ee) any proposal or arrangement concerning the adoption,
modification or operation of a share option scheme, a pension
fund or retirement, death, or disability benefits scheme or other
arrangement which relates both to Directors, his associates and
employees of the Company or of any of its subsidiaries and does
not provide in respect of any Director, or his associate(s), as such
any privilege or advantage not accorded generally to the class of
persons to which such scheme or fund relates.
Material differences
The Articles contain similar provisions save and except that there is an
extra exception to a Director’s right to vote (i.e., any proposal concerning
any other company in which the Director or any of his Associates (as defined
in the Articles) is/are interested, as an officer or executive or a shareholder or
in which the Director or any of his Associates (as defined in the Articles) is/
are beneficially interested in the shares of that company, provided that, the
Director and any of his Associates (as defined in the Articles) is/are not, in
aggregate, beneficially interested in 5 per cent. or more of the issued shares of
any class of such company (or of any third company through which his
interest or any of his Associates (as defined in the Articles) is derived).
(vii)Remuneration
Summary
The ordinary remuneration of the Directors shall from time to time be
determined by the Company in general meeting, such remuneration (unless
otherwise directed by the resolution by which it is voted) shall be divided
amongst the Board in such proportions and in such manner as the Board may
agree or, failing agreement, equally, except that any Director who shall hold
office for part only of the period in respect of which the remuneration is
payable shall only rank in such division for a proportion of remuneration
related to the period during which he has held office. The Directors shall also
be entitled to be prepaid or repaid all travelling, hotel and incidental
expenses reasonably incurred or expected to be incurred by them in attending
any Board meetings, meetings of committees of the Board or general
meetings or separate meetings of any class of shares or of debentures of the
Company or otherwise in connection with the discharge of their duties as
Directors.
Any Director who, by request, goes or resides abroad for any purpose of
the Company or who performs services which in the opinion of the Board go
beyond the ordinary duties of a Director may be paid such extra
remuneration (whether by way of salary, commission, participation in
profits or otherwise) as the Board may determine and such extra
– V-6 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
remuneration shall be in addition to or in substitution for any ordinary
remuneration provided for by or pursuant to any other Bye-law. A Director
appointed to be a managing director, joint managing director, deputy
managing director or to hold any other employment or other executive office
of the Company shall receive such remuneration (whether by way of salary,
commission or participation in profits or otherwise or by all or any of those
modes) and such other benefits (including pension and/or gratuity and/or
other benefits on retirement) and allowances as the Board may from time to
time decide. Such remuneration may be either in addition to or in lieu of his
remuneration as a Director.
The Board may establish or concur or join with other companies (being
subsidiary companies of the Company or companies with which it is
associated in business) in establishing and making contributions out of the
Company’s monies to any schemes or funds for providing pensions, sickness
or compassionate allowances, life assurance or other benefits for employees
(which expression as used in this and the following paragraph shall include
any Director or ex-Director who may hold or have held any executive office
or any office of profit with the Company or any of its subsidiaries) and exemployees of the Company and their dependants or any class or classes of
such persons.
The Board may pay, enter into agreements to pay or make grants of
revocable or irrevocable, and either subject or not subject to any terms or
conditions, pensions or other benefits to employees and ex-employees and
their dependants, or to any of such persons, including pensions or benefits
additional to those, if any, to which such employees or ex-employees or their
dependants are or may become entitled under any such scheme or fund as is
mentioned in the previous paragraph. Any such pension or benefit may, as
the Board considers desirable, be granted to an employee either before and in
anticipation of, or upon or at any time after, his actual retirement.
Material differences
The Articles contain similar provisions.
(viii) Retirement, appointment and removal
Summary
At each annual general meeting, one third of the Directors for the time
being (or if their number is not a multiple of three, then the number nearest
to but not less than one third) will retire from office by rotation provided
that every Director shall be subject to retirement at least once every three
years. The Directors to retire in every year will be those who have been
longest in office since their last re-election or appointment but as between
– V-7 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
persons who became or were last re-elected Directors on the same day those
to retire will (unless they otherwise agree among themselves) be determined
by lot.
Note:
There are no provisions relating to retirement of Directors upon reaching any
age limit.
The Directors shall have the power from time to time and at any time to
appoint any person as a Director either to fill a casual vacancy on the Board
or, subject to authorisation by the members in general meeting, as an
addition to the existing Board but so that the number of Directors so
appointed shall not exceed any maximum number determined from time to
time by the members in general meeting. Any Director appointed by the
Board to fill a casual vacancy shall hold office until the first general meeting
of members after his appointment and be subject to re-election at such
meeting and any Director appointed by the Board as an addition to the
existing Board shall hold office only until the next following annual general
meeting of the Company and shall then be eligible for re-election. Neither a
Director nor an alternate Director is required to hold any shares in the
Company by way of qualification.
A Director may be removed by an ordinary resolution of the Company
before the expiration of his period of office (but without prejudice to any
claim which such Director may have for damages for any breach of any
contract between him and the Company) provided that the notice of any such
meeting convened for the purpose of removing a Director shall contain a
statement of the intention to do so and be served on such Director fourteen
(14) days before the meeting and, at such meeting, such Director shall be
entitled to be heard on the motion for his removal. Unless otherwise
determined by the Company in general meeting, the number of Directors
shall not be less than two. There is no maximum number of Directors unless
otherwise determined from time to time by members of the Company.
The Board may from time to time appoint one or more of its body to be
managing director, joint managing director, or deputy managing director or
to hold any other employment or executive office with the Company for such
period (subject to their continuance as Directors) and upon such terms as the
Board may determine and the Board may revoke or terminate any of such
appointments (but without prejudice to any claim for damages that such
Director may have against the Company or vice versa). The Board may
delegate any of its powers, authorities and discretions to committees
consisting of such Director or Directors and other persons as the Board
thinks fit, and it may from time to time revoke such delegation or revoke the
appointment of and discharge any such committees either wholly or in part,
and either as to persons or purposes, but every committee so formed shall, in
– V-8 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
the exercise of the powers, authorities and discretions so delegated, conform
to any regulations that may from time to time be imposed upon it by the
Board.
Material differences
The Articles contain substantially the same provisions in relation to
rotation, re-election and removal of Directors. However, as to removal of
Directors, there is no requirement to serve any notice on the Director who is
being removed nor is there any provision allowing such Director to be heard
on the motion for his removal which are only required under the Companies
Act. There is also no provision requesting for shareholders’ authorisation in
case of appointment of a person as an addition to the existing Board.
(ix) Borrowing powers
Summary
The Board may from time to time at its discretion exercise all the powers
of the Company to raise or borrow money, to mortgage or charge all or any
part of the undertaking, property and assets (present and future) and
uncalled capital of the Company and, subject to the Companies Act, to issue
debentures, bonds and other securities of the Company, whether outright or
as collateral security for any debt, liability or obligation of the Company or
of any third party.
Note:
These provisions, in common with the Bye-laws in general, can be varied with
the sanction of a special resolution of the Company.
Material differences
The Articles contain substantially similar provisions.
(b) Alterations to constitutional documents
Summary
The Bye-laws may be rescinded, altered or amended by the Directors subject
to the confirmation of the Company in general meeting. The Bye-laws state that a
special resolution shall be required to alter the provisions of the New
Memorandum, to confirm any such rescission, alteration or amendment to the
Bye-laws or to change the name of the Company.
Material differences
Under the Articles, any alteration to the Memorandum and the Articles
requires the sanction of a special resolution.
– V-9 –
APPENDIX V
(c)
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
Alteration of capital
Summary
The Company may from time to time by ordinary resolution in accordance
with the relevant provisions of the Companies Act:
(i)
increase its capital by such sum, to be divided into shares of such
amounts as the resolution shall prescribe;
(ii) consolidate and divide all or any of its capital into shares of larger
amount than its existing shares;
(iii) divide its shares into several classes and without prejudice to any special
rights previously conferred on the holders of existing shares attach
thereto any rights, privileges, conditions or restrictions which, in the
absence of any such determination by the Company in general meeting,
as the Directors may determine;
(iv) sub-divide its shares or any of them into shares of smaller amount than
is fixed by the New Memorandum (subject, nevertheless, to the
Companies Act);
(v) change the currency denomination of its share capital;
(vi) make provision for the issue and allotment of shares which do not carry
any voting rights; and
(vii) cancel any shares which, at the date of passing of the resolution, have
not been taken, or agreed to be taken, by any person, and diminish the
amount of its capital by the amount of the shares so cancelled.
The Company may, by special resolution, subject to any confirmation or
consent required by law, reduce its authorised or issued share capital or, save for
the use of share premium as expressly permitted by the Companies Act, any share
premium account or other undistributable reserve.
Material differences
The Articles contain similar provisions save and except that there is no
express provision in the Articles authorising the Company to do (iii), (v) and (vi)
by way of ordinary resolution. However, it does not necessarily mean that the
Company may not do any of (iii), (v) and (vi) as the Directors have general power
under the Articles to do all such acts and things that are not by the Articles or by
– V-10 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
the Companies Law required to be exercised or done in general meeting. The
Company may also by special resolution reduce its capital, any capital redemption
reserve or any share premium account.
(d) Variation of rights of existing shares or classes of shares
Summary
Subject to the Companies Act, all or any of the special rights attached to the
shares or any class of shares may (unless otherwise provided for by the terms of
issue of that class) be varied, modified or abrogated either with the consent in
writing of the holders of not less than three-fourths of the issued shares of that
class or with the sanction of a special resolution passed at a separate general
meeting of the holders of the shares of that class. To every such separate general
meeting the provisions of the Bye-laws relating to general meetings will mutatis
mutandis apply, but so that the necessary quorum (other than at an adjourned
meeting) shall be two persons (or in the case of a member being a corporation, its
duly authorised representative) holding or representing by proxy not less than
one-third in nominal value of the issued shares of that class and at any adjourned
meeting two holders present in person or (in the case of a member being a
corporation) its duly authorised representative or by proxy (whatever the number
of shares held by them) shall be a quorum. Every holder of shares of the class shall
be entitled to one vote for every such share held by him.
Material differences
The Articles contain substantially similar provisions save and except that the
necessary quorum of any such separate meeting and of any adjournment thereof
shall be a person or persons together holding not less than one-third in nominal
value of the issued shares of that class.
(e)
Special resolution-majority required
Summary
A special resolution of the Company must be passed by a majority of not less
than three-fourths of the votes cast by such members as, being entitled so to do,
vote in person or, in the case of such members as are corporations, by their
respective duly authorised representatives or, where proxies are allowed, by proxy
at a general meeting of which notice of not less than twenty-one (21) clear days
and not less than ten (10) clear business days has been duly given. Provided that if
permitted by the Designated Stock Exchange (as defined in the Bye-laws), except
in the case of an annual general meeting, if it is so agreed by a majority in number
of the members having a right to attend and vote at such meeting, being a majority
together holding not less than ninety-five per cent. (95%) in nominal value of the
shares giving that right and, in the case of an annual general meeting, if so agreed
– V-11 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
by all members entitled to attend and vote thereat, a resolution may be proposed
and passed as a special resolution at a meeting of which notice of less than twentyone (21) clear days and less than ten (10) clear business days has been given.
Material differences
The definition of special resolution under the Articles is substantially the
same. In the case of a meeting convened for the purpose of passing a special
resolution, 21 days’ notice in writing at the least must be given to all the members
for the time being of the Company specifying the intention to propose the relevant
resolution as a special resolution. There is no ten (10) clear business days notice
requirement.
(f)
Voting rights
Summary
Subject to any special rights or restrictions as to voting for the time being
attached to any shares by or in accordance with the Bye-laws, at any general
meeting on a poll every member present in person or by proxy or (being a
corporation) by its duly authorised representative shall have one vote for every
fully paid share of which he is the holder but so that no amount paid up or
credited as paid up on a share in advance of calls or installments is treated for the
foregoing purposes as paid up on the share.
At any general meeting, a resolution put to the vote of the meeting is to be
decided by way of a poll save that the chairman of the meeting may in good faith,
allow a resolution which relates purely to a procedural or administrative matter to
be voted on by a show of hands.
If a recognised clearing house (or its nominee(s)) is a member of the
Company it may authorise such persons as it thinks fit to act as its
representative(s) at any meeting of the Company or at any meeting of any class
of members of the Company provided that the authorisation shall specify the
number and class of shares in respect of which each such person is so authorised.
A person authorised pursuant to this provision shall be deemed to have been duly
authorised without further evidence of the facts and be entitled to exercise the
same powers on behalf of the recognised clearing house (or its nominee(s)) as if
such person was the registered holder of the shares held by that clearing house (or
its nominee(s)) in respect of the number and class of shares specified in the
relevant authorisation.
Where the Company has any knowledge that any shareholder is, under the
rules of the Designated Stock Exchange (as defined in the Bye-laws), required to
abstain from voting on any particular resolution of the Company or restricted to
– V-12 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
voting only for or only against any particular resolution of the Company, any
votes cast by or on behalf of such shareholder in contravention of such
requirement or restriction shall not be counted.
Material differences
The Articles contain similar provisions save and except that voting shall be
by way of a show of hands except where a poll is demanded.
(g) Requirements for annual general meetings
Summary
An annual general meeting of the Company must be held in each year other
than the year in which its statutory meeting is convened at such time (within a
period of not more than 15 months after the holding of the last preceding annual
general meeting unless a longer period would not infringe the rules of any
Designated Stock Exchange (as defined in the Bye-laws)) and place as may be
determined by the Board.
Material differences
Similarly, the Company must hold a general meeting as its annual general
meeting and not more than 15 months shall elapse between the date of one annual
general meeting and the next.
(h) Accounts and audit
Summary
The Board shall cause true accounts to be kept of the sums of money received
and expended by the Company, and the matters in respect of which such receipt
and expenditure take place, and of the property, assets, credits and liabilities of
the Company and of all other matters required by the provisions of the
Companies Act or necessary to give a true and fair view of the Company’s
affairs and to explain its transactions.
The accounting records shall be kept at the registered office or, subject to the
Companies Act, at such other place or places as the Board decides and shall
always be open to inspection by any Director. No member (other than a Director)
shall have any right of inspecting any accounting record or book or document of
the Company except as conferred by law or authorised by the Board or the
Company in general meeting.
– V-13 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
Subject to the Companies Act and the Bye-laws, a printed copy of the
Directors’ report, accompanied by the balance sheet and profit and loss account,
including every document required by law to be annexed thereto, made up to the
end of the applicable financial year and containing a summary of the assets and
liabilities of the Company under convenient heads and a statement of income and
expenditure, together with a copy of the auditors’ report, shall be sent to each
person entitled thereto at least twenty-one (21) days before the date of the general
meeting and at the same time as the notice of annual general meeting and laid
before the Company in general meeting in accordance with the requirements of the
Companies Act provided that this provision shall not require a copy of those
documents to be sent to any person whose address the Company is not aware or to
more than one of the joint holders of any shares or debentures; however, to the
extent permitted by and subject to compliance with all applicable laws, including
the rules of the Designated Stock Exchange (as defined in the Bye-laws), the
Company may send to such persons summarised financial statements derived from
the Company’s annual accounts and the Directors’ report instead provided that
any such person may by notice in writing served on the Company, demand that
the Company sends to him, in addition to summarised financial statements, a
complete printed copy of the Company’s annual financial statement and the
Directors’ report thereon.
Subject to the Companies Act, at the annual general meeting or at a
subsequent special general meeting in each year, the members shall appoint an
auditor to audit the accounts of the Company and such auditor shall hold office
until the members appoint another auditor. Such auditor may be a member but no
Director or officer or employee of the Company shall, during his continuance in
office, be eligible to act as an auditor of the Company. The remuneration of the
auditor shall be fixed by the Company in general meeting or in such manner as the
members may determine. The members may, at any general meeting, by special
resolution remove the auditor at any time before the expiration of his term of
office and shall by ordinary resolution at that meeting appoint another auditor in
his stead for the remainder of his term in accordance with the requirements under
the Bye-laws.
The financial statements of the Company shall be audited by the auditor in
accordance with generally accepted auditing standards. The auditor shall make a
written report thereon in accordance with generally accepted auditing standards
and the report of the auditor shall be submitted to the members in general
meeting. The generally accepted auditing standards referred to herein may be
those of a country or jurisdiction other than Bermuda. If the auditing standards of
a country or jurisdiction other than Bermuda are used, the financial statements
and the report of the auditor should disclose this fact and name such country and
jurisdiction.
– V-14 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
Material differences
The Articles contain similar provisions. However, there is no requirement to
keep the book of account at the Company’s registered office. There is also no
requirement under the Articles to send the annual accounts and reports at the
same time as of the notice of annual general meeting. The auditors of the
Company shall hold office until the next annual general meeting and ordinary
resolution is sufficient to remove auditors before the expiration of his term of
office. The Articles provide that no person may be appointed as the auditor unless
he is independent of the Company.
(i)
Notices of meetings and business to be conducted thereat
Summary
An annual general meeting shall be called by notice of not less than twentyone (21) clear days and not less than twenty (20) clear business days and any
special general meeting at which it is proposed to pass a special resolution shall
(save as set out in sub-paragraph (e) above) be called by notice of not less than
twenty-one (21) clear days and not less than twenty (20) clear business days in
writing, and any other special general meeting shall be called by notice of not less
than fourteen (14) clear days and not less than ten (10) clear business days (in each
case exclusive of the day on which the notice is given or deemed to be given and of
the day for which it is given or on which it is to take effect). The notice must
specify the time and place of the meeting and, in the case of special business, the
general nature of that business. The notice convening an annual general meeting
shall specify the meeting as such.
Material differences
The Articles contain substantially similar provisions. A notice convening a
meeting to pass a special resolution shall specify the intention to propose the
relevant resolution as a special resolution. There is no twenty (20) or ten (10) clear
business days notice requirement.
(j)
Transfer of shares
Summary
All transfers of shares may be effected by an instrument of transfer in the
usual or common form or in a form prescribed by the Designated Stock Exchange
(as defined in the Bye-laws) or in such other form as the Board may approve and
which may be under hand or, if the transferor or transferee is a clearing house or
its nominee(s), by hand or by machine imprinted signature or by such other
manner of execution as the Board may approve from time to time. The instrument
of transfer shall be executed by or on behalf of the transferor and the transferee
– V-15 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
provided that the Board may dispense with the execution of the instrument of
transfer by the transferee in any case in which it thinks fit, in its discretion, to do
so and the transferor shall be deemed to remain the holder of the share until the
name of the transferee is entered in the register of members in respect thereof. The
Board may also resolve either generally or in any particular case, upon request by
either the transferor or the transferee, to accept mechanically executed transfers.
The Board in so far as permitted by any applicable law may, in its absolute
discretion, at any time and from time to time transfer any share upon the principal
register to any branch register or any share on any branch register to the principal
register or any other branch register.
Unless the Board otherwise agrees, no shares on the principal register shall be
transferred to any branch register nor may shares on any branch register be
transferred to the principal register or any other branch register. All transfers and
other documents of title shall be lodged for registration and registered, in the case
of shares on a branch register, at the relevant registration office and, in the case of
shares on the principal register, at the registered office in Bermuda or such other
place in Bermuda at which the principal register is kept in accordance with the
Companies Act.
The Board may, in its absolute discretion, and without assigning any reason,
refuse to register a transfer of any share (not being a fully paid up share) to a
person of whom it does not approve or any share issued under any share incentive
scheme for employees upon which a restriction on transfer imposed thereby still
subsists, and it may also refuse to register any transfer of any share to more than
four joint holders or any transfer of any share (not being a fully paid up share) on
which the Company has a lien.
The Board may decline to recognise any instrument of transfer unless a fee of
such maximum sum as any Designated Stock Exchange (as defined in the Byelaws) may determine to be payable or such lesser sum as the Directors may from
time to time require is paid to the Company in respect thereof, the instrument of
transfer, if applicable, is duly and properly stamped, is in respect of only one class
of share and is lodged at the relevant registration office or registered office or
such other place at which the principal register is kept accompanied by the
relevant share certificate(s) and such other evidence as the Board may reasonably
require to show the right of the transferor to make the transfer (and if the
instrument of transfer is executed by some other person on his behalf, the
authority of that person so to do).
The registration of transfers may be suspended after notice has been given by
advertisement in any newspapers in accordance with the requirements of any
Designated Stock Exchange (as defined in the Bye-laws) or by any means in such
manner as may be accepted by the Designated Stock Exchange (as defined in the
– V-16 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
Bye-laws) to that effect, at such times and for such periods as the Board may
determine and either generally or in respect of any class of shares. The registration
of transfers of shares shall not be suspended for periods exceeding in the whole
thirty (30) days in any year.
Material differences
The Articles contain similar provisions save and except that: (i) there is no
provision in the Articles permitting the Board to refuse to register a transfer of
share on ground that restriction on transfer is imposed under share incentive
scheme; (ii) the notice to be given for suspension of registration of transfers is 14
days; and (iii) the members may by ordinary resolution extend the suspension
period to not more than 60 days in any year.
(k) Power for the Company to purchase its own shares
Summary
The Bye-laws supplement the Company’s New Memorandum (which gives
the Company the power to purchase its own shares) by providing that the power is
exercisable by the Board upon such terms and conditions as it thinks fit.
Material differences
The Articles provide that subject to the provisions of the Companies Law and
subject to any rights conferred on the holders of any class of shares, the Company
may repurchase its own shares.
(l)
Power for any subsidiary of the Company to own shares in the Company
Summary
There are no provisions in the Bye-laws relating to ownership of shares in the
Company by a subsidiary.
Material differences
Similarly, the Articles do not contain any such provision.
(m) Dividends and other methods of distribution
Summary
Subject to the Companies Act, the Company in general meeting may declare
dividends in any currency to be paid to the members but no dividend shall be
declared in excess of the amount recommended by the Board. The Company in
general meeting may also make a distribution to its members out of contributed
– V-17 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
surplus (as ascertained in accordance with the Companies Act). No dividend shall
be paid or distribution made out of contributed surplus if to do so would render
the Company unable to pay its liabilities as they become due or the realisable
value of its assets would thereby become less than its liabilities.
Except in so far as the rights attaching to, or the terms of issue of, any share
may otherwise provide, (i) all dividends shall be declared and paid according to
the amounts paid up on the shares in respect whereof the dividend is paid but no
amount paid up on a share in advance of calls shall for this purpose be treated as
paid up on the share and (ii) all dividends shall be apportioned and paid pro rata
according to the amount paid up on the shares during any portion or portions of
the period in respect of which the dividend is paid. The Directors may deduct from
any dividend or other monies payable to a member by the Company on or in
respect of any shares all sums of money (if any) presently payable by him to the
Company on account of calls or otherwise.
Whenever the Board or the Company in general meeting has resolved that a
dividend be paid or declared on the share capital of the Company, the Board may
further resolve either (a) that such dividend be satisfied wholly or in part in the
form of an allotment of shares credited as fully paid up, provided that the
shareholders entitled thereto will be entitled to elect to receive such dividend (or
part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to
such dividend will be entitled to elect to receive an allotment of shares credited as
fully paid up in lieu of the whole or such part of the dividend as the Board may
think fit. The Company may also upon the recommendation of the Board by an
ordinary resolution resolve in respect of any one particular dividend of the
Company that it may be satisfied wholly in the form of an allotment of shares
credited as fully paid up without offering any right to shareholders to elect to
receive such dividend in cash in lieu of such allotment.
Whenever the Board or the Company in general meeting has resolved that a
dividend be paid or declared the Board may further resolve that such dividend be
satisfied wholly or in part by the distribution of specific assets of any kind.
All dividends or bonuses unclaimed for one year after having been declared
may be invested or otherwise made use of by the Board for the benefit of the
Company until claimed and the Company shall not be constituted a trustee in
respect thereof. All dividends or bonuses unclaimed for six years after having been
declared may be forfeited by the Board and shall revert to the Company.
Material differences
The Articles contain substantially similar provisions save that dividend must
be paid out of profits and reserves lawfully available for distribution including
share premium and there is no reference to contributed surplus which is
distributable under the laws of Bermuda only.
– V-18 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
(n) Proxies
Summary
Any member of the Company entitled to attend and vote at a meeting of the
Company is entitled to appoint another person as his proxy to attend and vote
instead of him. A member who is the holder of two or more shares may appoint
more than one proxy to represent him and vote on his behalf at a general meeting
of the Company or at a class meeting. A proxy need not be a member of the
Company. In addition, a proxy or proxies representing either a member who is an
individual or a member which is a corporation shall be entitled to exercise the
same powers on behalf of the member which he or they represent as such member
could exercise.
Material differences
The Articles contain substantially similar provisions.
(o) Call on shares and forfeiture of shares
Summary
Subject to the Bye-laws and to the terms of allotment, the Board may from
time to time make such calls upon the members in respect of any monies unpaid
on the shares held by them respectively (whether on account of the nominal value
of the shares or by way of premium). A call may be made payable either in one
lump sum or by installments. If the sum payable in respect of any call is not paid
on or before the day appointed for payment thereof, the person or persons from
whom the sum is due shall pay interest on the same at such rate not exceeding
twenty per cent. (20%) per annum as the Board may determine from the day
appointed for the payment thereof to the time of actual payment, but the Board
may waive payment of such interest wholly or in part. The Board may, if it thinks
fit, receive from any member willing to advance the same, either in money or
money’s worth, all or any part of the monies uncalled and unpaid or installments
payable upon any shares held by him, and upon all or any of the monies so
advanced the Company may pay interest at such rate (if any) as the Board may
decide.
If a member fails to pay any call on the day appointed for payment thereof,
the Board may serve not less than fourteen (14) clear days’ notice on him
requiring payment of so much of the call as is unpaid, together with any interest
which may have accrued and which may still accrue up to the date of actual
payment and stating that, in the event of non-payment at or before the time
appointed, the shares in respect of which the call was made will be liable to be
forfeited.
– V-19 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
If the requirements of any such notice are not complied with, any share in
respect of which the notice has been given may at any time thereafter, before the
payment required by the notice has been made, be forfeited by a resolution of the
Board to that effect.
Such forfeiture will include all dividends and bonuses declared in respect of
the forfeited share and not actually paid before the forfeiture.
A person whose shares have been forfeited shall cease to be a member in
respect of the forfeited shares but shall, notwithstanding, remain liable to pay to
the Company all monies which, at the date of forfeiture, were payable by him to
the Company in respect of the shares, together with (if the Board shall in its
discretion so require) interest thereon from the date of forfeiture until the date of
actual payment at such rate not exceeding twenty per cent. (20%) per annum as
the Board determines.
Material differences
The Articles contain substantially similar provisions to the Bye-laws except
that the interest rate shall not exceed 15% per annum.
(p) Inspection of register of members
Summary
The register and branch register of members shall be open to inspection
between 10 : 00 a.m. and 12 : 00 noon during business hours by members of the
public without charge at the registered office or such other place in Bermuda at
which the register is kept in accordance with the Companies Act, unless the
register is closed in accordance with the Bye-laws and the Companies Act.
Material differences
Under the Articles any register of members held in Hong Kong shall during
normal office hours, be open to inspection by members of the Company without
charge.
(q) Quorum for meetings and separate class meetings
Summary
For all purposes the quorum for a general meeting shall be two members
present in person or (in the case of a member being a corporation) by its duly
authorised representative or by proxy and entitled to vote. In respect of a separate
class meeting (other than an adjourned meeting) convened to sanction the
– V-20 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
modification of class rights the necessary quorum shall be two persons holding or
representing by proxy not less than three-fourths in nominal value of the issued
shares of that class.
Material differences
The Articles contain similar provisions save and except that the necessary
quorum of any such separate meeting and of any adjournment thereof shall be a
person or persons together holding not less than one-third in nominal value of the
issued shares of that class.
(r)
Rights of the minorities in relation to fraud or oppression
Summary
There are no provisions in the Bye-laws relating to rights of minority
shareholders in relation to fraud or oppression. However, certain remedies are
available to shareholders of the Company under Bermuda law.
Material differences
The Articles contain no provisions specifically dealing with such rights of
minority shareholders.
(s)
Procedures on liquidation
Summary
A resolution that the Company be wound up by the court or be wound up
voluntarily shall be a special resolution.
If the Company shall be wound up (whether the liquidation is voluntary or
by the court) the liquidator may, with the authority of a special resolution and any
other sanction required by the Companies Act, divide among the members in
specie or kind the whole or any part of the assets of the Company whether the
assets shall consist of property of one kind or shall consist of properties of
different kinds and the liquidator may, for such purpose, set such value as he
deems fair upon any one or more class or classes of property to be divided as
aforesaid and may determine how such division shall be carried out as between the
members or different classes of members. The liquidator may, with the like
authority, vest any part of the assets in trustees upon such trusts for the benefit of
members as the liquidator, with the like authority, shall think fit, but so that no
contributory shall be compelled to accept any shares or other property in respect
of which there is a liability.
– V-21 –
APPENDIX V
SUMMARY OF THE PROPOSED MEMORANDUM OF CONTINUANCE
AND BYE-LAWS AND DIFFERENCES WITH THE MEMORANDUM OF
ASSOCIATION AND ARTICLES OF ASSOCIATION
Material differences
The Articles contain substantially similar provisions to the Bye-laws save and
except that there is no express provision in the Articles requiring special
resolution approval to wind up the Company either by court or voluntarily.
(t)
Untraceable members
Summary
The Company may sell any of the shares of a member who is untraceable if (i)
all cheques or warrants (being not less than three in total number) for any sum
payable in cash to the holder of such shares have remained uncashed for a period
of 12 years; (ii) upon the expiry of the 12 year period, the Company has not during
that time received any indication of the existence of the member; and (iii) the
Company has caused an advertisement to be published in accordance with the
rules of the Designated Stock Exchange (as defined in the Bye-laws) giving notice
of its intention to sell such shares and a period of three months, or such shorter
period as may be permitted by the Designated Stock Exchange (as defined in the
Bye-laws), has elapsed since such advertisement and the Designated Stock
Exchange (as defined in the Bye-laws) has been notified of such intention. The net
proceeds of any such sale shall belong to the Company and upon receipt by the
Company of such net proceeds, it shall become indebted to the former member of
the Company for an amount equal to such net proceeds.
Material differences
The Articles contain substantially similar provisions.
– V-22 –
APPENDIX VI
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 Company. In accordance with the Listing
Rules, the Directors, having made all reasonable enquiries, confirm that to the best of their
knowledge and belief and based on the information provided by the Vendor, 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.
SHARE CAPITAL
The authorised and issued share capital of the Company (i) as at the Latest Practicable
Date; (ii) immediately following the Capital Reorganisation becoming effective and
completion of the Rights Issue (assuming no further issue of Shares or repurchase of
Shares on or before the Record Date); and (iii) immediately following the Capital
Reorganisation becoming effective and completion of the Rights Issue (assuming Shares
issued pursuant to the exercise of subscription rights attached to the Warrants on or before
the Record Date and no other issue of Shares):
(i)
As at the Latest Practicable Date
Authorised:
1,000,000,000
US$
Shares of US$0.10 each
100,000,000.00
Issued and fully paid:
562,557,684
Shares
56,255,768.40
– VI-1 –
APPENDIX VI
GENERAL INFORMATION
(ii) Immediately following the Capital Reorganisation becoming effective and
completion of the Rights Issue (assuming no further issue of Shares or repurchase
of Shares on or before the Record Date)
Authorised:
10,000,000,000
HK$
New Shares of HK$0.10 each immediately
after the Capital Reorganisation
becoming effective
1,000,000,000.00
Issued and fully paid:
281,278,842
New Shares in issue immediately after the
Capital Reorganisation becoming
effective but before completion of the
Rights Issue
28,127,884.20
2,250,230,736
Rights Shares to be allotted and issued
under the Rights Issue
225,023,073.60
2,531,509,578
Shares
253,150,957.80
(iii) Immediately following the Capital Reorganisation becoming effective and
completion of the Rights Issue (assuming Shares issued pursuant to the exercise of
subscription rights attached to the Warrants on or before the Record Date and no
other issue of Shares)
Authorised:
10,000,000,000
HK$
New Shares of HK$0.10 each
immediately after the Capital
Reorganisation becoming effective
1,000,000,000.00
Issued and fully paid:
281,401,820
New Shares in issue immediately after
the Capital Reorganisation
becoming effective but before
completion of the Rights Issue
28,140,182.00
2,251,214,560
Rights Shares to be allotted and issued
under the Rights Issue
225,121,456.00
2,532,616,380
Shares
253,261,638.00
All the Rights Shares to be issued will rank pari passu in all respect with each
other, including, in particular, as to dividends, voting rights and capital, and once
issued and fully paid, with all the New Shares in issue as at the date of allotment and
– VI-2 –
APPENDIX VI
GENERAL INFORMATION
issue of the Rights Shares. Subject to the granting of the listing of, and permission to
deal in, the Rights Shares on the Stock Exchange, the Rights Shares to be issued will be
listed on the Stock Exchange.
No part of the share capital or any other securities of the Company is listed or
dealt in on any stock exchange other than the Stock Exchange and no application is
being made or is currently proposed or sought for the Existing Shares or the New
Shares or the Rights Shares or any other securities of the Company to be listed or dealt
in on any other stock exchange.
As at the Latest Practicable Date, there were no arrangements under which future
dividends are waived or agreed to be waived.
As at the Latest Practicable Date, the Company had no other outstanding
convertible securities, options or warrants, which confer any right to subscribe for or
convert or exchange into Shares except those set out below:
Description
The Warrants held by First
Media Holdings, Ltd.
Date of the relevant
announcement of
the Company
Number of
Shares
issuable
Number of
Consolidated
Shares
Issuable
(Note)
27 May 2010;
25 February 2013;
11 March 2013;
18 July 2013
245,957
122,978
Note:
The number of Consolidated Shares issuable upon the Share Consolidation becoming effective has
not taken into account the adjustment (if any) to the conversion and subscription price of the
Warrants as a result of the Rights Issue.
3.
DISCLOSURE OF INTERESTS
(i)
Interests of the Directors or chief executive of the Company
As at the Latest Practicable Date, none of the Directors and chief executive of the
Company had any interests and short positions in the Shares, underlying shares and
debentures of the Company and its associated corporations (within the meaning of
Part XV to the SFO) which have been 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 the Directors and chief executive of the Company were taken or
deemed to have under such provisions of SFO); or had been entered in the register
maintained by the Company pursuant to Section 352 of the SFO; or have been notified
to the Company and the Stock Exchange pursuant to the Model Code for Securities
Transactions by Directors of Listed Issuers.
– VI-3 –
APPENDIX VI
GENERAL INFORMATION
(ii) Persons who have an interest or short position which is discloseable under Divisions
2 and 3 of Part XV of the SFO and substantial shareholders of the Group
As at the Latest Practicable Date, none of the Directors held any directorship or
employment in a company which has an interest or short position in the Shares and
underlying shares of the Company which would fall to be disclosed to the Company
under the provisions of Division 2 and 3 of Part XV of the SFO.
4.
DISCLOSURE OF OTHER INTERESTS
(i)
Interests in contract or arrangement
None of the Directors was materially interested in any contract or arrangement
entered into by any member of the Enlarged Group which was subsisting as at the
Latest Practicable Date and which was significant in relation to the business of the
Enlarged Group.
(ii) Interests in assets
None of the Directors had any direct or indirect interests in any assets which had
been acquired or disposed of by, or leased to, or which were proposed to be acquired or
disposed of by, or leased to, any member of the Enlarged Group since
31 December 2013, being the date to which the latest published audited accounts of
the Company were made up.
(iii) Interests in competing business
References are made to the annual report of the Company for the year ended
31 December 2013 that: (i) Mr. Yuan Xin, an executive Director, participated in the
business operation of Stellar Mega Films Co. Ltd (‘‘Stellar’’) as general manager as at
the Latest Practicable Date, and since Stellar is principally engaged in film investment,
production and distribution, it is considered to be likely to compete with the business
of the Company; and (ii) Mr. Wu Chien-Chiang, an independent non-executive
Director, participated in the business operation of Era Communications Co Ltd
(‘‘Era’’) as general manager as at the Latest Practicable Date, and since Era is
principally engaged in television programme production, it is considered to be likely to
compete with the business of the Company as well.
Save as disclosed above, as at the Latest Practicable Date, none of the Directors
and their respective close associates had any interest in a business which competes or is
likely to compete, either directly or indirectly, with the business of the Group (as
would be required to be disclosed under Rule 8.10 of the Listing Rules as if each of
them was a controlling shareholder of the Company).
– VI-4 –
APPENDIX VI
5.
GENERAL INFORMATION
DIRECTORS’ SERVICE CONTRACTS
As at the Latest Practicable Date, none of the Directors had entered, or proposed to
enter into a service contract with any member of the Group which is not determinable
within one year without payment of compensation other than statutory compensation.
6.
MATERIAL CONTRACTS
Set out below are the contracts (not being contracts entered into in the ordinary course
of business) entered into by any member of the Enlarged Group (which, for the purpose of
this section, includes both the Group and the Target Group) within the two years
immediately preceding the Latest Practicable Date that are or may be material:
(i)
an underwriting agreement dated 1 November 2012 (as amended by the
supplemental agreements dated 13 November 2012 and 25 February 2013
respectively) entered into between the Company and the Underwriter in relation
to the underwriting arrangement in respect of the rights issue on the basis of one
rights share for every share held on the record date at HK$0.35 per rights share;
(ii) a debt settlement agreement dated 28 December 2012 entered into among CMBC,
Shanghai Jiu Sheng, 星美數字媒體有限公司 (Stellar Digital Media Company
Limited*) (‘‘Stellar Digital’’), Stellar Mega and Century QX in relation to the
offsetting of the debt owing by Stellar Digital, Stellar Mega and Century QX to
CMBC in the total amount RMB552,330,000 by a real estate project under the
name of Shanghai Jiu Sheng;
(iii) an underwriting agreement dated 16 May 2013 (as amended by a supplemental
agreement dated 19 June 2013) entered into between the Company and the
Underwriter in relation to the underwriting arrangement in respect of the rights
issue on the basis on five rights share for every share held on the record date at
HK$0.78 per right share;
(iv) a provisional agreement dated 26 June 2013 entered into between New Fine
International Holdings Limited, an indirect wholly-owned subsidiary of the
Company (as vendor) and Mr. Lam Kwok Ying Chris (as purchaser) relating to
the disposal of a property at the total consideration of HK$13,800,000;
(v) a sale and purchase agreement dated 31 December 2013 entered into between
Progress Chic Development Limited, an indirect wholly-owned subsidiary of the
Company (as vendor) and Mr. Chen Feng (as purchaser), relating to the disposal
of the entire issued share capital of Flash Fountain International Limited at a
total consideration of RMB31,332,500;
(vi) a debt assignment agreement dated 31 December 2013 entered into among Stellar
Mega, Shanghai Jiu Sheng and 星美影視文化傳播有限公司 《鴛鴦繡》攝制組
(Production Unit of ‘‘Yuan Yang Xiu’’ of Xing Mei Media Culture Company
*
For identification purpose only
– VI-5 –
APPENDIX VI
GENERAL INFORMATION
Limited*) (the ‘‘Yuan Yang Xiu Production Unit’’) in relation to assignment of the
debt owing by the Yuan Yang Xiu Production Unit to Stellar Mega in the total
amount of RMB7,518,120 by Stellar Mega to Shanghai Jiu Sheng;
(vii) a debt assignment agreement dated 31 December 2013 entered into among Stellar
Mega, Shanghai Jiu Sheng and 星美影視文化傳播有限公司《新楊乃武與小白菜》
攝制組 (Production Unit of ‘‘New Story of Yang Nai Wu and Xiao Bai Cai’’ of
Xing Mei Media Culture Company Limited*) (the ‘‘New Story Production Unit’’)
in relation to assignment of the debt owing by the New Story Production Unit to
Stellar Mega in the total amount of RMB257,994.32 by Stellar Mega to Shanghai
Jiu Sheng;
(viii)a debt assignment agreement dated 31 December 2013 entered into among Stellar
Mega, Shanghai Jiu Sheng and 星美影視文化傳播有限公司《英雄出少年》攝制組
(Production Unit of ‘‘Ying Xiong Chu Shao Nian’’ of Xing Mei Media Culture
Company Limited*) (the ‘‘Ying Xiong Production Unit’’) in relation to assignment
of the debt owing by the Ying Xiong Production Unit to Stellar Mega in the total
amount of RMB1,192,456.22 by Stellar Mega to Shanghai Jiu Sheng;
(ix) a debt assignment agreement dated 31 December 2013 entered into among Stellar
Mega, Shanghai Jiu Sheng and 星美影視文化傳播有限公司《天橋十三郎》攝制組
(Production Unit of ‘‘Tian Qiao Shi San Lang’’ of Xing Mei Media Culture
Company Limited*) (the ‘‘Tian Qiao Production Unit’’) in relation to assignment
of the debt owing by the Tian Qiao Production Unit to Stellar Mega in the total
amount of RMB13,093,072.95 by Stellar Mega to Shanghai Jiu Sheng;
(x) a debt novation agreement dated 31 December 2013 entered into among Stellar
Mega, Shanghai Jiu Sheng and CMBC in relation to the novation of the debt
owing by Stellar Mega to CMBC in the total amount of RMB78,790,000 by Stellar
Mega to Shanghai Jiu Sheng;
(xi) a loan agreement dated 21 February 2014 entered into between the Company as
borrower and SMI Corporation as the lender in relation to the provision of
revolving loan facilities with maximum principal amount of HK$50,000,000;
(xii) a debt assignment agreement dated 6 May 2014 entered into among Stellar Mega,
北京名翔國際影院管理有限公司 (Beijing Ming Xiang International Cinema
Management Company Limited*) (‘‘Ming Xiang International’’), 北京飛騰祥和物
業管理有限公司 (Beijing Fei Teng Xiang He Property Management Company
Limited*) (‘‘Fei Teng Property’’), 星美影業有限公司 (Xing Mei Movies Company
Limited*), 成都星美影業發展有限公司 (Chengdu Xing Mei Movies Development
Company Limited*), 北京星美寬頻科技有限公司 (Beijing Xing Mei Cable
Technology Company Limited*), 北京中星美滙商貿有限公司 (Beijing Zhong
Xing Mei Hui Trading Company Limited*) (‘‘Zhong Xing Mei Hui Trading’’),
星美投資有限責任公司 (Xing Mei Investment Company Limited*), 北京飛騰民俗
旅遊城有限公司 (Beijing Fei Teng Tourism Company Limited*), 邁克斯中國有限
公司 (Max China Limited), 北京星美概念文化有限公司 (Beijing Xing Mei
*
For identification purpose only
– VI-6 –
APPENDIX VI
GENERAL INFORMATION
Concept Company Limited*), 北京星美滙餐飲管理有限公司 (Beijing Xing Mei
Hui Beverage Management Company Limited*) (collectively, the ‘‘Debtors’’), 北京
市雙建房地產開發有限公司 (Beijing Shuang Jian Property Development
Company Limited*) (‘‘Shuang Jian Property’’), 北京世界城星美國際影城管理有
限公司 (Beijing World City Xing Mei International Studio Management Company
Limited*) (‘‘World City Xing Mei Studio’’), 華民貿易有限公司 (Hua Min Trading
Company Limited*) (‘‘Hua Min Trading’’), 中富誠科技有限責任公司 (Zhong Fu
Cheng Technology Company Limited*) (‘‘Zhong Fu Cheng Technology’’), 羅克西
考特企業有限公司 (Roxy Court Enterprises Limited) and Shanghai Jiu Sheng
(collectively, the ‘‘Creditors’’) in relation to the assignment of the debt owing by
the Debtors to Stellar Mega in the total amount of RMB26,347,570.69 by Stellar
Mega to Shanghai Jiu Sheng and the assignment of the debt owing by Stellar
Mega to the Creditors in the total amount of RMB33,322,262.56 by the Creditors
to Shanghai Jiu Sheng;
(xiii) a debt assignment agreement dated 6 May 2014 entered into among Stellar Mega,
Stellar Tourism, Fei Teng Property, Hua Min Trading, World City Xing Mei
Studio and Zhong Fu Cheng Technology in relation to the assignment of the debt
owing by Fei Teng Property to Stellar Tourism in the total amount of
RMB7,000,487.63 by Stellar Tourism to Stellar Mega and the assignment of the
debt owing by Stellar Tourism to Hua Min Trading, World City Xing Mei Studio
and Zhong Fu Cheng Technology in the total amount of RMB2,135,000 by Hua
Min Trading, World City Xing Mei Studio and Zhong Fu Cheng Technology to
Stellar Mega;
(xiv) a debt assignment agreement dated 6 May 2014 entered into among Stellar Mega,
Stellar Hotel, Ming Xiang International, Zhong Xing Mei Hui Trading and
Shuang Jian Property in relation to the assignment of the debt owing by Ming
Xiang International and Zhong Xing Mei Hui Trading to Stellar Hotel in the total
amount of RMB100,350,50 by Stellar Hotel to Stellar Mega and the assignment of
the debt owing by Stellar Hotel to Shuang Jian Property in the total amount of
RMB14,827,500 by Shuang Jian Property to Stellar Mega;
(xv) a deed of assignment dated 17 June 2014 entered into among Richard Faith
Limited, the Vendor and Everway in relation to the assignment of all the rights
and interests of Richard Faith Limited under the debt owing by Everway to
Richard Faith Limited in the total amount of HK$31,122,000 to the Vendor;
(xvi) a deed of assignment dated 17 June 2014 entered into among Realmax Holdings
Limited, the Vendor and Element Link in relation to the assignment of all the
rights and interests of Realmax Holdings Limited under the debt owing by
Element Link to Realmax Holdings Limited in the total amount of
HK$62,244,000 to the Vendor;
*
For identification purpose only
– VI-7 –
APPENDIX VI
GENERAL INFORMATION
(xvii) a debt assignment agreement dated 22 May 2014 entered into among Stellar Mega,
Stellar Tourism and SZ Xing Mei Culture in relation to the assignment of the debt
owing by SZ Xing Mei Culture to Stellar Tourism in the total amount of
RMB3,000,000 by Stellar Tourism to Stellar Mega;
(xviii) a debt assignment agreement dated 22 May 2014 entered into among Stellar Mega,
SZ Xing Mei Culture and Shanghai Jiu Sheng in relation to the assignment of the
debt owing by SZ Xing Mei Culture to Stellar Mega in the total amount of
RMB5,620,000 by Stellar Mega to Shanghai Jiu Sheng;
(xix) the Acquisition Agreement;
(xx) the Underwriting Agreement;
(xxi) an assignment agreement dated 5 September 2014 entered into between Bravissimi
Films (International) Limited (‘‘Bravissimi Films’’), a wholly-owned subsidiary of
SMI Corporation, and SMI Culture Workshop Company Limited (‘‘SMI Culture
Workshop’’), a wholly-owned subsidiary of the Company, regarding the
assignment of rights and benefits in relation to the financing, production and
distribution of a movie named ‘‘黃金時代’’ (The Golden Eva) by Bravissimi Films
to SMI Culture Workshop;
(xxii) an assignment agreement dated 5 September 2014 entered into between Bravissimi
Films and SMI Culture Workshop regarding the assignment of rights and benefits
in relation to the financing, production and distribution of a movie named ‘‘親愛
的’’ (Dearest) by Bravissimi Films to SMI Culture Workshop;
(xxiii) an assignment agreement dated 5 September 2014 entered into between SMI
Corporation and SMI Culture Workshop regarding the assignment of rights and
benefits in relation to the financing, production and distribution of a movie
named ‘‘Evolution Man’’ by SMI Corporation to SMI Culture Workshop;
(xxiv) the First Settlement Agreement;
(xxv) the Second Settlement Agreement;
(xxvi) the Entrusted Loan Agreement;
(xxvii) a guarantee agreement dated 21 August 2014 and entered into between Stellar
Mega and CMBC in relation to, among others, the charge of the land use rights of
Stellar Mega to secure the obligations of Stellar Mega under the Entrusted Loan
in the principal amount of RMB180,000,000; and
(xxviii) the Repayment Agreement.
– VI-8 –
APPENDIX VI
7.
GENERAL INFORMATION
LITIGATION
(a) On 23 December 2013, a claim was brought by 北京北奧集團有限責任公司
(Beijing Bei Ao Group Company Limited*) (‘‘Bei Ao Group’’) against HuaXia Qin
Jia Yuan Culture and Communication Company Limited (‘‘HuaXia QJY’’), a
company incorporated in Hong Kong and a subsidiary of the Company, in the
People’s Court of Beijing Chaoyang District, the PRC. It was alleged by Bei Ao
Group that HuaXia QJY failed to comply with its repayment obligation under the
television drama programme investment agreement dated 11 July 2011 and
entered into between Bei Ao Group and HuaXia QJY (as supplemented by the
supplemental agreements incidental thereto) (the ‘‘TV Drama Investment
Agreement’’) and the termination agreement dated 2 May 2013 and entered into
between Bei Ao Group and HuaXia QJY (the ‘‘Termination Agreement’’) and Bei
Ao Group claimed from HuaXia QJY a total amount of RMB29,456,750. A first
trial was held on 11 September 2014 in the People’s Court of Beijing Chaoyang
District, the PRC and HuaXia QJY was ordered by the People’s Court of Beijing
Chaoyang District, the PRC to provide further supporting documents. Further
trial will be held and the date of the trial is yet to be fixed.
(b) A claim was brought by 常熟市楊園園林工程有限公司 (Changshu Yuan Lin
Construction Company Limited*) (‘‘Yuan Lin Construction’’) against Stellar Mega
in the People’s Court of Beijing Huairou District, the PRC. It was alleged by
Yuan Lin Construction that Stellar Mega failed to pay the construction fee in
accordance with the construction agreement entered into between Yuan Lin
Construction and Stellar Mega. The case was heard by the People’s Court of
Beijing Huairou District, the PRC and the People’s Court of Beijing Huairou
District, the PRC ordered Stellar Mega to pay Yuan Lin Construction the
construction fee in the amount of RMB450,000 and other interests. On 22 August
2014, Stellar Mega paid Yuan Lin Construction a total amount of RMB225,000.
On 19 September 2014. Stellar Mega and Yuan Lin Construction entered into a
settlement agreement pursuant to which Yuan Lin Construction agreed to accept
the payment by Stellar Mega in the amount of RMB225,000 as a full settlement of
the case. On 22 September 2014, Stellar Mega paid Yuan Lin Construction in the
amount of RMB225,000 in accordance with the settlement agreement and the case
has been settled in full as at the Latest Practicable Date.
(c)
*
On 29 June 2004, Stellar Mega and CMBC entered into a loan agreement in the
principal amount of RMB90,000,000 (the ‘‘First Loan’’). A dispute was raised
between Stellar Mega and CMBC in relation to the First Loan and the dispute was
heard in the Beijing First Intermediate People’s Court. It was ordered by the
Beijing First Intermediate People’s Court that Stellar Mega should pay CMBC an
amount of RMB78,790,000 (representing the outstanding principal) and the
relevant interests (the ‘‘First Ordered Amount’’). In May 2014, Stellar Mega and
CMBC entered into the First Settlement Agreement, pursuant to which Stellar
Mega agreed to pay CMBC the First Ordered Amount in accordance with the
For identification purpose only
– VI-9 –
APPENDIX VI
GENERAL INFORMATION
terms of the First Settlement Agreement. As at the Latest Practicable Date, the
amount of RMB78,790,000 was still outstanding and payable by Stellar Mega to
CMBC pursuant to the First Settlement Agreement.
(d) On 9 November 2005, Century QX and CMBC entered into a loan agreement in
the principal amount of RMB130,000,000 (the ‘‘Second Loan’’). On 14 November
2005, Stellar Mega and CMC entered into a guarantee agreement to secure all the
obligations of Century QX under the Second Loan. A dispute was raised between
Century QX, Stellar Mega and CMBC in relation to the Second Loan and the
dispute was heard in the Beijing First Intermediate People’s Court. It was ordered
by the Beijing First Intermediate People’s Court that Century QX should pay
CMBC an amount of RMB130,000,000 (representing the outstanding principal)
and the relevant interests (the ‘‘Second Ordered Amount’’). In May 2014, Century
QX, Stellar Mega and CMBC entered into the Second Settlement Agreement,
pursuant to which Stellar Mega agreed to pay CMBC the Second Ordered
Amount in accordance with the terms of the Second Settlement Agreement. As at
the Latest Practicable Date, the amount of RMB130,000,000 was still outstanding
and payable by Stellar Mega to CMBC pursuant to the Second Settlement
Agreement.
Save as disclosed above and to the best of the Directors’ knowledge, information and
belief, no member of the Enlarged Group (which, for the purpose of this section, includes
both the Group and the Target Group) was engaged in any litigation, arbitration or claim
of material importance and no litigation, arbitration or claim of material importance is
known to the Directors to be pending or threatened against any member of the Enlarged
Group (which, for the purpose of this section, includes both the Group and the Target
Group) as at the Latest Practicable Date.
8.
EXPERTS AND CONSENTS
The following are the qualifications of the experts who have given opinions or advice
contained in this circular:
Name
Qualification
Hercules Capital
a licensed corporation to carry out business in type 6
(advising on corporate finance) regulated activities
under the SFO
Patrick Wong C.P.A.
Limited
certified public accountants
Norton Appraisal Limited
independent professional valuer
Each of the above experts has given and has not withdrawn its written consent to the
issue of this circular with the inclusion herein of its report or letter and references to its
name in the form and context in which they respectively appear.
– VI-10 –
APPENDIX VI
GENERAL INFORMATION
As at the Latest Practicable Date, the above experts had no shareholding, directly or
indirectly, in any member of the Enlarged Group or the right (whether legally enforceable
or not) to subscribe for or to nominate persons to subscribe for securities in any member of
the Enlarged Group.
As at the Latest Practicable Date, the above experts had no direct or indirect interests
in any assets which had been, since 31 December 2013 (being the date to which the latest
published audited accounts of the Company were made up), (i) acquired or disposed of by;
or (ii) leased to; or (iii) proposed to be acquired or disposed of by; or (iv) proposed to be
leased to, any member of the Enlarged Group.
– VI-11 –
APPENDIX VI
9.
GENERAL INFORMATION
CORPORATE INFORMATION
Registered office of the Company
Cricket Square,
Hutchins Drive,
P O Box 2681,
Grand Cayman KY1-1111,
Cayman Islands
Head office and principal place of
business of the Company in
Hong Kong
19/F., Prosperity Tower,
No. 39 Queen’s Road Central,
Central, Hong Kong
Principal share registrar and transfer
office of the Company
Royal Bank of Canada Trust Company
(Cayman) Limited
4th Floor, Royal Bank House
24 Shedden Road, George Town
Grand Cayman KY1-1110
Cayman Islands
Branch share registrar and transfer
office of the Company in Hong Kong
Union Registrars Limited
18th Floor,
Fook Lee Commercial Centre
Town Place, 33 Lockhart Road
Wanchai, Hong Kong
Authorised representatives
Mr. Chan Chi To, Antony
Mr. Yuan Xin
Company secretary
Ms. Mui Ngar May
Legal advisers to the Company
(As to the laws of Hong Kong)
Michael Li & Co.
19/F., Prosperity Tower,
No. 39 Queen’s Road Central,
Central, Hong Kong
(As to the laws of Cayman Islands)
Conyers Dill & Pearman
Cricket Square,
Hutchins Drive,
PO Box 2681,
Grand Cayman KY1-1111,
Cayman Islands
– VI-12 –
APPENDIX VI
GENERAL INFORMATION
(As to the laws of Bermuda)
Conyers Dill & Pearman
2901, One Exchange Square
8 Connaught Place
Central
Hong Kong
(As to the laws of the PRC)
Duan & Duan Law Firm
17/F, Shartex Plaza
88 Zun Yi Nan Road
Shanghai, China
Auditors
KPMG
Certified Public Accountants
8th Floor, Prince’s Building
10 Chater Road, Central
Hong Kong
Reporting accountants
Patrick Wong C.P.A Limited
Room 1101, 11/F,
China Insurance Group Building
141 Des Voeux Road Central,
Hong Kong
Principal bankers
The Hongkong and Shanghai Banking
Corporation Limited
DBS Bank (HK) Limited
Hang Seng Bank Limited
Bank of China (Hong Kong) Limited
10. DIRECTORS
Executive Directors
Mr. Hao Bin (Chairman)
Mr. Hao obtained a bachelor’s degree in Journalism at Communication University of
China in the PRC in 1995. During the period from 1999 to 2002, Mr. Hao was the deputygeneral manager of the 廣華廣播電視有限公司 (Guanghua Broadcast Television Company
Limited*). During the period from 2005 to 2013, Mr. Hao had served as a director
respectively at various companies listed on the Shenzhen Stock Exchange, being Stellar
Megaunion Corporation (stock code: 000892), Chengde Nanjiang Co, Ltd. (formerly
known as Chengde Dalu Co. Ltd.) (stock code: 200160) and Contemporary Eastern
Investment Co., Ltd (stock code: 000673). From 2005 to 2007, Mr. Hao was a chief
*
For identification purpose only
– VI-13 –
APPENDIX VI
GENERAL INFORMATION
executive officer and an executive director of Singpao Media Enterprises Limited (formerly
known as SMI Publishing Group Limited) (stock code: 8010) being a company listed on the
growth enterprise market of the Stock Exchange.
Mr. Yuan Xin
Mr. Yuan obtained tertiary qualification in finance at Beijing Normal University in the
PRC. Mr. Yuan is the chairman of Stellar Cinema Development Co., Ltd. He is also vice
president of SMI Corporation and is responsible for the management of cinemas operation
under the SMI Corporation. He was also involved in the production and distribution of
certain movies invested by SMI Corporation. Mr. Yuan has rich experience in cinema
management and the movie industry. He was named as top ten cinema manager in Beijing
by Beijing Municipal Bureau of Culture.
Mr. Chan Chi To, Antony
Mr. Chan is the founder of Asmile Holdings Company Limited, which is engaging in
Asmile brand building in the ecommerce market in the PRC, selling cosmetic products and
essential oils through multi online platforms. Mr. Chan has rich experience in the
entertainment and advertising industries. He was the founder and the chief executive officer
of Cosmedia Group, an advertising and media group with focus on television advertising in
the PRC, from 1996 to 2009. He was also the founder and the chief executive officer of
Metro Communication Limited, which was involved in television programme production
and distribution in the PRC. Mr. Chan was the vice chairman of the Hong Kong Motion
Picture Industry Association. He was also a director, producer and scriptwriter. He was a
member of the ‘‘Wynners’’, a popular Hong Kong pop group that released its own album
and hosted its own television shows.
Mr. Kong Dalu
Mr. Kong has approximately 20 years’ working experience and extensive knowledge in
the field of banking, corporate finance and investment in Hong Kong and Mainland China.
Mr. Kong obtained a bachelor’s degree in Economics (major in International Finance) at
Wuhan University in the PRC in 1994.
Mr. Kong was a foreign exchange manager and foreign exchange trader in the
international business department in the headquarter of Hua Xia Bank Co., Limited from
1994 to 1997. From 1997 to 2007, Mr. Kong also served at senior management level
respectively at CMBC and Bank of Communications Co., Ltd. Mr. Kong has acted as a
director of Xince (Hong Kong) Investment Development Co. Limited, being an equity
investment company incorporated in Hong Kong, since 2007. During the period from 2008
to 2011, Mr. Kong also acted as a director of Haitong Securities Company Limited (stock
code: 600837), being a company listed on the Shanghai Stock Exchange.
– VI-14 –
APPENDIX VI
GENERAL INFORMATION
Non-executive Directors
Mr. Chi Chenxi
Mr. Chi is currently the chairman of Beijing Z&M Technologies Co., Ltd, a director of
Beijing Lu shi Media Co., Ltd and a director of DongYang Leverage HeRun Film & TV
Co., Ltd. He was a producer of more than 30 television drama programmes comprising over
1,000 episodes and over 2,000 audio/visual productions, and has imported over 10,000
overseas audio/visual and musical productions.
Ms. Hu Gin In
Ms. Hu holds a master of business administration from Florida International
University in the U.S., a master of science from Barry University in the U.S. and a
bachelor of arts from National Taiwan University, major in foreign language. Ms. Hu is the
independent director of GigaMedia Limited, the shares of which are listed on the NASDAQ
since July 2003; an independent non-executive director of Enterprise Development Holdings
Limited (stock code: 1808), the shares of which are listed on the Stock Exchange, since
March 2011. She is also the independent director of Arich Enterprise Co., Ltd., a company
incorporated in Taiwan, since December 2012.
Independent non-executive Directors
Mr. Du Jiang
Mr. Du holds an accounting degree from Renmin University of China in the PRC and
a master of business administration from Montclair State University in the U.S. Mr. Du is a
certified public accountant of Virginia State Board of Accountancy. Mr. Du is the co-head
of the financial department of the Bank of China International Securities Ltd since August
2003. He also has working experience in accounting and finance.
Mr. Liu Xianbo
Mr. Liu holds a law degree from Jiangxi University and is a graduate of Southwest
University of Political Science & Law in civil and commercial law in the PRC. Mr. Liu has
been practicing law in the PRC for more than 20 years, specialising in finance, real estate,
economics, contracts, civil dispute, liquidation and bankruptcy and criminal defence. He
currently works at China Commercial Law Co. in the PRC.
Mr. Wu Chien-Chiang
Mr. Wu has experience of operating media and entertainment business in Taiwan for
more than 30 years. He holds offices and positions in the following companies: (i) a director
and the general manager of Era Communications Co., Ltd.; (ii) the chairman and the
general manager of Satellite Entertainment Communication Co., Ltd.; (iii) the chairman
and the general manager of Goldsun Communications Co., Ltd.; (iv) the general manager of
Media-Chain International Marketing Co., Ltd.; (v) the chairman of Era Integrated
Marketing Co., Ltd.; and (vi) the publisher of Trend Media & Publication Ltd.
– VI-15 –
APPENDIX VI
GENERAL INFORMATION
Mr. Jiang Jinsheng
Mr. Jiang holds a master degree of business administration from Macau University of
Science and Technology. Mr. Jiang was formerly supervisor of the chief executive office of a
property investment company and he is currently one of the senior management to supervise
the administration of the Shenzhen Pavilion Hotel Co., Ltd. (深圳聖廷苑酒店有限公司).
Mr. Jiang has experience in property investment, property development and hotel
management in the PRC.
Business address of the Directors
The business address of the Directors is the same as the Company’s head office and
principal place of business in Hong Kong located at 19/F., Prosperity Tower, No. 39
Queen’s Road Central, Central, Hong Kong.
11. EXPENSES
The expenses directly in connection with the Capital Reorganisation and the Rights
Issue, including underwriting commission, financial advisory fees, printing expenses,
registration fees, translation expenses, legal fees and accounting fees, are estimated to be
approximately HK$27 million, whereas the expenses directly in connection with the
Acquisition are estimated to be approximately HK$6 million, all to be payable by the
Company.
12. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents are available for inspection at the head office and
principal place of business of the Company at 19/F., Prosperity Tower, No. 39 Queen’s
Road Central, Central, Hong Kong during normal business hours on any weekdays other
than public holidays from the date of this circular up to and including the date of the EGM:
(i)
the memorandum and articles of association of the Company;
(ii) the annual reports of the Company for the fifteen months ended 31 December
2012 and for the year ended 31 December 2013 respectively;
(iii) the letter from Independent Board Committee, the text of which is set out on
pages 56 and 57 of this circular;
(iv) the letter from Hercules Capital, the text of which is set out on pages 58 and 88 of
this circular;
(v) the accountants’ report from Patrick Wong C.P.A. Limited on the audited
financial information of the Target Group, the text of which is set out in
Appendix II to this circular;
(vi) the accountants’ report from Patrick Wong C.P.A. Limited on the unaudited pro
forma financial information of the Group, the text of which is set out in Appendix
III to this circular;
– VI-16 –
APPENDIX VI
GENERAL INFORMATION
(vii) the valuation report from Norton Appraisal Limited on the Properties, the text of
which is set out in Appendix IV to this circular;
(viii) the material contracts as referred to in the paragraph headed ‘‘Material
Contracts’’ in this appendix;
(ix) the written consents of the experts as referred to in the paragraph headed ‘‘Experts
and Consents’’ in this appendix; and
(x) this circular.
13. MISCELLANEOUS
(i)
The registered office of the Company is at Cricket Square, Hutchins Drive, P O
Box 2681, Grand Cayman KY1-1111, Cayman Islands. The head office and
principal place of business in Hong Kong is situated at 19/F., Prosperity Tower,
No. 39 Queen’s Road Central, Central, Hong Kong.
(ii) The principal share registrar and transfer office of the Company is Royal Bank of
Canada Trust Company (Cayman) Limited at 4th Floor, Royal Bank House, 24
Shedden Road, George Town, Grand Cayman KY1-1110, Cayman Islands.
(iii) The Hong Kong branch share registrar and transfer office of the Company is
Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town
Place, 33 Lockhart Road, Wanchai, Hong Kong.
(iv) The secretary of the Company is Ms. Mui Ngar May, who is an associate member
of Hong Kong Institute of Chartered Secretaries and the Institute of Chartered
Secretaries and Administrators.
(v) This circular and the accompany form of proxy are prepared in both English and
Chinese. In the event of inconsistency, the English text shall prevail.
– VI-17 –
NOTICE OF EXTRAORDINARY GENERAL MEETING
SMI Culture Group Holdings Limited
星美文化集團控股有限公司
(incorporated in the Cayman Islands with limited liability)
(Stock Code: 2366)
NOTICE IS HEREBY GIVEN that an extraordinary general meeting (‘‘EGM’’) of SMI
Culture Group Holdings Limited (the ‘‘Company’’) will be held at 10 : 00 a.m., on Friday, 21
November 2014 at Victoria Room III, 3/F, Regal Hong Kong Hotel, 88 Yee Wo Street,
Causeway Bay, Hong Kong for the purposes of considering and, if thought fit, passing the
following resolutions with or without amendments as ordinary resolutions and special
resolutions of the Company:
ORDINARY RESOLUTIONS
1.
‘‘THAT
(i)
the conditional sale and purchase agreement (the ‘‘Acquisition Agreement’’)
dated 8 August 2014 (as amended by a supplemental agreement dated
24 October 2014) and entered into between Tin Yan Development Ltd. (the
‘‘Purchaser’’) as purchaser, Nicks International Limited (the ‘‘Vendor’’) as
vendor and Mr. Qin Hui (‘‘Mr. Qin’’) as guarantor in relation to the sale and
purchase of 35 shares in the issued share capital of Grand Astute Limited (the
‘‘Target’’) and 35% of all obligations, liabilities and debts owing or incurred
by the Target to the Vendor as at 26 January 2015 (or such later date as the
Purchaser, the Vendor and Mr. Qin may agree in writing) at a consideration
of HK$360,000,000 (a copy of which has been produced to the EGM marked
‘‘A’’ and signed by the chairman of the EGM for the purpose of
identification) and the transactions contemplated thereunder, be and are
hereby approved, confirmed and ratified; and
(ii) any director (the ‘‘Director’’) of the Company be and is hereby authorised to
do all such acts and things and execute all such documents which he/she
considers necessary, desirable or expedient for the purpose of, or in
connection with, the implementation of and giving effect to the Acquisition
Agreement and the transactions contemplated thereunder.’’
2.
‘‘THAT subject to the fulfilment of the conditions as set out in the underwriting
agreement (the ‘‘Underwriting Agreement’’) (as supplemented by an extension
letter dated 24 October 2014) dated 8 August 2014 and entered into between the
Company and Emperor Securities Limited (the ‘‘Underwriter’’) (a copy of which
– EGM-1 –
NOTICE OF EXTRAORDINARY GENERAL MEETING
has been produced to the EGM marked ‘‘B’’ and signed by the chairman of the
EGM for the purpose of identification) and the Underwriting Agreement not
being terminated by the Underwriter in accordance with the terms thereof on or
before 4 : 00 p.m. on the third business day immediately after the latest time for
acceptance of the offer of the Rights Shares (as defined below),
(i)
the issue by way of rights issue (the ‘‘Rights Issue’’) of not less than
2,250,230,736 ordinary shares of HK$0.1 each in the share capital of the
Company immediately upon the Capital Reorganisation (as defined below)
becoming effective (the ‘‘New Shares’’) and not more than 2,251,214,560 New
Shares (the ‘‘Rights Shares’’) to the shareholders of the Company (the
‘‘Qualifying Shareholders’’) whose names appear on the register of members
of the Company on the date by reference to which entitlements to the Rights
Issue are to be determined (the ‘‘Record Date’’) (excluding those shareholders
of the Company with registered addresses as shown in the register of
members of the Company at the close of business on the Record Date in
places outside Hong Kong in respect of whom the Directors consider it
necessary or expedient not to offer the Rights Shares after making the
relevant enquiries regarding the legal restrictions under the laws of the
relevant places or the requirements of the relevant regulatory body or stock
exchange in those places (the ‘‘Excluded Shareholders’’)) on the basis of eight
Rights Shares for every one New Share then held is hereby approved,
confirmed and ratified;
(ii) the board of directors of the Company (the ‘‘Board’’) be and is hereby
authorised to allot and issue the Rights Shares pursuant to or in connection
with the Rights Issue and, in particular, the Board be and is hereby
authorised to make such exclusions or other arrangements in relation to
Excluded Shareholders as it deems necessary or expedient having regard to
any restrictions or obligations under the laws of, or the requirements of any
recognised regulatory body or any stock exchange in, any territory outside
Hong Kong;
(iii) the Underwriting Agreement and the transactions contemplated thereunder
be and are hereby approved, confirmed and ratified;
(iv) the arrangements for application for the Rights Shares by the Qualifying
Shareholders in excess of their entitlements under the Rights Issue be and are
hereby approved, confirmed and ratified; and
(v) any Director be and is hereby authorised to sign and execute such documents
and do all such acts and things incidental to the Rights Issue or as he/she
considers necessary, desirable or expedient in connection with the
implementation of or giving effect to the Rights Issue, the Underwriting
Agreement and the transactions contemplated thereunder.’’
– EGM-2 –
NOTICE OF EXTRAORDINARY GENERAL MEETING
SPECIAL RESOLUTIONS
3.
‘‘THAT
(i)
subject to obtaining all necessary governmental and regulatory consents, the
change of the domicile of the Company (the ‘‘Change of Domicile’’) from the
Cayman Islands to Bermuda by way of deregistration as a company under
the laws of the Cayman Islands and continuation of the Company as an
exempted company under the laws of Bermuda be and is hereby approved;
(ii) the memorandum of continuance (a copy of which has been produced to the
EGM marked ‘‘C’’ and signed by the chairman of the EGM for the purpose
of identification) be and is hereby adopted in substitution for the
memorandum of association of the Company, effective from the date that
the memorandum of continuance is approved and registered by the Registrar
of Companies in Bermuda;
(iii) conditional upon the continuance of the Company in Bermuda as an
exempted company under the laws of Bermuda, the bye-laws of the Company
(a copy of which has been produced to the EGM marked ‘‘D’’ and signed by
the chairman of the EGM for the purpose of identification) be and is hereby
adopted in substitution for the articles of association of the Company,
effective from the date that the memorandum of continuance is registered by
the Registrar of Companies in Bermuda;
(iv) conditional upon the continuance of the Company in Bermuda as an
exempted company under the laws of Bermuda, the maximum number of
Directors shall, for the time being, be fixed at twenty (20) and the Directors
be and are hereby authorised to fill any vacancies on the Board and to
appoint additional Directors up to the maximum number determined herein
or such other maximum number as may be determined from time to time by
members of the Company in general meeting and to appoint alternate
Directors at their discretion; and
(v) the Directors be and are hereby authorised to undertake all such acts and
things and execute all such documents on behalf of the Company, including
under seal where applicable, as they may consider necessary or expedient to
give effect to the Change of Domicile.’’
4.
‘‘THAT subject to the passing of the special resolution numbered 3 above:
(i)
the entire amount standing to the credit of the share premium account of the
Company as at the day of passing this resolution be cancelled and transferred
to an account designated as the contributed surplus account of the Company
(the ‘‘Cancellation of Share Premium Account’’);
– EGM-3 –
NOTICE OF EXTRAORDINARY GENERAL MEETING
(ii) the account designated as the contributed surplus account of the Company
shall be the contributed surplus account of the Company within the meaning
of the Companies Act 1981 of Bermuda (the ‘‘Contributed Surplus Account’’)
upon the Change of Domicile (as defined in the special resolution numbered
3 above) becoming effective and the amount standing to the credit of such
designated account shall continue to stand to the credit of the Contributed
Surplus Account upon the Change of Domicile becoming effective; and
(iii) the Directors be and are hereby authorised to do all such acts and things and
execute all such documents on behalf of the Company, including under seal
where applicable, as they may consider necessary or expedient to give effect
to the Cancellation of Share Premium Account.’’
5.
‘‘THAT subject to the passing of the special resolution numbered 3 above and
conditional upon the Change of Domicile becoming effective, with effect from the
24th day (if it is not a business day, the immediately following business day)
(Hong Kong time) after the effective date of the Change of Domicile:
(i)
every two (2) issued and unissued shares of US$0.10 each in the existing share
capital of the Company be consolidated (the ‘‘Share Consolidation’’) into one
(1) share of US$0.20 each (the ‘‘Consolidated Shares’’);
(ii) the total number of Consolidated Shares in the issued share capital of the
Company immediately following the Share Consolidation be rounded down
to a whole number by cancelling any fraction in the issued share capital of
the Company arising from the Share Consolidation;
(iii) the authorised and issued Consolidated Shares be re-denominated (the ‘‘Redenomination’’) (at the exchange rate of US$1.0 to HK$7.8) to
HK$780,000,000 and HK$438,794,993.52 respectively, such that the par
value of each Consolidated Share will be changed from US$0.20 to HK$1.56
(the ‘‘Adjusted Shares’’);
(iv) the par value of each issued Adjusted Share be reduced (together with subparagraph (ii) above are hereinafter referred to as the ‘‘Capital Reduction’’)
from HK$1.56 to HK$0.10 by cancelling the capital paid-up thereon to the
extent of HK$1.46 on each of the issued Adjusted Shares;
(v) subject to and forthwith upon the Capital Reduction taking effect, all the
authorised but unissued share capital of the Company (which shall include
the authorised but unissued share capital arising from the Capital Reduction)
be cancelled and forthwith upon such cancellation, the authorised share
capital of the Company will be increased to HK$1,000,000,000 by the
creation of such number of additional shares of the Company of HK$0.10
each in the share capital of the Company (the ‘‘New Shares’’) as shall be
sufficient to increase the authorised share capital of the Company to
– EGM-4 –
NOTICE OF EXTRAORDINARY GENERAL MEETING
HK$1,000,000,000 divided into 10,000,000,000 New Shares (the ‘‘Diminution
and Increase’’ and together with the Share Consolidation, the Redenomination and the Capital Reduction, the ‘‘Capital Reorganisation’’);
(vi) the credits arising from the Capital Reduction be transferred to the
Contributed Surplus Account (as defined in the special resolution
numbered 4 above);
(vii) the amount as may from time to time standing to the credit of the
Contributed Surplus Account be applied to set off the accumulated losses of
the Company by the amount of such credit or be applied in any other manner
as may be permitted under the bye-laws of the Company and all applicable
laws of Bermuda from time to time without further authorisation from the
shareholders of the Company and all such actions in relation thereto be
approved, ratified and confirmed; and
(viii)the Directors be and are hereby authorised to do all such acts and things and
execute all such documents on behalf of the Company, including under seal
where applicable, as they may consider necessary or expedient to give effect
to the Capital Reorganisation.’’
By order of the Board
SMI Culture Group Holdings Limited
Hao Bin
Chairman and Executive Director
Hong Kong, 27 October 2014
Head office and principal place of
business in Hong Kong:
19th Floor, Prosperity Tower
No. 39 Queen’s Road Central
Central, Hong Kong
Registered office:
Cricket Square,
Hutchins Drive,
P.O. Box 2681,
Grand Cayman KY1-1111,
Cayman Islands
Notes:
1.
A member entitled to attend and vote at the EGM is entitled to appoint one or more
than one proxy to attend and, subject to the provisions of the articles of association of
the Company, to vote on his behalf. A proxy need not be a member of the Company
but must be present in person at the EGM to represent the member. If more than one
proxy is so appointed, the appointment shall specify the number and class of shares in
respect of which each such proxy is so appointed.
2.
A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend
the EGM in person, you are encouraged to complete and return the enclosed form of
proxy in accordance with the instructions printed thereon. Completion and return of a
– EGM-5 –
NOTICE OF EXTRAORDINARY GENERAL MEETING
form of proxy will not preclude a member from attending in person and voting at the
EGM or any adjournment thereof, should he so wish and in such event, the form of
proxy shall be deemed to be revoked.
3.
In order to be valid, the form of proxy, together with a 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 at the Company’s branch share registrar in Hong Kong,
Union Registrars Limited, 18th Floor, Fook Lee Commercial Centre, Town Place, 33
Lockhart Road, Wanchai, Hong Kong not less than 48 hours before the time
appointed for holding the EGM or any adjournment thereof.
4.
In the case of joint holders of shares of the Company, any one of such holders may vote
at the EGM, either personally or by proxy, in respect of such shares as if he was solely
entitled thereto, but if more than one of such joint holders are present at the EGM
personally or by proxy, that one of the said persons so present whose name stands first
on the register of members of the Company in respect of such shares shall alone be
entitled to vote in respect thereof.
– EGM-6 –