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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 Beijing Gas Blue Sky Holdings Limited, you should at once
hand this circular and the accompanying form of proxy to the purchaser(s) or transferee(s) or to the bank,
licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the
purchaser(s) or transferee(s).
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 disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or
any part of the contents of this circular.
Beijing Gas Blue Sky Holdings Limited
北 京 燃 氣 藍 天 控 股 有 限 公 司(Incorporated in Bermuda with limited liability)
(Hong Kong Stock Code: 6828)
(Singapore Stock Code: UQ7)
MAJOR TRANSACTION
IN RELATION TO THE ACQUISITION OF
100% OF THE ISSUED SHARE CAPITAL OF
TOP GRAND GLOBAL LIMITED
Financial Adviser to the Company
A notice convening the special general meeting of the Company to be held at Level 9, Central Building, 1–3
Pedder Street, Central, Hong Kong at 11 : 00 a.m. on Tuesday, 17 October 2017 is set out on pages SGM-1 to
SGM-3 of this circular. The special general meeting is to be held to approve matters referred to in this circular.
If you are unable to attend the special general meeting, you are requested to complete and return the forms of
proxy accompanying this circular in accordance with the instructions printed thereon to the Company’s Hong
Kong branch share registrar and transfer office, Tricor Investor Services Limited, at Level 22, Hopewell Centre,
183 Queen’s Road East, Hong Kong, (for Hong Kong Shareholders), or the Company’s Singapore share
transfer agent, Boardroom Corporate & Advisory Services Pte Ltd., at 50 Raffles Place, #32–01 Singapore Land
Tower, Singapore 048623 (for Singapore Shareholders) as soon as possible and in any event not less than 48
hours before the time of the special general meeting or any adjournment thereof.
Completion and return of the form of proxy will not preclude you from attending and voting in person at the
special general meeting or any adjournment thereof should you so wish.
25 September 2017
THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
APPENDIX I — FINANCIAL INFORMATION OF THE GROUP . . . . . I-1
APPENDIX IIA — ACCOUNTANTS’ REPORT ON
TOP GRAND GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IIA-1
APPENDIX IIB — ACCOUNTANTS’ REPORT ON YUHAI . . . . . . . . . . . . . IIB-1
APPENDIX IIC — ACCOUNTANTS’ REPORT ON
SAIGUANGBO GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . IIC-1
APPENDIX III — MANAGEMENT DISCUSSION AND
ANALYSIS OF THE TARGET GROUP . . . . . . . . . . . . III-1
APPENDIX IV — UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP . . . IV-1
APPENDIX V — VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
APPENDIX VA — REPORT ON FORECASTS UNDERLYING
THE VALUATION ON SAIGUANGBO GROUP . . . VA-1
APPENDIX VI — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
NOTICE OF THE SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SGM-1
CONTENTS
– i –
In this circular, the following expressions have the meanings set out below unless the
context requires otherwise:
‘‘Acquisition’’ the acquisition of 100% of the issued share capital of Top Grand
from the Vendor pursuant to the terms and conditions of the
Acquisition Agreement
‘‘Acquisition
Agreement’’
the conditional sale and purchase agreement dated 8 June 2017,
including its amendments or replacement, entered into among
the Purchaser, the Vendor and the Guarantor in relation to the
Acquisition
‘‘Announcements’’ the announcements of the Company dated 8 June 2017 and 31
July 2017 in relation to the Acquisition
‘‘Bermuda Companies
Act’’
the Companies Act 1981 of Bermuda, as amended, supplemented
or modified from time to time;
‘‘Board’’ the board of Directors of the Company
‘‘Business Day’’ a day (other than Saturday, Sunday or public holiday or day on
which a typhoon signal No. 8 or above or black rainstorm
warning is hoisted in Hong Kong at any time between 9 : 00 a.m.
and 5 : 00 p.m.) on which licenced banks are generally open for
general banking business in Hong Kong throughout their normal
business hours
‘‘BVI’’ the British Virgin Islands
‘‘CDP’’ the Central Depository (Pte) Limited, a wholly-owned subsidiary
of the Singapore Exchange Limited
‘‘Company’’ Beijing Gas Blue Sky Holdings Limited, a company incorporated
in Bermuda with limited liability, the issued Shares of which are
listed on the Main Board of the Stock Exchange (stock code:
6828) and secondary listed on the Singapore Exchange Securities
Trading Limited (Stock Code: UQ7)
‘‘Completion’’ completion of the Acquisition
‘‘Condition(s)’’ the condition(s) precedent of the Completion, details of which
are set out in the paragraph headed ‘‘Conditions precedent of
Acquisition’’ in the letter from the Board of this circular
‘‘Conditions Fulfilment
Date’’
31 August 2017, or such later date as the respective parties to the
Acquisition Agreement may agree in writing which the parties
have agreed in writing to delay to 31 October 2017
DEFINITIONS
– 1 –
‘‘Consideration’’ the consideration of RMB349,860,000 (equivalent to
approximately HK$402,759,000) for the Acquisition
‘‘Depositor’’,
‘‘Depository’’ and
‘‘Depository
Register’’
have their respective meanings ascribed to them in section 81SF
of the Securities and Futures Act (Cap. 289) of Singapore
‘‘Director(s)’’ director(s) of the Company
‘‘Enlarged Group’’ the Group as enlarged by the Acquisition
‘‘Financial Adviser’’ Lego Corporate Finance Limited, a corporation licensed by the
Securities and Futures Commission to carry out type 6 (advising
on corporate finance) regulated activity under the SFO, the
financial adviser to the Company in connection with the
Acquisition
‘‘Group’’ the Company and its subsidiaries
‘‘Guarantor’’ Li Xiulin* (李秀林), a businesswoman and a citizen in the PRC,
who is the ultimate beneficial owner of the Vendor
‘‘HK$’’ Hong Kong dollar, the lawful currency of Hong Kong
‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC
‘‘Independent Third
Party(ies)’’
third party(ies) independent of the Company and its connected
persons (as defined under the Listing Rules)
‘‘Independent Valuer’’ Roma Appraisals Limited
‘‘Jump Corp’’ Jump Corporation Limited (奔躍有限公司) is a company
incorporated in Hong Kong with limited liability, which is
100% directly held by Top Grand
‘‘Latest Practicable
Date’’
22 September 2017, being the latest practicable date prior to the
printing of this circular for ascertaining certain information
contained in this circular
‘‘Listing Manual’’ the Listing Manual of the Singapore Exchange Securities
Trading Limited
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock
Exchange
DEFINITIONS
– 2 –
‘‘MOU’’ the non-legally binding memorandum of understanding dated 15
December 2016, which is supplemented by a supplemental
memorandum of understanding dated 12 April 2017, entered
into between the Purchaser and the Guarantor in relation to
Acquisition
‘‘MOU
Announcements’’
the announcements of the Company dated 15 December 2016
and 12 April 2017 in relation to the MOU
‘‘PRC’’ the People’s Republic of China, for the purpose of this circular,
excludes Hong Kong, the Macau Special Administrative Region
of the PRC and Taiwan
‘‘Purchaser’’ Goldlink Capital Limited (金連投資有限公司), a company
incorporated in the BVI with limited liability and a direct
wholly-owned subsidiary of the Company
‘‘Refundable Earnest
Money’’
the refundable earnest money of RMB250,000,000 paid by the
Purchaser in cash to the Guarantor or its nominee pursuant to
the MOU
‘‘Reporting
Accountants’’
Cheng & Cheng Limited, the reporting accountants to the
Company in respect of this Acquisition
‘‘RMB’’ Renminbi, the lawful currency of the PRC
‘‘Saiguangbo’’ Chongqing Saiguangbo Technology Company Limited* (重慶賽
廣博科技有限公司), a company established in the PRC with
limited liability, which is directly held by Yuhai and an
Independent Third Party as to 51% and 49%, respectively
‘‘Saiguangbo Group’’ Saiguangbo, Shanxi Minsheng and Yongji Minsheng
‘‘Saiguangbo’s Value’’ the valued amount of entire equity interest in Saiguangbo, which
includes its two wholly-owned subsidiaries, namely Yongji
Minsheng and Shanxi Minsheng, pursuant to the Valuation
Report
‘‘SFO’’ Securities and Futures Ordinance (Cap. 571 of the Laws of Hong
Kong)
‘‘SGM’’ the special general meeting of the Company to be convened for
the purpose of considering and, if thought fit, approving the
Acquisition Agreement and the transactions contemplated
thereunder
DEFINITIONS
– 3 –
‘‘Shanxi Minsheng’’ Shanxi Minsheng Natural Gas Co., Ltd.* (山西民生天然氣有限
公司), a company established in the PRC with limited liability,
which is wholly owned by Saiguangbo
‘‘Shareholder(s)’’ holder(s) of the share(s) of HK$0.055 each in the share capital of
the Company
‘‘Shenzhen Benfu’’ Shenzhen Benfu Energy Company Limited* (深圳奔富能源有限
公司), a company established in the PRC with limited liability,
which is wholly owned by Shenzhen Benyue
‘‘Shenzhen Benyue’’ Shenzhen Benyue Energy Company Limited* (深圳奔躍能源有限
公司), a company established in the PRC with limited liability,
which is wholly owned by Jump Corp
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Target Group’’ Top Grand and its subsidiaries, namely, Jump Corp, Shenzhen
Benyue, Shenzhen Benfu, Yuhai, Saiguangbo, Shanxi Minsheng
and Yongji Minsheng
‘‘Top Grand’’ Top Grand Global Limited (領宏環球有限公司) is a company
incorporated in the BVI with limited liability, which is 100%
directly held by the Vendor
‘‘Top Grand Group’’ Top Grand, Jump Corp, Shenzhen Benyue and Shenzhen Benfu
‘‘Valuation Report’’ the valuation report issued by the Independent Valuer in respect
of Saiguangbo’s Value
‘‘Vendor’’ Sea Pioneer Limited, a company incorporated in the BVI with
limited liability, which is 100% directly held by the Guarantor
‘‘Yongji Minsheng’’ Yongji Minsheng Natural Gas Co., Ltd.* (永濟市民生天然氣有
限公司), a company established in the PRC with limited liability,
which is wholly owned by Saiguangbo
‘‘Yuhai’’ Shenzhen Yuhai Energy Company Limited* (深圳市裕海能源有
限公司), a company established in the PRC with limited liability,
which is owned by Shenzhen Benfu and an Independent Third
Party as to 98% and 2%, respectively
‘‘USD’’ United States dollar, the lawful currency of United States of
America
DEFINITIONS
– 4 –
‘‘%’’ per cent.
* For identification purposes only
For the purpose of illustration in this circular, unless otherwise specified, translation
between RMB and HK$ are based on the exchange rate of RMB1 to HK$1.1512. The
translation shall not be taken as a representation that RMB could actually be converted into
HK$ at any particular rate at all.
Any reference in this circular to any enactment is a reference to that enactment as for the
time being amended or re-enacted. Any word defined under the Listing Rules, the SFO, the
Singapore Companies Act, the Listing Manual or any modification thereof and used in this
circular shall, where applicable, have the meaning assigned to it under the Listing Rules, the
SFO, the Singapore Companies Act, the Listing Manual or any modification thereof, as the
case may be.
Any reference to a time of a day in this circular shall be a reference to Hong Kong time
unless otherwise stated.
DEFINITIONS
– 5 –
Beijing Gas Blue Sky Holdings Limited
北 京 燃 氣 藍 天 控 股 有 限 公 司(Incorporated in Bermuda with limited liability)
(Hong Kong Stock Code: 6828)
(Singapore Stock Code: UQ7)
Executive Directors:
Mr. Cheng Ming Kit (Co-chairman of the Board)
Mr. Sze Chun Lee
Mr. Hung Tao
Mr. Hu Xiaoming (Chief Executive Officer)
Mr. Tam Man Kin
Mr. Li Weiqi
Non-executive Director:
Mr. Zhi Xiaoye (Co-chairman of the Board)
Independent Non-executive Directors:
Mr. Lim Siang Kai
Mr. Wee Piew
Mr. Ma Arthur On-hing
Mr. Pang Siu Yin
Registered Office:
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
Headquarters and principal place
of business in Hong Kong:
Room 1411, 14th Floor
New World Tower I
16–18 Queen’s Road Central
Central, Hong Kong
25 September 2017
To the Shareholders
Dear Sir or Madam,
MAJOR TRANSACTION
IN RELATION TO THE ACQUISITION OF
100% OF THE ISSUED SHARE CAPITAL OF
TOP GRAND GLOBAL LIMITED
INTRODUCTION
Reference is made to the Announcement in relation to the Acquisition. On 8 June 2017
(after trading hours), the Purchaser (which is a direct wholly owned subsidiary of the
Company), the Vendor and the Guarantor entered into the Acquisition Agreement,
pursuant to which (i) the Purchaser conditionally agreed to acquire, and the Vendor
LETTER FROM THE BOARD
– 6 –
conditionally agreed to sell, 100% of the issued share capital of Top Grand, which
indirectly holds 98% equity interest of Yuhai, at the Consideration of RMB349,860,000
(equivalent to approximately HK$402,759,000), subject to adjustment; and (ii) the
Guarantor has agreed to guarantee the due performance and obligations of the Vendor
under the Acquisition Agreement. Further details on the Acquisition are set out below in
this circular.
Upon Completion, the Target Group will become non-wholly-owned subsidiaries of
the Company. Accordingly, the financial results of the Target Group will be consolidated
into the financial statements of the Group.
The purpose of this circular is to provide you with, among other things: (i) further
information of the Acquisition; (ii) financial information of the Target Group; (iii) the
accountants’ reports relating to the Target Group; (iv) the unaudited pro forma financial
information of the Enlarged Group; and (v) other information as required under the Listing
Rules together with a notice of the SGM and a form of proxy.
THE ACQUISITION AGREEMENT
Date
8 June 2017 (after trading hours of the Stock Exchange)
Parties
Vendor : Sea Pioneer Limited
Purchaser : Goldlink Capital Limited, a direct wholly-owned subsidiary of the
Company
Guarantor : Li Xiulin* (李秀林)
To the best of the knowledge, information and belief of the Directors, having made all
reasonable enquiries, as at the Latest Practicable Date, the Vendor and its ultimate
beneficial owner (which is the Guarantor) are Independent Third Parties.
The Vendor is a company incorporated in the BVI with limited liability. Its principal
business is investment holding. The Vendor is directly wholly-owned by the Guarantor, who
is a PRC citizen and a business-woman. As confirmed by the Vendor and the Guarantor,
both Vendor and the Guarantor do not have any relationship (business or otherwise) with
any connected person of the Company, save and except the Acquisition.
LETTER FROM THE BOARD
– 7 –
Assets to be acquired
Pursuant to the Acquisition Agreement, the Vendor conditionally agreed to sell and
the Purchaser conditionally agreed to purchase 100% of the issued share capital of Top
Grand, which indirectly holds 98% of the equity interest of Yuhai, at the Consideration of
RMB349,860,000 (equivalent to approximately HK$402,759,000), subject to adjustment.
Yuhai holds 51% of the equity interest in Saiguangbo, which in turn holds 100% equity
interest in Shanxi Minsheng and Yongji Minsheng. Upon Completion, Company would
indirectly hold 49.98% of the effective equity interest in Saiguangbo.
Initially, the Company intended to acquire the entire equity interest in Saiguangbo.
However, the shareholder who held 49% equity interest in Saiguangbo (‘‘Other Saiguangbo
Shareholder’’) determined to retain 49% equity interest in Saiguangbo. Therefore, the
Company, through the Purchaser, only entered into the Acquisition Agreement to acquire
the Target Company, which indirectly held 51% equity interest in Saiguangbo, from the
Vendor. The Company considers that it is justified to acquire 51% equity interest in
Saiguangbo because the Company can exercise absolute control of Saiguangbo and its
subsidiaries and they will be treated as subsidiaries of the Company upon Completion.
As at the Latest Practicable Date, there was not any understanding, arrangement,
undertaking or agreement (initial or concrete) with the Other Saiguangbo Shareholder
concerning the Company or Purchaser’s further acquisition of any of the remaining 49%
interest in Saiguangbo.
The financial results of Saiguangbo, Shanxi Minsheng and Yongji Mingsheng will be
consolidated into the financial statements of the Group upon Completion.
On the basis that the Company will have control over Saiguangbo, Shanxi Minsheng
and Yongji Minsheng upon Completion, the Company’s auditors have confirmed to the
Company that they concur with the Directors’ view on the accounting treatment above.
Basis of determination of the Consideration
The Consideration was determined after arm’s length negotiations between the
Purchaser and Vendor and subject to adjustment, having regards to (i) the financial
position, the prospects and potential of the business of Shanxi Minsheng and Yongji
Minsheng; (ii) Shenzhen Benfu holding 98% equity interest in Yuhai and Yuhai holding
51% equity interest in Saiguangbo which in turn holding 100% equity interest in Shanxi
Minsheng and Yongji Minsheng; (iii) the unaudited net profits of Shanxi Minsheng and
Yongji Minsheng adjusted by the management fee, details of which are discussed in the
Announcement, of approximately RMB13.2 million and RMB4.2 million, respectively, for
the three months ended 31 March 2017 which represented the most recent quarterly
financial results of Shanxi Minsheng and Yongji Minsheng and in the opinion of the
Directors, a good reference to the financial performance after Completion; and (iv) the
Profit Guarantee (as defined below) of the Target Group for the period of one year from the
date of Completion provided by the Vendor which represented a comfort from the Vendor
and a good reference to the financial performance of Shanxi Minsheng and Yongji
Minsheng after Completion.
LETTER FROM THE BOARD
– 8 –
Taking into account the annualised net profit of the Saiguangbo Group (based on the
three months ended 31 March 2017 after adding back management fee of approximately
RMB16.2 million) of approximately RMB64.8 million, the consideration of RMB349,860,000
(representing 49.98% effective interest in Saiguangbo Group), the price to earnings ratio is
only approximately 11 times. Taking into account the profit guarantee of RMB50 million,
the price to earnings ratio is approximately 14 times. To the best knowledge of the
Directors, the above price to earnings ratio of 11 times and 14 times are fair and reasonable
in the industry.
The Consideration shall be settled by the Purchaser in the following manners:
(i) a sum of RMB250,000,000 (equivalent to approximately HK$287,800,000) having
been paid as refundable earnest money under the MOU shall be fully applied to
satisfy payment of part of the Consideration on the date of Completion;
(ii) a sum of RMB50,000,000 (equivalent to approximately HK$57,560,000) (the
‘‘Retention Fund’’) will be retained by the Purchaser on the date of Completion to
secure the performance of the Profit Guarantee as stated below; and
(iii) the balance of the Consideration, being RMB49,860,000 (equivalent to
approximately HK$57,399,000), in the event that there is no adjustment, shall
be payable by the Purchaser to Vendor (or its nominees) in cash on the date of
Completion.
Adjustment to the Consideration
Pursuant to the terms of the Acquisition Agreement, in the event that the amount of
49.98% of the Saiguangbo’s Value is:
(i) equal to or more than RMB349,860,000, there will not be any adjustment to the
Consideration;
(ii) less than RMB349,860,000 but more than RMB250,000,000, the Consideration
shall be adjusted downward accordingly;
(iii) less than RMB250,000,000 but remain positive, the Vendor shall return the
difference between the refundable earnest money and the amount of 49.98% of the
Saiguangbo’s Value, without interest, to the Purchaser on the date of Completion;
and
(iv) negative, the Purchaser shall have the right to not to proceed with the Acquisition
by written notice to the Vendor, and the Vendor shall return the entire refundable
earnest money, without interest, to the Purchaser within 5 Business Days upon
receipt of such notice.
As extracted from the Valuation Report set out in Appendix V to this circular, the
49.98% of the Saiguangbo’s Value as at 31 March 2017 was valued at approximately
RMB362,355,000 by the Independent Valuer, hence, there will be no adjustment to the
LETTER FROM THE BOARD
– 9 –
Consideration. For the avoidance of doubt, the refundable earnest money will not be
refundable after it has fully applied to satisfy payment of part of the Consideration at
Completion.
Profit Guarantee
Pursuant to the Acquisition Agreement, the Guarantor irrevocably and
unconditionally guaranteed and undertook to the Purchaser that the audited net profit of
the Target Group (which will be based on the audited account of the Target Group and net
of any extraordinary items, which are events or transactions that are considered abnormal,
not related to ordinary business activities, and unlikely to recur in the foreseeable future,
which the Directors had not identified any as at the Latest Practicable Date) for the period
of one year from date of Completion (the ‘‘Actual Profit’’) shall not be less than
RMB50,000,000 (equivalent to approximately HK$57,560,000) (the ‘‘Profit Guarantee’’).
Such audited account of the Target Group will be prepared by a certified public accountant
to be appointed by the Purchaser and is expected to be issued at the earliest practicable time
after the expiry of the said one year period.
As the audited account of the Target Group will be prepared by a certified public
accountant to be appointed by the Purchaser, the said certified public accountant will
determine whether an item falls into the category of the extraordinary item in accordance
with the appropriate generally accepted accounting principles.
Pursuant to the Acquisition Agreement, the Vendor irrevocably accepts that the
financial reports prepared by the Purchaser or Purchaser’s certified public accountant shall
be conclusive and binding evidence for the purpose of calculating the Actual Profit.
If the Actual Profit is lower than the Profit Guarantee, the Vendor irrevocably and
unconditionally agrees with the Purchaser to deduct an amount equivalent to the shortfall
on a dollar-to-dollar basis as monetary compensation from the Retention Fund. If the
Retention Fund is insufficient to cover such shortfall, the Vendor shall pay the balance of
such amount which is not covered by the Retention Fund within 5 days from receiving
written notice from Purchaser to the Purchaser.
If the Target Group is loss making and does not make any net profit, the loss figure
would be used for calculation of the Actual Profit. In such case, the Purchaser shall
compensate the aggregate sum of (i) the Retention Fund; and (ii) the net loss of the Target
Group in absolute value.
If the Actual Profit is equal to or more than the Profit Guarantee, the Purchaser will
pay the Retention Fund (without interest) within 5 days from receiving notice from Vendor
to the Vendor.
Given that the annualised net profit of the Saiguangbo Group (based on the three
months ended 31 March 2017 after adding back of management fee of approximately
RMB16.2 million) represents approximately 1.3 times of the Profit Guarantee and the
future prospects of Shanxi Minsheng and Yongji Minsheng, the Directors consider that the
Profit Guarantee is justified and achievable in this regard.
LETTER FROM THE BOARD
– 10 –
Conditions precedent of Acquisition
Completion is subject to the following Conditions being fulfilled and/or waived (as the
case may be):
(i) to the extent required by the Listing Rules, the approval of the Acquisition
Agreement and the transactions contemplated thereunder by the Shareholders
having been obtained;
(ii) the Purchaser having received and being satisfied with the Valuation Report;
(iii) the Purchaser being satisfied with the results of the due diligence review (including
but not limited to the review on liabilities) in respect of Target Group;
(iv) the Purchaser having received and being satisfied with the relevant documents in
relation to the share transfer of 100% of the issued share capital of Top Grand to
the Purchaser and/or its nominee and registered the said documents (and be
satisfied by the Purchaser) with the relevant governmental authorities in the BVI
to the satisfaction of the Purchaser;
(v) Vendor being the legal and beneficial owner of all the issued share capital of Top
Grand, which is free from any encumbrance or third party’s rights;
(vi) Shenzhen Benfu being the legal and beneficial owner of the 98% of the equity
interest of Yuhai, which is free from any encumbrance or third party’s rights;
(vii) Yuhai being the legal and beneficial owner of 51% equity interest in Saiguangbo,
which is free from any encumbrance or third party’s rights, save and except the
pledge for securing the repayment of the Refundable Earnest Money;
(viii)Saiguangbo being the legal and beneficial owner of 100% equity interests in
Shanxi Minsheng and Yongji Minsheng, which are free from any encumbrance or
third party’s rights, save and except the pledge for securing the repayment of the
Refundable Earnest Money;
(ix) Vendor, Yuhai, Saiguangbo, Shanxi Minsheng and Yongji Minsheng having
obtained all necessary approvals and authorisations in respect of the Acquisition
Agreement and transactions contemplated thereunder, including but not limited
to the approval from the board and shareholders (if applicable);
(x) Purchaser having received and being satisfied with the relevant proof and/or
certification in relation to (a) the change of directors and company secretaries of
the Target Group being duly effected; and (b) the registration of the relevant
documents at the relevant governmental authorities in Hong Kong, BVI and PRC;
LETTER FROM THE BOARD
– 11 –
(xi) the management of Target Group having no material change, and not having done
any act which may result in negative impact on the business, assets, properties,
financial condition, operation and prospect of Target Group before and at the
date of Completion, and the warranties having remained true and accurate in all
respects as at the date of Completion; and
(xii) the Purchaser having received (to the satisfaction of the Purchaser) the deed of
guarantee duly executed by the Guarantor.
The Purchaser shall have the right to waive any of the above Conditions, save for
Condition (i), at its discretion. If any of the conditions have not been fulfilled or waived (as
the case may be) by the Conditions Fulfillment Date or such later date as the parties to the
Acquisition Agreement may agree in writing, the Acquisition Agreement shall lapse and
have no further effect. The Vendor shall refund all amounts previously received from the
Purchaser (including but not limited to the Refundable Earnest Money), without interest, to
the Purchaser immediately. Upon the due receipt of the above payment by the Purchaser
and save for any antecedent breach of the Acquisition Agreement, none of the parties shall
make any claims against any other parties pursuant to the terms and conditions of the
Acquisition Agreement.
As at the Latest Practicable Date, Conditions (ii), (iii), (v), (vi), (vii), (viii) and (xii)
have been fulfilled.
As disclosed in the MOU Announcements, pursuant to the MOU, the Guarantor has
executed or has procured relevant parties to execute the following documents to secure the
repayment (if applicable) of the Refundable Earnest Money, which remain valid and legally
enforceable after entering into of the Acquisition Agreement:
(1) the negative pledge and undertaking letter in respect of Yuhai, Saiguangbo,
Shanxi Minsheng and Yongji Minsheng executed by the Guarantor;
(2) the negative pledge and undertaking letter in respect of Saiguangbo, Shanxi
Minsheng and Yongji Minsheng executed by Yuhai; and
(3) the negative pledge and undertaking letter in respect of Shanxi Minsheng and
Yongji Minsheng executed by Saiguangbo.
Pursuant to the respective negative pledges and undertaking letters, each of the
pledgors confirmed, among other thing, that:
(i) she or it is the legal and beneficial owners of the relevant share or equity interest;
(ii) such share or equity interest is not subject to any guarantee, trusteeship or any
other restrictions of rights;
(iii) there is no present or potential litigation or legal proceedings in respect of such
share or equity interest, and shall there be any, the relevant pledgor shall
immediately notify the Purchaser;
LETTER FROM THE BOARD
– 12 –
(iv) without the prior written consent from the Purchaser, the pledgor shall not create
any option, charge, pledge or any other encumbrance on the respective share or
equity interest; and
(v) without the prior written consent from the Purchaser, the pledgor shall not,
among other things, make or borrow any loan to or from third party; renounce,
make gifts of or any other way to transfer the assets of the relevant company;
provide any guarantee to third parties; and change the business scope and etc..
Pursuant to the respective negative pledges and undertaking letters, shall there be any
reason leading the Acquisition being fallen through, the Purchaser will be refunded the
entire Retention Money and the pledgors shall not enter into any commitment or make any
legal grounds to prevent the Purchaser from recovering the refundable earnest money.
Completion
Completion shall take place within five Business Days immediately following the date
that all Conditions have been satisfied and/or waived (as the case may be) which shall not
be later than the Conditions Fulfillment Date.
BUSINESS, LICENCES AND PERMITS
To the best of the Directors’ knowledge, information and belief having made all
reasonable enquiries, the business operation of and the licenses and permits obtained by
Shanxi Minsheng and Yongji Minsheng are set out below:
Company
Date of
Establishment Existing Business Future Business Plan Permits and Licenses Obtained
Shanxi Minsheng 21 April 2006 Supply of piped gas to
residential households,
public utility,
commercial and
industrial users; and
(ii) operation of 5
compressed natural gas
(‘‘CNG’’) refuelling
stations for vehicles in
Yuncheng City, Shanxi
Province.
It is expected to have
further new connection
to residential
households by Shanxi
Minsheng, in view of
(i) the new real estate
projects to be
completed; and (ii) the
conversion to piped
gas by existing
residential areas.
All the relevant permits and/or licences
for Shanxi Minsheng’s existing
business including Gas Business
License(燃氣經營許可証), the Gas
Cylinder Filling Permit(氣瓶充裝許可
証), Refilling Station Gas Supply
Permit(加氣站供氣許可証)and
Refilling Station Sewage Permit(加氣
站排污許可証)have been obtained.
Yongji Minsheng 17 October
2008
Supply of piped gas to
residential households,
public utility,
commercial and
industrial users; and
(ii) operation of 2
CNG refuelling
stations for vehicles in
Yongji City, Shanxi
Province.
It is expected to have
further new connection
to residential
households by Yongji
Minsheng, in view of
(i) the new real estate
projects to be
completed; and (ii) the
conversion to piped
gas by existing
residential areas.
All the relevant permits and/or licences
for Yongji Minsheng’s existing
business including Gas Business
License(燃氣經營許可証), the Gas
Cylinder Filling Permit(氣瓶充裝許可
証)and Refilling Station Gas Supply
Permit(加氣站供氣許可証)have been
obtained.
LETTER FROM THE BOARD
– 13 –
INFORMATION OF THE TARGET GROUP
The shareholding structure of the Target Group as at the Latest Practicable Date is set
out in the simplified chart below:
Shenzhen Benfu (PRC)
Yuhai(PRC)
Saiguangbo(PRC)
Shanxi Minsheng(PRC)
Independent Third Party
Independent Third Party
Yongji Minsheng(PRC)
Shenzhen Benyue(PRC)
Jump Corp(Hong Kong)
Top Grand(BVI)
Vendor(BVI)
100% 100%
51% 49%
98% 2%
100%
100%
100%
100%
Guarantor
100%
LETTER FROM THE BOARD
– 14 –
Top Grand
Top Grand Global Limited (領宏環球有限公司) is a company incorporated in the BVI
with limited liability on 18 August 2016, which is directly wholly-owned by the Vendor. As
advised by the Vendor, the principal business of Top Grand is, among other things,
investment holding. As advised by the Vendor, save for the interest in Jump Corp, Top
Grand has no other asset and operation since its incorporation in all material respects.
Jump Corp
Jump Corporation Limited (奔躍有限公司) is a company incorporated in Hong Kong
with limited liability on 7 June 2016, which is directly wholly-owned by Top Grand. As
advised by the Vendor, the principal business of Jump Corp is, among other things,
investment holding, and save for the interest in Shenzhen Benyue, Jump Corp has no other
asset and operation since its incorporation in all material respect.
Shenzhen Benyue
Shenzhen Benyue Energy Company Limited* (深圳奔躍能源有限公司) is a company
established in the PRC with limited liability on 20 September 2016, which is directly wholly-
owned by Jump Corp. As advised by the Vendor, the principal business of Shenzhen Benyue
is, among other things, project investment consulting, development of energy saving and
environmental new energy technology, and save for the interest in Shenzhen Benfu,
Shenzhen Benyue has no other asset and operation since its incorporation in all material
respect.
Shenzhen Benfu
Shenzhen Benfu Energy Company Limited* (深圳奔富能源有限公司) is a company
established in the PRC with limited liability on 22 September 2016, which is directly wholly-
owned by Shenzhen Benyue. As advised by the Vendor, the principal business of Shenzhen
Benfu is, among other things, project investment consulting, development of energy saving
and environmental new energy technology, and save for the interest in Yuhai, Shenzhen
Benfu has no other asset and operation since its incorporation in all material respect.
Yuhai
Shenzhen Yuhai Energy Company Limited* (深圳市裕海能源有限公司) is a company
established in the PRC with limited liability on 6 September 2016, which is held by
Shenzhen Benfu as to 98%. As advised by the Vendor, the principal business of Yuhai is,
among other things, the technology development, technology transfer and consultation of
new energy. To the best knowledge of the Company, the other shareholder of Yuhai as to
2% is an Independent Third Party.
LETTER FROM THE BOARD
– 15 –
Saiguangbo
Chongqing Saiguangbo Technology Company Limited* (重慶賽廣博科技有限公司) is a
company established in the PRC with limited liability on 7 February 2002, which is held by
Yuhai as to 51%. As advised by the Vendor, the principal business of Saiguangbo is, among
other things, investment of town gas and sale of gas equipment. To the best knowledge of
the Company, the other shareholder of Saiguangbo as to 49% is an Independent Third
Party and, as at the Latest Practicable Date, Saiguangbo did not have other operation
except for the holding of the equity interest of Shanxi Minsheng and Yongji Minsheng.
Shanxi Minsheng
Shanxi Minsheng Natural Gas Co., Ltd.* (山西民生天然氣有限公司) is a company
established in the PRC with limited liability on 21 April 2006 which is wholly-owned by
Saiguangbo.
Business Area
Shanxi Minsheng is principally engaged in the supply of piped gas and operation of 5
compressed natural gas (‘‘CNG’’) refuelling stations for vehicles in Yuncheng City, Shanxi
Province under a number of operating rights agreements entered into with the local
government of Yuncheng City for the period ending the earliest in 2021. The target
customers include residential households, public utility, commercial and industrial users
and vehicles in Yuncheng City and the new development areas. Whilst Taiyuan, the largest
city of Shanxi, generated the highest GDP of RMB273.5 billion in 2015, Yuncheng ranked
third (RMB117.4 billion) which is just marginally after Changzhi (RMB119.5 billion) but is
higher than Linfen (RMB116.1 million), Datong (RMB105.3 million) & Jincheng (RMB104
million). However the total value of exports shows that Yuncheng has an export oriented
economic activities. In 2015 the total value of exports for Taiyuan was USD6,592 million.
Yuncheng was the second highest (USD331 million) when compared with Jincheng
(USD288 million), Datang (USD285 million), Linfen (USD166 million) & Changzhi
(USD32 million). (*source: Shanxi Statistical Yearbook 2016)
As advised by the Vendor, up to the Latest Practicable Date, Shanxi Minsheng
completed the connection for around 154,000 residential households and around 600 public
utility, commercial and industrial users. For the year ended 31 December 2016, the total gas
sales volume of Shanxi Minsheng amounted to approximately 69 million cubic meters.
Exclusive operation rights in Yuncheng City, Shanxi Province
Shanxi Minsheng entered into a number of operation rights agreements with the local
government of Yuncheng City in Shanxi Province, in which Shanxi Minsheng was granted
the build-operate-transfer (建造、營運及轉移) and exclusive operation rights (特許經營權)
for terms of 20 years to 25 years, commencing from August 2006, October 2009, September
2011 and July 2012, for the supply of natural gas via gas pipelines within the Urban
Planning Area (城市規劃區域) in Yuncheng City and the new development areas (新發展區
域), such as Yanhu (鹽湖新區), Konggang (空港新區) and Yuncheng Economic
Development Zone (運城經濟開發區), of which Konggang will be the key growth area for
LETTER FROM THE BOARD
– 16 –
piped gas consumption. The total development area under planning is around 65 km2 with
the development of 50 km2 central district area has been completed. Major Shanxi based
privately owned enterprises are located in Konggang including a leading heavy duty truck
manufacturer with an annual output of RMB30 billion. Konggang also housed Asia largest
yarn spinning mill invested by a Hong Kong company with a total investment of USD138
million.
Information of the exclusive operation rights of Shanxi Minsheng are set out below:
Project under
Exclusive
operation rights
Exclusive
operation rights
Exclusive
operation rights
Exclusive
operation rights
Business area Yanhu
(鹽湖新區)
Konggang
(空港新區)
Yuncheng
Economic
Development
Zone (運城經濟
開發區)
Yuncheng City
Role Service provider
and Constructor
Service provider
and Constructor
Service provider
and Constructor
Service provider
and Constructor
Business model Build-operate-
transfer
Build-operate-
transfer
Build-operate-
transfer
Build-operate-
transfer
Capital commitment
as at the Latest
Practicable Date
Nil Nil Nil Nil
Duration 25 years from
19 October 2009
20 years from
1 September
2011
25 years from
1 July 2012
25 years from
31 Mar 2006
Future prospects
It is expected that there will be further new connection to residential households by
Shanxi Minsheng, in view of (i) the new real estate projects to be completed; and (ii) the
conversion to piped gas by existing residential areas. Yuncheng City is also on track to
achieve government’s coal-to-gas conversion plan. According to the Air Pollution
Prevention and Control Action Plan (《大氣污染防治行動計劃》) issued by The State
Council (國務院) of PRC in September 2013, coal fired steam turbine below 10 steam/ton
has to be converted by the end of 2017. Coal fired steam turbines above 10 steam/ton are
expected to complete the conversion within three years. In terms of gas sourcing, Yuncheng
enjoys the benefits of a dual piped gas supplier. With such an unique infrastructure (East
gas city-gate 東門站 and North gas city-gate 北門站) Yuncheng is able to maximise the gas
output during the peak season. Yuncheng has a well-balanced gas consumption mix in
nature thus it is less affected by any economic cycle and policies.
LETTER FROM THE BOARD
– 17 –
Yongji Minsheng
Yongji Minsheng Natural Gas Co., Ltd.* (永濟市民生天然氣有限公司) is a company
incorporated in the PRC with limited liability on 17 October 2008 which is wholly-owned by
Saiguangbo.
Business Area
Yongji Minsheng is principally engaged in the supply of piped gas and operation of 2
CNG refuelling stations for vehicles in Yongji City, Shanxi Province under a franchise
operation agreement entered into with local government of Yongji City for the period up to
2038. The target customers include residential households, public utility, commercial and
industrial users and vehicles in Yongji City.
As advised by the Vendor, as of the Latest Practicable Date, Yongji Minsheng
completed the connection for around 24,099 residential households and around 110 public
utility, commercial and industrial users. During the year ended 31 December 2016, the total
gas sales volume of Yongji Minsheng amounted to approximately 17 million cubic meters.
Exclusive franchise operation agreement in Yongji City, Shanxi Province
As advised by the Vendor, Yongji Minsheng has entered into a franchise operation
agreement with the local government of Yongji City, pursuant to which Yongji Minsheng is
granted an exclusive operation right for 30 years commencing from November 2008 to
invest in and operate the city pipeline system to provide and distribute piped natural gas in
Yongji City, Shanxi Province.
Information of the exclusive operation rights of Yongji Minsheng are set out below:
Project under Franchise operation agreement
Business area Yongji City
Role Owner (Constructor)
Business model Build-own-operate
Capital commitment as at
the Latest Practicable Date
Nil
Duration 30 years from 1 November 2008
Future prospects
It is expected that there will be further new connection to residential households by
Yongji Minsheng, in view of (i) the new real estate projects to be completed; and (ii) the
conversion to piped gas by existing residential areas. Further upside on gas consumption
however will be coming from the commercial segment. Yongji City is developing its leisure
industry lately with most restaurants, hotels and shopping malls still not using natural gas
as their main source of energy.
LETTER FROM THE BOARD
– 18 –
Since the government in the PRC is promoting the ‘‘coal-to-gas’’ policy to reduce the
air pollution in the PRC, it is expected that the business of both Shanxi Minsheng and
Yongji Minsheng will be benefited from the policy. On the same token Yongji City is also
on track to comply with government’s coal-to-gas conversion plan. According to the Air
Pollution Prevention and Control Action Plan (《大氣污染防治行動計劃》) issued by The
State Council (國務院) of PRC in September 2013, coal fired steam turbine below 10 steam/
ton has to be converted by the end of 2017.
PRINCIPAL RISKS ASSOCIATED WITH THE TARGET GROUP
Target Group may be a party to legal claim or disputes related to pre-Acquisition period.
Target Group may from time to time become a party to various legal claim or disputes
related to pre-Acquisition period. Furthermore, if any verdict or award is rendered against
any company of the Target Group, such company could be required to pay significant
monetary damages, assume other liabilities, and suspend or terminate the related business
ventures or projects.
Pursuant to the Acquisition Agreement, the Vendor and the Guarantor jointly and
severally warrant and represent to the Purchaser that as at the date of the Acquisition and
on or before the date of the Completion, none of the companies of the Target Group is a
party (whether as a plaintiff, defendant or other capacity) to any legal proceeding,
arbitration or prosecution or subject to any court order, hearing of any regulatory,
supervisory or governmental entity, department, committee or tribunal or any material
dispute. Shall there be any breach of such warranty and representation, the Vendor and the
Guarantor shall compensate and indemnify the Purchaser the sum (including legal fee) to be
incurred by the Purchaser for revert the Target Group to the condition but for such breach.
Target Group’s future growth strategies may not succeed, and the growth expectation
may not materialise.
As promoted by the government policies, according to the China Energy Outlook 2030
(中國能源展望2030) published by the China Energy Research Society (中國能源研究會), it
is expected that the natural gas usage per capita in the PRC will increase from
approximately 135m3 in 2014 to approximately 350m3 in 2030. Together with the
favourable policies issued by the local government, in particular the coal-to-gas
conversion plan, the Directors are optimistic on the future growth and prospect of the
Target Group.
Notwithstanding the above, there is no guarantee that the Target Group can fully
capture the growth prospect or at all. After Completion, the Group will continue to
leverage on its expertise in gas business and strive its best to formulate business strategies
for the Target Group’s long-term development.
LETTER FROM THE BOARD
– 19 –
Target Group’s transportation and sales of piped gas operation relies on limited suppliers.
Purchased pipelined gases accounted for approximately 83.3%, 81.4%, 82.9% and
85.2% of total cost of sales by the Target Group for each of the three financial years ended
31 December 2016 and the three months ended 31 March 2017, respectively. As at the Latest
Practicable Date, the Target Group purchased natural gas primarily from two major gas
transporters or distributors in China, namely, Shanxi Natural Gas Co., Ltd.* (山西天然氣
有限公司) and Shanxi Compressed Natural Gas Group Co., Ltd.* (山西壓縮天然氣集團有
限公司).
There can be no assurance that the Target Group can continually secure supply from
the aforesaid suppliers. Failures to secure supply from other piped gas suppliers on time will
materially and adversely affect its results of operation, financial condition, as well as
reputation.
After Completion, the Group will negotiate with the two suppliers for long-term
supply agreements to secure supply and to diversify the supplier base, as appropriate.
The price of the Target Group’s products is subject to government price control.
Natural gas prices charged by the Target Group are subject to the approval of the
Commodity Price Bureau (物價局) of each operating city of the Target Group. According to
the PRC Pricing Act (中華人民共和國價格法), the Target Group is entitled to determine the
price of natural gas, subject to a ceiling price imposed by the local governments. The local
governments may introduce policies to adjust the ceiling price. To operate in line with the
local government’s policies, the Target Group may re-adjust its selling price in accordance
with the new ceiling price introduced from time to time. To do this, the Target Group must
submit applications for price adjustment to the Commodity Price Bureau of the relevant
operating city. The Commodity Price Bureau will then convene a series of hearings to form
an informed conclusion of the price. The price concluded by the Commodity Price Bureau
will be reported to the local Development and Reform Commission (發展和改革委員會) of
the relevant operating cities for confirmation. Should the Target Group fail to obtain price
adjustment approval, or fail to secure such approval in a timely manner from the
Commodity Price Bureaus or the local Development and Reform Commission of the
relevant operating cities, the Target Group’s profitability may be adversely affected. After
Completion, the Group will closely monitor the ceiling price and relevant cost from time to
time and submit applications for price adjustment to the Commodity Price Bureau as and
when appropriate to control the profit margin.
If third-party pipelines and other facilities interconnected to the Target Group’s natural
gas pipelines and processing facilities or its pipelines and facilities located on lands owned by
third parties become partially or fully unavailable to transport natural gas, its operating
results could be adversely affected.
The Target Group relies upon third party pipelines and other facilities to provide
delivery options from its facilities to its customers and some of its pipelines and facilities
located on lands owned by third parties. If any of these pipelines become unavailable to
transport the natural gas from its facilities, or if the gas quality specifications for these
LETTER FROM THE BOARD
– 20 –
pipelines or facilities change, the Target Group would be required to find alternate means to
transport its natural gas out of its facilities, which could increase its costs, reduce the
revenues it might obtain from the sale of its natural gas and thus affect its profit. After
Completion, the Group intends to discuss with the relevant third parties on the maintenance
requirement regularly so as to avoid any service halt.
Accidents or occurrences of public safety concerns may occur. Target Group may lack
adequate insurance coverage.
The Target Group conducts a highly hazardous business due to the flammable and
explosive nature of natural gas. There can be no assurance that accidents or occurrences of
public safety concerns or any industry-related accidents will not occur during our
operations in the future. For example, an earthquake in any of the operating city of the
Target Group may cause destruction of, or damage to, its pipelines and a leak of natural
gas. Significant operational hazards and natural disasters may cause interruptions in Target
Group’s operations that could have a material adverse impact on our business and financial
condition, as well as our reputation. The Target Group does not currently maintain fire,
casualty or other property insurance policies covering its facilities, properties or equipment,
other than with respect to vehicles. In addition, the Target Group, except for the 5 CNG gas
stations in Shanxi Minsheng, does not maintain any business interruption insurance or any
third-party liability insurance to cover claims in respect of personal injury, property or
environmental damage arising from accidents on its properties or relating to its operations,
other than third-party liability insurance with respect to vehicles and insurance as required
under the Labour Law of the PRC. Any uninsured losses and liabilities incurred by the
Target Group or a successful claim made against Target Group that is not covered by any
insurance policies could have a material adverse effect on Target Group’s operations and
financial condition.
After Completion, the Group intends to revisit the current safety measures of the
Target Group and reassess and purchase insurance as appropriate so as to reduce risks on
aforesaid potential loss.
The effects of future environmental legislation on the Target Group’s business is unknown
but could be substantial.
Environmental legislation is evolving in a manner expected to result in stricter
standards and enforcement, larger fines and liability and potentially increased capital
expenditures and operating costs. Changes in, or enforcement of, environmental laws may
result in a curtailment of the Target Group’s production activities, or a material increase in
the costs of production, development drilling or exploration, any of which could have a
material adverse effect on the Target Group’s financial condition and results of operations
or prospects. After Completion, the Group will closely monitor the environmental
legislation from time to time so as to ensure continued compliance with the relevant new
standard and policy in a cost-effective way.
LETTER FROM THE BOARD
– 21 –
Changes in government policies could affect Target Group’s business.
Target Group’s business will be affected by changes in policies, laws and regulations
(or the interpretation thereof) in the PRC energy industry. For example, if the PRC
Government favors a particular type of energy, other than natural gas, due to the energy
structure change or cost concern, Target Group’s financial condition and results of
operations will be materially adversely affected. In addition, recent global concerns over
carbon emission may cause the PRC Government to introduce policies that may lead to
restrictions on the industry, such as the imposition of carbon emissions tax.
It is not assured that the recent government policies on gas industry will not affect the
Target Group’s future business and operations. Should the amendments to these policies or
the promulgation of new policies be adverse to the Target Group, Target Group’s business,
results of operations and financial condition may be materially and adversely affected.
After Completion, the Group will closely monitor the government policies from time to
time so as to ensure continued compliance with the relevant new policies in a cost-effective
way.
The Target Group may be involved from time to time in legal proceedings and commercial
or contractual disputes, which could have a material adverse effect on its business, results of
operations and financial condition.
From time to time, the Target Group may be involved in legal proceedings and
commercial or contractual disputes. Such proceedings or disputes are typically claims that
arise in the ordinary course of business, including, without limitation, commercial or
contractual disputes, warranty claims and other disputes with customers and suppliers,
intellectual property matters, personal injury claims, environmental issues, tax matters and
employment matters. There is no assurance that such proceedings and claims will not have a
material adverse effect on the business, results of operations and financial condition of the
Target Group. After Completion, the Group will closely monitor the operation of the
Target Group from time to time so as to ensure continued compliance with the relevant
rules and regulation. In the event of any legal proceedings, disputes and claims originated
before Completion, the Group will consider to take legal action against the Vendor and the
Guarantor in accordance with the terms of the Acquisition Agreement, in particular the
warranty clause and indemnity clause.
LETTER FROM THE BOARD
– 22 –
Financial Information of the Target Group
The audited consolidated financial information of Top Grand Group for the period
from 18 August 2016 to 31 December 2016 and the three months ended 31 March 2017 as
extracted from the accountants’ report set out in Appendix IIA to this circular are as
follows:
For the three
months ended
31 March
2017
For the
period ended
31 December
2016
(Audited) (Audited)
HKD HKD
Turnover — —
Loss before taxation (22) (31,245)
Net loss (22) (31,245)
As at
31 March
2017
As at
31 December
2016
(Audited) (Audited)
HKD HKD
Total assets 102,618 102,640
Total liabilities (133,877) (133,877)
Net liabilities (31,259) (31,237)
The audited financial information of Yuhai for the period from 6 September 2016 to 31
December 2016 and the three months ended 31 March 2017 as extracted from the
accountants’ report set out in Appendix IIB to this circular are as follows:
For the three
months ended
31 March
2017
For the
period ended
31 December
2016
(Audited) (Audited)
HKD HKD
Turnover — —
Profit before taxation — —
Net profit — —
LETTER FROM THE BOARD
– 23 –
As at
31 March
2017
As at
31 December
2016
(Audited) (Audited)
HKD HKD
Total assets 5,984,503 5,922,743
Total liabilities 5,983,905 5,922,151
Net assets (liabilities) 598 592
The audited consolidated financial information of the Saiguangbo and its subsidiaries,
namely Shanxi Minsheng and Yongji Minsheng, for the three financial years ended 31
December 2016 and the three months ended 31 March 2017 as extracted from the
accountants’ report set out in Appendix IIC to this circular are as follows:
For the three
months ended
31 March
2017
For the
year ended
31 December
2016
For the
year ended
31 December
2015
For the
year ended
31 December
2014
(Audited) (Audited) (Audited) (Audited)
HKD’000 HKD’000 HKD’000 HKD’000
Turnover 130,750 338,564 382,013 406,666
Profit before taxation 3,852 12,515 16,154 33,259
Net profit 3,187 10,363 11,149 24,588
As at
31 March
2017
As at
31 December
2016
As at
31 December
2015
As at
31 December
2014
(Audited) (Audited) (Audited) (Audited)
HKD’000 HKD’000 HKD’000 HKD’000
Total assets 604,938 597,468 637,252 760,241
Total liabilities 491,579 487,948 532,136 699,311
Net assets 113,359 109,520 105,116 60,930
LETTER FROM THE BOARD
– 24 –
The turnover breakdown of Saiguangbo Group by nature are as follow:
For the three
months ended
31 March
2017
For the
year ended
31 December
2016
For the
year ended
31 December
2015
For the
year ended
31 December
2014
HK$’000 HK$’000 HK$’000 HK$’000
Sales of piped gas —
other 88,060 216,200 207,347 205,583
Gas connection income 30,129 77,391 90,583 98,814
Sales of piped gas —
gas stations 12,561 44,973 84,083 102,269
Total 130,750 338,564 382,013 406,666
Given that Top Grand Group acquired Yuhai on 5 May 2017 which is subsequent to 31
March 2017, the period end of the accountants’ report is made up to, and was not under
common control with Yuhai and Saiguangbo Group, the financial information of Yuhai
and Saiguangbo Group cannot be consolidated in the audited consolidated financial
information of Top Grand Group for the period from 18 August 2016 to 31 December 2016
and the three months ended 31 March 2017.
Given that (i) Saiguangbo was not under common control throughout the Relevant
Period (as defined below), thus Yuhai can only consolidate the financial results of
Saiguangbo Group under acquisition accounting, and such consolidation can only be
accounted for since 1 November 2016, the day of acquisition of Saiguangbo Group by
Yuhai and can only reflect the financial results of Shanxi Minsheng and Yongji Minsheng
after 1 November 2016; (ii) the audited consolidated financial information of Saiguangbo
Group can cover the period for the three financial years ended 31 December 2016 and the
three months ended 31 March 2017 which can provide sufficient information for the
Shareholders to assess the financial results of Shanxi Minsheng and Yongji Minsheng
during the Relevant Period; and (iii) Yuhai is an investment holding company and has no
active operation with its only asset being the investment cost in Saiguangbo, the Directors
consider adopting merger accounting to demonstrate the audited consolidated financial
information of the Saiguangbo Group, being the operating subsidiaries in the Target
Group, for the three financial years ended 31 December 2016 and the three months ended 31
March 2017 would be more appropriate and meaningful for the Shareholders to understand
the performance of the Target Group. In view of the above, the financial information of the
Target Group presented in three separate accountants’ reports which are included as
Appendix IIA, IIB and IIC to this circular.
Since the consolidated financial statements of Saiguangbo for the three years ended 31
December 2016 and for the three months ended 31 March 2017 (the ‘‘Relevant Period’’) have
already been set out in Appendix IIC to this circular, consolidated financial statements of
Yuhai for the Relevant Period have not been prepared in accordance with IFRS 10
‘‘Consolidated financial statements’’ due to the reasons discussed above. As explained in
LETTER FROM THE BOARD
– 25 –
Appendix IIB to this circular, as Yuhai has not prepared consolidated financial statements
in accordance with International Financial Reporting Standard, the Reporting Accountant
has issued a qualified opinion on Yuhai’s financial statement.
For the year ended 31 December 2016 and the three months ended 31 March 2017, the
Company has received approximately RMB8.6 million (equivalent to approximately
HK$10.0 million) and RMB13.4 million (equivalent to approximately HK$15.1 million)
management fee, respectively, from Yongji Minsheng and Shanxi Minsheng. The Group,
with its experienced management team, has been providing management service and
technical support to Shanxi Minsheng and Yongji Minsheng. It is the Company’s current
intention that the said management fee will not be charged after Completion. To the best
knowledge of the Directors, the audited consolidated net profits of Saiguangbo Group after
adding back the management fee were approximately RMB17.5 million (equivalent to
approximately HK$20.4 million) and RMB16.2 million (equivalent to approximately
HK$18.3 million) for the year ended 31 December 2016 and the three months ended 31
March 2017, respectively.
Upon Completion, Top Grand Group will become the wholly-owned subsidiaries of
the Company, while Yuhai and Saiguangbo Group will become the non-wholly-owned
subsidiaries of the Company. Accordingly, the financial results of Top Grand Group, Yuhai
and Saiguangbo Group will be consolidated into the financial statements of the Group.
REASONS FOR AND BENEFITS OF THE ACQUISITION
The Group is an integrated natural gas provider and distributor that offers innovative
and diversified clean energy solution in the PRC. The Group focuses on the downstream
natural gas distribution business which encompasses (i) construction and operation of
compressed natural gas and liquefied natural gas refuelling stations for vehicles; (ii)
construction of natural gas connection pipelines and supply of piped gas to industrial parks,
commercial complexes and residential communities; and (iii) distribution and trading of
CNG and LNG. The Group’s current natural gas projects covered 10 provinces in the PRC,
namely Hainan, Anhui, Shandong, Liaoning, Guizhou, Sichuan, Hubei, Zhejiang, Jilin and
Jiangsu Provinces.
Based on the government data and publicly available information, the Directors
estimated the total number of household in Yuncheng City and Yongji City to be around
1,850,000 household, which are the target customers of Shanxi Minsheng and Yongji
Minsheng. As the total existing residential household customers of Shanxi Minsheng and
Yongji Minsheng as at 31 March 2017 were around 168,000 household, the Directors
believe that there is a good potential for future business uplift.
The Chinese government endeavored the facilitation of clean energy development,
hence the National Energy Administration promulgated the energy ‘‘13th Five-Year Plan’’,
indicating that the proportion of domestic natural gas consumption in 2020 is targeted to
reach 10%. Meanwhile, with the Action Plan of the Prevention Scheme of Air Pollution
promulgated by the State Council, local governments at all levels also introduced related
policies to facilitate the local ‘‘coal-to-gas’’ project construction, so as to increase the
application coverage of natural gas, facilitated the energy structural adjustment and
LETTER FROM THE BOARD
– 26 –
promoted proactively the improvement of the overall environment. In addition, the
National People’s Congress and the Chinese People’s Political Consultative Conference
convened in 2017 have also pointed out that by strengthening domestic conventional
natural gas exploration and development, as well as scientific planning of introducing
foreign import natural gas in terms of scale, method and pace, it can achieve safe and stable
gas supply and promote the use of clean energy. Hence, there is tremendous potential for
development growth in natural gas industry.
Therefore, the Group will continue to grasp the opportunities arising from policies
facilitation, accelerate market exploration, expand its businesses including city gas, natural
gas for transportation, LNG direct supply trading and distribution of natural gas, and
other related segments, and achieve a synergistic development.
The Acquisition, subject to Completion, will enable the Group to expand its natural
gas operations in the PRC and to diversify the income stream from a geographical
perspective. It will benefit the Company and Shareholders as a whole, by (i) increasing the
Group’s revenue source; (ii) enlarging the Group’s geographical footprint in Shanxi
Province of the PRC, where the Company has not yet made any presence previously; (iii)
capturing the incremental gas demand driven by the nationwide coal-to-gas conversion plan
given Shanxi is a traditional heavy industry dominated province; and (iv) showcasing its
city gas project penetration and execution capability which is critical for enhancing our
shareholders’ value.
In future, the Group will invest and develop the natural gas business proactively and
expand its business layout by taking the ‘‘develop clean energy, improve customer value,
and create a better Blue Sky’’ as its mission and adhering to the corporate values of
‘‘openness, innovation, cohesion, pragmatism, accountability, listening and inclusiveness’’.
As such, the Directors considered that the Acquisition is in line with the mission of the
Group and shall benefit from the government’s ‘‘coal-to-gas’’ policy which aims to improve
the air pollution issue in the PRC. The Acquisition shall provide an excellent opportunity
for the Group to extend its geographical coverage and enlarge its market share in relation to
its natural gas business which encompasses (i) construction and operation of CNG and
liquefied natural gas (‘‘LNG’’) refueling stations for vehicles; (ii) construction of natural gas
connection pipelines and supply of piped gas to industrial parks, commercial complexes and
residential communities; and (iii) distribution and trading of CNG and LNG. The Company
can become an important player in the city gas sector, which can increase the revenue
streams of the Group, thus enhancing its industrial competitive position and generating
more investment value for investors and Shareholders.
The terms of the Acquisition Agreement were arrived at after arm’s length negotiations
between the Purchaser, the Vendor and the Guarantor. The payment of the Consideration
will be funded by the internal resources of the Group. In view of the above, the Directors
considered the terms of the Acquisition Agreement and the Consideration are fair and
reasonable and on normal commercial terms and in the interests of the Company and the
Shareholders as a whole.
LETTER FROM THE BOARD
– 27 –
INFORMATION OF THE COMPANY AND THE PURCHASER
The Company is principally engaged in (i) natural gas for transportation; (ii) trading
and distribution of natural gas; and (iii) city gas and other related products. The Purchaser
is incorporated in the BVI with limited liability and a wholly-owned subsidiary of the
Company. Its principal business is investment holding.
INFORMATION OF THE VENDOR AND THE GUARANTOR
The Vendor is a company incorporated in the BVI with limited liability. Its principal
business is investment holding. The Vendor is wholly-owned by the Guarantor, who is a
PRC citizen and a business-woman. At the Latest Practicable Date, the Vendor directly
holds 100% of the issued share capital of Top Grand, which indirectly holds 98% of the
equity interest in Yuhai, which in turn directly holds 51% of the equity interest in
Saiguangbo, which in turn holds 100% of the equity interest in Shanxi Minsheng and
Yongji Minsheng.
FINANCIAL EFFECTS ON EARNINGS, ASSETS AND LIABILITIES OF THE GROUP
Upon Completion, the financial results of the Target Group will be consolidated into
the financial statements of the Group.
(i) Earnings
According to the accountants’ reports enclosed in Appendices IIA to IIC to the
circular, Saiguangbo Group recorded profit attributable to owners of approximately
HK$3.2 million for the three months ended 31 March 2017 while Top Grand Group and
Yuhai recorded immaterial losses for the three months ended 31 March 2017.
The Directors consider that the Acquisition would enhance the Group’s business
performance and its earning prospect by consolidating the profit of the Target Group to the
Group’s financials.
(ii) Assets and Liabilities
According to the unaudited pro forma financial information of the Enlarged Group as
set out in Appendix IV to this circular, upon Completion, the total consolidated net assets
of the Group would increase from approximately HK$3,339.6 million to approximately
HK$3,683.9 million. The total assets would increase from approximately HK$4,992.1
million to approximately HK$5,843.1 million. The total liabilities would increase from
approximately HK$1,652.5 million to approximately HK$2,159.2 million.
Please refer to Appendices IIA to IIC and Appendix IV as set out in this circular for
further information of the assets and liabilities of the Target Group and information on the
financial effects of the Acquisition, respectively.
LETTER FROM THE BOARD
– 28 –
COMPLIANCE WITH RULE 14.61 OF THE LISTING RULES
As the Valuation Report as disclosed in Appendix V to this circular is based on
discounted cash flow method, it constitutes a profit forecast under Rule 14.61 of the Listing
Rules. Accordingly, Rule 14.62 of the Listing Rules are applicable.
The following are details of the principal assumptions upon which the Valuation
Report is based:
Major commercial assumptions:
Major commercial assumptions are extracted and summarised below. For details,
please refer to paragraph headed ‘‘8.4.5 Major Assumptions of Cash Flow Projection’’ in
Appendix V to this circular:
— The revenue from gas sales to residential users of Saiguangbo Group was
estimated based on the selling price and the sales volume. For the selling price, the
management of the Company (the ‘‘Management’’) has made reference to the
historical average selling price of the period from January to March 2017 and the
government document. These selling prices would be adopted for the 10 years
forecast period. The sales volume was estimated with reference to (i) the sum of
the number of users in 2016 and the annualized additional number of users for the
period from January to March 2017; and (ii) the gas consumption per household;
— The cost of gas sales to residential users of Saiguangbo Group was related to the
purchase price per unit and the volume and estimated with reference to the
historical average purchase price of the period from January to March 2017 and
the government document;
— The revenue from gas sales to commercial users, industrial users and public utility
users of Saiguangbo Group was estimated based on the respective selling price and
the sales volume. The Management has made reference to the historical average
selling price of the period from January to March 2017 and the government
document. These selling prices would be adopted for the 10 years forecast period.
The sales volume for industrial, commercial and public utility users of the
Saiguangbo Group were estimated with reference to (i) the sum of number of users
in 2016 and the annualized additional number of users for the period from
January to March 2017 in each category; (ii) the growth of the users in each
category; and (iii) the gas consumption per user in the respective category;
— The cost of gas sales to commercial, public utility and industrial users of
Saiguangbo Group were estimated based on the respective purchase price per unit
and the sales volume. The Management has made reference to the historical
average selling price of the period from January to March 2017 and the
government document;
LETTER FROM THE BOARD
– 29 –
— The revenue from CNG stations of Saiguangbo Group was estimated based on the
selling price and CNG sales volume. The Management has made reference to the
historical average selling price for the period from January to March 2017 and the
government document. These selling prices would be adopted for the 10 years
forecast period. The sales volume is projected based on the annualized CNG sales
volume for the period from January to March 2017 with the average growth rate
of the number of taxi in 2014 and 2015 in Shanxi Province;
— The cost of CNG sales of the Saiguangbo Group was estimated based on the
purchase price per unit and the CNG sales volume. The Management has made
reference to the historical average selling price of the period from January to
March 2017 and government document;
— The revenue from installation income of the Saiguangbo Group was estimated
based on the installation price per user and the number of new users. The
Management has made reference to the historical average selling price of natural
gas furnace, water heater and installation fee income from 2014 to 2016 and
period from January to March 2017 and the government document. The cost was
estimated based on the installation cost per user and the number of new users;
— The operating expenses of Saiguangbo Group were estimated based on the
annualized historical expenses for the period from January to March 2017 with
consideration on the average growth rate of the total sales volume in 2015 and
2016;
— The selling and distribution expenses of Saiguangbo Group were estimated based
on the annualized historical expenses for the period from January to March 2017.
The Management estimated the growth rate for selling and distribution expenses
would be similar with the inflation rate in China;
— The depreciation expense of Saiguangbo Group for the fixed assets and the
forecasted capital expenditure was estimated by straight line depreciation method;
— The income tax expense of Saiguangbo Group was estimated by adopting the
corporate tax rate in China of 25% as advised by the Management;
— The change in working capital of Saiguangbo Group was estimated by considering
the historical working capital turnover days of Saiguangbo Group and the
Management’s expectation;
— Capital expenditure of Saiguangbo Group was estimated based on the capital
expenditure in previous year and the growth rate of capital expenditure in 2016;
and
— The forecast for the Subject Group was projected for 10 years from the date of
valuation with a terminal year to assess the cash flow beyond the 10-year period.
LETTER FROM THE BOARD
– 30 –
Other assumptions:
— The valuation was primarily based on the financial projections and latest audited
financial statements of the Saiguangbo Group as at 31 March 2017 as provided by
the Management. The projections outlined in the financial information provided
were assumed to be reasonable, reflecting market conditions and economic
fundamentals, and will be materialised;
— With reference to a shareholder’s agreement provided by the Management, the
amount due to shareholders would be repaid on 1 November 2038, the expiry date
of the exclusive operating right of Yongji Minsheng;
— The Saiguangbo Group will commence operation as planned by the Management;
— As advised by the Management, the exclusive operating rights for Shanxi
Minsheng and Yongji Minsheng could be renewed upon expiry;
— All relevant legal approvals and business certificates or licenses to operate the
business in the localities in which the Saiguangbo Group operate or intend to
operate would be officially obtained and renewable upon expiry;
— There will be sufficient supply of technical staff in the industry in which the
Saiguangbo Group operate, and the Saiguangbo Group will retain competent
management, key personnel and technical staff to support its ongoing operations
and developments;
— There will be no major change in the current taxation laws in the localities in
which the Saiguangbo Group operate or intend to operate and that the rates of tax
payable shall remain unchanged and that all applicable laws and regulations will
be complied with;
— There will be no major change in the political, legal, economic or financial
conditions in the localities in which the Saiguangbo Group operate or intend to
operate, which would adversely affect the revenues attributable to and
profitability of the Saiguangbo Group; and
— Interest rates and exchange rates in the localities for the operation of the
Saiguangbo Group will not differ materially from those presently prevailing.
Pursuant to Rule 14.62 of the Listing Rules, the Board has reviewed the principal
assumptions upon which the Valuation Report is based and is of the view that the profit
forecast has been made after due and careful enquiry.
Please refer to Appendix VA for the reports from the Reporting Accountants and the
Financial Adviser pursuant to Rule 14.62 of the Listing Rules.
LETTER FROM THE BOARD
– 31 –
LISTING RULES IMPLICATIONS
As certain of the applicable percentage ratios calculated pursuant to Rule 14.07 of the
Listing Rules in respect of the Acquisition are above 25% but less than 100%, the
Acquisition constitutes a major transaction of the Company and is therefore subject to the
reporting, announcement, circular and Shareholders’ approval requirements under Chapter
14 of the Listing Rules. Accordingly, the Company will seek Shareholders’ approval at the
SGM by way of poll for the Acquisition Agreement and the transactions contemplated
therein.
To the best of the knowledge, information and belief of the Directors having made all
reasonable enquiries, no Shareholders or any of their respective associates have any
material interest in the Acquisition. As such, no Shareholder is required to abstain from
voting under the Listing Rules on the resolutions to be proposed at the SGM.
SGM
A notice of the SGM is set out on pages SGM-1 to SGM-3 of this circular. The SGM
will be convened and held at Level 9, Central Building, 1–3 Pedder Street, Central, Hong
Kong on Tuesday, 17 October 2017 at 11 : 00 a.m., at which, the relevant resolutions will be
proposed to the Shareholders to consider and, if thought fit, to approve, among others, the
Acquisition and the transactions contemplated therein.
VOTING BY POLL
Pursuant to Rule 13.39(4) of the Listing Rules, the relevant resolutions to be approved
in respect of the Acquisition and the transactions contemplated therein at the SGM will be
taken by way of poll.
Hong Kong
Shareholders (whether or not able to attend the SGM) are requested to complete and
return the enclosed Hong Kong proxy form in accordance with the instructions printed
thereon and deposit with the Hong Kong branch share registrar, Tricor Investor Services
Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as
soon as possible but in any event not less than 48 hours before the time appointed for the
holding of the SGM or any adjourned meeting thereof (as the case may be). Completion and
return of the form of proxy will not preclude Shareholders from attending and voting in
person at the SGM or any adjourned meeting thereof (as the case may be) should they elect
to do so. Please note that this paragraph is only applicable to Shareholders whose Shares are
registered in the branch register of members in Hong Kong.
Singapore
Any Shareholder, Depositor or proxy who wishes to attend, speak and vote at the
SGM may do so via video conferencing at Level 30, Singapore Land Tower, 50 Raffles
Place, Singapore 048623.
LETTER FROM THE BOARD
– 32 –
If a Shareholder is unable to attend the SGM and wishes to appoint a proxy to attend
and vote on his behalf, he should complete, sign and return the attached Singapore proxy
form in accordance with the instructions printed thereon as soon as possible and, in any
event, so as to reach the office of the Company’s share transfer agent in Singapore,
Boardroom Corporate & Advisory Services Pte. Ltd., at 50 Raffles Place, #32–01 Singapore
Land Tower, Singapore 048623, not less than 48 hours before the time fixed for the SGM.
The completion and return of the Singapore proxy form by a Shareholder will not prevent
him from attending and voting at the SGM in person if he so wishes, and in such event the
Singapore proxy form submitted bearing his name shall be deemed to be revoked. Please
note that this paragraph is only applicable to Shareholders who do not hold Shares through an
account with the CDP (i.e. who hold Shares in scrip).
Under the Bermuda Companies Act, only a person who agrees to become a shareholder
of a Bermuda company and whose name is entered in the register of members of such a
Bermuda company is considered a member with rights to attend and vote at general
meetings of such company.
Accordingly, under Bermuda laws, a Depositor holding Shares through the CDP
would not be recognised as a shareholder of the Company, and would not have the right to
attend and vote at general meetings convened by the Company. In the event that a
Depositor wishes to attend and vote at the SGM, the Depositor would have to do so
through the CDP appointing him as a proxy, pursuant to the Bye-laws of the Company and
he Bermuda Companies Act.
Pursuant to Bye-law 77 of the Company’s Bye-laws, unless the CDP specifies otherwise
in a written notice to the Company, the CDP shall be deemed to have appointed the
Depositors who are individuals and whose names are shown in the records of the CDP as at
a time not earlier than forty-eight (48) hours prior to the time of the relevant general
meeting supplied by the CDP to the Company as the CDP’s proxies to vote on behalf of the
CDP at a general meeting of the Company. Notwithstanding any other provisions in the
Bye-laws, the appointment of proxies by virtue of Bye-law 77 shall not require an
instrument of proxy or the lodgement of any instrument of proxy.
Accordingly, Depositors (other than Depositors which are corporations) whose names
are listed in the Depository Register as at 48 hours before the time of the SGM may attend
and vote as the CDP’s proxies at the SGM without having to complete or return any form
of proxy. A Depositor which is a corporation and who wishes to attend and vote at the
SGM must complete and return the attached Depositor proxy form, for the nomination of
person(s) to attend and vote at the SGM on its behalf as CDP’s proxy, in accordance with
the instructions printed thereon as soon as possible and, in any event, so as to reach the
office of the Company’s share transfer agent in Singapore, Boardroom Corporate &
Advisory Services Pte. Ltd., at 50 Raffles Place, #32–01 Singapore Land Tower, Singapore
048623, not less than 48 hours before the time fixed for the SGM.
If an individual Depositor is unable to attend the SGM personally and wishes to
appoint nominee(s) to attend the meeting and vote on his behalf, he must complete, sign and
return the attached Depositor proxy form attached to this circular in accordance with the
LETTER FROM THE BOARD
– 33 –
instructions printed thereon as soon as possible and, in any event, so as to reach the office
of the Company’s Share Transfer Agent in Singapore, Boardroom Corporate & Advisory
Services Pte. Ltd., at 50 Raffles Place, #32–01 Singapore Land Tower, Singapore 048623,
not less than 48 hours before the time fixed for the SGM. The completion and return of the
Depositor proxy form by a Depositor (who is an individual) will not prevent him from
attending and voting in person at the SGM as a proxy of CDP if he subsequently wishes to
do so, and in which event the Depositor proxy form submitted bearing his name shall be
deemed to be revoked.
The results of the SGM will be published after the conclusion of the SGM on the
websites of the Stock Exchange, the SGXNET and the Company.
RECOMMENDATION
The Board considers that the Acquisition Agreement was entered into on normal
commercial terms after arm’s length negotiations and its terms are fair and reasonable and
in the ordinary and usual course of business of the Group, and are in the interests of the
Company and its Shareholders as a whole. Accordingly, the Board recommends the
Shareholders to vote in favour of the proposed ordinary resolution to approve the
Acquisition Agreement and transactions contemplated thereunder at the SGM.
ADDITIONAL INFORMATION
Your attention is also drawn to the additional information set out in the appendices to
this circular.
Shareholders and potential investors should note that the Completion of the Acquisition is
subject to various Conditions which may or may not be fulfilled. Therefore there is no
assurance that the Acquisition will proceed. Shareholders and potential investors are reminded
to exercise caution when dealing in the Shares.
By order of the Board
Beijing Gas Blue Sky Holdings Limited
Cheng Ming Kit
Co-Chairman
LETTER FROM THE BOARD
– 34 –
A. FINANCIAL INFORMATION OF THE GROUP FOR THE THREE YEARS
ENDED 31 DECEMBER 2016
Financial information of the Group for the six months ended 30 June 2017 and the three
years ended 31 December 2016 is set out on: (i) pages 2 to 23 of the interim result
announcement for the six months ended 30 June 2017 of the Company published on 30 August
2017 (http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0830/LTN201708301562.pdf);
(ii) pages 80 to 200 of the annual report for the year ended 31 December 2016 of the
Company published on 26 April 2017 (http://www.hkexnews.hk/listedco/listconews/SEHK/
2017/0426/LTN20170426977.pdf); (iii) pages 47 to 146 of the annual report for the year ended
31 December 2015 of the Company published on 27 April 2016 (http://www.hkexnews.hk/
listedco/listconews/SEHK/2016/0427/LTN201604271351.pdf); and (iv) pages 43 to
120 of the annual report for the year ended 31 December 2014 of the Company
published on 28 April 2015 (http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0428/
LTN201504281449.pdf), respectively, which are also available on the website of the Stock
Exchange (www.hkexnews.hk), the website of the Company (http://www.bgbluesky.com) and
the website of the SGX-ST (www.sgx.com).
B. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP
For natural gas business, the Group is optimistic about the long term economic
development in the PRC. There are a number of favorable policies launched by the PRC
government which will enhance the development of natural gas industry in the PRC,
including but not limited to (i) urbanisation plan; (ii) the proposal for energy conservation
and environmental protection; and (iii) action plans for eliminating highly polluting coal-
fired boilers and replacing with natural gas-fired boilers among high energy consumption
industries. Therefore, it is expected that there will be escalating demand for natural gas in
the PRC for industrial, transportation and residential uses and the Group will continue to
benefit from the development of the natural gas industry in the PRC.
Looking ahead, the Group will continue to expand its footprints for the natural gas
business in the PRC. The Group will spare no efforts to explore potential merger and
acquisition opportunities, which can enhance the market presence and financial return of
the Group.
Upon Completion, the Enlarged Group will be engaged in the (i) supply of piped gas to
residential households, commercial, public utility and industrial users; and (ii) operation of
7 CNG refueling stations for vehicles in Shanxi Province. The Acquisition will help the
Enlarged Group to become an important player in the PRC city gas sector, which can
increase the revenue streams of the Enlarged Group, thus enhancing its industrial
competitive position and generating more investment value for investors and
shareholders. Also, the Enlarged Group will be benefited from the government’s ‘‘Coal-
to-gas’’ policy which aims to improve the air pollution issue in China.
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
– I-1 –
After review of the principal business operations of the Group, the Board resolved to
gradually consolidate its resources to focus on the natural gas business, which is of expected
high growth potentials. During the year ended 31 December 2016, the printing business was
discontinued as the Group had resolved to dispose it. The disposal of 25% equity interest of
printing business to a third party was completed on 28 October 2016. Subsequently on 26
May 2017, the Company disposed of the remaining 75% equity interest of printing business
to the same party.
C. INDEBTEDNESS STATEMENT OF THE GROUP
The Group
As at the close of business on 31 July 2017, being the latest practicable date prior
to the printing of this circular for the purpose of this indebtedness statement, the
Group had:
a. unsecured and unguaranteed convertible bonds with outstanding carrying
amount of approximately HK$900,619,000;
b. unsecured and unguaranteed corporate bonds with outstanding carrying
amount of HK$350,690,000;
c. unsecured and unguaranteed other borrowing from individual third party
with outstanding carrying amount of HK$87,788,000; and
d. obligation under finance lease of approximately HK$3,389,000 were secured
by certain of the Group’s equipment and motor cars, of which amount of
approximately HK$1,160,000 were guaranteed by the Company or a Director
of the Company and the remaining HK$138,905,000 were unguaranteed.
Save as aforesaid and apart from intra-group liabilities and normal trade
payables, at the close of business on 31 July 2017, the Group did not have any loan
capital issued and outstanding or agreed to be issued, material mortgages, charges,
debentures, loan capital, other debt securities, term loans, bank overdrafts or other
similar indebtedness, finance lease or hire purchase commitments, liabilities under
acceptances (other than normal trade payables) or acceptance credits, guarantees or
other material contingent liabilities.
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
– I-2 –
The Target Group
As at the close of business on 31 July 2017, being the latest practicable date prior
to the printing of this circular for the purpose of this indebtedness statement, the
Target Group had:
a. unsecured and unguaranteed advances from shareholder of the entities
comprising the Target Group of approximately HK$325,987,000;
Save as aforesaid and apart from intra-group liabilities and normal trade
payables, at the close of business on 31 July 2017, the Target Group did not have any
loan capital issued and outstanding or agreed to be issued, material mortgages,
charges, debentures, loan capital, other debt securities, term loans, bank overdrafts or
other similar indebtedness, finance lease or hire purchase commitments, liabilities
under acceptances (other than normal trade payables) or acceptance credits,
guarantees or other material contingent liabilities.
D. WORKING CAPITAL
The Directors are of the opinion that, after taking into account the Completion and the
present financial resources available to the Enlarged Group, including internally generated
funds, and other available banking and other facilities, the Enlarged Group will have
sufficient working capital to meet its present requirements for at least 12 months from the
date of this circular in the absence of unforeseen circumstances.
E. MATERIAL ADVERSE CHANGE
The Directors are not aware as at the Latest Practicable Date of any material adverse
change in the financial and trading position or prospects of the Group since 31 December
2016, being the date to which the Company’s latest published audited accounts were made
up.
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
– I-3 –
The following is the text of a report on the Top Grand Group, prepared for the purpose of
incorporation in this circular, received from the independent reporting accountants, CHENG &
CHENG LIMITED, Certified Public Accountants, Hong Kong.
ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE
DIRECTOR OF TOP GRAND GLOBAL LIMITED
Introduction
We report on the historical financial information of Top Grand Global Limited (‘‘Top
Grand’’) and its subsidiaries (together with Top Grand collectively referred to as the ‘‘Top
Grand Group’’) set out on pages IIA-5 to IIA-18, which comprises the consolidated
statements of financial position as at 31 December 2016 and 31 March 2017, and the
consolidated statements of profit or loss and other comprehensive income, the consolidated
statements of changes in equity and the consolidated statements of cash flows from 18
August 2016 (date of incorporation) to 31 December 2016 and for the three months period
ended 31 March 2017 (the ‘‘Relevant Period’’) and a summary of significant accounting
policies and other explanatory information (together, the ‘‘Historical Financial
Information’’). The Historical Financial Information set out on pages IIA-5 to IIA-18
forms an integral part of this report, which has been prepared for inclusion in the circular of
Beijing Gas Blue Sky Holdings Limited (the ‘‘Company’’) dated 25 September 2017 in
connection with the major transaction in relation to the proposed acquisition of 100% of
the issued share capital of Top Grand Global Limited (the ‘‘Acquisition’’).
Director’s responsibility for the Historical Financial Information
The director of Top Grand is responsible for the preparation of Historical Financial
Information that gives a true and fair view in accordance with the basis of preparation and
presentation set out in note 1 to the Historical Financial Information, and for such internal
control as the director of Top Grand determine is necessary to enable the preparation of
Historical Financial Information that is free from material misstatement, whether due to
fraud or error.
Reporting accountants’ responsibility
Our responsibility is to express an opinion on the Historical Financial Information and
to report our opinion to you. We conducted our work in accordance with Hong Kong
Standard on Investment Circular Reporting Engagements 200 ‘‘Accountants’ Reports on
Historical Financial Information in Investment Circulars’’ issued by the Hong Kong
Institute of Certified Public Accountants (‘‘HKICPA’’). This standard requires that we
comply with ethical standards and plan and perform our work to obtain reasonable
assurance about whether the Historical Financial Information is free from material
misstatement.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-1 –
Our work involved performing procedures to obtain evidence about the amounts and
disclosures in the Historical Financial Information. The procedures selected depend on the
reporting accountants’ judgement, including the assessment of risks of material
misstatement of the Historical Financial Information, whether due to fraud or error. In
making those risk assessments, the reporting accountants consider internal control relevant
to the entity’s preparation of Historical Financial Information that gives a true and fair
view in accordance with the basis of preparation and presentation set out in Note 1 to the
Historical Financial Information in order to design procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. Our work also included evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the
director of Top Grand, as well as evaluating the overall presentation of the Historical
Information.
We believe that the evidence we have obtained is sufficient and appropriate to provide
a basis of our opinion.
Opinion
In our opinion the Historical Financial Information gives, for the purpose of the
accountants’ report, a true an fair view of the Top Grand Group’s financial position as at
31 December 2016 and 31 March 2017 and of the Top Grand Group’s financial performance
and cash flows for the Relevant Periods in accordance with the basis of preparation and
presentation set out in Note 1 to the Historical Financial Information.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-2 –
REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF
SECURITIES ON THE STOCK EXCHANGE AND THE COMPANIES (WINDING UP
AND MISCELLANEOUS PROVISION) ORDINANCE
Adjustments
The Historical Financial Information is stated after making such adjustments to the
Historical Financial Statements as defined on page IIA-4 as were considered necessary.
Dividends
We refer to Note 5 to the Historical Financial Information which states that no
dividends have been paid by Top Grand in respect of the Relevant Period.
No historical financial statements for Top Grand
No financial statements have been prepared for Top Grand since its date of
incorporation.
CHENG & CHENG LIMITED
Certified Public Accountants
Hong Kong
25 September 2017
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-3 –
Preparation of Historical Financial Information
Set out below is the Historical Financial Information which forms an integral part of
this accountants’ report.
The Historical Financial Information in this report was prepared based on previously
management accounts of Top Grand Group for the Relevant Period (‘‘Historical Financial
Statements’’).
The Historical Financial Information is presented in Hong Kong dollars, except when
otherwise indicated.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-4 –
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
18.8.2016 to
31.12.2016
1.1.2017 to
31.3.2017
NOTE HKD HKD
Revenue — —
Administrative expenses
Auditor’s remuneration — —
Bank charges (564) (22)
Director’s remuneration — —
Other staff costs — —
Other administrative expenses (30,681) —
Loss before taxation (31,245) (22)
Taxation 4 — —
Loss and total comprehensive expense for the period (31,245) (22)
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-5 –
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at
31.12.2016
As at
31.3.2017
NOTES HKD HKD
Current assets
Amount due from a shareholder 8 8 8
Bank balances and cash 7 102,632 102,610
102,640 102,618
Current liabilities
Accruals 16,627 16,627
Amount due to a director 8 117,250 117,250
133,877 133,877
Net current liabilities (31,237) (31,259)
Capital and reserve
Share capital 9 8 8
Accumulated losses (31,245) (31,267)
Total equity (31,237) (31,259)
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-6 –
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Paid-up
capital
Accumulated
losses Total equity
HKD HKD HKD
Issue of shares upon incorporation 8 — 8
Loss and total comprehensive expense
for the period — (31,245) (31,245)
At 31 December 2016 8 (31,245) (31,237)
Loss and total comprehensive expense
for the period — (22) (22)
At 31 March 2017 8 (31,267) (31,259)
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-7 –
CONSOLIDATED STATEMENTS OF CASH FLOWS
18.8.2016 to
31.12.2016
1.1.2017 to
31.3.2017
HKD HKD
OPERATING ACTIVITIES
Loss before taxation (31,245) (22)
Operating cash flows before movements in working capital (31,245) (22)
Increase in other payables 16,627 —
NET CASH USED IN OPERATING ACTIVITIES (14,618) (22)
NET CASH FROM FINANCING ACTIVITIES
Advance from a director 117,250 —
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 102,632 (22)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD — 102,632
CASH AND CASH EQUIVALENTS AT THE END OF THE
PERIOD
represented by bank balances and cash 102,632 102,610
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-8 –
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
1. GENERAL INFORMATION
Top Grand was incorporated in the British Virgin Islands with limited liability on 18 August 2016.
The addresses of the registered office and the principal place of business of Top Grand is P.O. Box 957,
Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.
The Company acts as investment holding company. The principal activities of its subsidiaries are set out in
note 10.
The Historical Financial Information is presented in Hong Kong dollars (‘‘HKD’’), which is same as the
functional currency of Top Grand.
2. APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (‘‘IFRSs’’)
For the purpose of preparing and presenting the Historical Financial Information for the Track Record
Period, Top Grand Group has consistently applied IFRSs which are effective for Top Grand Group’s annual
accounting periods beginning on 1 January 2017 consistently throughout the Relevant Period.
The Top Grand Group has not early applied the following new and amendments to IFRSs that have been
issued but are not yet effective:
IFRS 9 Financial instruments2
IFRS 15 Revenue from contracts with customers and the related
amendments2
IFRS 16 Leases3
Amendments to IFRS 2 Classification and measurements of share-based payment
transactions2
Amendments to IFRS 4 Applying IFRS 9 Financial instruments with IFRS 4 Insurance
contract2
Amendments to IAS 7 Disclosure initiative1
Amendments to IAS 12 Recognition of deferred tax assets for unrealised losses1
Amendments to IAS 40 Transfers of investment property2
Amendments to IFRS 10 and
IAS 28
Sale or contribution of assets between an investor and its associate
or joint venture4
Amendments to IFRSs Annual improvements to IFRSs 2014–2016 cycle5
IFRIC 22 Foreign currency transactions and advance consideration2
1 Effective for annual periods beginning on or after 1 January 2017.2 Effective for annual periods beginning on or after 1 January 2018.3 Effective for annual periods beginning on or after 1 January 2019.4 Effective for annual periods beginning on or after a date to be determined.5 Effective for annual periods beginning on or after 1 January 2017 or 1 January 2018, as appropriate.
In the opinion of the director of Top Grand, the application of the new and amendments to IFRSs issued
but not yet effective is not expected to have a material impact on the results and the financial position of the Top
Grand Group.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-9 –
3. SIGNIFICANT ACCOUNTING POLICIES
The Historical Financial Information has been prepared on the historical cost basis and in accordance
with the following accounting policies which conform to IFRSs. In addition, the Historical Financial
Information includes the applicable disclosures required by the Rules Governing the Listing of Securities on the
Stock Exchange and by the Hong Kong Companies Ordinance.
Historical cost is generally based on the fair value of the consideration given in exchange for goods.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date, regardless of whether that price is directly
observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability,
the Top Grand Group takes into account the characteristics of the asset or liability if market participants would
take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for
measurement and/or disclosure purposes in this Historical Financial Information is determined on such a basis,
except for share-based payment transactions that are within the scope of IFRS 2 ‘‘Share-based payment’’,
leasing transactions that are within the scope of International Accounting Standards (‘‘IAS’’) 17 ‘‘Leases’’, and
measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS
2 ‘‘Inventories’’ or value in use in IAS 36 ‘‘Impairment of assets’’.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3
based on the degree to which the inputs to the fair value measurements are observable and the significance of the
inputs to the fair value measurement in its entirety, which are described as follows:
. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that
the entity can access at the measurement date;
. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for
the asset or liability, either directly or indirectly; and
. Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies adopted are set out below.
Basis of consolidation
The Historical Financial Information incorporates the financial statements of Top Grand and
entities controlled by Top Grand and its subsidiaries. Control is achieved when Top Grand:
. has power over the investee;
. is exposed, or has rights, to variable returns from its involvement with the investee; and
. has the ability to use its power to affect its returns.
The Top Grand Group reassesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Top Grand Group obtains control over the
subsidiary and ceases when the Top Grand Group loses control of the subsidiary. Specifically, income and
expenses of a subsidiary acquired or disposed of during the year are included in the combined statement of
profit or loss and other comprehensive income from the date the Top Grand Group gains control until the
date when the Top Grand Group ceases to control the subsidiary.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-10 –
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with the Top Grand Group’s accounting policies.
All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Top Grand Group are eliminated in full on consolidation.
Financial instruments
Financial assets and financial liabilities are recognised on the consolidated statement of financial
position when a group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that
are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to
or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition.
Financial assets
The Top Grand Group’s financial assets are loans and receivables. The classification depends on the
nature and purpose of the financial assets and is determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and
of allocating interest income over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash receipts (including all fees paid or received that form an integral part of
the effective interest rate, transaction costs and other premiums or discounts) through the expected life of
the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Interest income is recognised on an effective interest basis for debt instruments.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including
bank balances and cash and amount due from a shareholder) are measured at amortised cost using the
effective interest method, less any identified impairment (see accounting policy on impairment of financial
assets below).
Impairment of loans and receivables
Loans and receivables are assessed for indicators of impairment at the end of each reporting period.
Loans and receivables are considered to be impaired where there is objective evidence that, as a result of
one or more events that occurred after the initial recognition of the loans and receivables, the estimated
future cash flows of the loans and receivables have been affected.
Objective evidence of impairment could include:
. significant financial difficulty of the issuer or counterparty; or
. default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-11 –
The amount of the impairment loss recognised is the difference between the asset’s carrying amount
and the present value of the estimated future cash flows discounted at the financial asset’s original
effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial
assets.
If, in a subsequent period, the amount of 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 through profit or loss to the extent that the carrying amount of the asset at the
date the impairment is reversed does not exceed what the amortised cost would have been had the
impairment not been recognised.
Financial liabilities and equity instruments
Debt and equity instruments issued by a group entity are classified as either financial liabilities or as
equity in accordance with the substance of the contractual arrangements and the definitions of a financial
liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the group entities are recognised at the
proceeds received, net of direct issue costs.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments (including all fees paid or received that form an integral
part of the effective interest rate, transaction costs and other premiums or discounts) through the expected
life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Interest expense is recognised on an effective interest basis for debt instruments.
Financial liabilities
The Top Grand Group’s financial liability including amount due to a director is subsequently
measured at amortised cost, using the effective interest method.
Derecognition
The Top Grand Group derecognises a financial asset only when the contractual rights to the cash
flows from the asset expire, or when it transfers the financial assets and substantially all the risks and
rewards of ownerships of the assets to another entity.
On derecognition of a financial asset, the difference between the asset’s carrying amount and the
sum of the consideration received and receivable and the cumulative gain or loss that had been recognized
and the consideration paid and payable is recognized in profit or loss.
The Top Grand Group derecognises financial liabilities when, and only when, the Top Grand
Group’s obligations are discharged, cancelled or expire. The difference between the carrying amount of
the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-12 –
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘‘profit
before taxation’’ as reported in the consolidated statement of profit or loss and other comprehensive
income because of items of income or expense that are taxable or deductible in other years and items that
are never taxable or deductible. The Top Grand Group’s liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by the end of the reporting period.
Income tax expense represents the sum of the tax currently payable and deferred tax. The tax
currently payable is based on taxable profit for the year. Taxable profit differs from ‘‘profit before
taxation’’ as reported in the consolidated statement of profit or loss and other comprehensive income
because of items of income or expense that are taxable or deductible in other years and items that are
never taxable or deductible. The Top Grand Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the end of the reporting period.
Current and deferred tax are recognised in profit or loss.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the corresponding tax base used in the computation
of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is
probable that taxable profits will be available against which those deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial
recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments
in subsidiaries, except where the Top Grand Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments are
only recognised to the extent that it is probable that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have
been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Top Grand Group expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.
For the purposes of measuring deferred tax liabilities or deferred tax assets for investment properties
that are measured using the fair value model, the carrying amounts of such properties are presumed to be
recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the
investment property is depreciable and is held within a business model whose objective is to consume
substantially all of the economic benefits embodied in the investment property over time, rather than
through sale.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-13 –
Current and deferred tax are recognised in profit or loss, except when they relate to items that are
recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax
are also recognised in other comprehensive income or directly in equity respectively.
Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies
other than the functional currency of that entity (foreign currencies) are recognised at the rates of
exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items
denominated in foreign currencies are retranslated at the rates prevailing at that date. 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. Non-monetary items that are measured in
terms of historical cost in a foreign currency are not retranslated.
For the purposes of presenting the consolidated financial statements, the assets and liabilities of Top
Grand Group’s foreign operations are translated into the presentation currency of the Top Grand Group
(i.e. Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and
expenses items are translated at the average exchange rates for the period, unless exchange rates fluctuate
significantly during the period, in which case, the exchange rates at the dates of transactions are used.
Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in
equity under the heading of translation reserve (attributed to non-controlling interests as appropriate).
4. TAXATION
No provision for Hong Kong Profits Tax has been made in the financial statements as the Top Grand
Group does not have any assessable profit for both periods. Hong Kong Profits Tax is provided at 16.5% for
the Relevant Periods.
The taxation for the periods can be reconciled to the loss before taxation as follows:
18.8.2016 to
31.12.2016
1.1.2017 to
31.03.2017
HKD HKD
Loss before taxation (31,245) (22)
Taxation at Hong Kong Profits Tax rate of 16.5% (5,155) (4)
Tax effect of expenses not deductible for tax purpose 5,155 4
Taxation for the period — —
There was no significant unrecognised deferred taxation for the Relevant Periods or at 31 December 2016
and 31 March 2017.
5. DIVIDEND
No dividend have been paid or declared by Top Grand during the Relevant Periods.
6. LOSS PER SHARE
Loss per share information is not presented as its inclusion, for the purpose of the Historical Financial
Information, is not considered meaningful.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-14 –
7. BANK BALANCES AND CASH
As at 31 December 2016 and 31 March 2017, the bank balances carried interest at prevailing market rates.
8. AMOUNTS DUE FROM (TO) A SHAREHOLDER, A DIRECTOR AND A SUBSIDIARY
The amounts are unsecured, interest-free and repayable on demand.
9. SHARE CAPITAL
The share capital at 31 December 2016 and 31 March 2017 represented the issued share capital of Top
Grand.
Top Grand was incorporated in the British Virgin Islands with limited liability on 18 August 2016, with an
authorised share capital of United States Dollar (‘‘USD’’) 50,000 divided into 50,000 shares of USD1 each.
Upon the date of incorporation, 31 December 2016 and 31 March 2017, number of share issued and fully paid is
1 with amount of USD1.
10. INVESTMENTS IN SUBSIDIARIES
As at
31.12.2016
As at
31.3.2017
HKD HKD
Unlisted shares, at cost 1 1
Details of the Top Grand’s subsidiaries as at 31 December 2016 and 31 March 2017 are as follows:
Name of
subsidiaries
Place and date of
incorporation/
establishment
Issued and fully
paid capital/
registered and paid
in capital
Shareholding/equity interest attributable
to the Top Grand Group as at
Principal activities31.12.2016 31.3.2017
As at the
date of
this report
% % %
Directly held:
Jump Corporation
Limited
Hong Kong
7 June 2016
HKD1 100 100 100 Investment holding
Indirectly held:
Shenzhen Benyue
Energy
Company
Limited
The PRC
20 September 2016
HKD100,000 100 100 100 Project investment
consulting,
development of
energy saving and
environmental new
energy technology
Shenzhen Benfu
Energy
Company
Limited
The PRC
22 September 2016
RMB80,000 100 100 100 Project investment
consulting,
development of
energy saving and
environmental new
energy technology
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-15 –
11. RELATED PARTY TRANSACTIONS
During the Relevant Periods, no emoluments had been paid to the director by Top Grand, who is
considered as the key management of Top Grand.
Save as disclosed elsewhere in the Historical Financial Information, the Top Grand Group had no other
transactions with its related parties during the Relevant Periods.
12. CAPITAL RISK MANAGEMENT
The Top Grand Group manages its capital to ensure that entities in the Top Grand Group will be able to
continue as a going concern while maximising the return to shareholders through the optimisation of the debt
and equity balance. The Top Grand Group’s overall strategy remains unchanged throughout the Relevant
Periods.
The capital structure of the Top Grand Group consists of debt balance and equity balance. Equity balance
consists of equity attributable to owners of Top Grand, comprising issued share capital and accumulated losses.
Management of the Top Grand Group review the capital structure on an on-going annual basis. As part of
this review, management of the Top Grand Group consider the cost of capital and the risks associated with each
class of capital. Based on recommendations of management of the Top Grand Group, the Top Grand Group
will balance its overall capital structure through the payment of dividends and the issue of new shares.
13. FINANCIAL INSTRUMENTS
(a) Categories of financial instruments
The Top Grand Group
As at
31.12.2016
As at
31.3.2017
HKD HKD
Financial assets
Loans and receivables (including cash and cash equivalents) 102,640 102,618
Financial liability
Amortised cost 117,250 117,250
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-16 –
(b) Financial risk management objectives and policies
The Top Grand Group’s major financial instruments include amount due from a shareholder, bank
balances and cash and amount due to a director. Details of these financial instruments are disclosed in
respective notes. The risks associated with these financial instruments and the policies on how to mitigate
these risks are set out below.
(i) Credit risk
As at 31 December 2016 and 31 March 2017, the maximum exposure to credit risk of the Top
Grand Group which will cause a financial loss to the Top Grand Group due to failure to discharge
an obligation by the counterparties is arising from the carrying amount of the respective recognised
financial assets as stated in the consolidated statements of financial position.
The credit risk on liquid funds is limited because the counterparties are banks with good
reputation.
The Top Grand Group does not have any other significant concentration of credit risk.
(ii) Liquidity risk
In the management of liquidity risk, the Top Grand Group monitors and maintains a level of
cash and cash equivalents deemed adequate by the management to finance the Top Grand Group’s
operations and mitigates the effects of fluctuations in cash flows.
The Top Grand Group has net current liabilities of HKD31,237 and HKD31,259 as at 31
December 2016 and 31 March 2017, respectively. The director of Top Grand is satisfied that the Top
Grand Group will have sufficient financial resources to meet its financial obligations as they fall due
for the next the twelve months from the date of this report as the immediate holding company of
Top Grand has agreed to provide adequate funds to enable Top Grand Group to meet its financial
obligations as they fall due from the foreseeable future.
As at 31 December 2016 and 31 March 2017, the amount due to a director amount of
HKD117,250 is repayable on demand which also represented the undiscounted cash flows of
financial liabilities based on the earliest date on which the Top Grand Group and Top Grand can be
required to pay.
(c) Fair value of the Top Grand Group’s financial assets and financial liabilities that are measured at
amortised cost.
The management of the Top Grand Group estimates the fair value of its financial assets and
financial liabilities measured at amortised cost using discounted cash flows analysis. The management of
the Top Grand Group considers that the carrying amounts of financial assets and financial liabilities
recorded at amortised cost in the Historical Financial Information approximate their fair values.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-17 –
14. STATEMENTS OF FINANCIAL POSITION
As at
31.12.2016 and
31.3.2017
HKD
Non-current asset
Investment in subsidiaries 1
Current Assets
Amount due from a shareholder 8
Bank balances and cash 102,485
102,493
Current liabilities
Amount due to a director 117,250
Amount due to a subsidiary 1
117,251
Net current liabilities (14,758)
Total assets less current liabilities (14,757)
Capital and reserve
Share capital 8
Accumulated losses (Note) (14,765)
Total equity (14,757)
Note:
HKD
As at the date of incorporation —
Loss and total comprehensive expenses for the period 14,765
At 31 December 2016 and 31 March 2017 14,765
15. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Top Grand or any of its subsidiaries in respect of
any period subsequent to 31 March 2017.
APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP
– IIA-18 –
The following is the text of a report on Yuhai, prepared for the purpose of incorporation
in this circular, received from the independent reporting accountants, CHENG & CHENG
LIMITED, Certified Public Accountants, Hong Kong.
ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE
DIRECTOR OF SHENZHEN YUHAI ENERGY COMPANY LIMITED
Introduction
We report on the historical financial information of Shenzhen Yuhai Energy Company
Limited (‘‘Yuhai’’) set out on pages IIB-5 to IIB-13, which comprises the statements of
financial position as at 31 December 2016 and 31 March 2017, and the statements of profit
or loss and other comprehensive income and the statements of changes in equity from 6
September 2016 (date of establishment) to 31 December 2016 and for the three months
period ended 31 March 2017 (the ‘‘Relevant Period’’) and a summary of significant
accounting policies and other explanatory information (together, the ‘‘Historical Financial
Information’’). The Historical Financial Information set out on pages IIB-5 to IIB-13 forms
an integral part of this report, which has been prepared for inclusion in the circular of
Beijing Gas Blue Sky Holdings Limited (the ‘‘Company’’) dated 25 September 2017 in
connection with the major transaction in relation to the proposed acquisition of 100% of
the issued share capital of Top Grand Global Limited (the ‘‘Acquisition’’).
Director’s responsibility for the Historical Financial Information
The director of Yuhai is responsible for the preparation of Historical Financial
Information that gives a true and fair view in accordance with the basis of preparation and
presentation set out in note 1 to the Historical Financial Information, and for such internal
control as the director of Yuhai determine is necessary to enable the preparation of
Historical Financial Information that is free from material misstatement, whether due to
fraud or error.
Reporting accountants’ responsibility
Our responsibility is to express an opinion on the Historical Financial Information and
to report our opinion to you. We conducted our work in accordance with Hong Kong
Standard on Investment Circular Reporting Engagements 200 ‘‘Accountants’ Reports on
Historical Financial Information in Investment Circulars’’ issued by the Hong Kong
Institute of Certified Public Accountants (‘‘HKICPA’’). This standard requires that we
comply with ethical standards and plan and perform our work to obtain reasonable
assurance about whether the Historical Financial Information is free from material
misstatement.
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-1 –
Our work involved performing procedures to obtain evidence about the amounts and
disclosures in the Historical Financial Information. The procedures selected depend on the
reporting accountants’ judgement, including the assessment of risks of material
misstatement of the Historical Financial Information, whether due to fraud or error. In
making those risk assessments, the reporting accountants consider internal control relevant
to the entity’s preparation of Historical Financial Information that gives a true and fair
view in accordance with the basis of preparation and presentation set out in Note 1 to the
Historical Financial Information in order to design procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. Our work also included evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the
director of Yuhai, as well as evaluating the overall presentation of the Historical
Information.
We believe that the evidence we have obtained is sufficient and appropriate to provide
a basis of our qualified opinion.
Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis for Qualified
Opinion section of our report, the Historical Financial Information gives, for the purpose
of the accountants’ report, a true and fair view of Yuhai’s financial position as at 31
December 2016 and 31 March 2017 and of Yuhai’s financial performance and cash flows for
the Relevant Periods in accordance with the basis of preparation and presentation set out in
Note 1 to the Historical Financial Information.
Basis for Qualified Opinion
As explained in Notes 3 and 9 to the Historical Financial Information, Yuhai has not
prepared consolidated financial statements in accordance with International Financial
Reporting Standard 10 ‘‘Consolidated Financial Statements’’ issued by the IASB and the
Hong Kong Companies Ordinance. In our opinion, there is insufficient information
concerning the subsidiaries in these Historical Financial Information to give a true and fair
view of the financial position of Yuhai and its subsidiaries (collectively referred to as the
‘‘Yuhai Group’’) as at 31 December 2016 and 31 March 2017 and of the Group’s financial
performance and cash flows as a whole for the Relevant Period.
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-2 –
REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF
SECURITIES ON THE STOCK EXCHANGE AND THE COMPANIES (WINDING UP
AND MISCELLANEOUS PROVISION) ORDINANCE
Adjustments
The Historical Financial Information is stated after making such adjustments to the
Historical Financial Statements as defined on page IIB-4 as were considered necessary.
Dividends
We refer to Note 5 to the Historical Financial Information which states that no
dividends have been paid by Yuhai in respect of the Relevant Period.
No historical financial statements for Yuhai
No financial statements have been prepared for Yuhai since its date of establishment.
CHENG & CHENG LIMITED
Certified Public Accountants
Hong Kong
25 September 2017
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-3 –
Preparation of Historical Financial Information
Set out below is the Historical Financial Information which forms an integral part of
this accountants’ report.
The Historical Financial Information in this report was prepared based on previously
management accounts of Yuhai for the Relevant Period (‘‘Historical Financial
Statements’’).
The Historical Financial Information is presented in Hong Kong dollars (‘‘HKD’’),
except when otherwise indicated.
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-4 –
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
6.9.2016 to
31.12.2016
1.1.2017 to
31.3.2017
NOTE HKD HKD
Revenue — —
Administrative expenses
Auditor’s remuneration — —
Bank charges — —
Director’s remuneration — —
Other staff costs — —
Other administrative expenses — —
Loss before taxation — —
Taxation 4 — —
Loss for the period — —
Other comprehensive (expense) income
Items that may be reclassified subsequently to
profit or loss:
Exchange differences arising on translation to
presentation currency (570) 6
Total comprehensive (expense) income for the period (570) 6
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-5 –
STATEMENTS OF FINANCIAL POSITION
As at
31.12.2016
As at
31.3.2017
NOTES HKD HKD
Non-current asset
Investment in subsidiaries 9 5,922,743 5,984,503
Current liability
Amount due to a shareholder 7 5,922,151 5,983,905
Net current liability (5,922,151) (5,983,905)
Net assets 592 598
Capital and reserve
Paid-up capital 8 1,162 1,162
Exchange reserve (570) (564)
Total equity 592 598
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-6 –
STATEMENTS OF CHANGES IN EQUITY
Paid-up
capital
Exchange
reserve Total equity
HKD HKD HKD
Issue of shares upon establishment 1,162 — 1,162
Exchange difference arising on translation — (570) (570)
At 31 December 2016 1,162 (570) 592
Exchange difference arising on translation — 6 6
At 31 March 2017 1,162 (564) (598)
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-7 –
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
1. GENERAL INFORMATION
Yuhai was incorporated in the People’s Republic of China (the ‘‘PRC’’) with limited liability on 6
September 2016.
The address of the registered office and the principal place of business of Yuhai is 9A 1-88, Chegong
Temple Tianxiang Building, Shantou Street, Futian District, Shenzhen, China.
Yuhai acts as investment holding company. The principal activities of its subsidiaries are set out in note 9.
The functional currency of Yuhai is Renminbi (‘‘RMB’’) while the Historical Financial Information is
presented in HKD, which the management of Yuhai considered is more beneficial for the users of the Historical
Financial Information.
2. APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (‘‘IFRSs’’)
For the purpose of preparing and presenting the Historical Financial Information for the Track Record
Period, Yuhai has consistently applied IFRSs which are effective for Yuhai’s annual accounting periods
beginning on 1 January 2017 consistently throughout the Relevant Period.
Yuhai has not early applied the following new and amendments to IFRSs that have been issued but are
not yet effective:
IFRS 9 Financial instruments2
IFRS 15 Revenue from contracts with customers and the related amendments2
IFRS 16 Leases3
Amendments to IFRS 2 Classification and measurements of share-based payment transactions2
Amendments to IFRS 4 Applying IFRS 9 Financial instruments with IFRS 4 Insurance contract2
Amendments to IAS 7 Disclosure initiative1
Amendments to IAS 12 Recognition of deferred tax assets for unrealised losses1
Amendments to IAS 40 Transfers of investment property2
Amendments to IFRS 10 and
IAS 28
Sale or contribution of assets between an investor and its associate or
joint venture4
Amendments to IFRSs Annual improvements to IFRSs 2014–2016 cycle5
IFRIC 22 Foreign currency transactions and advance consideration2
1 Effective for annual periods beginning on or after 1 January 2017.2 Effective for annual periods beginning on or after 1 January 2018.3 Effective for annual periods beginning on or after 1 January 2019.4 Effective for annual periods beginning on or after a date to be determined.5 Effective for annual periods beginning on or after 1 January 2017 or 1 January 2018, as appropriate.
In the opinion of the director of Yuhai, the application of the new and amendments to IFRSs issued but
not yet effective is not expected to have a material impact on the results and the financial position of Yuhai.
3. SIGNIFICANT ACCOUNTING POLICIES
The Historical Financial Information has been prepared on the historical cost basis and in accordance
with the following accounting policies which conform to IFRSs except that consolidated financial statements
have not been prepared in accordance with IFRS 10 ‘‘Consolidated Financial Statements’’. In addition, the
Historical Financial Information includes the applicable disclosures required by the Rules Governing the
Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance.
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-8 –
Historical cost is generally based on the fair value of the consideration given in exchange for goods.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date, regardless of whether that price is directly
observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability,
Yuhai takes into account the characteristics of the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at the measurement date. Fair value for
measurement and/or disclosure purposes in this Historical Financial Information is determined on such a basis,
except for share-based payment transactions that are within the scope of IFRS 2 ‘‘Share-based payment’’,
leasing transactions that are within the scope of International Accounting Standards (‘‘IAS’’) 17 ‘‘Leases’’, and
measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS
2 ‘‘Inventories’’ or value in use in IAS 36 ‘‘Impairment of assets’’.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3
based on the degree to which the inputs to the fair value measurements are observable and the significance of the
inputs to the fair value measurement in its entirety, which are described as follows:
. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that
the entity can access at the measurement date;
. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for
the asset or liability, either directly or indirectly; and
. Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies adopted are set out below.
Investments in subsidiaries
Investments in subsidiaries are included in Yuhai’s statement of financial position at cost, less any
identified impairment loss. The results of the subsidiaries are accounted for by Yuhai on the basis of
dividends received and receivable.
Financial instruments
Financial liability is recognised on the statement of financial position when the entity becomes a
party to the contractual provisions of the instrument.
Financial liability is initially measured at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial liability is added to or deducted from the fair value of the financial
liability, as appropriate, on initial recognition.
Financial liabilities and equity instruments
Debt and equity instruments issued by an entity are classified as either financial liabilities or as
equity in accordance with the substance of the contractual arrangements and the definitions of a financial
liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the entities are recognised at the proceeds
received, net of direct issue costs.
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-9 –
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments (including all fees paid or received that form an integral
part of the effective interest rate, transaction costs and other premiums or discounts) through the expected
life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Interest expense is recognised on an effective interest basis for debt instruments.
Financial liabilities
Yuhai’s financial liability including amount due to a shareholder is subsequently measured at
amortised cost, using the effective interest method.
Derecognition
Yuhai derecognises financial liability when, and only when, Yuhai’s obligations are discharged,
cancelled or expire. The difference between the carrying amount of the financial liability derecognised and
the consideration paid and payable is recognised in profit or loss.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘‘profit
before taxation’’ as reported in the statement of profit or loss and other comprehensive income because of
items of income or expense that are taxable or deductible in other years and items that are never taxable or
deductible. Yuhai’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period.
Income tax expense represents the sum of the tax currently payable and deferred tax. The tax
currently payable is based on taxable profit for the year. Taxable profit differs from ‘‘profit before
taxation’’ as reported in the statement of profit or loss and other comprehensive income because of items
of income or expense that are taxable or deductible in other years and items that are never taxable or
deductible. Yuhai’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period.
Current and deferred tax are recognised in profit or loss.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax base used in the computation of taxable
profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax
assets are generally recognised for all deductible temporary difference to the extent that it is probable that
taxable profits will be available against which those deductible temporary differences can be utilised. Such
assets and liabilities are not recognised if the temporary difference arises from the initial recognition of
other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments
in subsidiaries, except where Yuhai is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets
arising from deductible temporary differences associated with such investments are only recognised to the
extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of
the temporary differences and they are expected to reverse in the foreseeable future.
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-10 –
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have
been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which Yuhai expects, at the end of the reporting period, to recover or settle the
carrying amount of its assets and liabilities.
Current and deferred tax are recognised in profit or loss, except when they relate to items that are
recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax
are also recognised in other comprehensive income or directly in equity respectively.
Foreign currencies
In preparing the financial statements of the entity, transactions in currencies other than the
functional currency of that entity (foreign currencies) are recognised at the rates of exchanges prevailing
on the dates of the transactions. At the end of the reporting period, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at that date. 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. Non-monetary items that are measured in terms of historical cost in a
foreign currency are not retranslated.
4. TAXATION
Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of
the EIT Law, the tax rate applied to Yuhai is 25% for the Relevant Periods. No provision for EIT has been
made in the financial statements as Yuhai does not have any assessable profit for the period.
There was no significant unrecognised deferred taxation for the Relevant Periods or at 31 December 2016
and 31 March 2017.
5. DIVIDEND
No dividend have been paid or declared by Yuhai during the Relevant Periods.
6. LOSS PER SHARE
Loss per share information is not presented as its inclusion, for the purpose of the Historical Financial
Information, is not considered meaningful.
7. AMOUNT DUE TO A SHAREHOLDER
The amount is unsecured, interest-free and repayable on demand.
8. PAID-UP CAPITAL
The paid-up capital at 31 December 2016 and 31 March 2017 represented the paid-up share capital of
Yuhai.
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-11 –
9. INVESTMENTS IN SUBSIDIARIES
As at
31.12.2016
As at
31.3.2017
HKD HKD
Unlisted shares, at cost 5,922,743 5,984,503
Details of the Company’s subsidiaries as at 31 December 2016 and 31 March 2017 are as follows:
Name of
subsidiaries
Place and date of
establishment
Registered and
paid-up capital
Shareholding/equity interest
attributable to Yuhai as at
Principal activities31.12.2016 31.3.2017
As at the
date of
this report
% % %
Directly held:
Chongqing
Saiguangbo
Technology
Co. Limited
The PRC
7 February 2002
RMB10,400,000 51 51 51 Investment holding
Indirectly held:
Shanxi Minsheng
Natural Gas
Company
Limited
The PRC
21 April 2006
RMB80,000,000 51 51 51 Sales and distribution
of CNG through
refueling station
for vehicles
Yongji Minsheng
Natural Gas
Company
Limited
The PRC
17 October 2008
RMB60,000,000 51 51 51 Sales and distribution
of CNG through
refueling station
for vessels
For the purpose of the Historical Financial Information, consolidated financial statements have not been
prepared in accordance with IFRS 10 ‘‘Consolidated Financial Statements’’ as the director considers that this
would involve expense and delay out of proportion to the value to the shareholders of Yuhai.
10. RELATED PARTY TRANSACTIONS
During the Relevant Periods, no emoluments had been paid to the director by Yuhai, who is considered as
the key management of Yuhai.
Save as disclosed elsewhere in the Historical Financial Information, Yuhai had no other transactions with
its related parties during the Relevant Periods.
11. CAPITAL RISK MANAGEMENT
Yuhai manages its capital to ensure that entities in Yuhai will be able to continue as a going concern while
maximising the return to shareholders through the optimisation of the debt and equity balance. Yuhai’s overall
strategy remains unchanged throughout the Relevant Periods.
The capital structure of Yuhai consists of debt balance and equity balance. Equity balance consists of
equity attributable to owners of Yuhai, comprising issued paid-up capital and exchange reserve.
Management of Yuhai review the capital structure on an on-going annual basis. As part of this review,
management of Yuhai consider the cost of capital and the risks associated with each class of capital. Based on
recommendations of management of Yuhai, Yuhai will balance its overall capital structure through the payment
of dividends and the issue of new shares.
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-12 –
12. FINANCIAL INSTRUMENTS
(a) Categories of financial instruments
Yuhai
As at
31.12.2016
As at
31.3.2017
HKD HKD
Financial liability
Amortised costs 5,922,151 5,983,905
(b) Financial risk management objectives and policies
Yuhai’s major financial instruments include amount due to a shareholder. Details of the financial
instrument are disclosed in respective note. The risks associated with the financial instrument and the
policies on how to mitigate these risks are set out below.
(i) Liquidity risk
In the management of liquidity risk, Yuhai monitors and maintains a level of cash and cash
equivalents deemed adequate by the management to finance Yuhai’s operations and mitigates the
effects of fluctuations in cash flows.
Yuhai has net current liability of HKD5,922,151 and HKD5,983,905 as at 31 December 2016
and 31 March 2017, respectively. The director of Yuhai is satisfied that Yuhai will have sufficient
financial resources to meet its financial obligations as they fall due for the next the twelve months
from the date of this report as the immediate holding company of Yuhai has agreed to provide
adequate funds to enable Yuhai to meet its financial obligations as they fall due from the foreseeable
future.
As at 31 December 2016 and 31 March 2017, the amount due to a shareholder amount of
HKD5,992,151 and HKD5,983,905, respectively, are repayable on demand which also represented
the undiscounted cash flows of financial liabilities based on the earliest date on which Yuhai can be
required to pay.
(c) Fair value of Yuhai’s financial liability that is measured at amortised cost.
The management of Yuhai estimates the fair value of its financial liability measured at amortised
cost using discounted cash flows analysis. The management of Yuhai considers that the carrying amounts
of financial liability recorded at amortised cost in the Historical Financial Information approximate its
fair value.
13. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Yuhai in respect of any period subsequent to 31
March 2017.
APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI
– IIB-13 –
The following is the text of a report on the Saiguangbo Group, prepared for the purpose
of incorporation in this circular, received from the independent reporting accountants, Cheng
& Cheng Limited, Certified Public Accountants, Hong Kong.
ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE
DIRECTOR OF CHONGQING SAIGUANGBO TECHNOLOGY COMPANY LIMITED
Introduction
We report on the historical financial information of Chongqing Saiguangbo
Technology Company Limited (‘‘Saiguangbo’’) and its subsidiaries (together with
Saiguangbo collectively referred to as the ‘‘Saiguangbo Group’’) set out on pages IIC-5
to IIC-41, which comprises the consolidated statements of financial position as at 31
December 2014, 31 December 2015, 31 December 2016 and 31 March 2017, and the
consolidated statements of profit or loss and other comprehensive income, the consolidated
statements of changes in equity and the consolidated statements of cash flows the three
years ended 31 December 2016 and for the three-month period ended 31 March 2017 (the
‘‘Relevant Period’’) and a summary of significant accounting policies and other explanatory
information (together, the ‘‘Historical Financial Information’’). The Historical Financial
Information set out on pages IIC-5 to IIC-41 forms an integral part of this report, which
has been prepared for inclusion in the circular of Beijing Gas Blue Sky Holdings Limited
(the ‘‘Company’’) dated 25 September 2017 in connection with the major transaction in
relation to the proposed acquisition of 100% of the issued share capital of Top Grand
Global Limited (the ‘‘Acquisition’’).
Director’s responsibility for the Historical Financial Information
The director of Saiguangbo is responsible for the preparation of Historical Financial
Information that gives a true and fair view in accordance with the basis of preparation and
presentation set out in note 1 to the Historical Financial Information, and for such internal
control as the director of Saiguangbo determine is necessary to enable the preparation of
Historical Financial Information that is free from material misstatement, whether due to
fraud or error.
Reporting accountants’ responsibility
Our responsibility is to express an opinion on the Historical Financial Information and
to report our opinion to you. We conducted our work in accordance with Hong Kong
Standard on Investment Circular Reporting Engagements 200 ‘‘Accountants’ Reports on
Historical Financial Information in Investment Circulars’’ issued by the Hong Kong
Institute of Certified Public Accountants (‘‘HKICPA’’). This standard requires that we
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-1 –
comply with ethical standards and plan and perform our work to obtain reasonable
assurance about whether the Historical Financial Information is free from material
misstatement.
Our work involved performing procedures to obtain evidence about the amounts and
disclosures in the Historical Financial Information. The procedures selected depend on the
reporting accountants judgement, including the assessment of risks of material
misstatement of the Historical Financial Information, whether due to fraud or error. In
making those risk assessments, the reporting accountants consider internal control relevant
to the entity’s preparation of Historical Financial Information that gives a true and fair
view in accordance with the basis of preparation and presentation set out in Note 1 to the
Historical Financial Information in order to design procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. Our work also included evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the
director of Saiguangbo, as well as evaluating the overall presentation of the Historical
Financial Information.
We believe that the evidence we have obtained is sufficient and appropriate to provide
a basis of our opinion.
Opinion
In our opinion the Historical Financial Information gives, for the purpose of the
accountants’ report, a true an fair view of the Saiguangbo Group’s financial position as at
31 December 2014, 31 December 2015, 31 December 2016 and 31 March 2017 and of the
Saiguangbo Group’s financial performance and cash flows for the Relevant Periods in
accordance with the basis of preparation and presentation set out in Note 1 to the
Historical Financial Information.
Review of stub period comparative financial information
We have reviewed the stub period comparative financial information of the
Saiguangbo Group which comprises the consolidated statement of profit or loss and
other comprehensive income, the consolidated statement of changes in equity and the
consolidated statement of cash flows for three months period ended 30 March 2016 and
other explanatory information (the ‘‘Stub Period Comparative Financial Information’’).
The director of Saiguangbo is responsible for the preparation and presentation of the Stub
Period Comparative Financial Information in accordance with the basis of preparation and
presentation set out in Note 1 to the Historical Financial Information. Our responsibility is
to express a conclusion on the Stub Period Comparative Financial Information based on
our review. We conducted our review 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. A review consists of making
inquiries, primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially less in scope than
an audit conducted in accordance with Hong Kong Standard on Auditing and consequently
does not enable us to obtain assurance that we would become aware of all significant
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-2 –
matters that might be identified in an audit. Accordingly, we do not express an audit
opinion. Based on our review, nothing has come to our attention that causes us to believe
that the Stub Period Comparative Financial Information, for purposes of the accountants’
report, is not prepared, in all material respects, in accordance with the basis of preparation
and presentation set out in Note 1 to the Historical Financial Information.
REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF
SECURITIES ON THE STOCK EXCHANGE AND THE COMPANIES (WINDING UP
AND MISCELLANEOUS PROVISION) ORDINANCE
Adjustments
In preparing the Historical Financial Information no adjustments to the Underlying
Financial Statements as defined on pages IIC-4 have been made.
Dividends
We refer to Note 12 to the Historical Financial Information which states that no
dividend has been paid by the Saiguangbo in respect of the Relevant Period.
No historical financial statements for Saiguangbo
No financial statements have been prepared for Saiguangbo since its date of
establishment.
CHENG & CHENG LIMITED
Certified Public Accountants
Hong Kong
25 September 2017
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-3 –
Preparation of Historical Financial Information
Set out below is the Historical Financial Information which forms an integral part of
this accountants’ report.
The consolidated financial statements of Saiguangbo Group for the Relevant Periods,
on which the Historical Financial Information is based, have been prepared in accordance
with the accounting policies which conform with International Financial Reporting
Standards which issued by International Accounting Standard Board (‘‘IASB’’) and were
audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA
(the ‘‘Underlying Financial Statements’’).
The Historical Financial Information is presented in Hong Kong dollars (‘‘HKD’’) and
all values are rounded to the nearest thousand (HKD’000) except when otherwise indicated.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-4 –
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
NOTES HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
Revenue 5 406,666 382,013 338,564 84,641 130,750
Cost of sales (341,123) (337,642) (292,571) (73,143) (103,734)
Gross profit 65,543 44,371 45,993 11,498 27,016
Other income 7 489 736 720 16 187
Other gains and losses 7 (70) 1,779 1,681 218 (2,575)
Distribution and selling
expenses (5,302) (5,863) (5,000) (1,250) (345)
Administrative expenses (27,401) (24,423) (30,454) (4,865) (20,431)
Finance cost 8 — (626) (425) (340) —
Profit before taxation 9 33,259 16,154 12,515 5,277 3,852
Income tax expense 10 (8,671) (5,005) (2,152) (538) (665)
Profit for the year 24,588 11,149 10,363 4,739 3,187
Other comprehensive (expense)
income
Items that may be reclassified
subsequently to profit or
loss:
Exchange differences
arising on translation to
presentation currency (121) (4,302) (6,621) 879 1,047
Total comprehensive income for
the year 24,467 6,847 3,742 5,618 4,234
Profit for the year attribute to
Owner of Saiguangbo 18,983 11,371 9,768 3,975 3,187
Non-controlling interests 5,605 (222) 595 764 —
24,588 11,149 10,363 4,739 3,187
Total comprehensive income for
the year attribute to
Owner of Saiguangbo 18,981 9,143 3,769 4,902 4,234
Non-controlling interests 5,486 (2,296) (27) 716 —
24,467 6,847 3,742 5,618 4,234
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-5 –
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at 31 December
As at
31 March
2014 2015 2016 2017
NOTES HKD’000 HKD’000 HKD’000 HKD’000
Non-current assets
Property, plant and equipment 13 437,418 403,102 366,963 364,601
Prepaid lease payments 14 49,245 44,238 40,563 40,572
486,663 447,340 407,526 405,173
Current assets
Inventories 15 8,404 6,292 7,314 5,759
Prepaid lease payments 14 1,189 1,124 1,051 1,062
Trade and other receivables 16 120,277 96,382 89,904 94,813
Amounts due from customers for contract
work 17 128,762 62,339 33,636 48,408
Amounts due from related companies 20 5,429 1,192 13,761 16,161
Bank balances and cash 18 9,517 22,583 44,276 33,562
273,578 189,912 189,942 199,765
Current liabilities
Trade and other payables 19 157,664 142,106 124,960 115,060
Amount due to customers for contract
work 17 27,879 25,599 33,304 42,985
Amount due to a shareholder 20 442,929 324,273 326,613 329,931
Amount due to related companies 20 62,554 12,956 — —
Bank borrowing 21 — 23,870 — —
Tax payable 8,285 3,332 3,071 3,603
699,311 532,136 487,948 491,579
Net current liabilities (425,733) (342,224) (298,006) (291,814)
Net assets 60,930 105,116 109,520 113,359
Capital and reserves
Paid-up capital 22 28,525 48,820 9,801 9,801
Reserves 3,932 13,546 99,719 103,558
Equity to the owner of Saiguangbo 32,457 62,366 109,520 113,359
Non-controlling interests 28,473 42,750 — —
Total equity 60,930 105,116 109,520 113,359
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-6 –
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to owners of the Company
Paid-up
capital
Other
reserves
Exchange
reserve
Statutory
reserve
(Accumulated
loss) retained
profits Total
Non-
controlling
interest Total
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000(Notes)
At 1 January 2014 28,525 1,169 4,712 3,976 (25,795) 12,587 22,804 35,391
Profit for the year — — — — 18,983 18,983 5,605 24,588Exchange differences arising on
translation — — (2) — — (2) (119) (121)
Total comprehensive (expense) incomefor the year — — (2) — 18,983 18,981 5,486 24,467
Appropriations — — — 2,459 (2,459) — — —Transfer to other reserve — 889 — — — 889 183 1,072
At 31 December 2014 28,525 2,058 4,710 6,435 (9,271) 32,457 28,473 60,930
Profit for the year — — — — 11,371 11,371 (222) 11,149Exchange differences arising on
translation — — (2,228) — — (2,228) (2,074) (4,302)
Total comprehensive (expense) incomefor the year — — (2,228) — 11,371 9,143 (2,296) 6,847
Issue of shares 20,295 — — — — 20,295 16,605 36,900Appropriations — — — 1,497 (1,497) — — —Transfer to other reserve — 471 — — — 471 (32) 439
At 31 December 2015 48,820 2,529 2,482 7,932 603 62,366 42,750 105,116
Profit for the year — — — — 9,768 9,768 595 10,363Exchange differences arising on
translation — — (5,999) — — (5,999) (622) (6,621)
Total comprehensive (expense) incomefor the year — — (5,999) — 9,768 3,769 (27) 3,742
Transfer of equity interests from non-controlling interest (39,019) 81,742 — — — 42,723 (42,723) —
Appropriations — — — 1,037 (1,037) — — —Transfer to other reserve — 662 — — — 662 — 662
At 31 December 2016 9,801 84,933 (3,517) 8,969 9,334 109,520 — 109,520
Profit for the period — — — — 3,187 3,187 — 3,187Exchange differences arising on
translation — — 1,047 — — 1,047 — 1,047
Total comprehensive income for theperiod — — 1,047 — 3,187 4,234 — 4,234
Utilisation of other reserve — (395) — — — (395) — (395)
At 31 March 2017 9,801 84,538 (2,470) 8,969 12,521 113,359 — 113,359
At 1 January 2016 48,820 2,529 2,482 7,932 603 62,366 42,750 105,116
Profit for the period — — — — 3,975 3,975 764 4,739Exchange differences arising on
translation — — 927 — — 927 (48) 879
Total comprehensive income for theperiod — — 927 — 3,975 4,902 716 5,618
Transfer of equity interests from non-controlling interest (39,019) 72,727 — — — 33,708 (33,708) —
At 31 March 2016 (unaudited) 9,801 75,256 3,409 7,932 4,578 100,976 9,758 110,734
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-7 –
Notes:
(i) The amount comprises the difference between the consideration and paid-up capital of entities transferred
as set out in the Note 1 to the Historical Financial Information and the safety reserve in accordance with
the People’s Republic of China (the ‘‘PRC’’) rules and regulations.
(ii) As stipulated by the relevant laws in the PRC, the PRC subsidiaries are required to maintain a statutory
reserve fund. The minimum transfer to statutory reserve is 10% of profit after tax of the PRC subsidiaries
according to the PRC subsidiaries’ statutory financial statements. No appropriation is required if the
balance of the statutory reserve has reached 50% of the registered capital of the PRC subsidiaries. The
statutory reserves can be used to make up losses or for conversion into capital.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-8 –
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
OPERATING ACTIVITIES
Profit before taxation 33,259 16,154 12,515 5,277 3,852
Adjustments for:
Finance costs — 626 425 340 —
Interest income (44) (53) (74) (16) (31)
Depreciation of property, plant and
equipment 35,801 38,244 38,043 9,510 8,512
Reversal of social securities expense
provided — (3,047) (3,319) (165) —
Loss on disposal of property, plant and
equipment 2 — — — —
Witten off of property, plant and
equipment 30,355 — — — —
Impairment loss recognised in respect of
trade receivables 77 1,435 1,626 — 2,917
Impairment loss recognised in respect of
other receivables 368 123 — — —
Transfer to (utilisation of) other reserve 1,072 439 662 — (395)
Amortisation of prepaid lease payment 2,023 2,358 1,344 318 436
Operating cash flows before movements in
working capital 102,914 56,279 51,011 15,429 12,374
Decrease (increase) in inventories 430 1,649 (1,430) (60) 1,635
(Increase) decrease in trade and other
receivables (8,497) 39,857 (1,401) (12,332) (6,841)
(Increase) decrease in amount due from
customer for contract work (23,088) 34,879 24,659 41,586 (14,403)
Decrease in trade and other payables (146,308) (3,823) (254) (31,515) (11,269)
(Decrease) increase in amount due to
customer for contract work (10,378) (744) 9,366 1,505 9,316
Cash (used in) generated from operations (84,928) 128,097 82,162 14,448 (6,271)
Income tax (paid)/refunded (386) (691) (1,041) 1,209 (362)
NET CASH (USED IN) FROM
OPERATING ACTIVITIES (85,314) 127,406 81,121 15,657 (6,633)
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-9 –
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (37,857) (27,790) (27,413) (21,930) (2,333)
Payments for prepaid lease payment (25,872) — (466) — —
Net repayment from (advance to) related
companies 23,023 3,938 (12,646) 1,192 (2,249)
Proceeds from disposal of property, plant
and equipment 63 105 — — —
Interest received 44 53 74 16 31
NET CASH USED IN INVESTING
ACTIVITIES (40,599) (23,694) (40,451) (20,722) (4,551)
FINANCING ACTIVITIES
Net advance from (repayment to) a
shareholder 81,700 (103,533) 22,840 16,877 (170)
Net advance from (repayment to) related
companies 46,892 (46,150) (16,468) (16,468)
Capital Injection — 36,900 — — —
Bank borrowings — 23,870 — — —
Repayment of bank borrowings — — (23,870) — —
Interest paid — (626) (425) (340) —
NET CASH FROM (USED IN)
FINANCING ACTIVITIES 128,592 (88,539) (17,923) 69 (170)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,679 15,473 22,747 (4,996) (11,354)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE YEAR 6,931 9,517 22,583 22,583 44,276
EFFECT OF FOREIGN EXCHANGE
RATE CHANGES (93) (1,107) (1,054) 295 640
CASH AND CASH EQUIVALENTS AT
END OF THE YEAR,
represented by bank balances and cash 9,517 22,583 44,276 17,882 33,562
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-10 –
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
1. GENERAL INFORMATION AND BASIS OF PREPARATION AND PRESENTATION OF THE
HISTORICAL FINANCIAL INFORMATION
General
Saiguangbo was established in the PRC with limited liability on 7 February 2002.
The address of the registered office and the principal place of business of the Saiguangbo is D1-11-4,
Oriental Court, No. 100 Jianhua Village, Jiangbei District, Chongqing, China.
Saiguangbo act as an investment holding company. The principal activities of its subsidiaries are set
out in note 23.
Saiguangbo’s immediate and ultimate holding company are Shenzhen Yuhai Energy Company
Limited (‘‘Yuhai’’) and Sea Pioneer Limited (‘‘Sea Pioneer’’), companies established in the PRC and
incorporated in the British Virgin Islands (the ‘‘BVI’’), respectively. The Saiguangbo’s ultimate controlling
party is Ms. Li Xiulin, who owns 100% interest of Sea Pioneer.
The functional currency of Saiguangbo is Renminbi (‘‘RMB’’) while the Historical Financial
Information is presented in HK$, which the management of the Saiguangbo Group considered is more
beneficial for the users of the Historical Financial Information.
Basis of preparation and presentation of Historical Financial Information
Saiguangbo Group accounts for all its business combinations involving entities under common
control using the principles of merger accounting in accordance with Accounting Guideline 5 ‘‘Merger
Accounting for Common Control Combinations’’ (‘‘AG 5’’) issued by the HKICPA.
During the year ended and as at 31 December 2014 and 2015, Saiguangbo and Yongji Minsheng
Natural Gas Co, Ltd (‘‘Yongji’’), were owned by Mr. Xue Zhenhai as to 51% and 55% respectively. On 22
January 2016, Mr. Xue Zhenzhai, together with Ms. Li Xiulin which held 45% equity interest of Yongji
transferred all their equity interests in Yongji to Saiguangbo at nil consideration as contribution from
shareholders (the ‘‘Transfer’’).
In applying AG 5, Saiguangbo Group’s consolidated statements of profit or loss and other
comprehensive income, consolidated statements of changes in equity and consolidated statements of cash
flows have incorporated the results, changes in equity and cash flows of Saiguangbo Group and Yongji
since 1 January 2014, which is considered as the date Saiguangbo and Yongji first came under the common
control of the Mr. Xue Zhenhai prior to the Transfer.
In the preparation of the Historical Financial Information, the director of Saiguangbo has given due
and careful consideration of the liquidity of the Saiguangbo Group in light of the Saiguanbo Group’s net
current liabilities of HK$291,814,000 as at 31 March 2017. The director is of the opinion that the
shareholder of Saiguangbo has agreed not to demand for the repayment of shareholder loan until the
Saiguangbo Group has the financial ability for repayment and has agreed to provide funds within twelve
months from the end of the reporting period to enable Saiguanbo Group and Saiguanbo to meet its
financial obligations as they fall due for the foreseeable future. Accordingly, the Historical Financial
Information has been prepared on a going concern basis.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-11 –
2. APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (‘‘IFRSs’’)
For the purpose of preparing and presenting the Historical Financial Information for the Relevant
Periods, the Saiguangbo Group has consistently applied IFRSs issued by the IASB that are effective for the
Saiguangbo Group’s annual accounting periods beginning on 1 January 2017 throughout the Relevant Periods.
The Saiguangbo Group has not early applied the following new and amendments to IFRSs that have been
issued but are not yet effective:
IFRS 9 Financial instruments2
IFRS 15 Revenue from contracts with customers and the related amendments2
IFRS 16 Leases3
Amendments to IFRS 2 Classification and measurements of share-based payment transactions2
Amendments to IFRS 4 Applying IFRS 9 Financial instruments with IFRS 4 Insurance contract2
Amendments to IAS 7 Disclosure initiative1
Amendments to IAS 12 Recognition of deferred tax assets for unrealised losses1
Amendments to IAS 40 Transfers of investment property2
Amendments to IFRS 10
and IAS 28
Sale or contribution of assets between an investor and its associate or
joint venture4
Amendments to IFRSs Annual improvements to IFRSs 2014–2016 cycle5
IFRIC 22 Foreign currency transactions and advance consideration2
1 Effective for annual periods beginning on or after 1 January 2017.2 Effective for annual periods beginning on or after 1 January 2018.3 Effective for annual periods beginning on or after 1 January 2019.4 Effective for annual periods beginning on or after a date to be determined.5 Effective for annual periods beginning on or after 1 January 2017 or 1 January 2018, as appropriate.
IFRS 9 ‘‘Financial instruments’’
IFRS 9 introduced new requirements for the classification and measurement of financial assets,
financial liabilities, general hedge accounting and impairment requirements for financial assets.
Certain key requirements of IFRS 9 which are relevant to the Group are:
. all recognised financial assets that are within the scope of IFRS 9 are required to be
subsequently measured at amortised cost or fair value. Specifically, debt investments that are
held within a business model whose objective is to collect the contractual cash flows, and that
have contractual cash flows that are solely payments of principal and interest on the principal
outstanding are generally measured at amortised cost at the end of subsequent accounting
periods. Debt instruments that are held within a business model whose objective is achieved
both by collecting contractual cash flows and selling financial assets, and that have
contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding, are measured
at fair value through other comprehensive income. All other debt investments and equity
investments are measured at their fair values at the end of subsequent accounting periods. In
addition, under IFRS 9, entities may make an irrevocable election to present subsequent
changes in the fair value of an equity investment (that is not held for trading) in other
comprehensive income, with only dividend income generally recognised in profit or loss.
. in relation to the impairment of financial assets, IFRS 9 requires an expected credit loss
model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss
model requires an entity to account for expected credit losses and changes in those expected
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-12 –
credit losses at each reporting date to reflect changes in credit risk since initial recognition. In
other words, it is no longer necessary for a credit event to have occurred before credit losses
are recognised.
The director of the Saiguangbo anticipate that the application of IFRS 9 in the future may have
impact on amounts reported in respect of the Saiguangbo Group’s financial assets. The expected credit
loss model may result in early provision of credit loss which are not yet incurred in relation to the
Saiguangbo Group’s financial assets measured at amortised cost. However, it is not practicable to provide
a reasonable estimate of that effect until a detailed review has been completed.
IFRS 15 ‘‘Revenue from contracts with customers’’
IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition
guidance including IAS 18 ‘‘Revenue’’, IAS 11 ‘‘Construction Contracts’’ and the related Interpretations
when it becomes effective.
The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. Specifically, IFRS 15 introduces a 5-step
approach to revenue recognition:
. Step 1 : Identify the contract(s) with a customer
. Step 2 : Identify the performance obligations in the contract
. Step 3 : Determine the transaction price
. Step 4 : Allocate the transaction price to the performance obligations in the contract
. Step 5 : Recognise revenue when (or as) the entity satisfies a performance obligation
Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e.
when ’control’ of the goods or services underlying the particular performance obligation is transferred to
the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios.
Furthermore, extensive disclosures are required by IFRS 15.
In 2016, the IASB issued classification to IFRS 15 in relation to the identification of performance
obligations, principal versus agent consideration as well as licensing application guidance.
At the date of issuance of Historical Financial Information, the director of Saiguangbo is in the
process of assessing the potential financial impact on the Group.
IFRS 16 ‘‘Leases’’
IFRS 16, which upon the effective date will supersede IAS 17 ‘‘Leases’’, introduces a single lessee
accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more
than 12 months, unless the underlying asset is of low value. Specifically, under IFRS 16, a lessee is
required to recognise a right-of-use asset representing its right-to-use the underlying leased asset and a
lease liability representing its obligation to make lease payments. Accordingly, a lessee should recognise
depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments
of the lease liability into a principal portion and an interest portion and presents them in the consolidated
statement of cash flow. Also, the right-of-use asset and the lease liability are initially measured on a
present value basis. The measurement includes non-cancellable lease payments and also includes payments
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-13 –
to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease,
or not to exercise an option to terminate the lease. The accounting treatment is significantly different from
the lessee accounting for leases that are classified as operating leases under IAS 17.
As set out in note 24, total operating lease commitment of the Saiguangbo Group in respect of
leased premises as at 31 December 2014, 2015, 2016 and 31 March 2017 is amounted to HK$673,000,
HK$655,000, HK$503,000, and HK$318,000, respectively.
The application of IFRS 16 may result in potential changes in classification of these assets
depending on whether the Saiguangbo Group presents right-of-use assets separately or within the same
line item at which the corresponding underlying assets would be presented if they were owned.
In respect of the lessor accounting, IFRS 16 substantially carries forward the lessor accounting
requirements in IAS 17 and continues to require a lessor to classify a lease as an operating lease or a
finance lease.
In the opinion of the Director, the application of the other new and amendments to IFRSs issued
but not yet effective is not expected to have a material impact on the results and the financial position of
the Group.
3. SIGNIFICANT ACCOUNTING POLICIES
The Historical Financial Information has been prepared on the historical cost basis and in accordance
with the following accounting policies which conform to IFRSs. In addition, the Historical Financial
Information includes the applicable disclosures required by the Rules Governing the Listing of Securities on the
Stock Exchange and by the Hong Kong Companies Ordinance.
Historical cost is generally based on the fair value of the consideration given in exchange for goods.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date, regardless of whether that price is directly
observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability,
the Saiguangbo Group takes into account the characteristics of the asset or liability if market participants would
take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for
measurement and/or disclosure purposes in this Historical Financial Information is determined on such a basis,
except for share-based payment transactions that are within the scope of IFRS 2 ‘‘Share-based payment’’,
leasing transactions that are within the scope of International Accounting Standards (‘‘IAS’’) 17 ‘‘Leases’’, and
measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS
2 ‘‘Inventories’’ or value in use in IAS 36 ‘‘Impairment of assets’’.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3
based on the degree to which the inputs to the fair value measurements are observable and the significance of the
inputs to the fair value measurement in its entirety, which are described as follows:
. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that
the entity can access at the measurement date;
. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for
the asset or liability, either directly or indirectly; and
. Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies adopted are set out below.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-14 –
Basis of consolidation
The Historical Financial Information incorporates the financial statements of Saiguangbo and
entities controlled by Saiguangbo and its subsidiaries. Control is achieved when Saiguangbo:
. has power over the investee;
. is exposed, or has rights, to variable returns from its involvement with the investee; and
. has the ability to use its power to affect its returns.
The Saiguangbo Group reassesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Saiguangbo Group obtains control over the
subsidiary and ceases when the Saiguangbo Group loses control of the subsidiary. Specifically, income
and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated
statement of profit or loss and other comprehensive income from the date the Saiguangbo Group gains
control until the date when the Saiguangbo Group ceases to control the subsidiary.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with the Saiguangbo Group’s accounting policies.
All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Saiguangbo Group are eliminated in full on consolidation.
Non-controlling interests in subsidiaries are presented separately from the Saiguangbo Group equity
therein.
Merger accounting for business combination involving entities under common control
The consolidated financial statements incorporate the financial statements items of the combining
entities or businesses in which the common control combination occurs as if they had been consolidated
from the date when the combining entities or businesses first came under the control of the controlling
party.
The net assets of the combining entities or businesses are consolidated using the existing book values
from the controlling party’s perspective. No amount is recognised in respect of goodwill or excess of
acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities
over cost at the time of common control combination, to the extent of the continuation of the controlling
party’s interest.
The consolidated statement of profit or loss and other comprehensive income includes the results of
each of the combining entities or businesses from the earliest date presented or since the date when the
combining entities or businesses first came under the common control, where this is a shorter period.
The comparative amounts in the consolidated financial statements are presented as if the entities or
businesses had been consolidated at the end of the previous reporting period or when they first came under
common control, whichever is shorter.
Investments in subsidiaries
Investments in subsidiaries are included in the Saiguangbo’s statements of financial position at cost
less any identified impairments loss. The results of the subsidiaries are accounted for on the basis of
dividends received or receivable.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-15 –
Revenue recognition
Revenue is measured at fair value of the consideration received or receivable and represents amounts
receivable for goods sold in the normal course of business, net of discounts and related taxes.
Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at
which time all the following conditions are satisfied:
. the Saiguangbo Group has transferred to the buyer the significant risks and rewards of
ownership of the goods;
. the Saiguangbo Group retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to the
Saiguangbo Group; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Gas supply is recognised when gas is supplied to/used by the customers. The Group’s policy for the
recognition of revenue from construction services is described in the accounting policy for construction
contracts below.
Interest income from a financial asset is recognised when it is probable that the economic benefits
will flow to the Saiguangbo Group and the amount of income can be measured reliably. Interest income is
accrued on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected
life of the financial asset to that asset’s net carrying amount on initial recognition.
Construction contracts
Where the outcome of a construction contract can be estimated reliably, revenue and costs are
recognised by reference to the stage of completion of the contract activity at the end of the reporting
period, measured based on the proportion that contract costs incurred for work performed to date relative
to the estimated total contract costs. Where the outcome of a construction contract cannot be estimated
reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be
recoverable. Contract costs are recognised as expenses in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is
recognised as an expense immediately.
Where contract costs incurred to date plus recognised profits less recognised losses exceed progress
billings, the surplus is shown as amounts due from customers for contract work. For contracts where
progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the
surplus is shown as amounts due to customers for contract work. Amounts received before the related
work is performed are included in the consolidated statement of financial position, as a liability, as
advances received. Amounts billed for work performed but not yet paid by the customer are included in
the consolidated statement of financial position under trade receivables.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-16 –
Property, plant and equipment
Property, plant and equipment including building for use in production or supply of goods or
services, or for administrative purpose, other than construction in progress, are stated in the consolidated
statement of financial position at cost less subsequent accumulated depreciation and subsequent
accumulated impairment losses, if any.
Depreciation is recognised so as to write off the cost of assets other than construction in progress
less their residual values over their estimated useful lives, using the straight-line method. The estimated
useful lives, residual values and depreciation method are reviewed at the end of each reporting period,
with the effect of any changes in estimate accounted for a prospective basis.
Properties in the course of construction for production and administrative purposes are carried at
cost, less any recognised impairment loss. Costs include professional fees and, for qualifying assets,
borrowing costs capitalised in accordance with the Saiguangbo Group’s accounting policy. Such
properties are classified to the appropriate categories of property, plant and equipment when completed
and ready for intended use. Depreciation of these assets, on the same basis as other property assets,
commences when the assets are ready for their intended use.
An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the
disposal or retirement of an item of property, plant and equipment is determined as the difference between
the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
Impairment loss on tangible assets
At the end of the reporting period, the Saiguangbo Group reviews the carrying amounts of its
tangible assets with finite useful lives to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the
recoverable amount of an individual asset, the Saiguangbo Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can
be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are
allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation
basis can be identified.
Recoverable amount is the higher of fair value less costs of disposal 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 assessments of the time value of money and the risks specific to the asset
for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable
amount.
An impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-
generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased
carrying amount does not exceed the carrying amount that would have been determined had no
impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an
impairment loss is recognised as in profit or loss.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-17 –
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost of inventories are
determined on the weighted average cost method. Net realisable value represents the estimated selling
price for inventories less all estimated costs of completion and costs necessary to make the sale.
Financial instruments
Financial assets and financial liabilities are recognised on the consolidated statement of financial
position when a group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that
are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to
or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition.
Financial assets
The Saiguangbo Group’s financial assets are loans and receivables. The classification depends on
the nature and purpose of the financial assets and is determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and
of allocating interest income over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash receipts (including all fees paid or received that form an integral part of
the effective interest rate, transaction costs and other premiums or discounts) through the expected life of
the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Interest income is recognised on an effective interest basis for debt instruments.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including
trade receivables and other receivables, bank balances and cash and amounts due from related companies)
are measured at amortised cost using the effective interest method, less any identified impairment (see
accounting policy on impairment of financial assets below).
Impairment of loans and receivables
Loans and receivables are assessed for indicators of impairment at the end of each reporting period.
Loans and receivables are considered to be impaired where there is objective evidence that, as a result of
one or more events that occurred after the initial recognition of the loans and receivables, the estimated
future cash flows of the loans and receivables have been affected.
Objective evidence of impairment could include:
. significant financial difficulty of the issuer or counterparty; or
. default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-18 –
For certain categories of loans and receivables, such as trade receivables, assets that are assessed not
to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective
evidence of impairment for a portfolio of trade receivables could include the Saiguangbo Group’s past
experience of collecting payments, an increase in the number of delayed payments in the portfolio past the
average credit period, observable changes in national or local economic conditions that correlate with
default on trade receivables.
The amount of the impairment loss recognised is the difference between the asset’s carrying amount
and the present value of the estimated future cash flows discounted at the financial asset’s original
effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial
assets with the exception of trade receivables, where the carrying amount is reduced through the use of an
allowance account. Changes in the carrying amount of the allowance account are recognised in profit or
loss. When a trade receivable is considered uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited to profit or loss.
If, in a subsequent period, the amount of 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 through profit or loss to the extent that the carrying amount of the asset at the
date the impairment is reversed does not exceed what the amortised cost would have been had the
impairment not been recognised.
Financial liabilities and equity instruments
Debt and equity instruments issued by a group entity are classified as either financial liabilities or as
equity in accordance with the substance of the contractual arrangements and the definitions of a financial
liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the group entities are recognised at the
proceeds received, net of direct issue costs.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments (including all fees paid or received that form an integral
part of the effective interest rate, transaction costs and other premiums or discounts) through the expected
life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Interest expense is recognised on an effective interest basis for debt instruments.
Financial liabilities
The Saiguangbo Group’s financial liabilities including trade payable, amount due to a shareholder/
related companies and bank borrowing are subsequently measured at amortised cost, using the effective
interest method.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-19 –
Derecognition
The Saiguangbo Group derecognises a financial asset only when the contractual rights to the cash
flows from the asset expire, or when it transfers the financial assets and substantially all the risks and
rewards of ownerships of the assets to another entity.
On derecognition of a financial asset, the difference between the asset’s carrying amount and the
sum of the consideration received and receivable and the cumulative gain or loss that had been recognised
and the consideration paid and payable is recognized in profit or loss.
The Saiguangbo Group derecognises financial liabilities when, and only when, the Saiguangbo
Group’s obligations are discharged, cancelled or expire. The difference between the carrying amount of
the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
Retirement benefits costs
Payments to state-managed retirement benefit schemes are recognised as an expense when employees
have rendered service entitling them to the contributions.
Leasing
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.
The Saiguangbo Group as lessee
Operating lease payments are recognised as an expense on a straight-line basis over the lease term.
Leasehold land and building
When a lease includes both land and building elements, the Saiguangbo Group assesses the
classification of each element as a finance or an operating lease separately based on the assessment as to
whether substantially all the risks and rewards incidental to ownership of each element have been
transferred to the Saiguangbo Group, unless it is clear that both elements are operating leases in which
case the entire lease is classified as an operating lease. Specifically, the minimum lease payments (including
any lump-sum upfront payments) are allocated between the land and the building elements in proportion
to the relative fair values of the leasehold interests in the land element and building element of the lease at
the inception of the lease.
To the extent the allocation of the lease payments can be made reliably, interest in leasehold land
that is accounted for as an operating lease is presented as ‘‘prepaid lease payments’’ in the consolidated
statement of financial position and is amortised over the lease term on a straight-line basis.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘‘profit
before taxation’’ as reported in the consolidated statement of profit or loss and other comprehensive
income because of items of income or expense that are taxable or deductible in other years and items that
are never taxable or deductible. The Saiguangbo Group’s liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by the end of the reporting period.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-20 –
Income tax expense represents the sum of the tax currently payable and deferred tax. The tax
currently payable is based on taxable profit for the year. Taxable profit differs from ‘‘profit before
taxation’’ as reported in the consolidated statement of profit or loss and other comprehensive income
because of items of income or expense that are taxable or deductible in other years and items that are
never taxable or deductible. The Saiguangbo Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the end of the reporting period.
Current and deferred tax are recognised in profit or loss.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the corresponding tax base used in the computation
of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is
probable that taxable profits will be available against which those deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial
recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments
in subsidiaries, except where the Saiguangbo Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments are
only recognised to the extent that it is probable that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have
been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Saiguangbo Group expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.
For the purposes of measuring deferred tax liabilities or deferred tax assets for investment properties
that are measured using the fair value model, the carrying amounts of such properties are presumed to be
recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the
investment property is depreciable and is held within a business model whose objective is to consume
substantially all of the economic benefits embodied in the investment property over time, rather than
through sale.
Current and deferred tax are recognised in profit or loss, except when they relate to items that are
recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax
are also recognised in other comprehensive income or directly in equity respectively.
Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies
other than the functional currency of that entity (foreign currencies) are recognised at the rates of
exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items
denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-21 –
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. Non-monetary items that are measured in
terms of historical cost in a foreign currency are not retranslated.
For the purposes of presenting the consolidated financial statements, the assets and liabilities of the
Group’s foreign operations are translated into the presentation currency of the Saiguangbo Group (i.e.
Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and
expenses items are translated at the average exchange rates for the period, unless exchange rates fluctuate
significantly during the period, in which case, the exchange rates at the dates of transactions are used.
Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in
equity under the heading of translation reserve (attributed to non-controlling interests as appropriate).
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying
assets, which are assets that necessarily take a substantial period of time to get ready for their intended use
or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their
intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
4. KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Saiguangbo Group’s accounting policies, which are described in note 3,
management of Saiguangbo Group is required to make judgments, estimates and assumptions about the
carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and
underlying assumptions are based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimates is revised if the revision affects only that period, or
in the period of the revision and future periods if the revision affects both current and future periods.
The following is the key assumptions concerning the future, and other key sources of estimation
uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year.
Estimated useful life of property, plant and equipment
Property, plant and equipment are depreciated over their useful economic lives. The assessment of
estimated useful lives is a matter of judgment based on the experience of the management of Saiguangbo
Group, taking into account factors such as technological process, conditions of property, plant and
equipment and changes in market demand. Useful lives are periodically reviewed for continued
appropriateness.
The carrying amount of property, plant and equipment was approximately HK$437,418,000,
HK$403,102,000, HK$366,963,000 and HK$364,607,000, respectively, as at 31 December 2014, 31
December 2015, 31 December 2016 and 31 March 2017.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-22 –
5. REVENUE AND SEGMENTAL INFORMATION
Revenue represents the fair value of amounts received and receivable from the sales of piped gas and
construction contract revenue from gas connection contracts by the Saiguangbo Group to outside customers,
net of discounts and related taxes. An analysis of the Saiguangbo Group’s revenue for the years and periods are
as follows:
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
Sales of piped gas — gas stations 102,269 84,083 44,973 7,991 12,561
Sales of pipe gas — others 205,583 207,347 216,200 48,873 88,060
Gas connection income 98,814 90,583 77,391 27,777 30,129
406,666 382,013 338,564 84,641 130,750
The Saiguangbo Group’s operation is solely derived from the sales of pipe gas and gas connection income
in the PRC during the Relevant Periods. For the purpose of resources allocation and performance assessment,
the chief operating decision maker (i.e. the chief executive officer of Saiguangbo) reviews the overall results and
financial position of the Saiguangbo Group as a whole and prepared based on same accounting policies set out
in note 3. Accordingly, the Saiguangbo Group has only one single operating segment and no further analysis of
this single segment is presented.
Geographical information
No geographical segment information is presented as the Saiguangbo Group’s revenue are all
derived from the PRC based on the location of services delivered and the Saiguangbo Group’s property,
plant and equipment are all located in the PRC by physical location of assets.
Information about major customers
There is no single customers committing over 10% of the total revenue of Saiguangbo Group during
the Relevant Periods.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-23 –
6. DIRECTOR’S AND EMPLOYEES’ EMOLUMENTS
(a) Director’s and chief executive’s emoluments
During the Relevant Periods, the emoluments paid or payable by the entities comprising the
Saiguangbo Group to the director of Saiguangbo (‘‘Director’’) were as follows:
Mr. Xue Zhenzhai
HKD’000
Year ended 31 December 2014
Fees —
Other emoluments
Salaries 193
Retirement benefit scheme contributions 60
Total emoluments 253
Year ended 31 December 2015
Fees —
Other emoluments
Salaries and other benefits 189
Retirement benefit scheme contributions 66
Total emoluments 255
Year ended 31 December 2016
Fees —
Other emoluments
Salaries and other benefits 185
Retirement benefit scheme contributions 68
Total emoluments 253
Period ended 31 March 2016 (unaudited)
Fees —
Other emoluments
Salaries and other benefits 46
Retirement benefit scheme contributions 17
Total emoluments 63
Period ended 31 March 2017
Fees —
Other emoluments
Salaries and other benefits 52
Retirement benefit scheme contributions 17
Total emoluments 69
Mr. Xue Zhenzhai is the Chief Executive of the Saiguangbo.
During the Relevant Periods, no remuneration was paid by the Saiguangbo Group to the director as
an inducement to join or upon joining the Saiguangbo Group or as compensation for loss of office.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-24 –
(b) Employees’ emoluments
The five highest paid individuals included one director and whose emoluments are included in the
disclosures in (a) above during the Relevant Periods. The emoluments of the remaining four individuals,
which were individually less than HK$1,000,000, were as follows:
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
Salaries and other benefits 979 911 912 221 323
Retirement benefit scheme
contributions 320 362 372 95 100
1,299 1,273 1,284 316 423
During the Relevant Periods, no emoluments were paid by the Saiguangbo Group to the five highest
paid individuals as an inducement to join or upon joining the Saiguangbo Group or as compensation for
loss of office.
7. OTHER INCOME AND OTHER GAINS AND LOSSES
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
Other income
Bank interest income 44 53 74 16 31
Government subsidy (Note) 445 683 646 — 156
489 736 720 16 187
Other gains and losses
Impairment loss recognised in respect
of trade receivables (77) (1,435) (1,626) — (2,917)
Loss on disposal of property, plant and
equipment (2) — — — —
Reversal of social securities expense
provided — 3,047 3,319 165 —
Impairment loss recognised in respect
other receivables (368) (123) — — —
Others 377 290 (12) 53 342
(70) 1,779 1,681 218 (2,575)
Note: The amount represents subsidy from the government for every tons of compressed natural gas
(‘‘CNG’’) imported outside of Shanxi province, which the government want to motivate the gas
seller to import more gas from outside.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-25 –
8. FINANCE COST
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
Finance cost represents interest on:
— bank borrowing — 626 425 340 —
9. PROFIT BEFORE TAXATION
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
Profit before taxation has been arrived
at after charging:
Auditor’s remuneration 52 33 31 — —
Director’s emoluments (note 7):
Salaries and other allowances 193 189 185 46 52
Retirement benefits scheme
contributions 60 66 68 17 17
Other staff costs:
Salaries and other allowances 11,357 11,242 10,214 2,926 2,769
Retirement benefits scheme
contributions 5,842 6,042 5,986 1,295 1,460
Total staff costs 17,452 17,539 16,453 4,284 4,298
Depreciation of property, plant and
equipment 35,801 38,244 38,043 9,510 8,512
Inventories recognised as an expense 294,810 280,807 253,330 63,236 88,708
Amortisation of prepaid lease payment 2,023 2,358 1,344 318 436
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-26 –
10. INCOME TAX EXPENSE
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
PRC Enterprise Income Tax (‘‘EIT’’):
Current year 8,671 5,005 2,152 538 665
Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of
the EIT Law, the tax rate applied to entities comprising the Saiguangbo Group is 25% for the Relevant Periods.
There was no significant unrecognised deferred taxation for the Relevant Periods or at 31 December 2014,
31 December 2015, 31 December 2016 and 31 March 2017.
The income tax expense for the years and periods can be reconciled to the profit before taxation as
follows:
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
Profit before taxation 33,259 16,154 12,515 5,277 3,852
Taxation at PRC EIT rate of 25% 8,315 4,039 3,129 1,319 963
Tax effect of expenses not deductible
for tax purposes 970 250 486 44 44
Tax effect of income not taxable for tax
purposes (111) (171) (625) (41) (654)
Tax effect of tax losses not recognised — 887 — — 312
Tax effect of deductible temporarily
differences not recognised (503) — — — —
Utilisation of tax losses previously not
recognised — — (838) (784) —
Income tax expense for the years and
periods 8,671 5,005 2,152 538 665
No deferred tax has been recognised in respect of the unutilised tax losses of HK$3,548,000 and
HK$312,000 approximately as at 31 December 2015 and 31 March 2017, respectively, due to the
unpredictability of future profit streams. The tax losses available may be carried forward for up to five years.
11. DIVIDEND
No dividend have been paid or declared by Saiguangbo during the Relevant Periods.
12. EARNINGS PER SHARE
Earnings per share information is not presented as its inclusion, for the purpose of the Historical
Financial Information, is not considered meaningful.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-27 –
13. PROPERTY, PLANT AND EQUIPMENT
The Saiguangbo Group
Construction
in progress
Land and
buildings
Plant and
machinery
Furniture
and fixture
Motor
vehicles Pipelines Total
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
COSTAt 1 January 2014 12,323 33,626 22,305 1,587 5,291 477,295 552,427
Additions 26,642 3,913 5,880 1,063 359 — 37,857Disposal — — — (38) (361) — (399)Written off — — — — — (30,355) (30,355)
Transfer (26,704) 345 1,359 — — 25,000 —Exchange difference (65) (176) (114) (8) (28) (2,540) (2,931)
At 31 December 2014 12,196 37,708 29,430 2,604 5,261 469,400 556,599Additions 4,911 7,511 3,817 436 4,235 6,880 27,790Disposal — — — (105) — — (105)
Transfer (10,420) 803 — — — 9,617 —Exchange difference (492) (2,349) (1,746) (154) (428) (26,405) (31,574)
At 31 December 2015 6,195 43,673 31,501 2,781 9,068 459,492 552,710Additions 9,203 8,738 1,201 427 118 7,726 27,413Transfer (5,165) 4,506 22 — — 637 —
Exchange difference (573) (3,395) (2,096) (198) (593) (29,973) (36,828)
At 31 December 2016 9,660 53,522 30,628 3,010 8,593 437,694 543,108
Additions 1,022 — — 5 — 1,306 2,333Transfer (172) — — — — 172 —
Exchange difference 113 586 336 33 94 4,600 5,954
At 31 March 2017 10,623 54,108 30,964 3,048 8,687 437,694 543,108
DEPRECIATIONAt 1 January 2014 — 1,586 3,895 1,061 2,549 75,047 84,138
Provided for the year — 2,240 2,414 285 979 29,883 35,801Eliminated on disposal — — — — (334) — (334)Exchange difference — (7) (19) (5) (13) (380) (419)
At 31 December 2014 — 3,819 6,290 1,341 3,181 104,550 119,185Provided for the year — 2,781 3,191 566 1,042 30,664 38,244
Exchange difference — (301) (451) (92) (209) (6,764) (7,818)
At 31 December 2015 — 6,299 9,030 1,815 4,014 128,450 149,608
Provided for the year — 3,260 3,161 565 1,519 29,538 38,043Exchange difference — (547) (720) (142) (325) (9,585) (11,319)
At 31 December 2016 — 9,012 11,471 2,238 5,208 148,403 176,332
Provided for the period — 671 616 136 242 6,847 8,512
Exchange difference — 100 127 25 57 1,636 1,945
At 31 March 2017 — 9,783 12,214 2,399 5,507 156,886 186,789
CARRYING AMOUNTSAt 31 December 2014 12,196 33,889 23,140 1,263 2,080 364,850 437,418
At 31 December 2015 6,195 37,374 22,471 966 5,054 331,042 403,102
At 31 December 2016 9,660 44,510 19,157 772 3,385 289,479 366,963
At 31 March 2017 10,623 44,325 18,750 649 3,180 287,074 364,601
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-28 –
The above items of property, plant and equipment, other than construction in progress are
depreciated on a straight-line basis at the following rates per annum:
Land and buildings 6.67%
Plant and machinery 10%
Furniture and fixture 33.3%
Motor vehicles 20%
Pipelines 5% to 6.67%
The construction in progress comprise mainly the CNG station in the course of construction and
machinery in installation.
14. PREPAID LEASE PAYMENTS
The Saiguangbo Group
The carrying amount of prepaid lease payments of the Saiguangbo Group, which the Saiguangbo
Group’s buildings as disclosed in note 13 are located, analysed for reporting purposes as follows:
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Non-current assets 49,245 44,238 40,563 40,572
Current assets 1,189 1,124 1,051 1,062
50,434 45,362 41,614 41,634
As at 31 December 2015, the Saiguangbo Group pledged certain land use rights in the PRC with
total carrying amounts of HK$13,405,000 to secure its bank borrowing. Details of assets pledged are
disclosed in note 27.
15. INVENTORIES
The amount represents inventories of CNG.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-29 –
16. TRADE AND OTHER RECEIVABLES
The Saiguangbo Group
As at 31 December
As at
31 March
2014 2015 2016 2017
Notes HKD’000 HKD’000 HKD’000 HKD’000
Trade receivables 42,111 45,401 63,889 74,162
Less: Allowance for bad
and doubtful debts (c) (2,488) (3,739) (5,275) (7,910)
Total trade receivables (a), (b) 39,623 41,662 58,614 66,252
Prepayments and other
receivables 82,719 56,790 33,228 30,518
Less: Allowance for bad
and doubtful debts (d) (2,065) (2,070) (1,938) (1,957)
Total trade and other
receivables (a), (b) 120,277 96,382 89,904 94,813
Notes:
(a) The Saiguangbo Group allows credit period of 30 days to 90 days to its trade customers. The
following is an aged analysis of trade receivables net of impairment losses presented based on the
invoice date at the end of the reporting periods.
The Saiguangbo Group
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Trade receivables
0–90 days 21,516 25,082 34,545 23,663
91–180 days 1,488 1,619 1,326 9,664
181–365 days 3 41 11,007 21,705
Over 365 days 16,616 14,920 11,736 11,220
Total 39,623 41,662 58,614 66,252
Before accepting any new customer, the Saiguangbo Group will assess the potential customer’s
credit quality and defines its credit limits. Credit sales are made to customers with a satisfactory
trustworthy credit history. Credit limits attributed to customers are reviewed regularly. Trade
receivables that are neither past due nor impaired have good track records with the Saiguangbo
Group.
As at 31 December 2014, 2015, 2016 and 31 March 2017, included in the Saiguangbo Group’s trade
receivables balance are debtors with an aggregate carrying amount of HK$18,107,000,
HK$16,580,000, HK$24,069,000 and HK$42,589,000, respectively, which were past due at the end
of the reporting periods for which the Saiguangbo Group has not provided for impairment loss, as
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-30 –
there has not been a significant change in credit quality and the amounts are still considered
recoverable based on the historical experience and subsequent settlements. The Saiguangbo Group
does not hold any collateral over these balances.
(b) Ageing of trade receivables which are past due but not impaired:
The Saiguangbo Group
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Neither past due nor impaired 21,516 25,082 34,545 23,663
91–180 days 1,488 1,619 1,326 9,664
181–365 days 3 41 11,007 21,705
Over 365 days 16,616 14,920 11,736 11,220
39,623 41,662 58,614 66,252
No interest is charged on the trade receivables. The Saiguangbo Group has policy regarding
impairment losses on trade receivables which is based on the evaluation of collectability and ageing
analysis of accounts and on management’s judgment including the current creditworthiness and the
past collection history of each customer.
(c) Movement in the allowance for bad and doubtful debts is as follows:
The Saiguangbo Group
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Balance at the beginning of the year 2,424 2,488 3,739 5,275
Impairment losses recognised 77 1,435 1,626 2,917
Exchange difference (13) (184) (90) (282)
Balance at the end of the year 2,488 3,739 5,275 7,910
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-31 –
(d) Movement in the allowance for other receivables is as follows:
The Saiguangbo Group
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Balance at the beginning of the year 1,705 2,065 2,070 1,938
Impairment losses recognised 368 123 — —
Exchange difference (8) (118) (132) 19
Balance at the end of the year 2,065 2,070 1,938 1,957
Included in other receivables are loan receivables from individual third parties amounted to
HK$3,798,000, HK$3,581,000, HK$3,433,000 and HK$3,468,000 as at 31 December 2014, 2015 and
2016 and 31 March 2017 respectively. The amounts are unsecured, interest-free and repayable on
demand.
17. AMOUNT DUE FROM (TO) CUSTOMERS FOR CONTRACT WORK
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Contracts in progress at the end of the reporting
periods
Contract costs incurred plus recognised profits less
recognised losses 100,883 36,740 332 5,423
Analysis for reporting purpose as:
Amounts due from contract customers 128,762 62,339 33,636 48,408
Amount due to contract customers (27,879) (25,599) (33,304) (42,985)
100,883 36,740 332 5,423
18. BANK BALANCES AND CASH
As at 31 December 2014, 2015, 2016 and 31 March 2017, the bank balances carried interest at prevailing
market rates.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-32 –
19. TRADE AND OTHER PAYABLES
The Saiguangbo Group
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Trade payables 82,728 126,512 46,122 57,075
Other payables and accrued charges 74,936 15,594 78,838 57,985
157,664 142,106 124,960 115,060
The average credit period on purchases of goods is 90 days. The following is an aged analysis of trade
payables presented based on the invoice date at the end of the reporting periods payables presented based on the
date of issuance of bills:
The Saiguangbo Group
Trade payables
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
0–90 days 53,500 49,089 34,062 44,166
91–180 days 3,127 35,074 1,539 2,753
181–365 days 25,341 23,741 6,831 3,631
Over 365 days 760 18,608 3,690 6,525
82,728 126,512 46,122 57,075
20. AMOUNT DUE FROM (TO) SHAREHOLDERS AND RELATED COMPANIES
The amounts are unsecured, interest-free and repayable on demand.
21. BANK BORROWING
Bank borrowing amounted to RMB20,000,000 was subjected to variable-rate interest at the Benchmark
Loan Rate offered by the People’s Bank of China. The effective interest rate on the Group’s bank borrowing
was 5.1%. The bank borrowing was secured by certain land use rights in the PRC of Saiguangbo Group and was
repayable within 1 year as at 31 December 2015. The bank borrowing was fully repaid during 2016.
22. PAID-UP CAPITAL
The paid-up capital at 1 January 2014, 31 December 2014 and 2015 represented the aggregate paid up
capital of Saiguangbo and Yongji attribute to the owner of Saiguangbo.
The paid-up capital at 31 December 2016 and 31 March 2017 represented the paid-up capital of
Saiguangbo attribute to the owner of Saiguangbo.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-33 –
23. INVESTMENTS IN SUBSIDIARIES
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Unlisted shares, at cost 90,944 85,932 156,332 157,962
Details of the Saiguangbo’s subsidiaries as at 31 December 2014, 2015, 2016 and 31 March 2017 are as
follows:
Name of
subsidiaries
Place and date of
establishment
Registered and
paid-up capital
Shareholding/equity interest attributable
to the Saiguangbo as at Principal activities
31 December
31
March
As at
the date
of this
report2014 2015 2016 2017
% % % % %
Directly held:
Yongji The PRC
17 October
2008
RMB60,000,000 55 55 100 100 100 Sales and distribution
of CNG through
refueling stations
for vehicles, supply
of piped gas and
gas connection
construction
Shanxi Minsheng
Natural Gas
Co., Ltd
(‘‘Minsheng’’)
The PRC
21 April 2006
RMB80,000,000 90 90 100 100 100 Sales and distribution
of CNG through
refueling stations
for vehicles, supply
of piped gas and
gas connection
construction
No audited financial statements have been prepared for the Saiguangbo and its subsidiaries since their
respective dates of establishment as they were established in jurisdiction where there is no statutory audit
requirements.
24. COMMITMENTS
Operating lease commitments as lessee
At the reporting date, the Saiguangbo Group had commitment for future minimum lease payments
under non-cancellable operating leases for office which fall due as follows:
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Within one year 195 209 209 107
In the second to fifth year inclusive 348 352 236 185
Over five years 130 94 58 26
673 655 503 318
Operating lease payments represent rental payable by Saiguangbo Group for certain of its office
properties. Lease are negotiated for an average term of 3 years and rental are fixed for an average 3 years.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-34 –
25. RETIREMENT BENEFITS SCHEME
The Saiguangbo Group participates in a defined contribution retirement scheme organised by the relevant
local government authority in the PRC. Eligible employees of the Saiguangbo Group to participate in the
retirement scheme are entitled to retirement benefits from the scheme. The local government authority is
responsible for the pension liabilities to these retired employees. The Saiguangbo Group is required to make
monthly contributions to the retirement scheme up to the time of retirement of the eligible employees, at 20% of
the local standard basic salaries.
As at 31 December 2014, 31 December 2015, 31 December 2016 and 31 March 2017, the Saiguangbo
Group had no significant obligation apart from the contribution as stated above.
26. RELATED PARTY TRANSACTIONS
Save as disclosed elsewhere in the Historical Financial Information, the Saiguangbo Group had no other
transactions with its related parties during the Relevant Periods.
Compensation of key management personnel
The remuneration of director who represents the key management personnel of the Saiguangbo
Group, during the Relevant Periods were as follows:
Year ended 31 December
Three months ended
31 March
2014 2015 2016 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
(unaudited)
Short-term employee benefits 193 189 185 46 52
Post-employment benefits 60 66 68 17 17
253 255 253 63 69
27. PLEDGE OF ASSETS
At the reporting date, certain land use rights of the Saiguangbo Group were pledged to secure the bank
borrowing with the amounts as follows:
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Land use rights — 13,405 — —
28. CAPITAL RISK MANAGEMENT
The Saiguangbo Group manages its capital to ensure that entities in the Saiguangbo Group will be able to
continue as a going concern while maximising the return to shareholders through the optimisation of the debt
and equity balance. The Saiguangbo Group’s overall strategy remains unchanged throughout the Relevant
Periods.
The capital structure of the Saiguangbo Group consists of debt balance and equity balance. Equity
balance consists of equity attributable to owners of Saiguangbo, comprising paid-up capital and reserves.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-35 –
Management of the Saiguangbo Group review the capital structure on an on-going annual basis. As part
of this review, management of the Saiguangbo Group consider the cost of capital and the risks associated with
each class of capital. Based on recommendations of management of the Saiguangbo Group, the Saiguangbo
Group will balance its overall capital structure through the payment of dividends and the issue of new shares.
29. FINANCIAL INSTRUMENTS
(a) Categories of financial instruments
The Saiguangbo Group
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Financial assets
Loans and receivables (including cash and cash
equivalents) 58,367 69,018 120,084 119,443
Financial liabilities
Amortised costs 588,211 487,611 372,735 387,006
(b) Financial risk management objectives and policies
The Saiguangbo Group’s major financial instruments include trade and other receivables, amounts
due from (to) related companies, trade payables, amount due to a shareholder and bank borrowing.
Details of these financial instruments are disclosed in respective notes. The risks associated with these
financial instruments and the policies on how to mitigate these risks are set out below.
(i) Market risk
Interest rate risk
The Saiguangbo Group was exposed to cash flow interest rate risk in relation to
variable-rate bank balances and bank borrowing. Details of bank balances and bank
borrowing are disclosed in notes 18 and 21, respectively. It is the Group’s policy to keep its
bank borrowing at floating rate of interests so as to minimise the fair value interest rate risk.
The Saiguangbo Group’s cash flow interest rate risk mainly arised from the fluctuation of the
Benchmark Loan Rates offered by the People’s Bank of China for the Group’s RMB
denominated bank borrowing.
Sensitivity analysis
The sensitivity analyses have been determined based on the exposure to interest rates for
non-derivative instruments for the year ended 31 December 2015. The analysis is prepared
assuming the financial instruments outstanding at the end of the reporting period were
outstanding for the whole year. A 50 basis points increase or decrease is used when reporting
interest rate risk internally to key management personnel and represents management’s
assessment of the reasonably possible change in the interest rate.
If interest rate had been 50 basis points higher/lower and all other variables were held
constant, the Group’s post-tax profit for the year ended 31 December 2015 would decrease/
increase by HK$90,000 approximately.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-36 –
(ii) Credit risk
As at 31 December 2014, 2015, 2016 and 31 March 2017, the maximum exposure to credit risk
of the Saiguangbo Group which will cause a financial loss to the Saiguangbo Group due to failure to
discharge an obligation by the counterparties is arising from the carrying amount of the respective
recognised financial assets as stated in the consolidated statements of financial position.
In order to minimise the credit risk, management of the Saiguangbo Group has delegated a
team responsible for determination of credit limits, credit approvals and other monitoring
procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the
Saiguangbo Group reviews the recoverable amount of each individual debt at the end of the
reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In
this regard, the director of the Saiguangbo consider that the Saiguangbo Group’s credit risk is
significantly reduced.
Saiguangbo Group’s concentrate of credit risk by geographical location is mainly in the PRC.
Saiguangbo Group has no other significant concentration of credit risk, with exposure spread over a
number of counterparties.
The credit risk on liquid funds of the Saiguangbo Group is limited because the counterparties
are banks with good reputation and the Saiguangbo Group has limited exposure to any single
financial institution.
Also the Saiguangbo Group has significant concentration of credit risk on amounts due from
related companies as the credit risk is attributable to related parties as at 31 December 2014, 2015,
2016 and 31 March 2017. The director of Saiguangbo consider the counterparty with good credit
worthiness based on its past repayment history and subsequent settlement.
(iii) Liquidity risk
In the management of liquidity risk, the Saiguangbo Group monitors and maintains a level of
cash and cash equivalents deemed adequate by the management to finance the Saiguangbo Group’s
operations and mitigates the effects of fluctuations in cash flows.
The Saiguangbo Group has net current liabilities of HK$425,733,000, HK$342,224,000,
HK$298,006,000 and HK$291,814,000 as at 31 December 2014, 2015, 2016 and 31 March 2017,
respectively. The director of Saiguangbo is satisfied that the Saiguangbo Group will have sufficient
financial resources to meet its financial obligations as they fall due for the next the twelve months
from the date of this report as the shareholder of Saiguangbo has agreed to provide adequate funds
to enable Saiguangbo Group to meet its financial obligations as they fall due from the foreseeable
future and not to demand the repayment of shareholder loan until Saiguangbo Group has financial
ability for repayment.
The following tables detail the Saiguangbo Group’s remaining contractual maturity for its
non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash
flows of financial liabilities based on the earliest date on which the Saiguangbo Group and
Saiguangbo can be required to pay. Specifically, bank borrowings with a repayment on demand
clause are included in the earliest time band regardless of the probability of the banks or financial
institutions choosing to exercise their rights. The table includes both interest and principal cash
flows.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-37 –
The Saiguangbo Group
Effective
interest rate
On demand
or within
1 year
Between
1–2 years
Between
2–5 years
Total
undiscounted
cash flow
Total
carrying
amount
% HKD’000 HKD’000 HKD’000 HKD’000 HKD’000
As at 31 December 2014
Non-derivative financial
liabilities
Trade payables — 82,728 — — 82,728 82,728
Amount due to a
shareholder — 442,929 — — 442,929 442,929
Amounts due to related
companies — 62,554 — — 62,554 62,554
588,211 — — 588,211 588,211
As at 31 December 2015
Non-derivative financial
liabilities
Trade payables — 126,512 — — 126,512 126,512
Amount due to a
shareholder — 324,273 — — 324,273 324,273
Amounts due to related
companies — 12,956 — — 12,956 12,956
Bank borrowing 5.1 24,250 — — 24,250 23,870
487,991 — — 487,991 487,611
As at 31 December 2016
Non-derivative financial
liabilities
Trade payables — 46,122 — — 46,122 46,122
Amount due to a
shareholder — 326,613 — — 326,613 326,613
372,735 — — 372,735 372,735
As at 31 March 2017
Non-derivative financial
liabilities
Trade payables — 57,075 — — 57,075 57,075
Amount due to a
shareholder — 329,931 — — 329,931 329,931
387,006 — — 387,006 387,006
(c) Fair value of the Saiguangbo Group’s financial assets and financial liabilities that are measured at
amortised cost.
The management of the Saiguangbo Group estimates the fair value of its financial assets and
financial liabilities measured at amortised cost using discounted cash flows analysis. The management of
the Saiguangbo Group considers that the carrying amounts of financial assets and financial liabilities
recorded at amortised cost in the Historical Financial Information approximate their fair values.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-38 –
30. NON-CONTROLLING INTERESTS
The following table presents the information relating to Yongji, which has material non-controlling
interest (‘‘NCI’’) as at 31 December 2014 and 2015 until additional 55% equity interests was acquired during the
year of 2016. The following summarised consolidated historical financial information represents the amounts
before any inter-company elimination during the Relevant Periods. Subsequent to the Transfer as detailed in
note 1 to the Historical Financial Information, Yongji became a wholly-owned subsidiary of the Saiguangbo.
As at 31 December
2014 2015 2016
HKD’000 HKD’000 HKD’000
Percentage of NCI 45% 45% —
Current assets 59,131 52,390 —
Non-current assets 46,942 56,696 —
Current liabilities (60,505) (34,123) —
Net assets 45,568 74,963 —
Carrying value of NCI in the Historical Financial Information 20,506 33,733 —
Revenue 71,465 53,493 3,960
Profit (loss) for the year/period 8,990 (3,820) 232
Total comprehensive income (expense) 8,802 (7,290) (56)
Profit (loss) for the year/period attributed to NCI 4,045 (1,719) 104
Net cash from (used in) operating activities 9,148 (12,820) —
Net cash used in investing activities (15,108) (13,499) —
Net cash from financing activities 3,900 33,845 —
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-39 –
31. STATEMENTS OF FINANCIAL POSITION
As at 31 December
As at
31 March
2014 2015 2016 2017
HKD’000 HKD’000 HKD’000 HKD’000
Non-current assets
Investment in subsidiaries 90,944 85,932 156,332 157,962
Current asset
Bank balances and cash 8 11 11 11
Current liability
Amount due to a shareholder 77,822 73,538 68,805 69,523
Net current liabilities (77,814) (73,527) (68,794) (69,512)
Net assets 13,130 12,405 87,538 88,450
Capital and reserves
Paid-up capital 9,801 9,801 9,801 9,801Reserves (Note) 3,329 2,604 77,737 78,649
Total equity 13,130 12,405 87,538 88,450
Note:
Movements of the Company’s reserve:
Other
reserve
Exchange
reserve
Accumulated
losses Total
HKD’000 HKD’000 HKD’000 HKD’000
At 1 January 2014 — 3,405 (5) 3,400
Loss for the year — — (1) (1)
Exchange difference arising on translation — (70) — (70)
At 31 December 2014 — 3,335 (6) 3,329
Loss for the year — — (2) (2)
Exchange difference arising on translation — (723) — (723)
At 31 December 2015 — 2,612 (8) 2,604
Loss for the year — — (1) (1)
Exchange difference arising on translation — (3,548) — (3,548)
Total comprehensive expense for the year — (3,548) (1) (3,549)
Transfer of equity interests from non-controlling shareholders
of subsidiaries 78,682 — — 78,682
At 31 December 2016 78,682 (936) (9) 77,737
Exchange difference arising on translation — 912 — 912
At 31 March 2017 78,682 (24) (9) 78,649
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-40 –
32. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Saiguangbo or any of its subsidiaries in respect of
any period subsequent to 31 March 2017.
APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP
– IIC-41 –
As shown in Appendix IIA and IIB, Top Grand, Jump Corp, Shenzhen Benyue,
Shenzhen Benfu and Yuhai have no material assets and business operations save for their
equity interest in Saiguangbo and as such the management discussion and analysis of the
Target Group focuses on Saiguangbo Group.
Chongqing Saiguangbo Technology Company Limited* (重慶賽廣博科技有限公司) is a
company established in the PRC with limited liability on 7 February 2002, which is held by
Yuhai as to 51%. To the best knowledge of the Company, the other shareholder of
Saiguangbo as to 49% is an Independent Third Party. Shanxi Minsheng Natural Gas Co.,
Ltd.* (山西民生天然氣有限公司) is a company established in the PRC with limited liability
on 21 April 2006 which is wholly-owned by Saiguangbo. Yongji Minsheng Natural Gas Co.,
Ltd.* (永濟市民生天然氣有限公司) is a company incorporated in the PRC with limited
liability on 17 October 2008 which is wholly-owned by Saiguangbo.
As at the Latest Practicable Date, Saiguangbo Group supplies piped gas to residential
households, public utility, commercial and industrial users and operates 5 compressed
natural gas (‘‘CNG’’) refuelling stations for vehicles in Yuncheng City, Shanxi Province
through Shanxii Minsheng and supplies piped gas to residential households, public utility,
commercial and industrial users and operates 2 CNG refuelling stations for vehicles in
Yongji City, Shanxi Province through Yongji Minsheng.
Set out below is the management discussion and analysis of the operating results and
business review of Saiguangbo Group for the period from 1 January 2014 to 31 March 2017
(the ‘‘Track Record Period’’).
FOR THE YEAR ENDED 31 DECEMBER 2014
Business review
For the year ended 31 December 2014, Saiguangbo Group solely derived its revenue
from supplying piped gas to residential households, commercial, public utility and
industrial users and operating CNG refueling stations. Saiguangbo Group recorded
revenue of approximately HK$406.7 million and gross profit of approximately HK$65.5
million. Among the revenue generated, approximately HK$335.2 million was generated
from Shanxi Minsheng and approximately HK$71.5 million was generated from Yongji
Minsheng.
Saiguangbo Group incurred administrative expenses of approximately HK$27.4
million and distribution costs of approximately HK$5.3 million for the year ended 31
December 2014. The other losses of the Saiguangbo Group is approximately HK$0.07
million. As a result, Saiguangbo Group recorded net profit of approximately HK$24.6
million.
APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP
– III-1 –
Financial position
As at 31 December 2014, the total assets of Saiguangbo Group were approximately
HK$760.2 million which were mainly made up of: (i) property, plant and equipment of
approximately HK$437.4 million; (ii) Trade and other receivables of approximately
HK$120.3 million; (iii) amount due from customers from contract works of approximately
HK$128.8 million; (iv) inventory of approximately HK$8.4 million; (v) amount due from
related company of approximately HK$5.4 million; and (vi) bank and cash balance of
approximately HK$9.5 million. Included in other receivables as at 31 December 2014 are
mainly the advance to staff, utility deposits and prepayment for natural gas, construction
contract and construction materials.
As at 31 December 2014, the total liabilities of Saiguangbo Group were approximately
HK$699.3 million, which were mainly made up of: (i) trade and other payables of
approximately HK$157.7 million; (ii) amount due to a shareholder of approximately
HK$442.9 million; (iii) amount due to supplier from contract works of approximately
HK$27.9 million; (iv) amount due to related companies of approximately HK$62.6 million
and (v) tax payables of approximately HK$8.3 million. Other payables as at 31 December
2014 are mainly the receipt in advance of natural gas income and construction income, staff
cost, tax payables and other payables. During the year of 2014, Saiguangbo Group has
financed its operation mainly by the advance from its related companies and shareholder.
As a result, the net assets recorded in Saiguangbo Group was approximately HK$60.9
million as at 31 December 2014.
Gearing ratio
Saiguangbo Group had a gearing ratio of approximately 92.0% as at 31 December
2014 which is calculated as the total liabilities divided by the total assets.
Capital Commitments
As at 31 December 2014, Saiguangbo Group had no capital commitment contracted
for but not provided in the financial statements.
Significant investment, material acquisition and disposals
Saiguangbo Group did not have any significant investments or carried out any material
acquisition and disposal during the year ended 31 December 2014.
Pledge of assets
As at 31 December 2014, Saiguangbo Group did not pledge any of its assets.
APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP
– III-2 –
Remuneration policies and employee information
As at 31 December 2014, Saiguangbo Group had 293 employees, with total staff costs
of approximately HK$17.5 million for the year ended 31 December 2014. Saiguangbo
Group remunerated its employees based on the job nature, individual performance, working
experiences, professional qualification and market trends.
Foreign exchange risk
Saiguangbo Group’s exposure to foreign currency risk is minimal as Saiguangbo
Group’s operations were principally in China and the principal assets and liabilities of
Saiguangbo Group were denominated in Renminbi. Saiguangbo Group considered that it
did not have any material exposure to fluctuations in exchange rate. Accordingly, no
hedging measure of foreign currency risk was taken during the year ended 31 December
2014.
Contingent liabilities
As at 31 December 2014, Saiguangbo Group had no contingent liabilities pursuant to
which material losses were expected.
Segmental information
Saiguangbo Group had only one business segment, being the supply of piped gas to
residential households, commercial, public utility and industrial users and operation of
CNG refueling stations for the year ended 31 December 2014.
FOR THE YEAR ENDED 31 DECEMBER 2015
Business review
For the year ended 31 December 2015, Saiguangbo Group solely derived its revenue
from supplying piped gas to residential households, commercial, public utility and
industrial users and operating CNG refueling stations. Saiguangbo Group recorded
revenue of approximately HK$382.0 million and gross profit of approximately HK$44.4
million. Among the revenue generated, approximately HK$328.5 million was generated
from Shanxi Minsheng and approximately HK$53.5 million was generated from Yongji
Minsheng.
The deteriorated operating results of the Saiguangbo Group for the year ended 31
December 2015 when compare to that for the year ended 31 December 2014 were mainly
attributable to the increase in average unit cost of natural gas by approximately 3.4% and
1.7%, respectively, in Yongji Minsheng and Shanxi Minsheng, respectively and decrease in
average unit selling price of natural gas by approximately 4.3% and 0.5% in Yongji
Minsheng and Shanxi Minsheng, respectively. As a result, the gross profit margin on sales
of natural gas was decreased by approximately 5.2% and 4.2% in Yongji Minsheng and
Shanxi Minsheng, respectively.
APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP
– III-3 –
Saiguangbo Group incurred administrative expenses of approximately HK$24.4
million and distribution costs of approximately HK$5.9 million for the year ended 31
December 2015. The other gain of the Saiguangbo Group was approximately HK$1.8
million and hence, Saiguangbo Group recorded net profit of approximately HK$11.1
million.
Financial position
As at 31 December 2015, the total assets of Saiguangbo Group were approximately
HK$637.3 million, which were mainly made up of: (i) property, plant and equipment of
approximately HK$403.1 million; (ii) Trade and other receivables of approximately
HK$96.4 million; (iii) amount due from customers from contract works of approximately
HK$62.3 million; (iv) inventory of approximately of HK$6.3 million; (v) amount due from
related companies of approximately HK$1.2 million; and (vi) bank and cash balance of
approximately HK$22.6 million. Included in other receivables as at 31 December 2015 were
mainly the advance to staff, utility deposits and prepayment for natural gas, construction
contract and construction materials. The increase in cash and cash equivalents reflected the
shorter debtor collection period in the year of 2015.
As at 31 December 2015, the total liabilities of Saiguangbo Group were approximately
HK$532.1 million, which were mainly made up of: (i) trade and other payables of
approximately HK$142.1 million; (ii) amount due to a shareholder of approximately
HK$324.3 million; (iii) amount due to supplier from contract works of approximately
HK$25.6 million; (iv) amount due to related companies of approximately HK$13.0 million;
(v) bank borrowing of approximately HK23.9 million; and (vi) tax payables of
approximately HK$3.3 million. Other payables as at 31 December 2015 are mainly the
receipt in advance of natural gas income and construction income, staff cost, tax payables
and other payables. In year of 2015, Saiguangbo Group has financed its operation mainly
by the advance from its related companies and shareholder and the proceeds from the bank
borrowings.
As a result, the net assets recorded in approximately HK$105.1 million as at 31
December 2015.
Gearing ratio
Saiguangbo Group had a gearing ratio of approximately 83.5% as at 31 December
2015 which is calculated as total liabilities divided by the total assets.
Capital Commitments
As at 31 December 2015, Saiguangbo Group had no capital commitment contracted
for but not provided in the financial statements.
APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP
– III-4 –
Significant investment, material acquisition and disposals
Saiguangbo Group did not have any significant investments or carried out any material
acquisition and disposal during the year ended 31 December 2015.
Pledge of assets
As at 31 December 2015, certain land use rights in the PRC of Saiguangbo Group with
total carrying amounts of HK$13,405,000 were pledged to secure the bank borrowings. The
effective interest rate on the Group’s bank borrowing was 5.1%.
Remuneration policies and employee information
As at 31 December 2015, Saiguangbo Group had 277 employees, with total staff costs
of approximately HK$17.5 million for the year ended 31 December 2015. Saiguangbo
Group remunerated its employees based on the job nature, individual performance, working
experiences, professional qualification and market trends.
Foreign exchange risk
Saiguangbo Group’s exposure to foreign currency risk is minimal as Saiguangbo
Group’s operations were principally in China and the principal assets and liabilities of
Saiguangbo Group were denominated in Renminbi. Saiguangbo Group considered that it
did not have any material exposure to fluctuations in exchange rate. Accordingly, no
hedging measure of foreign currency risk was taken during the year ended 31 December
2015.
Contingent liabilities
As at 31 December 2015, Saiguangbo Group had no contingent liabilities pursuant to
which material losses were expected.
Segmental information
Saiguangbo Group had only one business segment, being the supply of piped gas to
residential households, commercial, public utility and industrial users and operation of
CNG refueling stations for the year ended 31 December 2015.
FOR THE YEAR ENDED 31 DECEMBER 2016
Business review
For the year ended 31 December 2016, Saiguangbo Group solely derived its revenue
from supplying piped gas to residential households, commercial, public utility and
industrial users and operating CNG refueling stations. Saiguangbo Group recorded
revenue of approximately HK$338.6 million and gross profit of approximately HK$46.0
APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP
– III-5 –
million. Among the revenue generated, approximately HK$269.8 million was generated
from Shanxi Minsheng and approximately HK$68.8 million was generated from Yongji
Minsheng.
The improved gross profit of the Saiguangbo Group for the year ended 31 December
2016 when compare to that for the year ended 31 December 2015 were mainly attributable
to the decrease in average unit cost of natural gas by approximately 17.7% and 18.7% in
Yongji Minsheng and Shanxi Minsheng, respectively which partially mitigated by the
decrease in average unit selling price of natural gas by approximately 15.3% and 15.9% in
Yongji Minsheng and Shanxi Minsheng respectively. As a result, the gross profit margin on
sales of natural gas was increased by approximately 5.6% and 1.2% in Yongji Minsheng
and Shanxi Minsheng, respectively.
Saiguangbo Group incurred administrative expenses of approximately HK$30.5
million and distribution costs of approximately HK$5.0 million for the year ended 31
December 2016. The other gain of the Saiguangbo Group is approximately HK$1.7 million
and as a result, Saiguangbo Group recorded net profit of approximately HK$10.4 million.
Financial position
As at 31 December 2016, the total assets of Saiguangbo Group were approximately
HK$597.5 million, which were mainly made up of: (i) property, plant and equipment of
approximately HK$367.0 million; (ii) Trade and other receivables of approximately
HK$89.9 million; (iii) amount due from customers from contract works of approximately
HK$33.6 million; (iv) inventory of approximately HK$7.3 million; (v) amount due from
related company of approximately HK$13.8 million; and (vi) bank and cash balance of
approximately HK$44.3 million.
Included in other receivables as at 31 December 2016 are mainly the advance to staff,
utility deposits and prepayment for natural gas, construction contract and construction
materials. The increase in cash and cash equivalents reflected the shorter debt collection
period in the year of 2016. For the year ended 31 December 2016, the Saiguangbo Group
recognised a bad debt provision on trade receivables of approximately HK$1.6 million,
which represents the trade receivables and the amount due from customers experiencing
financial difficulties that were in default or delinquency of payments or have been past due
for more than one year and have not responded to repayment demands. With an aim to
reduce the rate of the impairment loss, the Saiguangbo Group had tightened up its credit
approval to new customers in forthcoming years and keep check on the payment pattern
from customers.
As at 31 December 2016, the total liabilities of Saiguangbo Group were approximately
HK$487.9 million, which were mainly made up of: (i) trade and other payables of
approximately HK$125.0 million; (ii) amount due to a shareholder of approximately
HK$326.6 million; (iii) amount due to supplier from contract works of approximately
HK$33.3 million; and (iv) tax payables of approximately HK$3.1 million. Other payables as
at 31 December 2016 are mainly the receipt in advance of natural gas income and
construction income, staff cost, tax payables and other payables. In year of 2016,
APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP
– III-6 –
Saiguangbo Group has benefited from its operation and able to finance its working capital
so that the amount due to related companies and shareholder reduced and amount due from
related companies increased. The fluctuation of amount due from or to customer for
contract work was reflected the percentage of completion of various construction contracts.
As a result, the net assets recorded in approximately HK$109.5 million as at 31
December 2016.
Gearing ratio
Saiguangbo Group had a gearing ratio of approximately 81.7% as at 31 December
2016 which is calculated as total liabilities divided by the total assets.
Capital Commitments
As at 31 December 2016, Saiguangbo Group had no capital commitment contracted
for but not provided in the financial statements.
Significant investment, material acquisition and disposals
Save for the acquisition of the 100% of the equity interests of Yongji Minsheng
Saiguangbo Group did not have any significant investments or carry out any material
acquisition and disposal during the year ended 31 December 2016.
Pledge of assets
As at 31 December 2016, Saiguangbo Group did not pledge any of its assets.
Remuneration policies and employee information
As at 31 December 2016, Saiguangbo Group had 267 employees, with total staff costs
of approximately HK$16.5 million for the year ended 31 December 2016. Saiguangbo
Group remunerated its employees based on the job nature, individual performance, working
experiences, professional qualification and market trends.
Foreign exchange risk
Saiguangbo Group’s exposure to foreign currency risk is minimal as Saiguangbo
Group’s operations were principally in China and the principal assets and liabilities of
Saiguangbo Group were denominated in Renminbi. Saiguangbo Group considered that it
did not have any material exposure to fluctuations in exchange rate. Accordingly, no
hedging measure of foreign currency risk was taken during the year ended 31 December
2016.
Contingent liabilities
As at 31 December 2016, Saiguangbo Group had no contingent liabilities pursuant to
which material losses were expected.
APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP
– III-7 –
Segmental information
Saiguangbo Group had only one business segment, being the supply of piped gas to
residential households, commercial, public utility and industrial users and operation of
CNG refueling stations for the year ended 31 December 2016.
FOR THE THREE MONTHS ENDED 31 MARCH 2017
Business review
For the three months ended 31 March 2017, Saiguangbo Group solely derived its
revenue from supplying piped gas to residential households, commercial, public utility and
industrial users and operating CNG refueling stations. Saiguangbo Group recorded revenue
of approximately HK$130.8 million and gross profit of approximately HK$27.0 million.
Among the revenue generated, approximately HK$103.8 million was generated from Shanxi
Minsheng and approximately HK$27.0 million was generated from Yongji Minsheng.
The improved operating results of the Saiguangbo Group for the three months ended
31 March 2017 when compare to that for the three months ended 31 March 2016 were
mainly attributable to the decrease in average unit cost of natural gas by 4.7% and 1.3% in
Yongji Minsheng and Shanxi Minsheng respectively and the average selling price of natural
gas remained stable in both Yongji Minsheng and in Shanxi Minsheng. Under the
government endeavored the facilitation of clean energy development, the sales volume of
natural gas were increased by 37.8% and 28.0% in Yongji Minsheng and Shanxi Minsheng
respectively. As a result, the gross profit on sales of natural gas decreased by 2.3% in
Yongji Minsheng and increased by 3.3% in Shanxi Minsheng.
Saiguangbo Group incurred administrative expenses of approximately HK$20.4
million and distribution costs of approximately HK$0.3 million for the three months
ended 31 March 2017. The other losses of the Saiguangbo Group is approximately HK$2.6
million and as a result, Saiguangbo Group recorded net profit of approximately HK$3.2
million.
Financial position
As at 31 March 2017, the total assets of Saiguangbo Group were approximately
HK$604.9 million which were mainly made up of: (i) property, plant and equipment of
approximately HK$364.6 million; (ii) Trade and other receivables of approximately
HK$94.8 million; (iii) amount due from customers from contract works of approximately
HK$48.4 million; (iv) inventory of approximately HK$5.8 million; (v) amount due from
related company of approximately HK$16.2 million; and (vi) bank and cash balance of
approximately HK$33.6 million.
Included in other receivables as at 31 March 2017 are mainly the advance to staff,
utility deposits and prepayment for natural gas, construction contract and construction
materials. For the three months ended 31 March 2017, the Saiguangbo Group recognised a
bad debt provision on trade receivables of approximately HK$2.9 million, which represents
APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP
– III-8 –
the trade receivables and the amount due from customers experiencing financial difficulties
that were in default or delinquency of payments or have been past due for more than one
year and have not responded to repayment demands. With an aim to reduce the rate of the
impairment loss, the Saiguangbo Group had tightened up its credit approval to new
customers in forthcoming years and keep check on the payment pattern from customers.
As at 31 March 2017, the total liabilities of Saiguangbo Group were approximately
HK$491.6 million, which were mainly made up of: (i) trade and other payables of
approximately HK$115.1 million; (ii) amount due to a shareholder of approximately
HK$329.9 million; (iii) amount due to supplier from contract works of approximately
HK$43.0 million; and (iv) tax payables of approximately HK$3.6 million. Other payables as
at 31 March 2017 were mainly the receipt in advance of natural gas income and construction
income, staff cost, tax payables and other payables.
As a result, the net assets were approximately HK$113.4 million as at 31 March 2017.
Gearing ratio
Saiguangbo Group had a gearing ratio of approximately 81.3% as at 31 March 2017
which is calculated as total liabilities divided by the total assets.
Capital Commitments
As at 31 March 2017, Saiguangbo Group had no capital commitment contracted for
but not provided in the financial statements.
Significant investment, material acquisition and disposals
Saiguangbo Group did not have any significant investments or carried out any material
acquisition and disposal during the three months ended 31 March 2017.
Pledge of assets
As at 31 March 2017, Saiguangbo Group did not pledge any of its assets.
Remuneration policies and employee information
As at 31 March 2017, Saiguangbo Group had 285 employees, with total staff costs of
approximately HK$4.3 million for the three months ended 31 March 2017. Saiguangbo
Group remunerated its employees based on the job nature, individual performance, working
experiences, professional qualification and market trends.
Foreign exchange risk
Saiguangbo Group’s exposure to foreign currency risk is minimal as Saiguangbo
Group’s operations were principally in China and the principal assets and liabilities of
Saiguangbo Group were denominated in Renminbi. Saiguangbo Group considered that it
APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP
– III-9 –
did not have any material exposure to fluctuations in exchange rate. Accordingly, no
hedging measure of foreign currency risk was taken during the three months ended 31
March 2017.
Contingent liabilities
As at 31 March 2017, Saiguangbo Group had no contingent liabilities pursuant to
which material losses were expected.
Segmental information
Saiguangbo Group had only one business segment, being the supply of piped gas to
residential households, commercial, public utility and industrial users and operation of
CNG refueling stations for the three months ended 31 March 2017.
Future prospects
It is expected that there will be further new connection to residential households by
Shanxi Minsheng and Yongji Minsheng, in view of (i) the new real estate projects to be
completed; and (ii) the conversion to piped gas by existing residential areas. Further upside
on gas consumption however will be coming from the commercial segment. Yongji City is
developing its leisure industry lately with most restaurants, hotels & shopping malls are still
not using natural gas as the main source of energy. In terms of gas sourcing, Yuncheng
enjoys the benefits of a dual piped gas supplier. With such an unique infrastructure (East
gas city-gate 東門站 and North gas city-gate 北門站) Yuncheng is able to maximise the gas
output during the peak season. Yuncheng has a well-balanced gas consumption mix in
nature thus it is less affected by any economic cycle and policies.
Since the government in the PRC is promoting the ‘‘coal-to-gas’ policy to reduce the
air pollution in the PRC. Therefore, it is expected that the business of both Shanxi
Minsheng and Yongji Minsheng will also be benefited from the policy. On the same token
Yongji City is also on track to comply with government’s coal-to-gas conversion plan.
According to the Air Pollution Prevention and Control Action Plan (《大氣污染防治行動計
劃》) issued by The State Council (國務院) of PRC in September 2013, coal fired steam
turbine below 10 steam/ton has to be converted by the end of 2017.
APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP
– III-10 –
1. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF
THE ENLARGED GROUP
(A) INTRODUCTION
The unaudited pro forma statement of assets and liabilities (the ‘‘Unaudited Pro
Forma Financial Information’’) of the Enlarged Group has been prepared to illustrate the
effect of the acquisition of 100% of the issued share capital of Top Grand Global Limited
(‘‘Top Grand’’). (Top Grand together with its subsidiaries, herein after collectively referred
as the ‘‘Target Group’’) (the ‘‘Acquisition’’), assuming the Acquisition had been completed
as at 30 June 2017 (‘‘Completion’’), might have affected the financial position of the Group.
The unaudited pro forma statement of assets and liabilities of the Enlarged Group is
prepared based on the condensed consolidated statement of financial position of the Group
as at 30 June 2017 as extracted from the interim report of the Group for the period ended 30
June 2017, the audited consolidated statement of financial position of the Top Grand and
the Chongqing Saiguangbo Technology Company Limited (‘‘Saiguangbo’’) and the audited
statement of financial position of Shenzhen Yuhai Energy Company Limited as at 31 March
2017 as extracted from the Accountants’ Report set out in Appendix IIA, IIC and IIB
respectively, of this Circular after making certain pro forma adjustments resulting from the
Acquisition. The Company also confirm with its auditors that they will audit and opine on
the consolidated financial statements of the Group in accordance with Hong Kong
Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants.
The Unaudited Pro Forma Financial Information has been prepared for illustrative
purposes only and, because of its hypothetical nature, it may not give a true picture of the
financial position of the Enlarged Group had the Acquisition been completed as at 30 June
2017 or at any future date. The Unaudited Pro Forma Financial Information should be read
in conjunction with other financial information included elsewhere in this Circular.
APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP
– IV-1 –
(B) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND
LIABILITIES OF THE ENLARGED GROUP
Pro forma adjustments
Unaudited
consolidated
statement of
assets and
liabilities of
the Group
as at
30 June
2017
Audited
consolidated
statement of
assets and
liabilities of
Top Grand
as at
31 March
2017
Audited
consolidated
statement of
assets and
liabilities of
Saiguangbo
as at
31 March
2017
Audited
statement of
assets and
liabilities of
Yuhai as at
31 March
2017
Being
adjustment of
transfer of
equity interests
in Yuhai and
Saiguangbo
Sub-total of
the Target
Group (after
transfer of
equity interest
in Yuhai and
Saiguangbo) as
at 31 March
2017 Note 7 Note 8 Note 9
Unaudited pro
forma
consolidated
statement of
assets and
liabilities of
the Enlarged
Group
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9
Non-current assets
Prepaid lease payments 20,335 — 40,572 — 40,572 (6,740) 54,167Property, plant and equipment 368,150 — 364,601 — 364,601 (5,348) 727,403Intangible assets 846,150 — — — — 543,942 1,390,092Goodwill 1,183,533 — — — — 61,359 1,244,892Investment in subsidiaries — — — 5,985 (5,985) — —Interest in associates 212,510 — — — — 212,510Interest in joint ventures 422,197 — — — — 422,197Deposits for acquisition of subsidiaries 815,341 — — — — 815,341Deposits for acquisition of property, plant
and equipment 90,898 — — — — 90,898Prepayment 16,396 — — — — 16,396Promissory not receivable 6,509 — — — — 6,509Available-for-sale investments 134,813 — — — — 134,813Other non-current assets 300 — — — — 300
4,117,132 — 405,173 5,985 405,173 5,115,518
Current assets
Prepaid lease payments 330 — 1,062 — 1,062 1,392Inventories 9,640 — 5,759 — 5,759 15,399Trade and other receivables 275,251 — 94,813 — 94,813 (291,615) 16,161 94,610Amounts due from customers for contract
work — — 48,408 — 48,408 48,408Amounts due from non-controlling
shareholders of subsidiaries 11,940 — — — — 11,940Amounts due from joint ventures 55,170 — — — — 55,170Amounts due from related companies — — 16,161 — 16,161 (16,161) —Promissory notes receivables 178,340 — — — — 178,340Financial assets at fair value through
profit or loss 183,463 — — — — 183,463Cash and bank balances 160,847 103 33,562 — 33,665 (55,647) 138,865
874,981 103 199,765 — 199,868 727,587
Total assets 4,992,113 103 604,938 5,985 605,041 5,843,105
Liabilities
Non-current liabilities
Obligations under finance leases 108,418 — — — — 108,418Other borrowings 293,000 — — — — 293,000Amount due to non-controlling
shareholders of a subsidiary — — — — — 85,964 85,964Convertible bonds 466,258 — — — — 466,258Deferred tax liabilities 210,525 — — — — 193,696 404,221
1,078,201 — — — — 1,357,861
Current liabilities
Trade and other payables 226,628 17 115,060 115,077 55,804 3,436 5,984 406,929Amount due to customers for contract
work — — 42,985 42,985 42,985Obligation under finance lease 50,208 — — — 50,208Other borrowings 87,128 — — — 87,128Convertible bonds 62,210 — — — 62,210Embedded derivatives at fair value
through profit or loss 139,120 — — — 139,120Amount due to an associate — — — — —Amounts due to joint ventures 9,038 — — — 9,038Amount due to director — 117 — 117 117Amount due to shareholders — — 329,931 5,984 335,915 (243,967) (91,948) —Tax payable — — 3,603 3,603 3,603
574,332 134 491,579 5,984 497,697 801,338
Total liabilities 1,652,533 134 491,579 5,984 497,697 2,159,199
Net assets 3,339,580 (31) 113,359 1 107,344 3,683,906
APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP
– IV-2 –
Notes:
(1) The unaudited consolidated statement of assets and liabilities of the Group as at 30 June 2017 is extracted
from the condensed consolidation statement of position as at 30 June 2017 of the Group as set out in the
published interim report of the Company as at and for the period ended 30 June 2017.
(2) The consolidated statement of assets and liabilities of Top Grand as at 31 March 2017 is extracted from
the historical financial information of Top Grand as set out in appendix IIA to this Circular.
(3) The consolidated statement of assets and liabilities of Saiguangbo as at 31 March 2017 is extracted from
the historical financial information of Saiguangbo as set out in appendix IIC to this Circular.
(4) The statement of assets and liabilities of Yuhai as at 31 March 2017 is extracted from the historical
financial information of Yuhai as set out in appendix IIB to this Circular.
(5) On 1 November 2016, the shareholders of Saiguangbo transferred 51% equity interest of Saiguangbo to
Yuhai and on 5 May 2017, sole shareholder of Yuhai transferred 2% and 98% equity interest of Yuhai to
a independent third party and Shenzhen Bengu Energy Company Limited, an indirectly wholly owned
subsidiary of Top Grand, respectively. (the ‘‘Transfer’’). No consolidated statement of assets and liabilities
of Yuhai as at 30 June 2017 has been prepared, the adjustment represents the consolidation adjustments in
eliminating the investment cost of Yuhai in Saiguangbo in its consolidated statement of assets and
liabilities, upon if the Completion of the Transfer.
(6) The balances represent the assets and liabilities of the Target Group as at 31 March 2017 before the pro
forma adjustments in relation to the Acquisition.
(7) The Acquisition
The Acquisition involves the acquisition of entire equity interest in Target Group by the Company
pursuant to the terms of the Sale and Purchase Agreement dated on 8 June 2017 at a total consideration of
RMB349,860,000 (equivalent to approximately HK$390,469,000) which will be satisfied by deposit paid
by the Group of RMB250,000,000 (equivalent to approximately HK$291,615,000), retention fund payable
of RMB50,000,000 (equivalent to approximately HK$55,804,000) (‘‘Retention Fund Payable’’) and cash
of RMB49,860,000 (equivalent to approximately HK$55,647,000).
Pursuant to the terms of the sale and purchase agreement, the Vendor’s guarantor has agreed to provide a
profit guarantee to the Group in relation to the financial performance of the Target Group for the period
of one year from date of Completion. If the actual financial performance of the Target Group falls short
of the guarantee profits, the Group can deduct an amount equivalent to the shortfall as monetary
compensation from the Retention Fund Payable.
For the purpose of preparing the Unaudited Pro Forma Consolidated Statement of Financial Position, it
is assumed that the guarantee profit will be attained and the pro forma fair value of the Retention Fund
Payable is RMB50,000,000 (equivalent to approximately HK$55,804,000).
APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP
– IV-3 –
The adjustments represent the recognition of goodwill, intangible assets, property, plant and equipment,
prepaid lease payment and deferred tax liabilities arising from the Acquisition Upon Completion, the
identifiable assets and liabilities of the Target Group were accounted for in the consolidated statement of
assets and liabilities of the Enlarged Group at fair value under the acquisition method in accordance with
International Financial Reporting Standard 3 ‘‘Business Combination’’ (IFRS 3’’). For the purpose of the
Unaudited Pro Forma Financial Information and for illustrative purpose only, the Group has carried out
the illustrative consideration allocation exercise in accordance with IFRS 3. The identifiable assets and
liabilities of the Target Grand Group are recorded in the Unaudited Pro Forma Financial Information
assets and liabilities of the Enlarged Group at their fair values estimated by the Directors with reference to
the valuation performed by an independent professional qualified valuer which issued a valuation report
dated 25 September 2017 (the ‘‘PPA Valuation Report’’) on the Target Group for the purpose of purchase
price allocation.
The excess amount of the consideration over the Group’s share of the fair value of the net identifiable
assets of the Target Group is recognised as goodwill. The goodwill arising from the Acquisition of the
continuing business of Target Group is calculated as follows:
Notes HK$’000
Consideration:
— Deposit paid by the Group recognised as trade and
other receivable before Completion of Acquisition 291,615
— Retention Fund Payable 55,804
— Cash 55,647
Total consideration 403,066
Less:
Net assets of Target Group as at 31 March 2017 a 107,344
Fair value deficit of property, plant and equipment b (5,348)
Fair value deficit of prepaid lease payment c (6,740)
Fair value surplus of intangible assets d 543,942
Fair value adjustment on amount due to shareholder of Target Group e 243,967
Effect on deferred tax liabilities arising from fair value surplus of
intangible assets, deficit of property, plant and equipment and prepaid
lease payment f (193,696)
Less:
Non-controlling interests of subsidiaries of the Target Group g (56,582)
Non-controlling interest of 49% of Saiguanbo h (285,241)
Non-controlling interest of 2% of Yuhai i (5,939)
Total fair value of identifiable assets acquired and liabilities assumed of
the Target Group 341,707
Goodwill j 61,359
APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP
– IV-4 –
Notes:
(a) Net assets of Target Group after the completion of Transfer.
(b) For the purpose of the Unaudited Pro Forma Financial Information, the fair values of the property,
plant and equipment of the Top Grand Group was adjusted which based on the purchase price
allocation with reference to PPA Valuation Report, with a fair value deficit of
RMB4,861,000(equivalent to approximately HK$5,348,000).
(c) For the purpose of the Unaudited Pro Forma Financial Information, the fair values of the prepaid
lease payment of the Top Grand Group was adjusted which based on the purchase price allocation
with reference to PPA Valuation Report, with a fair value deficit of RMB6,127,000 (equivalent to
approximately HK$6,740,000).
(d) Fair value surplus of intangible assets represent a fair value of exclusive operating rights acquired
amounted to RMB494,443,000 (equivalent to approximately HK$543,942,000), which are based on
the purchase price allocation with reference to PPA Valuation Report.
(e) As at the date of Completion, the shareholder of Target Group agreed not to demand the repayment
for the amounts due from Target Group upon the expiry date of exclusive operating rights. The
amount represents the adjustment on the discounted value of the amount due to shareholder by
Target Group,which are based on the purchase price allocation with reference to PPA Valuation
Report.
(f) The adjustment on deferred tax liabilities is determined based on the fair value surplus of intangible
assets, netted against the fair value deficit of property, plant and equipment and prepaid lease
payment by applying statutory tax rate of 25% in People’s Republic of China.
(g) The amount represents the 49% of non-controlling interests of subsidiaries of the Target Group
upon the Completion of the Transfer before fair value adjustment.
(h) The amount represents 49% of the recognised fair value of identifiable net assets attributable to
non-controlling shareholder of the Saiguanbo.
(i) The amount represents 2% of the recognised fair value of identifiable net assets attributable to non-
controlling shareholder of the Yuhai.
(j) Since the fair values of the identifiable assets and liabilities of the Top Grand Group at the date of
Completion may substantially different from the fair values used in the preparation of this
Unaudited Pro Forma Financial Information of the Enlarged Group, the final amounts of the
identified net assets (including intangible assets) and goodwill may be different from the amounts
presented above. The directors of the Company have assessed whether there is any impairment on
the intangible asset with indefinite useful life (i.e. exclusive operating right) and goodwill arising
from the Acquisition as at 30 June 2017 in accordance with IAS 36 Impairment of Assets (‘‘IAS 36’’)
and concluded that there is no impairment in respect of the intangible assets with indefinite useful
life and goodwill. The recoverable amount of the cash generating until comprising these pro forma
intangible assets (i.e. at exclusive operating right) and goodwill is determined based on the value in
use calculation. The calculation uses cash flow forecast based on the most recent financial budget of
the cash generating unit for the next five years approved by the management of Saiguangbo Group.
Key assumptions of the value in use calculations of the cash generating unit relate to the estimation
of cash inflows and outflows which include budgeted gross margins and operating expenses. Such
estimation is based on the cash generating unit’s past performance and the management’s
expectations for the market development.
APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP
– IV-5 –
The directors of the Company confirmed that they will apply consistent accounting policies,
principal assumptions and valuation methods as assess impairment of the intangible asset and
goodwill in subsequent reporting periods in accordance with the requirement of IAS 36. The
Company also confirm with its auditors that they will audit and opine on the consolidated financial
statements of the Group in accordance with Hong Kong Standards on Auditing issued by the Hong
Kong Institute of Certified Public Accountants.
(8) The adjustment represents the estimated professional fee and transaction costs of approximately
HK$3,436,000 increased by the Enlarged Group in connection with the Acquisition, which are assumed to
be payable upon the completion of the Acquisition.
(9) The adjustment represents reclassification of amount due from(to) related companies and shareholders to
other receivables, other payables and amounts due to non-controlling shareholders of a subsidiary as if
the Acquisition completed on 30 June 2017.
(10) For the purpose of preparation of the unaudited pro forma financial information, the consolidated
statement of assets and liabilities is presented in Hong Kong dollar (‘‘HK$’’) and all values are rounded to
the nearest thousand (HK$’000) except when otherwise indicated. Items of the consolidated statement of
assets and liabilities are translated into RMB at the exchange rate ruling at 30 June 2017 of HK$1 to
RMB0.909.
(11) Apart from the Acquisition, no other adjustment has been made to the Unaudited Pro Forma Financial
Information to reflect any trading results or other transactions entered into by the Group and the Top
Grand Group subsequent to 30 June 2017.
APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP
– IV-6 –
The following is the text of a report received from the reporting accountants, CHENG &
CHENG LIMITED, Certified Public Accountants, Hong Kong, in respect of the Group’s
proforma financial information for the purpose of incorporation in this Circular.
2. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON
THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION
To the Director of Beijing Gas Blue Sky Holdings Limited
We have completed our assurance engagement to report on the compilation of pro
forma financial information (the ‘‘Unaudited Pro Forma Financial Information’’) of Beijing
Gas Blue Sky Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter
collectively referred to as the ‘‘Group’’) by the directors of the Company (the
‘‘Directors’’) for illustrative purposes only. The Unaudited Pro Forma Financial
Information consists of the unaudited pro forma statement of assets and liabilities of the
Group as at 30 June 2017 and related notes as set out on pages IV-2 to IV-3 of the circular
of the Company dated 25 September 2017 (the ‘‘Circular’’). The applicable criteria on the
basis of which the Directors have compiled the Unaudited Pro Forma Financial
Information are described on page IV-1 of Appendix IV to the Circular.
The Unaudited Pro Forma Financial Information has been compiled by the Directors
to illustrate the impact of the proposed acquisition of 100% of the issued share capital of
Top Grand Global Limited (the ‘‘Proposed Acquisition’’) on the Group’s assets and
liabilities as at 30 June 2017 as if the Proposed Acquisition, had taken place at 30 June 2017.
As part of this process, information about the Group’s assets and liabilities has been
extracted by the Directors from the Group’s condensed financial statements for the period
ended 30 June 2017.
Directors’ Responsibility for the Unaudited Pro Forma Financial Information
The Directors are responsible for compiling the Unaudited Pro Forma Financial
Information in accordance with paragraph 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 (‘‘HKICPA’’).
APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP
– IV-7 –
Our Independence and Quality Control
We have complied with the independence and other ethical requirements of the ‘‘Code
of Ethics for Professional Accountants’’ issued by the HKICPA, which is founded on
fundamental principles of integrity, objectivity, professional competence and due care,
confidentiality and professional behavior.
Our firm applies Hong Kong Standard on Quality Control 1 ‘‘Quality Control for
Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and
Related Services Engagements’’ issued by the HKICPA and accordingly maintains a
comprehensive system of quality control including documented policies and procedures
regarding compliance with ethical requirements, professional standards and applicable legal
and regulatory requirements.
Reporting Accountants’ Responsibilities
Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the
Listing Rules, on the Unaudited 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 Unaudited Pro Forma Financial
Information beyond that owned 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 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 accountants plan and perform procedures to obtain reasonable
assurance about whether the Directors have compiled the Unaudited Pro Forma Financial
Information in accordance with paragraph 4.29(7) of the Listing Rules and with reference
to AG 7 issued by the HKICPA.
For the 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
Unaudited 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 Unaudited Pro Forma Financial Information.
The purpose of Unaudited 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 31
December 2016 would have been as presented.
A reasonable assurance engagement to report on whether the Unaudited 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
APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP
– IV-8 –
Directors in the compilation of the Unaudited 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
— the Unaudited Pro Forma Financial Information reflects the proper application
of those adjustments to the unadjusted financial information.
The procedures selected depend on the reporting accountants’ judgement, having
regard to the reporting accountants’ understanding of the nature of the Group, the event or
transaction in respect of which the Unaudited Pro Forma Financial Information has been
compiled, and other relevant engagement circumstances.
The engagement also involves evaluating the overall presentation of the Unaudited 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 Unaudited Pro Forma Financial Information has been properly compiled by
the Directors on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the pro forma adjustments are appropriate for the purposes of the Unaudited Pro
Forma Financial Information on the Group as disclosed pursuant to paragraph
4.29(1) of the Listing Rules.
Your faithfully,
CHENG & CHENG LIMITED
Certified Public Accountants
Hong Kong
25 September 2017
APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP
– IV-9 –
22/F, China Overseas Building,
139 Hennessy Road, Wan Chai, Hong Kong
Tel (852) 2529 6878 Fax (852) 2529 6806
E-mail [email protected]
http://www.romagroup.com
25 September 2017
Beijing Gas Blue Sky Holdings Limited
Rooms 1411, 14/F.,
New World Tower I,
16–18 Queen’s Road Central,
Hong Kong
Case Ref: AK/BVPPA4207p/MAY17(a)
Dear Sir/Madam,
Re: Valuation of 100% Equity Interest in Chongqing Saiguangbo Technology Company
Limited and its Subsidiaries
In accordance with the instructions from Beijing Gas Blue Sky Holdings Limited
(hereinafter referred to as the ‘‘Company’’) to us to conduct a business valuation on 100%
equity interest in Chongqing Saiguangbo Technology Company Limited (hereinafter
referred to as the ‘‘Business Enterprise’’) and its subsidiaries (collectively referred to as the
‘‘Subject Group’’), we are pleased to report that we have made relevant enquiries and
obtained other information which we considered relevant for the purpose of providing our
valuation as at 31 March 2017 (hereinafter referred to as the ‘‘Date of Valuation’’).
This report states the purpose of valuation, scope of work, an economic overview, an
industry overview, an overview of the Subject Group, basis of valuation, investigation and
analysis, valuation methodology, major assumptions, information reviewed, limiting
conditions, remarks and opinion of value.
1. PURPOSE OF VALUATION
This report is prepared solely for the use of the directors and management of the
Company. Roma Appraisals Limited (hereinafter referred to as ‘‘Roma Appraisals’’)
acknowledges that this report may be made available to the Company for public
documentation purpose only.
Roma Appraisals assumes no responsibility whatsoever to any person other than the
Company in respect of, or arising out of, the contents of this report. If others choose to rely
in any way on the contents of this report they do so entirely at their own risk.
APPENDIX V VALUATION REPORT
– V-1 –
2. SCOPE OF WORK
Our valuation conclusion is based on the assumptions stated herein and on
information provided by the management of the Company, the management of the
Subject Group and/or their representative(s) (together referred to as the ‘‘Management’’).
In preparing this report, we have had discussions with the Management in relation to
the development and prospect of the natural gas supply industry, and the development,
operations and other relevant information of the Subject Group. As part of our analysis, we
have reviewed such financial information and other pertinent data concerning the Subject
Group provided to us by the Management and have considered such information and data
as attainable and reasonable.
We have no reason to believe that any material facts have been withheld from us;
however, we do not warrant that our investigations have revealed all of the matters which
an audit or more extensive examination might disclose.
We do not express an opinion as to whether the actual results of the business operation
of the Subject Group will approximate those projected because assumptions regarding
future events by their nature are not capable of independent substantiation.
In applying these projections to the valuation of the Subject Group, we are making no
representation that the business expansion will be successful, or that market growth and
penetration will be realized.
3. ECONOMIC OVERVIEW
3.1 Overview of the Economy in China
According to the National Bureau of Statistics of China, the nominal gross
domestic product (‘‘GDP’’) of China in 2016 was RMB74,412.7 billion, a year over
year nominal increase of 8.0% comparing to December 2015. China was the third
largest economy in the world, ranked after the European Union and the United States,
in terms of nominal GDP measured by the International Monetary Fund (‘‘IMF’’) in
2014. Despite the global financial crisis in late 2008, the Chinese economy continued to
be supported by the Chinese government through spending in infrastructure and real
estates.
Throughout 2009, the global economic downturn reduced foreign demand for
Chinese exports for the first time in many years. The government vowed to continue
reforming the economy and emphasized the need to increase domestic consumption in
order to make China less dependent on foreign exports. China’s economy rebounded
quickly in 2010, outperforming all other major economies with robust GDP growth
and the economy remained in strong growth since 2011.
APPENDIX V VALUATION REPORT
– V-2 –
Over the past five years from 2012 to 2016, compound annual growth rate of
China’s nominal GDP was 8.3% whereas the Chinese government targeted to grow its
GDP by around 7.0% annually for the period from 2012 to 2016. Figure 1 illustrates
the nominal GDP of China from 2012 to 2016.
Figure 1 — China’s Nominal GDP from 2012 to 2016
0
10,000
2012 2013 2014 2015 2016
20,000
30,000
40,000
50,000
60,000
70,000
80,000
billion RMB
Source: National Bureau of Statistics of China
3.2 Inflation in China
Tackling inflation problem has long been the top priority of the Chinese
government as high prices are considered as one of the causes of social unrest. For such
a fast-growing economy, the middle-class’ demand for food and commodities has been
rising continuously. Inflation in China has been driven mainly by food prices, which
have been stayed high in 2011. According to the National Bureau of Statistics of
China, the consumer price index (‘‘CPI’’) demonstrated an uptrend in the first half of
2011. Thanks to the government’s policies in suppressing commodity prices, the
inflation in CPI slowed in the second half of 2011 and first half of 2012 and maintained
at around 2.0% to 3.2% during 2013. During 2014, the CPI dropped and reached 1.5%
in December 2014. During first half of 2015, the CPI maintained at around 0.8% to
1.5%, and fluctuated around 1.3% to 2.0% in second half of 2015. In 2016, the CPI
dropped from 2.3% in January to 1.3% in August, but rose in the later months and
arrived at 2.1% in December. Figure 2 shows the year-over-year change in CPI of
China from July 2013 to December 2016.
APPENDIX V VALUATION REPORT
– V-3 –
Figure 2 — Year-over-year Change in China’s CPI from July 2013 to December 2016
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jul Oct Jan2014
Apr Jul Oct Jan2015
Apr July Oct Jan2016
Apr July Oct
%
Source: Bloomberg
China’s inflation rate was volatile during the past decade. According to the IMF,
the inflation rate in China increased from 2.8% in 2006 to 6.5% in 2007, and then
dropped to 1.2% and 1.9% in 2008 and 2009 respectively. The inflation rate increased
to 4.6% in 2010 and maintained at 4.1% in 2011. The inflation rate dropped again to
2.5% in 2012 and 2013, and further to 1.5% in 2014. It started to climb then in the
recent two years from 1.6% at 2015 to 2.1% in 2016. According to IMF’s forecast, the
long-term inflation rate of China is expected to be around 3.0%. Figure 3 shows the
historical trend of China’s inflation rate from 2006 to 2016.
APPENDIX V VALUATION REPORT
– V-4 –
Figure 3 — China’s Inflation Rate from 2006 to 2016
0
1
2
3
4
5
6
7
2012201120102009200820072006 2013 2014 2015 2016
Source: International Monetary Fund
4. INDUSTRY OVERVIEW
4.1 Overview of Natural Gas Industry in China
China is the world’s most populous country and has a rapidly growing economy,
which has driven the country’s high overall energy demand and the quest for securing
energy resources. According to U.S. Energy Information Administration (‘‘EIA’’),
China has become the largest global energy consumer since 2010 and passed Japan. It
became the world’s third-largest natural gas consumption country in 2013, based on
the information from the Ministry of Land and Resources. According to EIA, the
Chinese government is planning to produce about 5.5 trillion cubic meters of natural
gas by the end of 2015, in line with its desire to use more natural gas to replace other
hydrocarbons in the country’s energy portfolio. The Chinese government also
anticipates boosting the share of natural gas as part of total energy consumption to
around 10% by 2020 to alleviate air pollution resulting from China’s heavy coal use.
Generally speaking, the drastic growth of natural gas consumption in China provides
prerequisites for the rising of liquefied natural gas fueling station industry.
According to the National Bureau of Statistics of China, the total natural gas
consumption in China rises from 130,530 million cubic meters in 2011 to 193,175
million cubic meters in 2015. Figure 4 shows the total natural gas consumption from
2011 to 2015.
APPENDIX V VALUATION REPORT
– V-5 –
Figure 4 — Total Natural Gas Consumption in China between 2011 and 2015
(in 100 million cubic meters)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2011 2012 2013 2014 2015
Source: National Bureau of Statistics of China
The consumption of natural gas in China was also supported by governmental
policy. In 2016, the National Energy Admission of China announced the ‘‘Guiding
Opinions on Energy Development for 2016’’ in promoting the use of natural gas as
fuels for public transportation and electricity generation.
4.2 The Compressed Natural Gas (’’CNG’’) Fueling Station Industry
The CNG fueling station industry has promising future in China. In recent years,
the demand of natural gas vehicles has showed large growth potential since they are
more energy efficient and environmentally friendly, compared with traditional gasoline
automobiles. According to China5e, an energy information and consulting service
provider in China, there are around 4.9 million of CNG vehicles in China, with 12
provinces and autonomous region owned over a hundred thousands of CNG vehicles.
It is anticipated that there will be 7 more cities will have over a hundred thousands of
CNG vehicles in 2020. As a consequence, the rapid increasing usage of natural gas and
natural gas vehicles has boosted the demand and intensive construction of CNG
fueling stations in China. In addition to the above, the urgent need of China’s energy
structure adjustment promoted the development of natural gas fueling stations. The
long lasting and widespread haze in China in 2013 accelerated the release of relevant
technical rules standardizing the construction of natural gas fueling stations. Such
technical rules, to some extent, accelerated the government’s administrative approval
and construction of natural gas fueling stations, as well as the CNG fueling station.
According to Society of Automotive Engineers of China, the number of CNG fueling
station in use was 1,800 in 2010, increasing gradually to 4,455 in 2014. Figure 5 shows
the number of CNG fueling stations in China from 2010 to 2014.
APPENDIX V VALUATION REPORT
– V-6 –
Figure 5 — Number of CNG Fueling Stations in China between 2010 and 2014
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2010 2011 2012 2013 2014
Source: Society of Automotive Engineers of China
4.3 The Pipeline Natural Gas Industry
The promotion in use of natural gas has boosted the demand for the pipeline
natural gas. Pipeline natural gas in China are majorly imported from Turkmenistan
and Qatar. In the recent years, the Chinese government worked hard in developing a
better pipeline network for transport natural gas. According to the National Bureau of
Statistics in China, the length of natural gas pipeline rise steadily from 298,972
kilometers in 2011 to 498,087 kilometers in 2015. Figure 6 shows the length of natural
gas pipeline in China between 2011 and 2015.
APPENDIX V VALUATION REPORT
– V-7 –
Figure 6 — Length of Natural Gas Pipeline in China between 2011 and 2015
0
100,000
200,000
300,000
400,000
500,000
600,000kilometers
2011 2012 2013 2014 2015
Source: National Bureau of Statistics of China
With the improving development of the natural gas pipeline network in China, the
demand for pipeline natural gas is expected to grow sharply.
5. OVERVIEW OF THE SUBJECT GROUP
The following figure shows the group structure of the Subject Group.
Figure 7 — Group Structure of the Subject Group
100% 100%
The Business Enterprise
山西民生天然氣有限公司(“Shanxi Minsheng”)
永濟市民生天然氣有限公司(“Yongji Minsheng”)
The Business Enterprise is a company established in the People’s Republic of
China with limited liability. The principal business of the Business Enterprise is,
among other things investment of town gas, and sale of gas equipment.
Shanxi Minsheng, is principally engaged in the supply of piped gas to residential
households, public utility, commercial and industrial users; and operation of 5 CNG
refueling stations for vehicles in Yuncheng City, Shanxi Province. Shanxi Minsheng
entered into a number of operation rights agreements with the local government of
Yuncheng City in Shanxi Province, in which Shanxi Minsheng was granted the build-
operate-transfer (建造、營運及轉移) and exclusive operation rights (特許經營權)
APPENDIX V VALUATION REPORT
– V-8 –
(hereinafter referred to as the ‘‘Exclusive Operating Rights’’) for terms of 20 years to 25
years, commencing from August 2006, October 2009, September 2011 and July 2012,
for the supply of natural gas via gas pipelines within the urban planning area (城市規劃
區域) in Yuncheng City and the new development areas (新發展區域), such as Yanhu
(鹽湖新區), Konggang (空港新區) and Yuncheng Economic Development Zone (運城
經濟開發區).
Yongji Minsheng is principally engaged in the supply of piped gas to residential
households, public utility, commercial and industrial users; and operation of 2 CNG
refueling stations for vehicles in Yongji City, Shanxi Province. Yongji Minsheng has
entered into a franchise operation agreement with the local government of Yongji City,
pursuant to which Yongji Minsheng is granted an exclusive operation right for 30 years
commencing from November 2008 to invest in and operate the city pipeline system to
provide and distribute piped natural gas in Yongji City, Shanxi Province.
6. BASIS OF VALUATION
Our valuation is conducted on a market value basis. According to the International
Valuation Standards established by the International Valuation Standards Council in 2017,
market value is defined as ‘‘the estimated amount for which an asset or liability should
exchange on the valuation date between a willing buyer and a willing seller in an arm’s
length transaction, after proper marketing and where the parties had each acted
knowledgeably, prudently and without compulsion’’.
7. INVESTIGATION AND ANALYSIS
Our investigation included discussions with members of the Management in relation to
the development, operations and other relevant information of the Subject Group. In
addition, we have made relevant inquiries and obtained further information and statistical
figures regarding the economy in China as we considered necessary for the purpose of the
valuation.
As part of our analysis, we have reviewed such financial information and other
pertinent data concerning the Subject Group provided to us by the Management and have
considered such information and data as attainable and reasonable. We have also consulted
other sources of financial and business information.
The valuation of the Subject Group requires consideration of all pertinent factors,
which may or may not affect the operation of the business and its ability to generate future
investment returns. The factors considered in our valuation include, but are not necessarily
limited to, the following:
. The nature and prospect of the Subject Group;
. The financial condition of the Subject Group;
. The status and performance of the Subject Group;
APPENDIX V VALUATION REPORT
– V-9 –
. The economic outlook in general and the specific economic environment and
market elements affecting the business, industry and market;
. Relevant licenses and agreements; and
. The business risks of the Subject Group such as the ability in maintaining
competent technical and professional personnel.
8. VALUATION METHODOLOGY
There are generally three accepted approaches to obtain the market value of the
Subject Group, namely the Market-Based Approach, Income-Based Approach and Asset-
Based Approach. Each of these approaches is appropriate in one or more circumstances,
and sometimes, two or more approaches may be used together. Whether to adopt a
particular approach will be determined by the most commonly adopted practice in valuing
business entities that are similar in nature.
8.1 Market-Based Approach
The Market-Based Approach values a business entity by comparing prices at
which other business entities in a similar nature changed hands in arm’s length
transactions. The underlying theory of this approach is that one would not pay more
than one would have to for an equally desirable alternative. By adopting this
approach, the valuer will first look for valuation indication of prices of other similar
business entities that have been sold recently.
The right transactions employed in analyzing indications of values need to be sold
at an arm’s length basis, assuming that the buyers and sellers are well informed and
have no special motivations or compulsions to buy or to sell.
8.2 Income-Based Approach
The Income-Based Approach focuses on the economic benefits due to the income
producing capability of the business entity. The underlying theory of this approach is
that the value of the business entity can be measured by the present worth of the
economic benefits to be received over the useful life of the business entity. Based on
this valuation principle, the Income-Based Approach estimates the future economic
benefits and discounts them to their present values using a discount rate appropriate
for the risks associated with realizing those benefits.
Alternatively, this present value can be calculated by capitalizing the economic
benefits to be received in the next period at an appropriate capitalization rate. This is
subject to the assumption that the business entity will continue to maintain stable
economic benefits and growth rate.
APPENDIX V VALUATION REPORT
– V-10 –
8.3 Asset-Based Approach
The Asset-Based Approach is based on the general concept that the earning power
of a business entity is derived primarily from its existing assets. The assumption of this
approach is that when each of the elements of working capital, tangible and intangible
assets is individually valued, their sum represents the value of a business entity and
equals to the value of its invested capital (‘‘equity and long term debt’’). In other
words, the value of the business entity is represented by the money that has been made
available to purchase the business assets needed.
This money comes from investors who buy stocks of the business entity (‘‘equity’’)
and investors who lend money to the business entity (‘‘debt’’). After collecting the total
amounts of money from equity and debt, and converted into various types of assets of
the business entity for its operation, their sum equals the value of the business entity.
8.4 Business Valuation
In the process of valuing the Subject Group, we have taken into account the
operation and financial information of the Subject Group and conducted discussions
with the Management to understand the status and prospect of the Subject Group and
the natural gas supply industry it is participating. Also, we have considered the
accessibility to available data and relevant market transactions in choosing among the
valuation approaches. We have conducted valuation on the 100% equity interest in
Shanxi Minsheng and Yongji Minsheng respectively to determine the value of 98%
equity interest in the Subject Group.
The Market-Based Approach was not adopted in this case because most of the
important assumptions of the comparable transactions, such as discount or premium
on the transaction prices or considerations, were unavailable. Moreover, the financial
performance of the Subject Group has not been normalized nor reached a stabilized
level as the Management expected to expand their business, the current financial
figures could not capture the future growth of the Subject Group.
The Asset-Based Approach was also not adopted because it could not cater the
future profitability which resulted from the future business expansion of the Subject
Group as forecasted by the Management and thus underestimated the market value of
the Subject Group.
The Income Based Approach can fully reflect and represent the Subject Group’s
future plan, including the growth rate and thus the future earning potentials in the
valuation. We have therefore considered the adoption of the Income-Based Approach
in arriving at the market value of the Subject Group.
APPENDIX V VALUATION REPORT
– V-11 –
8.4.1 Discounted Cash Flow
Under the Income-Based Approach, we have adopted the discounted cash
flow (‘‘DCF’’) method, which is based on a simple reversal calculation to restate
all future cash flows in present terms. The expected free cash flow for each year
was determined as follows:
Expected Free Cash Flow = Net Profit + Depreciation – Change in Net Working Capital
– Capital Expenditure
The present value of the expected free cash flows was calculated as follows:
PVCF = CF1/(1+r)1 + CF2/(1+r)2 + ··· + CFn/(1+r)n
In which
PVCF = Present value of the expected free cash flows;
CF = Expected free cash flow;
r = Discount rate; and
n = Number of years.
To adopt this method, we obtained the weighted average cost of capital
(‘‘WACC’’) of the Subject Group as a basic discount rate. WACC of the Subject
Group is the minimum required return that the Subject Group must earn to satisfy
various capital providers including shareholders and debt holders. WACC
calculation takes into account the relative weights of debt and equity. It is
computed using the formula below:
WACC = We x Re + Wd x Rd x (1 – Tc)
In which
Re = Cost of equity;
Rd = Cost of debt;
We = Weight of equity value to enterprise value;
Wd = Weight of debt value to enterprise value; and
Tc = Corporate tax rate.
8.4.2 Cost of Debt
The cost of debt was determined by the expected borrowing rate of the
Subject Group to finance the Subject Group. Since the interest expenses paid on
debts are tax-deductible for the Subject Group, the cost of the Subject Group to
get debt funds is less than the required rate of return of the suppliers of the debt
capital. The after-tax cost of debt was calculated by multiplying one minus the
corporate tax rate by the cost of debt.
APPENDIX V VALUATION REPORT
– V-12 –
8.4.3 Cost of Equity
The cost of equity was determined using the Capital Asset Pricing Model
(‘‘CAPM’’), which describes the relationship between the risk of the Subject
Group and expected return to investors. It is calculated by the following formula:
Re = Rf+ β x Market Risk Premium + Other Risk Premium
In which
Re = Cost of equity;
Rf = Risk-free rate; and
β = Beta coefficient.
8.4.4 Discount Rate
In the process of determining the WACC, we adopted several listed
companies with similar business scopes and operations to the Subject Group as
comparable companies. The comparable companies were selected mainly with
reference to the following selection criteria:
. The companies are principally engaged in the gas supply industry in
China;
. The companies have sufficient listing and operating histories; and
. The financial information of the companies is available to the public.
Details of the comparable companies adopted were listed as follows:
Company Name Stock Code
Listing
Location Business Description
Shenzhen Gas
Corporation Ltd.
601139.CH China Shenzhen Gas Corporation Ltd.,
supplies gas in Shenzhen. The
company business includes
wholesale of gas, pipeline and the
supply of bottled gas, investment
and construction in the
distribution network of gas
transmission.
China Gas Holdings
Ltd.
384.HK Hong Kong China Gas Holdings Ltd. invests
in, operates and manages natural
gas distribution pipelines. The
company distributes and sells
natural gas to residential,
commercial and industrial users,
and bottles and sells compressed
natural gas. It also constructs and
operates gas stations.
APPENDIX V VALUATION REPORT
– V-13 –
Company Name Stock Code
Listing
Location Business Description
China Oil & Gas Group
Ltd.
603.HK Hong Kong China Oil and Gas Group Ltd. is
engaged in the investments in, and
the operation and management of
the natural gas and energy related
business. The company’s
operations include city piped gas
business, natural gas vehicle
refilling stations, pipeline
construction and operation, as well
as transportation, delivery and
distribution of CNG and liquefied
natural gas.
Towngas China
Company Limited
1083.HK Hong Kong Towngas China Company Limited
distributes and markets gas. The
company sells liquefied petroleum
gas (‘‘LPG’’) in bulk and cylinder
containers, provides piped LPG
and natural gas, constructs gas
pipelines, operates city gas-pipeline
networks and gas stations, and sells
LPG natural gas household
appliances.
China Resources Gas
Group Limited
1193.HK Hong Kong China Resources Gas Group
Limited distributes natural gas and
petroleum gas in the cities of
China. The company also operates
compressed natural gas filling
stations in Chengdu, Nanjing and
Wuxi.
China Tian Lun Gas
Holdings Ltd.
1600.HK Hong Kong China Tian Lun Gas Holdings Ltd.
processes and distributes natural
gas through urban pipelines. The
company operates in Henan
Province, China. It also operates a
compressed natural gas filling
station.
Source: Bloomberg
In searching the comparable companies for Shanxi Minsheng and Yongji
Minsheng, we have searched for comparable companies principally engaged in
pipeline gas supply and CNG gas station operation. However, comparable
companies principally engaged in the aforementioned business sector only was
unavailable. In balancing the relevancy of the comparable companies and the
representativeness of the data extracted from these comparables, we have relaxed
the selection criteria by selecting comparable companies principally engaged in
gas supply industry in China.
APPENDIX V VALUATION REPORT
– V-14 –
The list of selected comparable companies is an exhaustive list based on the
aforementioned criteria in section 8.4.4 of the valuation report. We have
conducted searches through Bloomberg and public internet domains in selecting
the comparable companies suitable for the valuation. We have made full-fledged
attempt to search for as many comparable companies as possible.
We have analyzed the revenue mix of the comparable companies and noted
that majority of their revenues in 2016 involved sales and distribution of fuel gas
or natural gas. In regard to the similarity of the business of the comparable
companies to the Subject Group, we are of the view that the comparable
companies adopted are relevant, fair and reasonable for this valuation.
Given that the comparable companies are of different development stage and
generally of larger size in operation than that of the Subject Group, we have
considered firm specific risk premium and size premium respectively in estimating
the discount rates of the Subject Group. For details, please refer to the following
calculation.
Below is the summary of the key parameters of the WACC of the Subject
Group adopted as at the Date of Valuation:
Key Parameters
As at
31 March
2017
a) Risk-free Rate 3.29%
b) Market Risk Premium 9.33%
c) Beta Coefficient 1.00
d) Size Premium 3.58%
e) Firm Specific Risk Premium 4.00%
f) Cost of Equity 20.24%
g) Cost of Debt 8.90%
h) Weight of Equity Value to Enterprise Value 66.52%
i) Weight of Debt Value to Enterprise Value 33.48%
j) Corporate Tax Rate 25.00%
WACC 15.70%
Notes:
a) The risk-free rate adopted was the yield rate of China 10-year government bond, which
represented long-term China government generic bond yield, as at the Date of Valuation
as extracted from Bloomberg since it was a long-term risk free rate applicable to the
Subject Group which operates in China. Government bonds are considered to be
relatively risk-free to a holder of a government bond, because there is no risk of default.
Moreover, government bond with longer life may not be frequented quoted, which may
not accurately reflect the market risk free rate. Thus, the yield rate of China 10-year
government bond was adopted.
APPENDIX V VALUATION REPORT
– V-15 –
b) The market risk premium adopted was the equity market risk premium of China as at
the Date of Valuation as extracted from Bloomberg.
c) The beta coefficient adopted was the median adjusted beta of the comparable companies
as extracted from Bloomberg.
d) The size premium adopted was the size premium for micro-cap companies, which is the
Subject Group belongs to, with reference to the size premium study published by Duff &
Phelps, LLC (‘‘Duff & Phelps’’), an independent advisor founded in 1932 with expertise
in the areas of valuation, corporate finance, disputes and investigations, compliance and
regulatory matters, and other governance-related issues. Duff & Phelps publishes
reports on risk premiums, brand valuation and transactions etc.as well as contributes to
third party reports. Based on the size premium study, the market capitalization of
micro-cap company was ranged from USD1.963 million to USD448.079 million, which
is around RMB13.520 million to RMB3,086.010 million. The Subject Group fall into
this range such that we considered it as a micro-cap company.
e) The firm specific risk premium adopted was to reflect the status and business risk of the
Subject Group as at the Date of Valuation. It is an industry practice of valuers to apply
firm specific risk premium in the WACC calculation in order to reflect the status and
business risk of the valuation target in the valuation. We have conducted sampling of
firm specific risk premium adopted in publicly disclosed valuation report, the samples
fell within the range from 1% to 8%.
After discussing with the Management on the current status and development of the
Subject Group, in particular the Subject Group is profit making for the year ended 31
December 2016 and three months ended 31 March 2017, we considered the risk of the
Subject Group is medium, and 4% firm specific risk premium was adopted for the
Subject Group so as to consider the difference in the development stage between the
comparable companies and the Subject Group.
f) The cost of equity was determined based on Capital Asset Pricing Model (‘‘CAPM’’).
g) The calculation of WACC considers long term debt for approximation, therefore the
cost of debt adopted was estimated with reference to China 5-year benchmark lending
rate plus firm specific risk premium. China 5-year benchmark lending rate is the longest
available China benchmark lending rate source from the People’s Bank of China, as at
the Date of Valuation since it was a long-term borrowing rate applicable to the Subject
Group which operates in China.
h) As the calculation of WACC would be based on an optimal weight of equity value to
enterprise value, and as advised by the Management, the current status of the Subject
Group has not reached the optimal capital structure, the weight of equity value to
enterprise value adopted was derived from the median debt-to-equity ratio of the
comparable companies as at the Date of Valuation as extracted from Bloomberg.
i) As the calculation of WACC would be based on an optimal weight of debt value to
enterprise value, and as advised by the Management, the current status of the Subject
Group has not reached the optimal capital structure, the weight of debt value to
enterprise value adopted was derived from the median debt to-equity ratio of the
comparable companies as at the Date of Valuation as extracted from Bloomberg.
j) The corporate tax rate adopted was the corporate tax rate in China.
APPENDIX V VALUATION REPORT
– V-16 –
Hence, we adopted the WACC of 15.70% for the Subject Group as at the
Date of Valuation.
8.4.5 Major Assumptions of Cash Flow Projection
8.4.5.1 Revenue and Cost
Shanxi Minsheng
The Management expected the cost of sales will generally growth in line
with that of the selling price. For simplicity, it is assumed that both the
selling price and the cost of sales will keep constant over the forecast period.
Gas Sales to Residential Users
The revenue from gas sales to residential users was estimated based on
the selling price and the sales volume. For the selling price, the Management
has made reference to the historical average selling price of the period from
January to March 2017 and the government document named ‘‘2015年11月25
日運城市發改委《關於轉發〈山西省物價局關於降低我省非居民用天然氣價
格的通知〉的通知》(運發改價管字[2015]516號)’’ to set the selling price at
RMB2.38 per m3 for the residential users. The selling price would be adopted
for the 10 years forecast period.
The volume was estimated with with reference to (i) the sum of the
number of users in 2016 and the annualized additional number of users for
the period from January to March 2017; and (ii) the gas consumption per
household.
The number of residential users was estimated to be increased by 24,000
users per year, which was referenced to the annualized additional number of
users for the period from January to March 2017.
According to the ‘‘13th Five-year Plan’’, the government endeavors the
facilitation of clean energy development, as such, the Management expected
that the favourable policy from the government will encourage residential
users to use more of natural gas instead of other forms of energy.
Based on government’s intention on the development of specific areas
(through public land auction with specification of the land) and various
discussions with property developers for their development plan, the
Management obtained relevant information and noted that in coming 10
years, an average of not less than 24,000 new households per year is expected
to be generated in Yuncheng of Shanxi province.
As a conservative approach, the forecast applied the annualized increase
in number of residential household in 2017 of 24,000 for residential users for
the next 10 years.
APPENDIX V VALUATION REPORT
– V-17 –
The gas consumption per household was estimated based on the
annualized gas consumption for the period from January to March 2017
divided by the number of users.
The cost of gas sales to residential users was related to the purchase
price per unit and the volume. With reference to the historical average
purchase price of the period from January to March 2017 and the
government document named ‘‘2015 年 11 月 23 日山西省物價局《關於降低
我省非居民用天然氣價格的通知》(晉價商字[2015]305號)’’, the Management
has set the unit cost at RMB1.72 per m3.
Gas Sales to Commercial Users, Industrial Users and Public Utility Users
The revenue from gas sales to commercial users, industrial users and
public utility users was estimated based on the respective selling price and the
sales volume. The Management has made reference to the historical average
selling price of the period from January to March 2017 and the government
document named ‘‘2015 年 11 月 25 日運城市發改委《關於轉發〈山西省物價
局關於降低我省非居民用天然氣價格的通知〉的通知》(運發改價管字[2015]
516號)’’ to set the selling price at RMB3.26 per m3, RMB3.03 per m3 and
RMB2.65 per m3 for commercial users, industrial users and public utility
users respectively. These selling prices would be adopted for the 10 years
forecast period.
The sales volume for industrial, commercial and public utility users were
estimated with reference to (i) the sum of number of user in each category in
2016 and the annualized additional number of users for the period from
January to March 2017 in each category (ii) the growth rate of the users in
each category; and (iii) the gas consumption per user in the respective
category.
The growth rate of the revenue was mainly determined by the growth in
number of industrial users, commercial users and public utility users
respectively. The number of industrial users was estimated to be increased
by 12% per year, which was referenced to the growth rate of the industrial
users in 2016. The number of commercial users was estimated to be increased
by 100 users per year, which was referenced to the annualized additional
number of users for the period from January to March 2017. The number of
public utility users was estimated to be increased by 24 users per year, which
was referenced to the annualized additional number of users for the period
from January to March 2017.
Different from residential and commercial users, which the per capita
gas usage would not have significant variance from one user to another, the
per capita gas usage for each industrial user can be varied significantly based
on the production process, size and scale of the industrial user, and as such,
we adopted a percentage growth when projecting the growth of industrial
users so as to reflect the overall growth of gas usage of industrial users.
APPENDIX V VALUATION REPORT
– V-18 –
The forecast was prepared based on, amongst others, the financial
information as of 31 March 2017. The Company also kept appraised of
certain key operating data from time to time. Taking into account the latest
user data available to the Management, they considered that adopting the
aforementioned growth rates for different categories of users are more
appropriate to reflect the growth trend.
The gas consumption per user was estimated by the annualized gas
consumption for the period from January to March 2017 in each category
divided by the number of users in the respective category as at 31 December
2016.
The cost of gas sales to commercial, public utility and industrial users
were estimated based on the respective purchase price per unit and the sales
volume. The Management has made reference to the historical average selling
price of the period from January to March 2017 and the government
document named ‘‘2015年11月23日山西省物價局《關於降低我省非居民用天
然氣價格的通知》(晉價商字[2015]305號)’’ and set the unit cost at RMB2.46
per m3.
CNG Station
The revenue from CNG stations was estimated based on the selling price
and CNG sales volume. The Management has made reference to the
historical average selling price for the period from January to March 2017
and the government document named ‘‘2015年11月25日運城市發改委《關於
轉發〈山西省物價局關於降低我省非居民用天然氣價格的通知〉的通知》(運
發改價管字[2015]516號)’’, to set the selling price at RMB3.73 per m3. The
selling price would be adopted for the 10 years forecast period.
The sales volume is projected based on the annualized CNG sales
volume for the period from January to March 2017 with the average growth
rate of the number of taxi in 2014 and 2015 in Shanxi Province. In
determining the average growth rate for the number of taxi, the Management
has made reference to the latest available research data issued by National
Bureau of Statistics of China.
As the CNG stations mainly provide gas supply to taxis, the growth rate
of CNG gas sales volume was determined by the number of taxis in
Yuncheng City. The estimated growth rate for CNG gas sales volume was
1%, with reference to the historical growth rate of number of taxis in
Yuncheng City, Shanxi Province from 2014 to 2015.
The cost of CNG sales was estimated based on the purchase price per
unit and the CNG sales volume. The Management has made reference to the
historical average selling price of the period from January to March 2017 and
APPENDIX V VALUATION REPORT
– V-19 –
government document named ‘‘2015年11月23日山西省物價局《關於降低我省
非居民用天然氣價格的通知》(晉價商字[2015]305號)’’, to set the unit cost at
RMB2.46 per m3.
Installation Income from Residential User
The revenue from installation income was estimated based on the
installation price per household and the number of new users. The
Management has made reference to the historical average selling price of
natural gas furnace, water heater and installation fee income from 2014 to
2016 and period from January to March 2017 and the government document
named ‘‘山西省物價局《關於對運城巿燃氣相關收費項目和標準的批覆》(晉
價商字[2013]17號)’’ to set the installation fee per household at RMB2,948
for residential user.
The number of residential users was estimated to be increased by 24,000
users per year, with reference to the annualized additional number of users
for the period from January to March 2017.
The cost was estimated based on the installation cost per residential user
and the number of new users. The Management has made reference to the
historical average selling price of the natural gas furnace, water heater and
installation fee in the years of 2014 to 2016 and the period from January to
March 2017 to set the unit cost at RMB1,612 per residential user.
Installation Income from Commercial User, Industrial User and Public
Utility User
The revenue was estimated based on the installation price per user and
number of new users from commercial user, industrial user and public utility
user respectively. With reference to the historical installation income per user
in the years of 2014 to 2016 and period from January to March 2017, the
Management estimated the installation fee per user would be set at
RMB121,936, RMB299,445 and RMB230,324 for commercial user,
industrial user, public utility user respectively.
The growth rate of the revenue was mainly determined by the growth in
number of industrial users, commercial users and public utility users
respectively. The number of industrial users was estimated to be increased
by 12% per year, which was referenced to the growth rate of the industrial
users in 2016. The number of commercial users was estimated to be increased
by 100 users per year, which was referenced the annualized additional
number of users for the period from January to March 2017. The number of
public utility users was estimated to be increased by 24 users per year, which
was referenced to the annualized additional number of users for the period
from January to March 2017.
APPENDIX V VALUATION REPORT
– V-20 –
The cost was estimated based on the installation cost per user for each
category and the number of new users from the respective category. With
reference to the historical installation cost per user in the years of 2014 to
2016 and the period from January to March 2017, the Management estimated
that the installation cost would be set at RMB163,992 per industrial user,
RMB126,299 per public utility user and RMB62,814 per commercial user.
Revenue from the sales of natural gas to industrial users was the biggest
revenue stream to Shanxi Minsheng for the three months ended 31 March
2017, and it will continue to be the biggest revenue stream to Shanxi
Minsheng during the forecast period.
Yongji Minsheng
The Management expected the cost of sales will generally growth in line
with that of the selling price. For simplicity, it is assumed that both the
selling price and the cost of sales will keep constant over the forecast period.
Gas Sales to Residential User
Revenue for gas sales to residential user was estimated based on the
selling price and the sales volume. For the selling price, the Management has
made reference to the historical average selling price of the period from
January to March 2017 and the government document named ‘‘2016年11月21
日永濟市發展和改革局《關於調整我市非居民用天然氣價格的通知》(永政發
改字[2016]88號)’’ to set the selling price at RMB2.48 per m3 for the
residential user. The price would be adopted for the 10 years forecast period.
The volume was estimated with reference to (i) the sum of the number of
user in 2016 and the annualized additional number of user for the period
from January to March 2017; and (ii) the gas consumption per household.
The number of residential users was estimated to be increased by 10,556
users per year, which was referenced to the annualized additional number of
users for the period from January to March 2017.
The gas consumption per household was estimated based on the
annualized gas consumption for the period from January to March 2017
divided by the number of user.
The cost of sales was estimated by the purchase price per unit and the
volume. The Management has made reference to the historical average
purchase price for the period from January to March 2017 and the
government document named ‘‘2015年11月23日山西省物價局《關於降低我
省非居民用天然氣價格的通知》(晉價商字[2015]305號)’’, to set the unit cost
at RMB1.80 per m3.
APPENDIX V VALUATION REPORT
– V-21 –
Gas Sales to Commercial User and Industrial User
The revenue was estimated based on the selling price and the sales
volume. The Management has made reference to the historical average selling
price of the period from January to March 2017 and the government
document named ‘‘2016年11月21日永濟市發展和改革局《關於調整我市非居
民用天然氣價格的通知》(永政發改字[2016]88號)’’, to set the selling price at
RMB3.30 per m3 and RMB3.03 per m3 for commercial user and industrial
user and respectively. These prices would be adopted for the 10 years forecast
period.
The sales volume for commercial and industrial user were estimated with
reference to (i) the sum of number of user in each category in 2016 and the
annualized additional number of user in the period from January to March
2017; (ii) the growth rate of the users in each category; and (iii) the gas
consumption per user in the respective category.
The growth rate of the revenue was mainly determined by the growth in
number of industrial users, commercial users and public utility users
respectively. The number of industrial users was estimated to be increased
by 20% per year, which was referenced to the annualized additional number
of users for the period from January to March 2017. The number of
commercial users was estimated to be increased by 23 users per year, which
was referenced to the additional number of commercial users in 2016.
Different from residential and commercial users, which the per capita
gas usage would not have significant variance from one user to another, the
per capita gas usage for each industrial user can be varied significantly based
on the production process, size and scale of the industrial user, and as such,
we adopted a percentage growth when projecting the growth of industrial
users so as to reflect the overall growth of gas usage of industrial users.
The forecast was prepared based on, amongst others, the financial
information as of 31 March 2017. The Company also kept appraised of
certain key operating data from time to time. Taking into account the latest
user data available to the Management, they considered that adopting the
aforementioned growth rates for different categories of users are more
appropriate to reflect the growth trend.
The gas consumption per user was estimated by the annualized gas
consumption for the period from January to March 2017 in each category
divided by the number of user in the respective category.
The cost of sales for commercial and industrial users was estimated by
the purchase price per unit and sales volume. The Management has made
reference to the historical average selling price of the period from January to
APPENDIX V VALUATION REPORT
– V-22 –
March 2017 and the government document named ‘‘2015年11月23日山西省物
價局《關於降低我省非居民用天然氣價格的通知》(晉價商字[2015]305號)’’and set the unit cost at RMB2.26 per m3.
CNG Station
The revenue was estimated by the selling price and CNG sales volume.
The Management has made reference to the historical average selling price of
the period from January to March 2017 and the government document
named ‘‘2016年11月21日永濟市發展和改革局《關於調整我市非居民用天然氣
價格的通知》(永政發改字[2016]88號)’’, to set the selling price at RMB3.80
per m3. The price would be adopted for the 10 years forecast period.
The sales volume is projected based on the annualized CNG sales
volume for the period from January to March 2017 with the average growth
rate of the number of taxi in 2014 and 2015 in Shanxi Province. In
determining the average growth rate for the number of taxi, the Management
has made reference to the latest available research data issued by National
Bureau of Statistics of China.
As the CNG stations mainly provide gas supply to taxis, the growth rate
of CNG gas sales volume was determined by the number of taxis in Yongji
City. The estimated growth rate for CNG gas sales volume was 1%, with
reference to the historical growth rate of number of taxis in Yongji City,
Shanxi Provence from 2014 to 2015.
The cost of CNG sales was determined by the purchase price per unit
and sales volume. The Management has made reference to the historical
average selling price of the period from January to March 2017 and
government document named ‘‘2015年11月23日山西省物價局《關於降低我省
非居民用天然氣價格的通知》(晉價商字[2015]305號)’’, to set the unit cost at
RMB2.26 per m3.
Installation Income from Residential Users
The revenue was estimated by the installation fee per household and the
number of new users. For the installation fee, The Management has made
reference to the historical average selling price of natural gas furnace, water
heater and installation fee income from 2014 to2016 and period from January
to March 2017 and the government document named ‘‘山西省物價局《關於對
運城巿燃氣相關收費項目和標準的批覆》(晉價商字[2013]17號)’’ to set the
installation fee per household at RMB2,321 for residential user. As advised
by the Management, since government pricing document was not available
for installation income from residential users specifically for Yongji
Minsheng, reference was made to government document for Shanxi
Minsheng ‘‘山西省物價局《關於對運城巿燃氣相關收費項目和標準的批覆》
(晉價商字[2013]17號)’’.
APPENDIX V VALUATION REPORT
– V-23 –
The number of residential users was estimated to be increased by 10,556
users per year, with reference to the annualized additional number of users
for the period from January to March 2017.
The cost was estimated based on the installation cost per residential user
and the number of new residential users. The Management has made
reference to the historical average selling price of the natural gas furnace,
water heater and installation fee from 2014 to 2016 and period from January
to March 2017 to set the unit cost at RMB1,251 per residential user.
Installation Income from Commercial User and Industrial Users
The revenue was estimated by the annual installation fee and number of
new users in the respective category of user. With reference to the historical
installation income per user from 2014 to 2016 and period from January to
March 2017 respectively, the Management estimated that the installation fee
would be set at RMB96,261 per commercial user and RMB358,810 per
industrial users respectively.
The growth rate of the revenue was mainly determined by the growth in
number of industrial users, commercial users and public utility users
respectively. The number of industrial users was estimated to be increased
by 20% per year, which was referenced to the annualized additional number
of industrial users for the period from January to March 2017. The number
of commercial users was estimated to be increased by 23 users per year, which
was referenced the annualized additional number of commercial users for the
period from January to March 2017.
The cost was estimated by installation cost per user for each category
and the number of new users in the respective category. With reference to the
historical installation cost per user in the years of 2014 to 2016 and the period
from January to March 2017, the Management estimated that the installation
cost would be set at RMB185,831 per industrial user and RMB44,119 per
commercial user respectively.
Revenue from the sales of natural gas to residential and commercial
users were the two major revenue streams to Yongji Minsheng for the three
months ended 31 March 2017, and they will continue to be the two major
revenue streams to Yongji Minsheng during the forecast period.
8.4.5.2 Operating Expenses
The operating expenses were based on the annualized historical expenses for
the period from January to March 2017 with consideration on the average growth
rate of the total sales volume in 2015 and 2016. The operating expenses include all
the relevant items, which mainly represent staff cost, water and electricity charges,
repair and maintenance expense and gas consumption expenses which were mainly
APPENDIX V VALUATION REPORT
– V-24 –
variable costs in relation to the total sales volume, and as such the Management
estimated the growth rate for the operating expenses with reference to the average
growth rate of the total sales volume in 2015 and 2016.
8.4.5.3 Management Expenses
The selling and distribution expenses were based on the annualized historical
expenses for the period from January to March 2017. The Management estimated
the growth rate for selling and distribution expenses would be similar with the
inflation rate in China of 3% with reference to IMF’s forecast as extracted from
Bloomberg. The selling and distribution expenses include all the relevant items,
which mainly represent staff cost, insurance expenses, water and electricity
charges, traveling expenses, entertainment fee, telecommunication expense,
advertising expenses, land and property tax, rental expenses and bank charges
which the Management do not consider to have significant change during the
forecast period, and as such inflation rate in China was used as growth rate.
8.4.5.4 Depreciation Expenses
Fixed assets include plant and equipment, land, building and construction in
progress for Shanxi Minsheng; while that for Yongji Minsheng include property,
plant and equipment, prepaid lease payment and construction in progress.
The depreciation expense for the fixed assets and the forecasted capital
expenditure for Shanxi Minsheng and Yongji Minsheng was estimated by straight
line depreciation method with weighted average remaining useful life of respective
fixed assets. Below listed the fixed assets with their weighted average remaining
useful life and their rate of depreciation:
Shanxi Minsheng
Weighted
average
remaining
useful life
Rate of
Depreciation
Plant and Equipment 10.30 9.71%
Land 35.07 2.85%
Building 27.50 3.64%
construction in progress 14.00 7.14%
APPENDIX V VALUATION REPORT
– V-25 –
Yongji Minsheng
Weighted
average
remaining
useful life
Rate of
Depreciation
Property, Plant and Equipment 15.09 6.62%
prepaid lease payment 21.59 4.63%
construction in progress 15.00 6.67%
Rate of depreciation by straight line depreciation method = 1/weighted
average remaining useful life of respective fixed assets.
8.4.5.5 Income Tax Expenses
The income tax expense was estimated by adopting the corporate tax rate in
China of 25% as advised by the Management.
8.4.5.6 Working Capital
The change in working capital was estimated by considering the historical
working capital turnover days of Shunxi Minsheng and Yongji Minsheng
respectively and the Management’s expectation.
8.4.5.7 Capital Expenditure
Capital expenditure was estimated based on the capital expenditure in
previous year and the growth rate of capital expenditure in 2016. The
Management advised that the capital expenditure would be incurred for
pipeline, machineries, office equipment and vehicles while there is no capital
expenditure for buildings in the forecast.
8.4.5.8 Forecast Period
The forecast for the Subject Group was projected for 10 years from the Date
of Valuation with a terminal year to assess the cash flow beyond the 10-year
period. Based on market research conducted by the Company (including
consultation with natural gas industry association the PRC), the operation of
Shanxi Minsheng and Yongji Minsheng would be stabilized in 10 years and
Shanxi Minsheng and Yongji Minsheng would have no obstacle for renewing the
exclusive operating right.
APPENDIX V VALUATION REPORT
– V-26 –
Terminal Value
The terminal value was determined based on the below formula:
CFT/(Discount rate – Terminal growth rate)
In which
CFT = Cash flow in terminal year, i.e. 2027, being the ending year of the 10 year
forecast period; and
Terminal growth rate = long-term inflation rate of China forecasted by IMF as sourced
from Bloomberg.
Discount rate = WACC stated on page V-15
8.5 Marketability Discount
Compared to similar interest in public companies, ownership interest is not
readily marketable for closely held companies. Therefore, the value of a share of stock
in a privately held company is usually less than an otherwise comparable share in a
publicly held company. We have made reference to the result of the restricted stock
study published in ’’A Companion Guide to the FMV Restricted Stock Study 2016
Edition’’ (’’Guide’’) by FMV Opinions, Inc., one of the national preeminent firms
offering a broad range of financial advisory services to private and public companies.
According to the study, 736 private placement transactions of unregistered common
stock issued by publicly traded companies from July 1980 through September 2015
were examined. As a specific marketability discount for gas supply industry was
unavailable in the Guide, we have therefore applied the marketability discount derived
from 736 samples. The marketability discount was the percentage difference between
the private placement price per share and the market trading price per share. Although
the study does not specify the details of the transactions, the study states that a
company’s industry should not in itself have a significant impact on the discount for
lack of marketability. Therefore, we were of the opinion that it was fair and reasonable
to adopt the median discount for the 736 transactions (excluding premiums) of 16.11%
as the marketability discount in arriving at the market value of the Subject Group as at
the Date of Valuation.
8.6 Summary of Subject Group Valuation
The values of the Subject Group were showed as follows:
RMB
100% Equity Interest of Shanxi Minsheng 636,568,161
100% Equity Interest of Yongji Minsheng 243,400,774
APPENDIX V VALUATION REPORT
– V-27 –
To determine the market value of the Subject Group as at the Date of Valuation,
we have considered the cash and debt balances, non-operating assets and liabilities of
the Business Enterprise. Detailed calculation is shown as below:
The Business Enterprise
As at
31 March
2017
RMB
Total Present Value of the Shanxi Minsheng and Yongji
Minsheng 879,968,935
Add: Cash 9,949
Less: Debt 0
Add/(Less): Net Non-Operating Assets/(Liabilities) (15,270,347)
100% Equity Interest of the Subject Group 864,708,537
Less: Marketability Discount of 16.11% (139,304,545)
100% Market Value of the Subject Group 725,403,992
Note: The numbers may not add up due to rounding.
9. MAJOR ASSUMPTIONS
We have adopted certain specific assumptions in our valuation and the major ones are
as follows:
. The valuation was primarily based on the financial projections and latest audited
financial statements of the Subject Group as at 31 March 2017 as provided by the
Management. The projections outlined in the financial information provided were
assumed to be reasonable, reflecting market conditions and economic
fundamentals, and will be materialized;
. With reference to a shareholder’s agreement provided by the Management, the
amount due to shareholders would be repaid on 1 November 2038, the expiry date
of the exclusive operating right of Yongji Minsheng;
. The Subject Group will commence operation as planned by the Management;
. As advised by the Management, the Exclusive Operating Rights for Shanxi
Minsheng and Yongji Minsheng could be renewed upon expiry;
. All relevant legal approvals and business certificates or licenses to operate the
business in the localities in which the Subject Group operate or intend to operate
would be officially obtained and renewable upon expiry;
APPENDIX V VALUATION REPORT
– V-28 –
. There will be sufficient supply of technical staff in the industry in which the
Subject Group operate, and the Subject Group will retain competent
management, key personnel and technical staff to support its ongoing
operations and developments;
. There will be no major change in the current taxation laws in the localities in
which the Subject Group operate or intend to operate and that the rates of tax
payable shall remain unchanged and that all applicable laws and regulations will
be complied with;
. There will be no major change in the political, legal, economic or financial
conditions in the localities in which the Subject Group operate or intend to
operate, which would adversely affect the revenues attributable to and
profitability of the Subject Group; and
. Interest rates and exchange rates in the localities for the operation of the Subject
Group will not differ materially from those presently prevailing.
10. INFORMATION REVIEWED
Our opinion requires consideration of relevant factors affecting the market value of the
Subject Group. The factors considered included, but were not necessarily limited to, the
following:
. Audited financial statements of the Subject Group as at 31 March 2017;
. Exclusive Operating Rights of Shanxi Minsheng and Yongji Minsheng
respectively;
. Shareholder’s agreement in relation to the amount due to shareholders in the
Subject Group;
. The financial projections as provided by the Management;
. Historical operational information of the Subject Group;
. General descriptions in relation to the Subject Group; and
. Economic outlook in China.
We have discussed the details with the Management. We had assumed the accuracy of
information provided and relied on such information to a considerable extent in arriving at
our opinion.
11. LIMITING CONDITIONS
The valuation reflects facts and conditions existing at the Date of Valuation.
Subsequent events or circumstances have not been considered and we are not required to
update our report for such events and conditions.
APPENDIX V VALUATION REPORT
– V-29 –
We would particularly point out that our valuation was based on the information such
as company background and business nature of the Subject Group provided to us.
To the best of our knowledge, all data set forth in this report are reasonable and
accurately determined. The data, opinions, or estimates identified as being furnished by
others that have been used in formulating this analysis are gathered from reliable sources;
yet, no guarantee is made nor liability assumed for their accuracy.
We have relied on the historical and/or prospective information provided by the
Management and other third parties to a considerable extent in arriving at our opinion of
value. The information has not been audited or compiled by us. We are not in the position
to verify the accuracy of all information provided to us. However, we have had no reason to
doubt the truth and accuracy of the information provided to us and to doubt that any
material facts have been omitted from the information provided. No responsibilities for the
operation and financial information that have not been provided to us are accepted.
We assumed that the Management is competent and perform duties under the company
regulation. Also, ownership of the Subject Group was in responsible hands, unless
otherwise stated in this report. The quality of the Management may have direct impact on
the viability of the business as well as the market value of the Subject Group.
We have not investigated the title to or any legal liabilities of the Subject Group, and
have assumed no responsibility for the title to the Subject Group appraised.
Our conclusion of the market value was derived from generally accepted valuation
procedures and practices that rely substantially on the use of various assumptions and the
consideration of many uncertainties, not all of which can be easily quantified or
ascertained. The conclusion and various estimates may not be separated into parts, and/
or used out of the context presented herein, and/or used together with any other valuation
or study.
We assume no responsibility whatsoever to any person other than the directors and the
Management in respect of, or arising out of, the content of this report. If others choose to
rely in any way on the contents of this report, they do so entirely at their own risk.
No change to any item in any part of this report shall be made by anyone except Roma
Appraisals. We have no responsibility for any such unauthorized change. Neither all nor
any part of this report shall be disseminated to the public without the written consent and
approval of Roma Appraisals through any means of communication or referenced in any
publications, including but not limited to advertising, public relations, news or sales media.
This report may not be reproduced, in whole or in part, and utilized by any third
parties for any purpose, without the written consent and approval of Roma Appraisals.
The working papers and models for this valuation are being kept in our files and would
be available for further references. We would be available to support our valuation if
required. The title of this report shall not pass to the Company until all professional fee has
been paid in full.
APPENDIX V VALUATION REPORT
– V-30 –
12. REMARKS
Unless otherwise stated, all monetary amounts stated in this valuation report are in
Renminbi (RMB).
We hereby confirm that we have neither present nor prospective interests in the
Company, the Subject Group and their associated companies, or the values reported herein.
13. OPINION OF VALUE
Based on the investigation and analysis stated above and on the valuation method
employed, the market value of 100% equity interest in the Subject Group as at the Date of
Valuation, in our opinion, was reasonably stated as RMB725,000,000 (RENMINBI SEVEN
HUNDRED AND TWENTY FIVE MILLION ONLY).
Yours faithfully,
For and on behalf of
Roma Appraisals Limited
APPENDIX V VALUATION REPORT
– V-31 –
The following is the text of a report received from the independent reporting accountants,
CHENG & CHENG LIMITED, Certified Public Accountants, Hong Kong, for the purpose of
incorporation of this circular.
INDEPENDENT ASSURANCE REPORT ON CALCULATIONS OF DISCOUNTED
FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE VALUATION
OF THE ENTIRE EQUITY INTEREST IN CHONGQING SAIGUANGBO
TECHNOLOGY COMPANY LIMITED
TO THE DIRECTORS OF BEIJING GAS BLUE SKY HOLDINGS LIMITED
We have examined the calculations of the discounted future estimated cash flows on
which the valuation prepared by Roma Appraisals Limited dated 25 September 2017, of the
entire equity interest in Chongqing Saiguangbo Technology Company Limited
(‘‘Saiguangbo’’) (the ‘‘Valuation’’). The Valuation based on the discounted future
estimated cash flows is regarded as a profit forecast under Rule 14.61 of the Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the
‘‘Listing Rules’’) and will be included in a circular dated 25 September 2017 to be issued by
Beijing Gas Blue Sky Holdings Limited (the ‘‘Company’’) in connection with the proposed
acquisition of the entire equity interest in Top Grand Global Limited, which indirectly owns
51% equity interest in Saiguangbo (the ‘‘Circular’’).
Directors’ Responsibility for the Discounted Future Estimated Cash Flows
The directors of the Company are responsible for the preparation of the discounted
future estimated cash flows in accordance with the bases and assumptions determined by
the directors and set out in the Circular (the ‘‘Assumptions’’). This responsibility includes
carrying out appropriate procedures relevant to the preparation of the discounted future
estimated cash flows for the Valuation and applying an appropriate basis of preparation;
and making estimates that are reasonable in the circumstances.
Our Independence and Quality Control
We have complied with the independence and other ethical requirements of the ‘‘Code
of Ethics for Professional Accountants’’ issued by the Hong Kong Institute of Certified
Public Accountants (the ‘‘HKICPA’’), which is founded on fundamental principles of
integrity, objectivity, professional competence and due care, confidentiality and
professional behavior. Our firm applies Hong Kong Standard on Quality Control 1
‘‘Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and
Other Assurance and Related Services Engagements’’ issued by the HKICPA and
APPENDIX VA REPORT ON FORECASTS UNDERLYINGTHE VALUATION ON SAIGUANGBO GROUP
– VA-1 –
accordingly maintains a comprehensive system of quality control including documented
policies and procedures regarding compliance with ethical requirements, professional
standards and applicable legal and regulatory requirements.
Reporting Accountants’ Responsibility
Our responsibility is to express an opinion on the arithmetical accuracy of the
calculations of the discounted future estimated cash flows on which the Valuation is based
and to report solely to you, as a body, as required by Rule 14.62(2) of the Listing Rules, and
for no other purpose. We do not assume responsibility towards or accept liability to any
other person for the contents of this report. Our engagement was conducted in accordance
with Hong Kong Standard on Assurance Engagements 3000 (Revised) ‘‘Assurance
Engagements Other Than Audits or Reviews of Historical Financial Information’’ issued
by the HKICPA. This standard requires that we comply with ethical requirements and plan
and perform the assurance engagement to obtain reasonable assurance on whether the
discounted future estimated cash flows, so far as the calculations are concerned, have been
properly compiled in accordance with the Assumptions. Our work was limited primarily to
making inquiries of the Company’s management, considering the analyses and assumptions
on which the discounted future estimated cash flows are based and checking the arithmetic
accuracy of the compilation of the discounted future estimated cash flows. Our work does
not constitute any valuation of Saiguangbo Group. Because the Valuation relates to
discounted future estimated cash flows, no accounting policies of the Company have been
adopted in its preparation. The Assumptions include hypothetical assumptions about future
events and management actions which cannot be confirmed and verified in the same way as
past results and these may or may not occur. Even if the events and actions anticipated do
occur, actual results are still likely to be different from the Valuation and the variation may
be material. Accordingly, we have not reviewed, considered or conducted any work on the
reasonableness and the validity of the Assumptions and do not express any opinion
whatsoever thereon.
Opinion
Based on the foregoing, in our opinion, the discounted future estimated cash flows, so
far as the calculations are concerned, have been properly compiled, in all material respects,
in accordance with the Assumptions.
CHENG & CHENG LIMITED
Certified Public Accountants
Hong Kong
25 September 2017
APPENDIX VA REPORT ON FORECASTS UNDERLYINGTHE VALUATION ON SAIGUANGBO GROUP
– VA-2 –
25 September 2017
The Board of Directors
Beijing Gas Blue Sky Holdings Limited (the ‘‘Company’’)
Dear Sirs,
RE: THE DISCOUNTED FUTURE CASH FLOWS IN CONNECTION WITH THE
BUSINESS VALUATION OF 100% EQUITY INTEREST IN CHONGQING
SAIGUANGBO TECHNOLOGY COMPANY LIMITED
We refer to the business valuation (the ‘‘Valuation’’) prepared by Roma Appraisals
Limited (the ‘‘Independent Valuer’’) set out in the valuation report dated 25 September 2017
in relation to the valuation of the entire equity interest in Chongqing Saiguangbo
Technology Company Limited* (重慶賽廣博科技有限公司), which includes its two wholly-
owned subsidiaries, namely Shanxi Minsheng Natural Gas Co., Ltd.* (山西民生天然氣有限
公司) and Yongji Minsheng Natural Gas Co., Ltd.* (永濟市民生天然氣有限公司), as
referred to in the circular of the Company dated 25 September 2017 (the ‘‘Circular’’). Terms
defined in this letter shall have the same meanings as those used in the Circular, unless the
context otherwise requires.
The Valuation, which has been arrived at using the discounted cash flow method, is
based on the cash flow forecast (the ‘‘Forecasts’’) provided by the management of the
Company. As the Forecasts are regarded as a profit forecast under Rule 14.61 of the Listing
Rules, we have been engaged solely for the purpose of reporting to you under Rule 14.62(3)
of the Listing Rules and for no other purpose. We are not reporting on the arithmetical
calculations of the Forecasts or the Valuation, nor the adoption of accounting policies
thereof.
We confirm that the assessment, review and discussion carried out by us as described in
this letter are primarily based on financial, economic, market and other conditions in effect,
and the information made available to us as of the date of this letter and that we have, in
arriving at our views, relied on information and materials supplied to us by the Independent
Valuer, the Group and the Saiguangbo Group and opinions expressed by, and
representations of, the employees and/or management of the Independent Valuer, the
Group and the Saiguangbo Group. We have assumed that all information, materials and
representations so supplied, including all information, materials and representations
referred to or contained in the Circular, for which the Directors are wholly responsible,
were true, accurate, complete and not misleading at the time they were supplied or made
and continued to be so up to the date of this letter and that no material fact or information
has been omitted from the information and materials supplied. No representation or
warranty, expressed or implied, is made by us on the accuracy, truth or completeness of
such information, materials, opinions and/or representations. Circumstances could have
developed or could develop in the future that, if known to us at the time of this letter, would
APPENDIX VA REPORT ON FORECASTS UNDERLYINGTHE VALUATION ON SAIGUANGBO GROUP
– VA-3 –
have altered our respective assessment and review. Further, the qualifications, bases and
assumptions adopted by the Independent Valuer are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of which are
beyond the control of the Company and the Independent Valuer.
We have not independently verified the computations leading to the Independent
Valuer’s determination of the fair value and market value of Saiguangbo. We have had no
role or involvement and have not provided and will not provide any assessment of the fair
value and market value of Saiguangbo. Our work does not constitute any valuation of
Saiguangbo. We accept no responsibility for, and express no views, whether expressly or
implicitly, on the fair value, market value or any of the value of Saiguangbo.
We have discussed with the management of the Company and the Independent Valuer
the information and documents provided by the Company and the Saiguangbo Group.
We have also considered the letter dated 25 September 2017 from Cheng & Cheng
Limited, the reporting accountants of the Company to you regarding the calculation upon
which the Forecasts have been made. We have noted that no accounting policies of the
Company have been adopted in your preparation of the Forecasts as the Valuation relates
only to discounted future estimated cash flows.
On the basis of the foregoing and without giving any opinion on the reasonableness of
the valuation methods, we are of the opinion that the bases and assumptions of the
Forecasts adopted by the Independent Valuer, for which you as the Directors are solely
responsible, have been made after due and careful enquiry.
Your faithfully,
For and on behalf of
Lego Corporate Finance Limited
Stanley Ng
Managing Director
* For identification purposes only
APPENDIX VA REPORT ON FORECASTS UNDERLYINGTHE VALUATION ON SAIGUANGBO GROUP
– VA-4 –
1. RESPONSIBILITY STATEMENT
This circular, for which the Directors collectively and individually accept full
responsibility, includes particulars given in compliance with the Listing Rules for the
purpose of giving information with regard to the Group. The Directors, having made all
reasonable enquiries, confirm that to the best of their knowledge and belief, the information
contained in this circular is accurate and complete in all material respects and not
misleading or deceptive, and there are no other matters the omission of which would make
any statement herein or this circular misleading.
2. SHARE CAPITAL OF THE COMPANY
As at the Latest Practicable Date, the authorised and issued share capital of the
Company were as follows:
Authorised: HK$
91,000,000,000 Ordinary shares of HK$0.055 each 5,005,000,000
Issued and fully paid or credited as fully paid: HK$
9,824,660,684 Ordinary shares of HK$0.055 each 540,356,338
All Shares currently in issue rank pari passu in all respects with each other, including,
in particular, as to dividends, voting rights and return of capital.
APPENDIX VI GENERAL INFORMATION
– VI-1 –
3. DISCLOSURE OF INTERESTS
(a) Directors’ and chief executive’s interests and short positions in the securities of the
Company and its associated corporations
As at the Latest Practicable Date, the interests and short positions of the
Directors in the Shares, warrants, underlying Shares and debentures of the Company
or any of its associated corporations (within the meaning of Part XV of the SFO)
which were required to be notified to the Company and the Stock Exchange pursuant
to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions
which they are taken or deemed to have under such provisions of the SFO), or which
were required as recorded in the register required to be kept under section 352 of the
SFO, or which were required to be notified to the Company and the Stock Exchange
pursuant to the model code contained in the Listing Rules were as follows:
(i) Directors’ interests and short positions in Shares and underlying Shares and
debentures of the Company
Name of Director Nature of interest
Number of shares
(Note 1)
Approximate
percentage of
shareholding
Mr. Cheng Ming Kit(Note 2)
Beneficial owner 107,141,040 (L) 1.09%Interest of controlled
corporation1,082,862,256 (L) 11.02%
Interest in share optionsof the Company
9,962,690 (L) 0.10%
Beneficial owner 163,750,000 (L) 1.67%
Mr. Sze Chun Lee(Note 3)
Beneficial owner 1,800,000 (L) 0.02%Interest of controlled
corporation110,000,000 (L) 1.12%
Mr. Hu Xiaoming Beneficial owner 2,640,000 (L) 0.03%Interest in share options
of the Company
10,000,000 (L) 0.10%
Mr. Hung Tao Beneficial owner 23,220,040 (L) 0.24%Interest in share options
of the Company
20,462,690 (L) 0.21%
Mr. Lim Siang Kai Interest in share options
of the Company
2,490,670 (L) 0.03%
Mr. Ma Arthur On-hing Interest in share options
of the Company
2,490,670 (L) 0.03%
Mr. Wee Piew Interest in share options
of the Company
2,490,670 (L) 0.03%
APPENDIX VI GENERAL INFORMATION
– VI-2 –
Notes:
1. The letters ‘‘L’’ denote a long position in the shares of the Company.
2. Mr. Cheng Ming Kit (‘‘Mr. Cheng’’) holds 100% interest in Grand Powerful Group
Limited and is deemed to be interested in 1,082,862,256 Shares held by Grand Powerful
Group Limited. Mr. Cheng personally holds 107,141,040 Shares and 9,962,690 share
options. Further, Mr. Cheng has an obligation, derived from an option, to purchase up
to 163,750,000 Shares upon request.
3. Mr. Sze Chun Lee (‘‘Mr. Sze’’) holds 43.75% interest in China Print Power Limited and
is deemed to be interested in 110,000,000 Shares held by China Print Power Limited. Mr.
Sze personally holds 1,800,000 Shares.
As at the Latest Practicable Date, none of the Directors is a director or
employee of 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 provision of Division 2 and 3 of Part XV of SFO.
(ii) Directors’ interests and short positions in Shares, underlying Shares and
debentures of any associated corporation
Name of Director
Name of associated
corporation
As at
the Latest Practicable Date
Number of
shares
Percentage of
shareholding
Mr. Cheng Ming Kit Grand Powerful
Group Limited
1 100%
Mr. Sze Chun Lee China Print Power
Limited
4,375 43.75%
Save as disclosed above, as at the Latest Practicable Date, none of the
Directors or any chief executive of the Company and their associates had an
interest or short position in any Shares, underlying Shares or debentures of the
Company or any of its associated corporations (within the meaning of Part XV of
the SFO) which would have to be notified to the Company and the Stock
Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including
interests and short positions which he or she has taken or deemed to have under
such provisions of the SFO) or which was required, pursuant to section 352 of the
SFO, to be entered in the register referred to therein, or pursuant to the Model
Code for Securities Transactions by Directors of Listed Issuers in the Listing
Rules to be notified to the Company and the Stock Exchange.
APPENDIX VI GENERAL INFORMATION
– VI-3 –
(b) Persons who have an interest or short position which is discloseable under Divisions
2 and 3 of Part XV of the SFO
As at the Latest Practicable Date, according to the register kept by the Company
pursuant to section 336 of SFO, and so far as is known to any Directors or chief
executives of the Company, the following persons/corporations (other than the
Directors and the chief executive officer of the Company) had, or were deemed or
taken to have, an interest or short position in the Shares or underlying Shares which
would fall to be disclosed to the Company and the Stock Exchange under the
provisions of Divisions 2 and 3 of Part XV of the SFO or will be directly or indirectly
interested in 5% or more of the nominal value of any class of share capital carrying
rights to vote in all circumstances at general meetings of any other members of the
Group:
(i) Long positions of substantial shareholders’ interests and short positions in
Shares of the Company
Name of Director Nature of interest
Number of shares
(Note 1)
Approximate
percentage of
shareholding
Grand Powerful GroupLimited (Note 2)
Beneficial owner 1,082,862,256 (L) 11.02%
Mr. Lee Tsz Hang
(Note 3)
Beneficial owner 462,685,000 (L) 4.71%
Interest of controlledcorporation
202,680,000 (L) 2.06%
Beijing Gas Group Co.,
Ltd (Note 4)
Beneficial owner 2,644,444,443 (L) 26.92%
Beijing Enterprises GroupCompany Limited(Note 4)
Interest of controlledcorporation
2,644,444,443 (L) 26.92%
(ii) Long positions of substantial shareholders’ interests and short positions in
underlying Shares of the Company
Name of Director Nature of interest
Number of
underlying shares
(Note 1)
Approximate
percentage of
shareholding
Beijing Gas Group Co.,
Ltd (Note 4)
Beneficial owner 288,888,888 (L) 2.94%
Beijing Enterprises GroupCompany Limited(Note 4)
Interest of controlledcorporation
288,888,888 (L) 2.94%
Notes:
1. The letters ‘‘L’’ denote a long position in the shares of the Company.
2. Grand Powerful Group Limited is wholly-owned by Mr. Cheng Ming Kit, a director of
the Company and is deemed to be interested in 1,082,862,256 Shares held by Grand
Powerful Group Limited. Mr. Cheng personally holds 107,141,040 Shares.
APPENDIX VI GENERAL INFORMATION
– VI-4 –
3. Mr. Lee Tsz Hang holds 100% interest in Win Ways Investment Limited and is deemed
to be interested in 202,680,000 Shares held by Win Ways Investment Limited. Mr. Lee
Tsz Hang personally holds 462,685,000 Shares.
4. Beijing Enterprises Group Company Limited indirectly controlled Beijing Gas Company
Limited through Beijing Enterprises Holdings Limited and Beijing Gas Group Co., Ltd.
and is deemed to be interested in 2,644,444,443 Shares and convertible bond in an
aggregate principal amount of HK$130,000,000 at the issue price of HK$0.45 which will
be convertible into 288,888,888 Shares. Mr. Zhi Xiaoye, the non-executive Director and
Co-Chairman of the Board, is currently vice president of Beijing Enterprises Holdings
Limited and he also serves as general manager of Beijing Gas Group Co., Ltd.
Save as disclosed above, as at the Latest Practicable Date, the Directors were
not aware of any person had or were deemed or taken to have, an interest or short
position in the Shares or underlying Shares which would fall to be disclosed to the
Company and the Stock Exchange under the provisions of Divisions 2 and 3 of
Part XV of the SFO or will be directly or indirectly interested in 5% or more of
the nominal value of any class of share capital carrying rights to vote in all
circumstances at general meetings of any other members of the Group.
4. DIRECTORS’ SERVICE CONTRACTS
As at the Latest Practicable Date, none of the Directors had a service contract with the
Company which is not determinable by the Company within one year without payment of
compensation, other than statutory compensation.
5. DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS
As at the Latest Practicable Date, none of the Directors had any direct or indirect
interest in any assets which had been or were proposed to be acquired, disposed of by or
leased to any member of the Enlarged Group since 31 December 2016, the date to which the
latest published audited financial statements of the Company were made up. None of the
Directors was materially interested in any contract or arrangement subsisting at the Latest
Practicable Date which is significant in relation to the business of the Enlarged Group.
6. EXPERT AND CONSENTS
The following are the qualifications of the experts who have given their opinion and
advice included in this circular:
Name Qualification
Cheng & Cheng Limited Certified Public Accountants
Lego Corporate Finance Limited A corporation licenced to carry on type 6
(advising on corporate finance) regulated
activities under the Securities and Futures
Ordinance (Chapter 571 of the Laws of Hong
Kong)
APPENDIX VI GENERAL INFORMATION
– VI-5 –
Name Qualification
Roma Appraisals Limited An independent professional valuer
Each of the Reporting Accountants, the Financial Adviser and the Independent Valuer
has given and has not withdrawn its respective written consent to the publication of this
circular with inclusion of its respective letter, report, advice and/or references to its name in
the form and context in which it respectively appears.
As at the Latest Practicable Date, each of the Reporting Accountants, the Financial
Adviser and the Independent Valuer has no shareholding in any company in the Enlarged
Group or the right (whether legally enforceable or not) to subscribe for or to nominate
persons to subscribe for securities in any company in the Enlarged Group and has no direct
or indirect interest in any assets which have been acquired or disposed of by or leased to any
member of the Enlarged Group since 31 December 2016, being the date to which the latest
published audited financial statements of the Group were made up or are proposed to be
acquired or disposed of by or leased to any member of the Enlarged Group.
7. MATERIAL CONTRACTS
Save as disclosed below, there are no material contracts (not being contracts entered
into in the ordinary course of business) which have been entered into by the Enlarged
Group within the two years immediately preceding the date of this circular:
(i) a convertible bond subscription agreement dated 30 November 2015 between the
Company and Templeton pursuant to which Templeton conditionally agreed to
subscribe, and the Company conditionally agreed to issue the convertible bonds in
an aggregate principal amount of HK$15,000,000 at the price equivalent to 100%
of the aggregate principal amount of the convertible bond at which the convertible
bond shall be subscribed. Details of the transaction were disclosed in the
announcement of the Company dated 30 November 2015;
(ii) a convertible bond subscription agreement dated 4 December 2015 between the
Company and Haitong pursuant to which Haitong conditionally agreed to
subscribe, and the Company conditionally agreed to issue the convertible bonds in
an aggregate principal amount of HK$200,000,000 at the price equivalent to
100% of the aggregate principal amount of the convertible bond at which the
convertible bond shall be subscribed. Details of the transaction were disclosed in
the announcement of the Company dated 4 December 2015;
(iii) an acquisition agreement dated 11 December 2015 among the Company, Goldlink
and Huang Liedan pursuant to which Goldlink conditionally agreed to acquire
and Huang Liedan conditionally agreed to sell, the entire issued share capital of
Fox Smart Ltd., in consideration of HK$136,000,000. Details of the transaction
were disclosed in the announcement and the circular of the Company dated 11
December 2015 and 25 February 2016, respectively;
APPENDIX VI GENERAL INFORMATION
– VI-6 –
(iv) an acquisition agreement dated 5 January 2016 entered into between the Company
and Beijing Gas Group Co., Ltd (‘‘BGGCL’’) pursuant to which the Company
conditionally agreed to acquire, and BGGCL agreed to sell, the entire issued share
capital of a company to be incorporated in the BVI by BGGCL at a total
consideration of HK$152,000,000 to be satisfied by the Group allotment and issue
of 337,777,778 consideration shares in the Company. Details of the transaction
were disclosed in the announcement and the circular of the Company dated 6
January 2016 and 29 February 2016, respectively;
(v) a subscription agreement dated 5 January 2016 entered into between the Company
and BGGCL pursuant to which (i) BGGCL or its designated wholly-owned
subsidiary agreed to conditionally subscribe, and the Company conditionally
agreed to issue the convertible bond in an aggregate principal amount of
HK$350,000,000 at the issue price; and (ii) based on the initial conversion price of
HK$0.45 per conversion share and assuming full conversion of the convertible
bond, a maximum number of 777,777,777 conversion shares will be allotted and
issued by the Company. Details of the transaction were disclosed in the
announcement and the circular of the Company dated 6 January 2016 and 29
February 2016, respectively;
(vi) a share subscription agreement dated 5 January 2016 entered into between the
Company and BGGCL pursuant to which BGGCL or its designated wholly-
owned subsidiary agreed to conditionally subscribe and pay for 2,155,555,555
fully paid subscription shares of the Company at the subscription price of
HK$0.45 per subscription share. Details of the transaction were disclosed in the
announcement and the circular of the Company dated 6 January 2016 and 29
February 2016, respectively; and
(vii) a sale and purchase agreement dated 27 June 2016 entered into between the
Company and Tian Feng International Limited pursuant to which the Company
has conditionally agreed to sell, and Tian Feng International Limited has
conditionally agreed to purchase the 25% equity interest in Legon Ventures
Limited, in consideration of HK$16,500,000 which is to be satisfied partly by cash
and partly by the promissory note in the principal amount of HK$10,000,000.
Details of the transaction were disclosed in the announcement and the circular of
the Company dated 27 June 2016 and 24 August 2016, respectively;
(viii) a convertible bond subscription agreement dated 16 December 2016 between the
Company and Talent Impact Enterprises Corp. (‘‘Talent Impact’’) pursuant to
which Talent Impact conditionally agreed to subscribe, and the Company
conditionally agreed to issue the convertible bonds in an aggregate principal
amount of HK$200,000,000 at the price of HK$0.67 per Conversion Share.
Details of the transaction were disclosed in the announcement of the Company
dated 16 December 2016;
APPENDIX VI GENERAL INFORMATION
– VI-7 –
(ix) a convertible bond subscription agreement dated 13 April 2017 between the
Company and China Huarong International Holdings Limited (‘‘Huarong’’)
pursuant to which Huarong conditionally agreed to subscribe, and the Company
conditionally agreed to issue the convertible bonds in an aggregate principal
amount of HK$200,000,000 at the issue price of HK$0.67 per conversion share.
Details of the transaction were disclosed in the announcement of the Company
dated 13 April 2017;
(x) a convertible bond subscription agreement dated 18 April 2017 between the
Company and Central China International Investment Company Limited
(‘‘Central China’’) pursuant to which Central China conditionally agreed to
subscribe, and the Company conditionally agreed to issue the convertible bonds in
an aggregate principal amount of HK$150,000,000 at the issue price of HK$0.67
per conversion share. Details of the transaction were disclosed in the
announcement of the Company dated 18 April 2017;
(xi) two sale and purchase agreements both dated 2 May 2017 entered into (a)
amongst the Company and Vendor and the Guarantor pursuant to which Vendor
A conditionally agreed to sell and the Company conditionally agreed to purchaser
the entire issued share capital of OctoNet at consideration of RMB162 million;
and (b) amongst the Company and Vendor B and Vendor C pursuant to which
Vendor B and Vendor C conditionally agreed to sell 90% and 10% of the issued
share capital of August Zone and the Company conditionally agreed to purchase
the entire issued share capital of August Zone at consideration of RMB198
million; and
(xii) the Acquisition Agreement.
8. COMPETING INTERESTS
As at the Latest Practicable Date, none of the Directors or their respective associates
has any interests, either direct or indirect, in any assets which had been or were proposed to
be acquired, disposed of by or leased to any member of the Group since 31 December 2016,
the date to which the latest published audited financial statements of the Company were
made up, nor do they have any interest in any business that competes or is likely to compete
with the business of the Group.
9. 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 2016,
the date to which the latest published audited financial statements of the Company were
made up.
APPENDIX VI GENERAL INFORMATION
– VI-8 –
10. LITIGATION
As at the Latest Practicable Date, no member of the Enlarged Group was engaged in
any litigation or claims of material importance and there is no litigation or claims of
material importance known to the Directors to be pending or threatened against any
member of the Enlarged Group.
11. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be made available for inspection at the office of
the Company at Room 1411, 14/F, New World Tower I, 16–18 Queen’s Road Central,
Central, Hong Kong during normal business hours on any Business Day for the period of 14
days from the date of this circular:
(i) the memorandum and bye-laws of the Company;
(ii) this circular;
(iii) the Accountants’ Report of the Top Grand Group, the text of which is set out in
Appendix IIA;
(iv) the Accountants’ Report of Yuhai, the text of which is set out in Appendix IIB;
(v) the Accountants’ Report of Saiguangbo Group, the text of which is set out in
Appendix IIC;
(vi) the Valuation Report, the text of which is set out in Appendix V;
(vii) the reports on forecasts underlying the valuation of Saiguangbo Group, the texts
of which are set out in Appendix VA;
(viii) the unaudited pro forma financial information of the Enlarged Group, the text of
which is set out in Appendix IV;
(ix) the annual reports of the Company for the three years ended 31 December 2016;
(x) the written consent from the experts referred to in the paragraph headed ‘‘Experts
and Consents’’ in this appendix;
(xi) the material contracts referred to in the above paragraph headed ‘‘Material
Contracts’’ in this appendix; and
(xii) the circulars of the Company dated 18 January 2017.
APPENDIX VI GENERAL INFORMATION
– VI-9 –
12. GENERAL
(a) In the event of any inconsistency, the English texts of this circular and the
accompanying form of proxy shall prevail over their respective Chinese texts.
(b) The registered office and the principal place of business of the Company are
situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda and
Room 1411, 14/F, New World Tower I, 16–18 Queen’s Road Central, Hong
Kong, respectively.
(c) The Hong Kong branch share registrar of the Company is Tricor Investor Services
Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(d) The company secretary of the Company is Mr. Siew Chun Fai, a Financial
Controller of the Company, who is a member of the Hong Kong Institute of
Certified Public Accountants, CPA Australia and the Chartered Accountants
Australia and New Zealand.
APPENDIX VI GENERAL INFORMATION
– VI-10 –
Beijing Gas Blue Sky Holdings Limited
北 京 燃 氣 藍 天 控 股 有 限 公 司(Incorporated in Bermuda with limited liability)
(Hong Kong Stock Code: 6828)
(Singapore Stock Code: UQ7)
NOTICE OF SPECIAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that a special general meeting of Beijing Gas Blue Sky
Holdings Limited (the ‘‘Company’’) will be convened and held at Level 9, Central Building,
1–3 Pedder Street, Central, Hong Kong on Tuesday, 17 October 2017 at 11 : 00 a.m.
(‘‘SGM’’) for the purpose of considering and, if thought fit, passing with or without
modifications, the following resolution as ordinary resolution of the Company.
Any shareholder of the Company (‘‘Shareholder’’), person being a depository agent or
a holder of a securities account maintained with The Central Depository (Pte) Limited
(‘‘Depositor’’) or proxy who wishes to attend, speak and vote at the SGM may do so via
video conferencing at Level 30, Singapore Land Tower, 50 Raffles Place, Singapore 048623.
The person attending the said video conference will be able to pose questions to the
Company management and to comment on issues on the SGM’s agenda. Please be on time
to avoid disrupting the SGM as the SGM will commence at the stipulated time.
ORDINARY RESOLUTION
‘‘THAT
(a) the sale and purchase agreement dated 8 June 2017 (the ‘‘Acquisition Agreement’’)
entered into amongst Goldlink Capital Limited, a direct wholly-owned subsidiary
of the Company, as purchaser, Li Xiulin* (李秀林) as guarantor and Sea Pioneer
Limited as vendor (the ‘‘Vendor’’) in relation to the acquisition of the entire issued
share capital of Top Grand Global Limited, a copy of which has been tabled at
the meeting and marked ‘‘X’’ and initialed by the chairman for the purpose of
identification, and transactions contemplated thereunder be and hereby approved,
confirmed and ratified; and
(b) any one director of the Company be and is hereby authorised to do all such acts
and/or things (including, without limitation, signing, executing (under hand or
under seal), perfecting and delivering all agreements, documents and instruments)
as he in his sole and absolute discretion deem necessary, desirable or expedient to
implement and/or give effect to any matters related to the Acquisition Agreement
NOTICE OF THE SGM
– SGM-1 –
and the transactions contemplated thereunder, and to agree to and make such
variations, amendments or waivers of any of the matters relating thereto or in
connection therewith.’’
By order of the Board
Beijing Gas Blue Sky Holdings Limited
Cheng Ming Kit
Co-chairman
Hong Kong, 25 September 2017
Registered office:
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
Place of business in Hong Kong:
Room 1411, 14/F,
New World Tower I
16–18 Queen’s Road Central
Central, Hong Kong
Notes:
1. A Singapore proxy form (for Singapore Shareholders), a Hong Kong proxy form (for
Hong Kong Shareholders) or a Depositor proxy form (for Depositors) is enclosed
herewith.
2. A Shareholder who is entitled to attend and vote at the SGM may appoint another
person as his/her proxy to attend and vote instead of him/her. A Shareholder entitled
to attend and vote at the SGM who is a holder of two or more shares is entitled to
appoint no more than two proxies to attend and vote on his/her behalf. If a
Shareholder is the Depository or a clearing house (in each case, as defined in the
byelaws of the Company) (or its nominee(s)), the Depository or a clearing house (or its
nominee(s)) may appoint more than two proxies to attend and vote at the SGM. A
proxy need not be a Shareholder of the Company.
3. A Shareholder (other than The Central Depository (Pte) Limited or a clearing house or
its nominee(s)) in Singapore who wishes to appoint a proxy should complete the
attached Singapore proxy form. Thereafter, the Singapore proxy form must be lodged
at the office of the Company’s Singapore share transfer agent, Boardroom Corporate
& Advisory Services Pte. Ltd., at 50 Raffles Place, #32–01 Singapore Land Tower,
Singapore 048623, not less than 48 hours before the time appointed for the SGM or
any adjournment thereof.
4. A Shareholder in Hong Kong who wishes to appoint a proxy should complete the
attached Hong Kong proxy form. Thereafter, the Hong Kong proxy form must be
lodged at the office of the Company’s branch share registrar and transfer office in
Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183
Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for
the SGM or any adjournment thereof.
NOTICE OF THE SGM
– SGM-2 –
5. A Depositor whose name appears in the Depository Register (as defined in Section
81SF of the Securities and Futures Act (Cap. 289) of Singapore) and who is unable to
attend personally but wishes to appoint a nominee to attend and vote on his behalf, or
if such Depositor is a corporation, should complete the attached Depositor proxy form
and lodge the same at the office of the Company’s Singapore share transfer agent,
Boardroom Corporate & Advisory Services Pte. Ltd., at 50 Raffles Place, #32–01
Singapore Land Tower, Singapore 048623, not later than 48 hours before the time
appointed for the SGM.
6. Where a Shareholder appoints more than one proxy, the proportion of the
shareholding concerned to be represented by each proxy shall be specified.
7. The instrument appointing a proxy shall be in writing under the hand of the appointor
or by his/her attorney duly authorised in writing. If a Shareholder or Depositor is a
corporation, the instrument appointing a proxy must be executed under seal or the
hand of its duly authorised officer, attorney or other person authorised to sign the
same.
8. Completion and return of the Singapore proxy form, the Hong Kong proxy form or the
Depositor proxy form will not preclude members or Depositor as the case may be from
attending and voting in person at the meeting or at any adjournment thereof (as the
case may be) should they so wish, and in such event, such proxy form shall be deemed
to be revoked.
9. Where there are joint holders of any share, any one of such joint holders may vote,
either in person or by proxy, in respect of such share as if he/she was solely entitled
thereto, but if more than one of such joint holders are present at the meeting, whether
in person or by proxy, the joint registered holder present whose name stands first on
the register of members in respect of the shares shall be accepted to the exclusion of the
votes of the other registered holders.
10. If the member is a corporation, the instrument appointing a proxy must be executed
under seal or the hand of its duly authorised officer or attorney.
11. As at the date of this circular, the executive directors of the Company are Mr. Cheng
Ming Kit, Mr. Sze Chun Lee, Mr. Hung Tao, Mr. Hu Xiaoming, Mr. Tam Man Kin
and Mr. Li Weiqi; the non-executive director of the Company is Mr. Zhi Xiaoye; and
the independent non-executive directors of the Company are Mr. Lim Siang Kai, Mr.
Wee Piew, Mr. Ma Arthur On-hing and Mr. Pang Siu Yin.
NOTICE OF THE SGM
– SGM-3 –