Build King Holdings Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Build King Holdings Limited (the “ Company ”), you should at once hand this circular with the enclosed form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

(Incorporated in Bermuda with limited liability)

(Stock Code: 00240)

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board (as defined herein) is set out on pages 4 to 13 of this circular. A letter of advice from the Independent Financial Adviser (as defined herein) to the Independent Board Committee (as defined herein) and the Independent Shareholders (as defined herein) is set out on pages 16 to 35 of this circular. A letter from the Independent Board Committee is set out on pages 14 to 15 of this circular.

A notice convening the special general meeting of Build King Holdings Limited to be held at Unit 1103, 11th Floor, East Ocean Centre, 98 Granville Road, Tsimshatsui, Kowloon, Hong Kong on Friday, 15 December 2017 at 10:00 a.m. is set out on Appendix II to this circular. Whether or not you intend to attend such meeting, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar of the Company in Hong Kong, Tricor Progressive Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the meeting or any adjourned meeting if they so wish.

29 November 2017

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . .	14
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER. . . . . . . . . . . . . . . . . . .	16
APPENDIX I – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
APPENDIX II – NOTICE OF SPECIAL GENERAL MEETING. . . . . . . . . . . . . . . .	43

DEFINITIONS

In this circular, the following expressions have the following meanings unless the context requires otherwise:

“associates”

has the meaning ascribed thereto under the Listing Rules

“Board”

the board of Directors

“Company”

Build King Holdings Limited, a company incorporated in Bermuda with limited liability whose Shares are listed on the Main Board of the Stock Exchange (Stock Code: 240)

“connected person”

has the meanings as ascribed thereto under the Listing Rules

“Directors”

the directors of the Company

“Framework Agreement”

framework agreement dated 24 November 2017 between Road King and the Company in relation to the engagement of members of the Group as main contractor(s) (subject to successful tender) in respect of the existing and potential development projects of the Road King Group in Hong Kong for the three financial years ending 31 December 2020

“Group”

the Company and its subsidiaries

“HK$”

Hong Kong dollar(s), the lawful currency of Hong Kong

“Hong Kong”

Hong Kong Special Administrative Region of the PRC

“Independent Board Committee”

the committee of the Company comprising independent non-executive Directors, namely Mr. Ho Tai Wai, David and Mrs. Ling Lee Ching Man, Eleanor, established to make recommendation to the Independent Shareholders in respect of the terms of and the proposed annual caps in relation to the transactions under the Framework Agreement

DEFINITIONS

“Independent Financial Adviser”
Veda Capital Limited, a licensed corporation which is licensed to carry out type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in respect of the terms and proposed annual caps in relation to the transactions under the Framework Agreement
“Independent Shareholders” the Shareholders other than Wai Kee and its associates (as defined in the Listing Rules)
“Independent Shareholders of Road King”
the shareholders of Road King, other than Wai Kee and its associates (as defined in the Listing Rules)
“Latest Practicable Date”
24 November 2017, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“PRC”
the People’s Republic of China, which shall for the purposes of this circular does not include Hong Kong, the Macau Special Administrative Region of the PRC or Taiwan
“Road King”
Road King Infrastructure Limited, a company incorporated in Bermuda with limited liability whose shares are listed on the Main Board of the Stock Exchange (Stock Code: 1098) and an associate of Wai Kee
“Road King Group”

Road King and its subsidiaries

“SFO”
the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong

DEFINITIONS

“SGM” a special general meeting of the Company to be convened on Friday, 15 December 2017 at 10:00 a.m. for the purpose of considering, and if thought fit, approving the terms of the Framework Agreement and the transactions contemplated thereunder “Shares” ordinary share(s) of HK$0.10 each in the share capital of the Company “Shareholders” the shareholders of the Company “Stock Exchange” The Stock Exchange of Hong Kong Limited

“Wai Kee” Wai Kee Holdings Limited, a holding company of the Company incorporated in Bermuda with limited liability whose shares are listed on the Main Board of the Stock Exchange (Stock Code: 610)

“%” per cent.

LETTER FROM THE BOARD

BUILD KING HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 00240)

Executive Directors: Registered Office: Mr. Zen Wei Peu, Derek (Chairman, Clarendon House Chief Executive Officer and Managing Director) 2 Church Street Mr. Chang Kam Chuen, Desmond Hamilton HM 11 Bermuda

Non-executive Directors: Mr. David Howard Gem Principal Place of Business in Mr. Chan Chi Hung, Anthony Hong Kong: Units 601-605A, 6th Floor Independent Non-executive Directors: Tower B, Manulife Financial Centre Dr. Chow Ming Kuen, Joseph 223 Wai Yip Street Mr. Ho Tai Wai, David Kwun Tong, Kowloon Mrs. Ling Lee Ching Man, Eleanor Hong Kong

29 November 2017

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the announcement the Company dated 24 November 2017, in respect of, among others, the continuing connected transactions contemplated under the Framework Agreement.

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things, (i) further details of the Framework Agreement; (ii) a letter from the Independent Board Committee containing its recommendations to the Independent Shareholders in connection with the terms of the Framework Agreement; (iii) a letter from the Independent Financial Adviser, setting out its recommendations to the Independent Board Committee and the Independent Shareholders in respect of the terms of Framework Agreement; and (iv) the notice of the SGM.

BACKGROUND INFORMATION AND REASONS FOR AND BENEFITS OF THE ENTERING INTO OF THE FRAMEWORK AGREEMENT

The Company is an investment holding company and its subsidiaries are principally engaged in the undertaking of construction projects in Hong Kong and the PRC and are also engaged in environmental and waste management and marine engineering.

Road King is principally engaged in investment in, and development, operation and management of, property development in the PRC and more recently in Hong Kong, with a focus in residential developments, and is evaluating increased investment in commercial development properties. The Road King Group also invests in and manages, through joint ventures, expressways in the PRC and possibly elsewhere in South East Asia should suitable opportunities arise.

The Company notes that the Road King Group has been building up its property development portfolio in Hong Kong and will invite contractors to submit tender for contracts for its construction work from time to time. As part of the ordinary course of business of the Group, the Group may participate in future tenders of the Road King Group for main contract(s) in respect of the construction works for the Road King Group’s property development projects in Hong Kong. To ensure compliance with Chapter 14A of the Listing Rules, the Directors proposed to enter into the Framework Agreement and seek approval from the Independent Shareholders for the Framework Agreement in order to facilitate the conduct of transactions should the Group be awarded new contracts by the Road King Group.

The terms of the Framework Agreement were arrived at after arm’s length negotiations between the parties. Members of the Group will enter into separate construction contracts with the members of the Road King Group upon successful tender for each project.

LETTER FROM THE BOARD

THE FRAMEWORK AGREEMENT

The principal terms of the Framework Agreement are set out below:

Date : 24 November 2017 Parties : (1) the Company

(2) Road King

Subject matter

: The Road King Group may from time to time invite relevant member(s) of the Group to submit tender to act as the main contractor for the construction works of the Road King Group’s present and future property development projects in Hong Kong. Subject to successful tender, the Road King Group will enter into construction contract(s) with the relevant member(s) of the Group, which will be:

(a) in writing and in accordance with the terms and conditions set out in the tender;
(b) determined in the usual and ordinary course of business of the Group and the Road King Group on normal commercial terms (as defined in the Listing Rules); and
(c) in compliance with all applicable provisions of the Listing Rules, the Framework Agreement and the respective construction contracts for the engagement of members of the Group as main contractor(s) in respect of the existing and potential development projects of the Road King Group.

LETTER FROM THE BOARD

Term

: An initial term of three years starting from 1 January 2018 (subject to the approval of the Framework Agreement to be granted by resolution of the Independent Shareholders at the SGM), unless terminated earlier in accordance with the terms and conditions thereunder.

Subject to compliance with the requirements of the applicable Listing Rules and other applicable laws and regulations at the relevant time or, alternatively, any waivers obtained from the strict compliance with such requirements, upon the expiry of the initial term or subsequent renewal term, the Framework Agreement is automatically renewed for a successive period of three (3) years thereafter (or such other period permitted under the Listing Rules) unless a party under the Framework Agreement gives a 30 days’ prior written notice to the other party to terminate the Framework Agreement.

Notwithstanding the above, the Framework Agreement may be terminated at any time by the written agreement of the Company and Road King.

Conditions

: The Framework Agreement is conditional on:

(i) the Independent Shareholders of Road King having approved the transactions contemplated under the Framework Agreement at the special general meeting of Road King in accordance with the Listing Rules; and
(ii) the Independent Shareholders having approved the transactions contemplated under the Framework Agreement at the SGM in accordance with the Listing Rules.

LETTER FROM THE BOARD

PRICING BASIS OF THE GROUP’S SUBMISSION OF TENDER

The Group will need to go through tender process before being appointed as a main contractor in respect of the Road King Group’s property development projects in Hong Kong. After receipt of tender invitation, the Group will collect and check tender documents and drawings. If the Group decides to proceed with the tender after reviewing tender documents, a tendering team, which comprises staff from estimating department (responsible for cost estimation and dealing with issues in relation to construction contracts), engineering department (responsible for handling design, drawings and technical aspects) and project management department (responsible for overall planning and execution of project), will be set up to handle the tender and prepare cost estimate of the construction works. The team members of the tendering team are mostly engineers or quantity surveyors with over ten years of experience in their relevant expertise area.

General pricing policy

In pricing each tender, regardless of the nature of services required and of whether the transaction is to be entered into with connected persons of the Group or independent third parties, the Group will:

(a) estimate the potential costs of the construction works (“ project costs ”) to which the project relates, which is the aggregate of the direct costs, including labour cost, plant and machinery cost, construction materials cost and sub-contractor fees, estimated by reference to the considerations such as the nature of the project (including the location and size of project), complexity, method and program to be used for the construction works, possible technical issues that may need to be addressed, timing for delivery and late delivery penalty structure, the pricing structure which would typically be specified in each tender invitation document (including lump sum or variable pricing/price adjustment structures), performance bond requirements, and availability of the resources to the Group, including the staff/labour, specialist contractors, machinery resources and project cashflow; and
(b) estimate a potential profit margin within the range of what the Group would in its experience in the industry charge for similar projects of similar specifications for independent third party employers.

LETTER FROM THE BOARD

The tender price is expected to comprise the construction costs for the entire project. The tender price may be a fixed sum or variable charging formula or a combination of both, depending on the terms of the tender invitation. The estimating manager, as a member of the tendering team, will prepare a cost estimate of the tender according to the requirements of the tender documents. Tender progress meetings with the tendering team may be conducted throughout the estimating process when required. After having the potential project costs and the proposed tender price estimated, a management meeting will be held to provide senior management with cost estimation and other related documents. The senior management of the Group, comprising one director from civil and building divisions, one director in charge of business development, one director in charge of contract administration and management, and the chairman of the Board, will review the potential project costs estimate, any potential margin and the proposed tender price, and determine whether or not the tender price (including the pricing structure) should be modified having regard to various factors including the specification of the project, the potential risks associated with the project, general business environment and the perceived competitiveness of the tender price and, with respect to projects of the Road King Group, whether the tender prices are comparable to those offered to independent third party employers. In determining the profit margin of potential projects, the Company will consider factors including, but not limited to, the existing workload and the capacity of the Group, future price trend of various components of project costs, competitiveness of tender price, reliability and reputation of the potential clients and strategic importance of the tender to the future growth of the Group. Generally, the Group’s gross profit margin in its tenders for building construction projects would be within the range of 2% to 7% (depending on the complexity of the construction projects).

ANNUAL CAPS

The parties acknowledge that if the annual value to be recognised under the contracts entered into between the Road King Group and the Group pursuant to Framework Agreement in respect of each of the financial years specified below exceed the amounts specified below that year in the row headed “Annual Cap”, either or both parties may be required to seek additional shareholders’ approval under the Listing Rules and shall use all reasonable endeavours to seek such approval in a timely manner:

Financial year ending 31 December 2018 2019 2020

Annual Cap HK$650 million HK$2,460 million HK$2,880 million

It includes contract value for advanced works pursuant to the Articles of Agreement dated 14 March 2017 entered into between Power Truth Development Limited, a wholly-owned subsidiary of Road King, and Build King Construction Limited, a wholly-owned subsidiary of the Company (approximately HK$105 million and HK$5 million respectively for the financial years ending 31 December 2018 and 2019 respectively), which is the subject of the Company’s circular dated 22 March 2017.

LETTER FROM THE BOARD

The annual caps are determined by reference to:

(i) the gross floor area of each of the two existing projects of the Road Kong Group to be constructed, the type of works to be involved in each project and the estimated total construction costs of the two existing projects of the Road King Group in respect of the potential works incurred during the period from 1 January 2018 to 31 December 2020 taking into consideration the prevailing market conditions which in turn affect the development schedule of each project. The type of works to be involved in each project include but not limited to site formation and foundation works, reinforced concrete construction for buildings and associated building services;
(ii) estimated schedule for construction works of the two existing projects of the Road King Group (one commenced in 2017, major construction work of which is expected to be carried out in 2019 and is expected to complete in the financial year ending 2020 and while the other one is expected to commence in early 2018, major construction work of which is expected to be carried out in 2019 and 2020 and is expected to complete in the financial year ending 2022);
(iii) the estimated construction costs and project span of potential development projects in Hong Kong that the Road King Group may acquire during the three financial years ending 31 December 2020, based on the available information on upcoming land sales in Hong Kong; and
(iv) while each tender is discrete and is to be awarded independent from other tenders, Road King and the Company consider that it is more appropriate to assume that all construction contracts are to be awarded to the Group for the purposes of determining annual caps for the Listing Rules compliance purposes.

Shareholders should note that the proposed annual caps represent the best estimates by the Road King Group and the Group based on the information currently available (including works to be involved in each project, development schedule and prevailing market conditions) and, in particular, the estimated amount of construction contracts for the Road King Group’s existing and potential property development projects in Hong Kong and should not be construed as the actual amount of construction projects that members of the Group may be awarded during the three financial years ending 31 December 2020. The proposed annual caps have no direct relationship to, nor should be taken to have any direct bearing on, the Group’s financial or potential financial performance. The Road King Group may or may not require members of the Group to submit tender as main contractor(s) in relation to the Road King Group’s development projects in Hong Kong, or if members of the Group is being appointed, to take up construction projects up to the level of the proposed annual caps.

LETTER FROM THE BOARD

To monitor the annual caps, commercial department of the Group, which consists of in-house quantity surveyors, will compare monthly actual turnover against project forecast and report to the finance department. Finance department of the Group will consolidate the relevant projects under the continuing connected transactions and compare the actual turnover against project forecast and approved annual caps for the remaining period in the year and report to the senior management. If the Group estimates (based on projects in fact being undertaken or tendered for) that the relevant annual caps would be exceeded, or where one or more projects’ duration will extend beyond the term of the Framework Agreement, the Company will take steps as appropriate to ensure compliance with the requirements under the then applicable Listing Rules.

LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, the Company is a non-wholly owned subsidiary of Wai Kee. As at the Latest Practicable Date, Wai Kee (through its subsidiaries) was interested in 690,525,033 Shares, representing approximately 55.60% of the Company’s issued share capital, and was interested in 311,320,428 shares of Road King, representing approximately 41.61% of the issued share capital of Road King. Accordingly, Wai Kee and Road King are connected persons of the Company under the Listing Rules, the transactions contemplated under the Framework Agreement constitute continuing connected transactions of the Company under the Listing Rules.

As the applicable percentage ratios (as defined in the Listing Rules) in respect of the annual caps for the transactions under the Framework Agreement exceed 5%, the Framework Agreement is subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

LETTER FROM THE BOARD

Mr. Zen Wei Peu, Derek (“ Mr. Derek Zen ”), an executive Director, is also an executive director of Wai Kee and Road King. Mr. Derek Zen held (i) 123,725,228 Shares, representing 9.96% of the Company’s issued share capital; (ii) 18,595,000 shares (of which 1,000,000 shares are held by his spouse) in Road King, representing 2.49% of Road King’s issued share capital; and (iii) 185,557,078 shares in Wai Kee, representing 23.40% of the issued share capital in Wai Kee as at date of the Framework Agreement and as at the Latest Practicable Date. Accordingly, Mr. Derek Zen has abstained from voting on the Board resolutions approving the terms and proposed annual caps of the Framework Agreement, as required by the Bye-laws of the Company, on the basis that Mr. Derek Zen, as a Director, is deemed to have a material interest in those transactions under the Bye-laws of the Company.

Dr. Chow Ming Kuen, Joseph, the Independent Non-executive Director, is also the independent non-executive director of Road King. To avoid potential conflict of interest, Dr. Chow also abstained from voting on the Board resolutions approving the terms and proposed annual caps of the Framework Agreement.

SGM

It is proposed that the SGM be convened and held at 10:00 a.m. on Friday, 15 December 2017 at Unit 1103, 11th Floor, East Ocean Centre, 98 Granville Road, Tsimshatsui, Kowloon, Hong Kong for the purpose of considering and, if thought fit, approving the terms of the Framework Agreement and the proposed annual caps in relation to the transactions contemplated thereunder. A notice of the SGM is set out on pages 43 and 44 of this circular. As Road King, an associate of Wai Kee, is a party to the Framework Agreement, Wai Kee and its associates are required under the Listing Rules to abstain from voting at the SGM on the resolution for approving the terms and the proposed annual caps in relation to the transactions contemplated under the Framework Agreement. In addition, Mr. Derek Zen has confirmed to the Company that he and his associates will also voluntarily abstain from voting at the SGM.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising the independent non-executive Directors, namely Mr. Ho Tai Wai, David and Mrs. Ling Lee Ching Man, Eleanor, has been formed to advise the Independent Shareholders in respect of the terms and the proposed annual caps in relation to the transactions under the Framework Agreement. Dr. Chow Ming Kuen, Joseph is not included as a member of the Independent Board Committee as he is also an independent non-executive director of Road King. The recommendations of the Independent Board Committee, based on the advice of the Independent Financial Adviser, is set out in its letter on pages 14 to 15 of this circular.

LETTER FROM THE BOARD

Veda Capital Limited has been appointed as the Independent Financial Adviser for the purpose of advising the Independent Board Committee and the Independent Shareholders in respect of the terms of and the proposed annual caps in relation to the transactions contemplated under the Framework Agreement. The advice of the Independent Financial Adviser is set out in its letter on pages 16 to 35 of this circular.

ADDITIONAL INFORMATION

Your attention is also drawn to the letter from the Independent Board Committee, the letter of advice from the Independent Financial Adivser and the information set out in the appendices to this circular.

RECOMMENDATION

The Board (including the Independent Board Committee) considers that the terms of and the proposed annual caps in relation to the transactions under the Framework Agreement are on normal commercial terms and are fair and reasonable and the entering of the Framework Agreement is in the ordinary and usual course of business of the Group and in the interest of the Company and the Shareholders as a whole, and accordingly, the Board recommends that all Independent Shareholders to vote in favour of the ordinary resolution set out in the notice of the SGM.

Yours faithfully, By Order of the Board Build King Holdings Limited Chang Kam Chuen, Desmond Company Secretary

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee, which has been prepared for the purpose of incorporation into this circular, setting out its recommendation to the Independent Shareholders in respect of the terms of the Framework Agreement as set out in the Circular.

BUILD KING HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 00240)

29 November 2017

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF SPECIAL GENERAL MEETING

We refer to the circular issued by Company to the Shareholders dated 29 November 2017 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed as the Independent Board Committee to consider the terms of and the proposed annual caps in relation to the transactions under the Framework Agreement and to advise you as to whether the transactions contemplated thereunder are on normal commercial terms and in the ordinary and usual course of business, fair and reasonable so far as the Independent Shareholders are concerned and whether it is in the interests of the Company and the Shareholders as a whole.

Veda Capital Limited has been appointed as the independent financial adviser to advise us and the Independent Shareholders in this regard. Details of the independent advice of the Independent Financial Adviser, together with the principal factors and reasons the Independent Financial Adviser has taken into consideration, are set out on pages 16 to 35 of the Circular.

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to the letter from the board set out on pages 4 to 13 of the Circular and the letter of advice from the Independent Financial Adviser set out on pages 16 to 35 of the Circular and to the appendices of the Circular.

Having considered, among other things, the terms of the Framework Agreement and the transactions thereunder, and having taken into account the principal factors and reasons considered by and the opinion of the Independent Financial Adviser as stated in its letter of advice dated 29 November 2017, the text of which is set out on pages 16 to 35 of the Circular, we consider that the terms of the Framework Agreement and the relevant annual caps are fair and reasonable so far as the Independent Shareholders are concerned, on normal commercial terms, in the ordinary and usual course of business of the Company and are in the interests of the Company and the Shareholders as a whole.

We therefore recommend the Independent Shareholders to vote in favour of the resolutions set out in the Notice of the SGM.

Yours faithfully, For and on behalf of Independent Board Committee of

Build King Holdings Limited Ho Tai Wai, David Ling Lee Ching Man, Eleanor Independent Non-executive Directors

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter from the Independent Financial Adviser setting out the advice to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Framework Agreement and the transactions contemplated thereunder, which has been prepared for the purpose of inclusion in this Circular.

==> picture [113 x 35] intentionally omitted <==

Ved aCaptia lLimtied Room 1106, 11/F, Wing On Centre, 111 Connaught Road Central, Hong Kong

29 November 2017

To: Independent Board Committee and

the Independent Shareholders

Dear Sir/Madams,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the continuing connected transaction contemplated under the Framework Agreement (including the proposed annual caps) (the “ Transaction ”), details of which are set out in the circular to the Shareholders dated 29 November 2017 (the “ Circular ”), of which this letter forms part. Terms used in this letter have the same meanings as defined in the Circular unless the context requires otherwise.

As at the Latest Practicable Date, the Company is a non-wholly owned subsidiary of Wai Kee. As at the Latest Practicable Date, Wai Kee (through its subsidiaries) was interested in 690,525,033 Shares, representing approximately 55.60% of the Company’s issued share capital, and was interested in 311,320,428 shares of Road King, representing approximately 41.61% of the issued share capital of Road King. Accordingly, Wai Kee and Road King are connected persons of the Company under the Listing Rules, the Transaction constitutes continuing connected transaction of the Company under the Listing Rules.

As the applicable percentage ratios (as defined in the Listing Rules) in respect of the annual caps for the Transaction exceed 5%, the Framework Agreement is subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Mr. Derek Zen, an executive Director, is also an executive director of Wai Kee and Road King. Mr. Derek Zen held (i) 123,725,228 Shares, representing 9.96% of the Company’s issued share capital; (ii) 18,595,000 shares (of which 1,000,000 shares are held by his spouse) in Road King, representing 2.49% of the Road King’s issued share capital; and (iii) 185,557,078 shares in Wai Kee, representing 23.40% of the issued share capital in Wai Kee as at the date of the Framework Agreement and as at the Latest Practicable Date. Accordingly, Mr. Derek Zen has abstained from voting on the Board resolutions approving the terms and proposed annual caps of the Framework Agreement, as required by the Bye-laws of the Company, on the basis that Mr. Derek Zen, as a Director, is deemed to have a material interest in this Transaction under the Bye-laws of the Company.

THE INDEPENDENT BOARD COMMITTEE

OUR INDEPENDENCE

As at the Latest Practicable Date, we did not have any relationship with, or interest in, or other services provided to, the Company or any other parties that could reasonably be regarded as relevant to our independence in the past two years except for one engagement as an independent financial adviser to the Company in relation to among other things, a connected transaction, detail of which has been set out in the circular of the Company dated 22 March 2017. Given our independent role and normal professional fees received from the Company under the past engagement, we consider it would not affect our independence to form our opinion in this letter.

Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial Adviser in relation to the Transaction, no arrangements existed whereby we had received or would receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, we consider that we are independent pursuant to Rule 13.84 of the Listing Rules.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS AND ASSUMPTIONS OF OUR OPINION

In formulating our advice and recommendations to the Independent Board Committee and the Independent Shareholders, we have relied on the accuracy of the statements, information, opinions and representations contained or referred to in the Circular and the information and representations made to us by the Company and the Directors. We have assumed that all information and representations contained or referred to in the Circular and provided to us by the Company and the Directors, for which they are solely and wholly responsible, are true, accurate and complete in all respects and not misleading or deceptive at the time when they were provided or made and will continue to be so up to the Latest Practicable Date. The Shareholders will be notified of material changes as soon as possible, if any, to the information and representations provided and made to us after the Latest Practicable Date and up to and including the date of the SGM of the Company.

We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiries and careful consideration and there are no other facts not contained in the Circular, the omission of which make any such statement contained in the Circular misleading. We have no reason to suspect that any relevant information has been withheld, or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Directors, which have been provided to us.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. However, we have not, carried out any independent verification of the information provided by the Directors, nor have conducted any independent investigation into the business, financial conditions and affairs of the Company or its future prospects. The Directors have collectively and individually accepted full responsibility, including particulars given in compliance with the Listing Rules, for the accuracy of the information contained in the Circular and have confirmed, after having made all reasonable enquires, which to the best of their knowledge and belief, that the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other matters of facts the omission of which would make any statement herein or the Circular misleading.

This letter is issued to the Independent Board Committee and the Independent Shareholders, solely in connection for their consideration of the Transaction, and except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purpose without our prior written consent.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In giving our recommendations to the Independent Board Committee and the Independent Shareholders in relation to the Transaction, we have taken into consideration the following principal factors and reasons:

(i) Information on the related parties

Background of the Company

Background of Road King

Road King is principally engaged in investment in, and development, operation and management of, property development in the PRC and more recently in Hong Kong, with a focus in residential developments, and is evaluating increased investment in commercial development properties. The Road King Group also invests in, and manages, through joint ventures expressways in the PRC and possibly elsewhere in South East Asia should suitable opportunities arise.

(ii) Background Information and reasons for and benefits of the entering into of the Framework Agreement

As set out in the Board Letter, the Company notes that the Road King Group has been building up its property development portfolio in Hong Kong and will invite contractors to submit tender for contracts for its construction work from time to time. As part of the ordinary course of business of the Group, it is expected that the Group may participate in future tenders of the Road King Group for main contract(s) in respect of the construction works for the Road King Group’s property development projects in Hong Kong. To ensure compliance with Chapter 14A of the Listing Rules, the Directors proposed to enter into the Framework Agreement and seek approval from the Independent Shareholders for the Framework Agreement in order to facilitate the conduct of transactions should the Group be awarded new contracts by the Road King Group.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The terms of the Framework Agreement were arrived at after arm’s length negotiations between the parties. Members of the Group will enter into separate construction contracts with the Road King Group upon successful tender for each project.

According to the annual report of the Company for the year ended 31 December 2016 (the “ AR 2016 ”), the turnover of the Group is approximately HK$4,871 million for the year ended 31 December 2016, representing approximately 6.54% increase as compared with approximately HK$4,572 million for the year ended 31 December 2015, and the revenue generated from the construction works was accounted for majority of the turnover for the year ended 31 December 2016. The profit for the year ended 31 December 2016 also increased by 58.78% as compared to the profit for the year ended 31 December 2015.

We have interviewed with the management of the Group and are given to understand that the Group has been engaging in variety of civil and building projects. The entering into of the Framework Agreement allows the Group to participate in the tenders of building projects of the Road King Group which enable the Group to broaden its clientele and increase the income source of the Group.

As noted from the Board Letter, the Road King Group has been building up its property development portfolio in Hong Kong and will invite contractors to submit tender for contracts for its construction work from time to time. As advised by the management of the Company, it is a common practice for project developer to invite a contractor to submit tender for the construction projects.

As further advised by the management of the Company, establishing a long and stable relationship amongst the Group and Road King (together with its subsidiaries) will enhance the efficiency of works and provide effective communication for the future projects and create synergies between the Group and the Road King Group.

We are given to understand that contracts are generally awarded in the construction industry through public or private tender process to which a prescribed timetable applies to all bidders, the Group has no control over such timetable as a potential bidder. Thus, we are of the view that the Framework Agreement can enable the Group to capture the opportunities that may become available to members of the Group in participating in tenders that may from time to time be issued by members of the Road King Group while at the same time ensuring compliance with the requirements of Chapter 14A of the Listing Rules.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having further considered that (i) the Transaction is in line with the existing business activities of the Group; (ii) the entering into of the Framework Agreement enables the Group to broaden its clientele and increase the income source of the Group; and (iii) the construction segment of the Group is a key revenue driver of the Group, we are of the view that the entering into of the Framework Agreement is in the ordinary and usual course of business of the Group as well as in the interests of the Company and the Independent Shareholders as a whole.

(iii) Principal terms of the Framework Agreement

Major terms of the Framework Agreement are extracted as follows:

Date : 24 November 2017 Parties : (1) the Company
(2) Road King

Subject matter : The Road King Group may from time to time invite relevant member(s) of the Group to submit tender to act as the main contractor for the construction works of the Road King Group’s present and future property development projects in Hong Kong. Subject to successful tender, the Road King Group will enter into construction contract(s) with the relevant member(s) of the Group, which will be:

(a) in writing and in accordance with the terms and conditions set out in the tender;
(b) determined in the usual and ordinary course of business of the Group and the Road King Group on normal commercial terms (as defined in the Listing Rules); and
(c) in compliance with all applicable provisions of the Listing Rules, the Framework Agreement and the respective construction contracts for the engagement of members of the Group as main contractor(s) in respect of the existing and potential development projects of the Road King Group.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Term

: An initial term of three years starting from 1 January 2018 (subject to the approval of the Framework Agreement to be granted by resolution of the Independent Shareholders at the SGM), unless terminated earlier in accordance with the terms and conditions thereunder.

Notwithstanding the above, the Framework Agreement may be terminated at any time by the written agreement of the Company and Road King.

Conditions

: The Framework Agreement is conditional on:

(i) the Independent Shareholders of Road King having approved the transactions contemplated under the Framework Agreement at the special general meeting of Road King in accordance with the Listing Rules; and
(ii) the Independent Shareholders having approved the transactions contemplated under the Framework Agreement at the SGM in accordance with the Listing Rules.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As set out in the Board Letter, the terms of the Framework Agreement were arrived at after arm’s length negotiations between the parties. Members of the Group will enter into separate construction contracts with the members of the Road King Group upon successful tender for each project. The Board (including the Independent Board Committee) considers that the terms of the Framework Agreement and the Transaction contemplated thereunder are on normal commercial terms and are fair and reasonable. In addition, the entering into of the Framework Agreement is in the ordinary and usual course of business of the Group and in the interest of the Company and the Shareholders as a whole.

We have reviewed the Framework Agreement and noted that pursuant to the Framework Agreement, the Transaction contemplated thereunder shall be conducted in usual and ordinary course of business of the Group and on normal commercial terms.

We are given to understand from the Company that the potential construction contracts will be entered into if members of the Group are awarded those construction projects by the Road King Group through its tender process. The prices and terms of the tender will be prepared with reference to the prevailing market rates no less favorable than the prices and terms offered by the Group to independent third parties. The award of the construction projects of the Road King Group is based on the same tendering procedures and terms that apply to all other tenderers that may participate in the public/private tender as offered by the Road King Group to other independent tenderers.

(iv) Pricing policies and internal procedures in relation to tender

As noted from the Board Letter, the Group will need to go through tender process before being appointed as a main contractor in respect of the Road King Group’s property development projects in Hong Kong. After receipt of the tender invitation, the Group will collect and check the tender documents and drawings. If the Group decides to proceed with the tender after reviewing the tender documents, a tendering team, which comprises staff from estimating department (responsible for cost estimation and dealing with issues in relation to construction contracts), engineering department (responsible for handling design, drawings and technical aspects) and project management department (responsible for overall planning and execution of project),will be set up to handle the tender and prepare cost estimate of the construction works. The team members of the tendering team are mostly engineers or quantity surveyors with over ten years of experience in their relevant expertise area.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

General pricing policy

(a) estimate the potential costs of the construction works (“ Project Costs ”) to which the project relates, which is the aggregate of the direct costs, including labour cost, plant and machinery cost, construction materials cost and sub-contractor fees, estimated by reference to the considerations such as the nature of the project (including the location and size of project), complexity, method and program to be used for the construction works, possible technical issues that may need to be addressed, timing for delivery and late delivery penalty structure, the pricing structure which would typically be specified in each tender invitation document (including lump sum or variable pricing/ price adjustment structures), performance bond requirements (“ Specifications Considerations ”) and availability of the resources to the Group, including the staff/ labour, specialist contractors, machinery resources and project cashflow (“ Resources Considerations ”); and
(b) estimate a potential profit margin within the range of what the Group would in its experience in the industry charge for similar projects of similar specifications for independent third party employers.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As set out in the Board Letter, the tender price is expected to comprise the construction costs for the entire project. The tender price may be a fixed sum or variable charging formula or a combination of both, depending on the terms of the tender invitation. The estimating manager, as a member of the tendering team, will prepare a cost estimate of the tender according to the requirements of the tender documents. Tender progress meetings with the tendering team may be conducted throughout the estimating process when required. After having the potential Project Costs and the proposed tender price estimated, a management meeting will be held to provide senior management with cost estimation and other related documents. The senior management of the Group, comprising one director from civil and building divisions, one director in charge of business development, one director in charge of contract administration and management, and the chairman of the Board, will review the potential project costs estimate, any potential margin and the proposed tender price, and determine whether or not the tender price (including the pricing structure) should be modified having regard to various factors including the specification of the project, the potential risks associated with the project, general business environment and the perceived competitiveness of the tender price and, with respect to projects of the Road King Group, whether the tender prices are comparable to those offered to independent third party employers. In determining the profit margin of potential projects, the Company will consider factors including, but not limited to, the existing workload and the capacity of the Group, future price trend of various components of project costs, competitiveness of tender price, reliability and reputation of the potential clients and strategic importance of the tender to the future growth of the Group. Generally, the Group’s gross profit margin in its tenders for building construction projects would be within the range of 2% to 7% (depending on the complexity of the construction projects).

Internal control procedures

We have interviewed with the management of the Group and are given to understand that the Group will prepare their tenders for construction work for both the tender contract with Road King Group and other connected parties as well as the contracts with other independent parties based on similar criteria and assessment such as the capability to satisfy contract requirements, qualifications, reliability, quality and price; and the results of the interviews with the contractors etc.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the services to be rendered to Road King contemplated under the Framework Agreement, the senior management of the Group will review the potential Project Costs estimate and the tender price to ensure that they are (i) arrived at through procedures consistent with that of tenders for contracts with other independent third parties; and (ii) on terms no less favorable to the Group than those that would have been offered at the time by the Group to other independent third parties on comparable circumstances.

We have also reviewed the internal control procedures in relation to the tender provided by the Company and noted that the Company will initially evaluate its resources and technical capabilities before deciding whether the Group will prepare for a tender. Regardless of the transactions may or may not constitute connected transactions of the Company, if the Group decides to prepare for a tender, an estimating manager along with the tendering team will assess the relevant methods, costs in the tender and prepare a tender list and tender summary. The terms of the tender list will then be determined by a panel of senior management including, but not limited to, the operation directors and/or chairman of the Group in a management meeting to evaluate whether the proposed tender is reliable and assessable before the submission of the tender.

Besides, we attempted to compare the internal procedures and the pricing policies adopted by the Group for the projects of independent third parties employer and connected persons. We are given to understand from the senior management of the Company that it is difficult to compare each of the projects as the scope of works for different projects are rarely identical in respect of, among others, (i) the size of the construction site; (ii) landscape and geological condition of the construction site; (iii) complexity and difficulty of work to be performed; and (iv) amount of resources to be devoted into the project etc.

Hence, we attempted to select the comparable projects (the “ Comparable Projects ”) from the Company’s current project list as at 30 September 2017, based on the following criteria: (a) the project size is relatively comparable with the Existing Projects (as defined below) and the Potential Projects (as defined below) with the information currently available; (b) the nature of the project (i.e. the Company being the main contractor); and (c) the commencement dates of the Comparable Projects are between 2015 to 2017.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Under the abovementioned selection criteria, we have obtained six Comparable Projects of which three of them with independent third parties as employers and three of them with connected parties as employers, which is exhaustive and sufficient.

We have noticed from the relevant tendering documents of the Comparable Projects that the employer will invite contractors, such as the Company, to submit a quotation and will provide contractors with a scope and requirements of the construction works. Regardless of the counterparty is an independent third party or a connected party, based on each component task comprised in the scope, the estimating team of the Company would send out a number of quotation requests such as material costs to the major suppliers or sub-contractors if it is required or refer to its database which has been built up over the years, to obtain a prevailing market price, which will be taken into consideration for the estimation of the cost. The cost estimates would then be reviewed by the senior management of the Group, comprising one director from civil and building divisions, one director in charge of business development, one director in charge of contract administration and management, and the chairman of the Board, who then will jointly determine the appropriate profit margin, the price of the construction works and will ensure the transactions are carried out at terms comparable or no less favorable to the connected parties than offer to independent third parties. Based on the Comparable Projects, we are of the view that the tender will be prepared with reference to the prevailing market rates no less favorable than the prices and terms offered by the Group to independent third parties.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Furthermore, we have obtained and reviewed the pricing summary sheets for the Comparable Projects and have interviewed with the senior management of the Company to understand how the detailed cost and profit margin were determined. We observed that each item of the construction works is listed out with an estimated cost respectively. The estimated cost for each item of the construction works was determined through the estimates of the following cost item(s) (where applicable), which include: (a) labour costs, which were estimated based on the number of staff required and the current wage levels with annual adjustments for inflation; (b) plant costs, which were estimated based on the size of site offices, machinery and equipment required on site; (c) temporary material costs, which were estimated based on the amount of materials needed for the preliminaries of the engineers and main contractor and would be cleared upon completion of the Comparable Projects; and (d) independent sub-contracting and general fees, which were estimated based on the requirement of various on-site services and fees paid for insurance. Based on the aforesaid cost estimates for the construction works, the senior management of the Group, comprising one director from civil and building divisions, one director in charge of business development, one director in charge of contract administration and management, and the chairman of the Board, then determined the margin for the construction works after assessing relevant risks and opportunities, and made reference to the gross profit margins charged to recent similar projects. As stated in the Board Letter, the Group’s gross profit margin in its tenders for building construction projects would be within the range of 2% to 7% (depending on the complexity of the construction projects) (“ Range ”), we have noted that the gross profit margins for the majority of the Comparable Projects lie within the Range regardless of the counter party is a connected party or an independent third party.

Having reviewed the related tendering documents of the Comparable Projects, we noted that the Comparable Projects went through the same internal control procedures and adopted the same pricing policies.

Having considered the aforementioned factors, we are of the view that (i) the Company adopted the same internal control procedures and pricing policies regardless the identity of the employer (i.e. independent third parties or connected persons); and (ii) the Company will made reference to the prevailing market rates when determining the project costs and the potential profit margin to ensure the prices are no less favorable than the prices and terms offered by the Group to independent third parties.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Expertise and qualifications

As advised by the Company, the senior management of the Group who review and modify the estimated potential Project Costs comprise the Directors with extensive experience and qualification in the engineering and building construction and/or civil and marine engineering industry (the “ Senior Management ”). We have reviewed the details, qualifications and experiences of the Senior Management which are disclosed in the AR 2016. We consider that the Senior Management possesses experience and qualifications in the engineering and building construction and/or civil and marine engineering industry based on the public information of the Senior Management.

We also noted that the Framework Agreement is automatically renewed (subject to compliance with the requirements of the applicable Listing Rules) for successive period of three (3) years upon expiry of the initial term or subsequent renewal term (or such other period as permitted under the Listing Rules) unless a party under the Framework Agreement gives a 30 days’ prior written notice to the other party to terminate the Framework Agreement. We are given to understand from the Company that the duration of the construction projects varies with the size and complexity of the projects. We also observed that the expected duration of the Existing Projects (as defined below) and Potential Projects (as defined below) range from at least three years. The agreements for provision of services to Road King with different duration may be entered into from time to time during the terms of the Framework Agreement and may continue upon the expiry of the initial term of three (3) years. Having considered that the Framework Agreement (i) has an initial term of three years and that term will only be extended if the parties comply with the requirements of the applicable Listing Rules and other applicable laws and regulations; and (ii) can facilitate the continuity of the provision of services to Road King, we considered that this arrangement is fair and reasonable.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered that (i) the nature of the Framework Agreement falls within the scope of the principal business of the Group; (ii) the terms of the Framework Agreement were arrived at after arm’s length negotiations and on normal commercial terms; (iii) the Group will prepare their tenders for construction work for both the tender contract with the Road King Group and the contracts with other independent parties based on similar criteria and assessment; (iv) the Project Costs are determined based on the Specification Considerations and Resources Considerations which are commercially justifiable and commonly considered; (v) the Senior Management will review the potential Project Costs estimate and the tender price to ensure that they are arrived at through procedures consistent with that of tenders for contracts with other independent third parties and on terms that are no less favorable to the Group than those that would have been offered at the time by the Group to other independent third parties on comparable circumstances; (vi) the potential profit margin range under the pricing policy is after due and careful considerations of the senior management, comprising one director from civil and building divisions, one director in charge of business development, one director in charge of contract administration and management, and the chairman of the Board; (vii) the gross profit margins for the majority of the Comparable Projects lie within the Range regardless of the counter party is a connected party or an independent third party; and (viii) the qualification and experience of the Senior Management who review, and modify (if required), the estimated potential Project Costs, we are of the view that the terms of the Framework Agreement are on normal commercial terms and that such terms are fair and reasonable as well as in the interests of the Company and the Independent Shareholders as a whole.

(v) Annual caps for the Framework Agreement

		Financial	year ending 31 December	year ending 31 December
		2018	2019		2020
Annual Cap	HK$650	million*	HK$2,460 million*	HK$2,880	million

It includes contract value for advanced works pursuant to the Articles of Agreement dated 14 March 2017 entered into between Power Truth Development Limited, a wholly-owned subsidiary of Road King, and Build King Construction Limited, a wholly-owned subsidiary of the Company (approximately HK$105 million and HK$5 million respectively for the financial years ending 31 December 2018 and 2019 respectively), which is the subject of the Company’s circular dated 22 March 2017.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As noted from the Board Letter, the annual caps determined by reference to:

(i) the gross floor area of each of the two existing projects of the Road Kong Group to be constructed, the type of works to be involved in each project and the estimated total construction costs of the two existing projects of the Road King Group in respect of the potential works incurred during the period from 1 January 2018 to 31 December 2020 taking into consideration the prevailing market conditions which in turn affect the development schedule of each project. The type of works to be involved in each project include but not limited to site formation and foundation works, reinforced concrete construction for buildings and associated building services;
(ii) estimated schedule for construction works of the two existing projects of the Road King Group ((i) one commenced in 2017, major construction work of which is expected to be carried out in 2019 and is expected to complete in the financial year ending 2020 and while the other one is expected to commence in early 2018, major construction work of which is expected to be carried out in 2019 and 2020 and is expected to complete in the financial year ending 2022);
(iii) the estimated construction costs and project span of potential development projects in Hong Kong that the Road King Group may acquire during the three financial years ending 31 December 2020, based on the available information on upcoming land sales in Hong Kong; and
(iv) while each tender is discrete and is to be awarded independent from other tenders, Road King and the Company consider that it is more appropriate to assume that all construction contracts are to be awarded to the Group for the purposes of determining annual caps for the Listing Rules compliance purposes.

As further set out in the Board Letter, Shareholders should note that the proposed annual caps represent the best estimates by the Road King Group and the Group based on the information currently available (including works to be involved in each project, development schedule and prevailing market conditions) and, in particular, the estimated amount of construction contracts for the Road King Group’s existing and potential property development projects in Hong Kong.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The payment terms will be set out in the tender documents. Typically for construction projects in Hong Kong, payments are made to the contractor by way of progress payment on a monthly basis with reference to the value of works done. The external quantity surveyor or the external architect appointed by the developer or employer will assess and verify the works done and approve interim payment application made by the contractor. We have reviewed the Comparable Projects’ tender documents and noticed that the payment terms are in line with the abovementioned and there is no material difference between the payment terms of a connected party and an independent third party.

To monitor the annual caps, commercial department of the Group, which consists of in-house quantity surveyors, will compare monthly actual turnover against project forecast and report to the finance department. Finance department of the Group will consolidate the relevant projects under the continuing connected transactions and compare the actual turnover against project forecast and approved annual caps for the remaining period in the year and report to the Senior Management. If the Group estimates (based on projects in fact being undertaken or tendered for) that the relevant annual caps would be exceeded, or where one or more projects’ duration will extend beyond the term of the Framework Agreement, the Company will take steps as appropriate to ensure compliance with the requirements under the then applicable Listing Rules.

According to the indications provided by Road King to the Company, members of Road King Group have two existing projects on hand (the “ Existing Projects ”) and the construction works are expected to be incurred during the term of the Framework Agreement. As further indicated by Road King, during the term of the Framework Agreement, Road King may acquire potential development projects in Hong Kong (the “ Potential Projects ”) which may require construction services and the Potential Projects may become available for tender during the term of the Framework Agreement. As advised by the Company, all the Existing Projects are residential development projects. We are given to understand from the Company that after considering the terms and conditions set out in the tenders, the Group may participate in the tenders as and when the tendering process for the construction works of the Existing Projects and Potential Projects is open.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have obtained and reviewed a worksheet (the “ Worksheet ”) comprising, among other things, summary of the Existing Projects and Potential Projects showing the breakdown of the estimated construction costs for each of the year ending 31 December 2018, 2019 and 2020. We have noted that the annual cap for each of the year ending 31 December 2018, 2019 and 2020 is the sum of the estimated construction cost of each of the Existing Project and Potential Project in the relevant financial year. The Worksheet is prepared with the information provided by Road King including, among others, the type of potential works to be involved in the Existing Projects, the estimated schedule for construction works of the Existing Projects and the project span of the Potential Projects.

As noted from the Worksheet, the Existing Projects are expected to span throughout the three years ending 31 December 2020. The estimated construction cost for the Existing Projects for each of the financial year ending 31 December 2018, 2019 and 2020 is estimated to be approximately HK$635 million, approximately HK$2,155 million and approximately HK$1,455 million respectively, which is the lump sums of monthly estimated construction costs of each of the potential type of work for each of the Existing Projects prepared by respective independent quantity surveyor engaged by Road King. As referred to the Worksheet, the significant increase of the proposed caps from 2018 to 2019 is mainly contributed by the major construction work of the Existing Projects, which one of them is expected to be carried out in 2019 and is expected to complete in the financial year ending 2020 and while the other one is expected to commence in early 2018, major construction work of which is expected to be carried out in 2019 and 2020 and is expected to complete in the financial year ending 2022. We have reviewed the Comparable Projects and have noticed that the major construction works are normally conducted during the second and third year within the commencement period of the Comparable Projects. Hence, we are of the view that a significant increase of the proposed caps from 2018 to 2019 is reasonable.

The Worksheet also shows the breakdown of the estimated construction costs and project span of the Potential Projects. We are given to understand from the management of the Company that the Road King Group has estimated the total construction costs of each of the Potential Project with reference to the nature, location, the size of the Potential Projects and the existing Road King projects which have similar nature and characteristic to the Potential Projects. We have noted that the way on how the estimated construction cost projections for the Potential Projects is divided is in line with that of the Existing Projects.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In order to further assess the fairness and reasonableness of the annual caps, we have referred to a report titled “Construction Cost Handbook CHINA & HONG KONG 2017” (http:// www.langdonseah.com/en/sg/publications/filter/annual-construction-cost-handbook/all) (the “ Report ”) issued by Arcadis Asia Limited, a global design, engineering and management consulting company, to compare the cost per construction floor area in square meters of the current market and the Existing Projects. We have calculated the estimated cost per construction floor area in square meters by converting the gross floor area in square meters of the Existing Projects into the construction floor area in square meters and divided the total construction cost of each Existing Project by reference to the corresponding construction floor area in square meters. For the Potential Projects, since the cost of each Potential Projects depends on the gross floor area in square meters of the upcoming land sales in Hong Kong, our calculation assumes that the Potential Projects will be of similar nature and characteristics to the Existing Projects and observed that the estimated construction cost of each the Existing Projects and Potential Projects per construction floor area in square meters is in line with the current market rate as stated in the Report.

Given the tender terms of each Project are not yet available, as advised by the Company, it has been assumed that the total sum of the estimated construction cost for all the Existing Projects and the Potential Projects will be progressively increased over the duration of the three years ending in 2020, since the Potential Projects may commence in 2019 and 2020. We have noted from the AR 2016 that revenue from construction contracts is generally recognized using the percentage of completion method with reference to the value of work performed during the year. As advised by the Company, the construction works of the projects are performed in stages during the duration of a project pursuant to the terms of tender and the agreement. As noted from the Board Letter, if at any time, the Group estimates (based on projects in fact being undertaken or tendered for) that the relevant annual cap would be exceeded, or where one or more projects’ duration will extend beyond the term of the Framework Agreement, the Company will take steps as appropriate to ensure compliance with the requirements under the applicable Listing Rules.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered that (i) the proposed annual cap is determined according to the duration and the estimated construction costs of the Existing Projects and the Potential Projects; (ii) the proposed annual caps represent the best estimates by the Road King Group and the Group based on the information currently available (including works to be involved in each project, development schedule and prevailing market conditions); (iii) the results of each tender submitted by the Company are discrete and can be beyond the control and expectation of the Company; (iv) the estimated cost per construction floor area in square meters of each of the Existing Projects and the Potential Projects estimated by Road King is in line with the current market rate; (v) the Company will take appropriate steps to ensure the proposed annual caps are complied with the requirements under the then applicable Listing Rules; and (vi) the significant increase of the proposed caps from 2018 to 2019 is manly contributed by the major construction work of the Existing Projects which is in-line with the Comparable Projects, hence we consider the proposed annual caps for the three years ending 31 December 2020 to be conservatively calculated by Road King and the Group are accordingly justifiable.

In view of the above-mentioned, we considered the proposed annual caps for the three years ending 31 December 2020 to be fair and reasonable so far as the Independent Shareholders are concerned.

RECOMMENDATION

Having considered the above principal factors and reasons, we are of the view that (i) the Framework Agreement is conducted in the ordinary and usual course of business of the Company; (ii) the terms of the Framework Agreement (including the proposed annual caps) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (iii) the entering into of the Framework Agreement is in the interests of Company and the Independent Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders, and we also recommend Independent Shareholders to vote in favour of the relevant resolution for approving the Transactions.

Yours Faithfully, For and on behalf of Veda Capital Limited Julisa Fong Managing Director

Ms. Julisa Fong is a Responsible Officer under the SFO to engage in Type 6 (advising on corporate finance) regulated activity and has over 21 years of experience in investment banking and corporate finance.

GENERAL INFORMATION

APPENDIX I

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 Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(I) Interests and short positions of the Directors and chief executive in the Company and its associated corporations

Save as disclosed below, as at the Latest Practicable Date, none of the Directors or the chief executive of the Company and their respective associates had any interests or short positions in the shares, underlying shares and/or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to the Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director or chief executive of the Company was taken or deemed to have under such provisions of the SFO); or (b) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules to be notified to the Company and the Stock Exchange.

GENERAL INFORMATION

APPENDIX I

(A) The Company

Interests in Shares

	Capacity/	Number of	Shares held	Percentage
Name of Director	Nature of interest	Long position	Short position	of shareholding
		(Note)		(%)
Zen Wei Peu, Derek	Personal	123,725,228	–	9.96
Chang Kam Chuen, Desmond	Personal	1,500,000	–	0.12
David Howard Gem	Personal	900,000	–	0.07

Note:

Long position in the Shares (other than pursuant to equity derivatives such as share options, warrants to subscribe or convertible bond(s).

(B) Associated corporations

Interests in shares

		Capacity/	Number of shares held	Number of shares held	Percentage
		Nature of	Long	Short	of
Name of Director	Name of company	interest	position	position	shareholding
			(Note 1)		(%)
Zen Wei Peu, Derek	Wai Kee	Personal	185,557,078	–	23.40
	Wai Kee (Zens) Construction &	Personal	2,000,000	–	10.00
	Transportation Company Limited
	(Note 2)
	Wai Luen Stone Products Limited	Personal	30,000	–	37.50

Notes:

Long position in the shares (other than pursuant to equity derivatives such as share options, warrants to subscribe or convertible bonds).
With effect from 29 February 2016, the name of Wai Kee (Zens) Construction & Transportation Company Limited has been changed to Build King (Zens) Engineering Limited.

GENERAL INFORMATION

APPENDIX I

(II) Substantial Shareholders’ Interests

(A) Interests in the Company

As at the Latest Practicable Date, so far as was known to the Directors or chief executive of the Company, the following persons (“ Substantial Shareholders ”) (other than the Directors or the chief executive of the Company) had an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provision of Divisions 2 and 3 of Part XV of the SFO:

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Number of Shares held and
Capacity/ Percentage of shareholding
Name of Substantial Shareholder Nature of interest Long position (Note (1)) Short position
Number of Number of
Shares % Shares %
Top Horizon Holdings Limited Beneficial owner 690,525,033 55.60 – –
(“ Top Horizon ”) (Note (2))
Wai Kee (Zens) Holding Limited Corporate 690,525,033 55.60 – –
(“ Wai Kee (Zens) ”) (Note (3))
Wai Kee (Note (4)) Corporate 690,525,033 55.60 – –
Notes:
----- End of picture text -----

Long position in the Shares.
Top Horizon is a direct wholly-owned subsidiary of Wai Kee (Zens).
Wai Kee (Zens) is deemed to be interested in the Shares through its interests in Top Horizon.
Wai Kee (Zens) is a direct wholly-owned subsidiary of Wai Kee. Accordingly, Wai Kee is deemed to be interested in the Shares through its interests in Wai Kee (Zens).

GENERAL INFORMATION

APPENDIX I

Save as disclosed below, as at the Latest Practicable Date, none of the Directors was a director or employee of a company which had an interest or a short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

	Name of company which had
	such discloseable interest or
Name of Director	short position	Position with such company
Zen Wei Peu, Derek	Top Horizon	Director
	Wai Kee (Zens)	Director
	Wai Kee	Vice Chairman,
		Chief Executive Officer and
		Executive Director

(B) Interests in other members of the Group

As at the Latest Practicable Date, so far as was known to any Director or chief executive of the Company and save as disclosed in this circular, the persons (other than a Director or chief executive of the Company or a member of the Group) who were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group were as follows:

		Percentage of
Name of subsidiary	Name of shareholder	interest held
		(%)
Archibuild Limited	Cheng Lai Heung	26.66
	Lai Yiu Wah	13.34
Build King Interior &	Kwan Chuen Kin	30.00
Construction Limited
Cheuk Wah Construction	Goldky Industries Limited	40.00
Engineering Limited

APPENDIX I

GENERAL INFORMATION

		Percentage of
Name of subsidiary	Name of shareholder	interest held
		(%)
Eastar Construction	Fulight Engineering Limited	20.00
Engineering Limited
Huge Host Engineering	Downer Mining (Asia) Limited	30.00
Limited
W K Aviation Engineering	Kencana Capital Ventures	30.00
Company Limited	Sdn. Bhd.

Save as disclosed above, as at the Latest Practicable Date, the Directors and the chief executive of the Company are not aware of any other persons (other than a Director or chief executive of the Company) who had an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly interested in 10% or more of the issued voting shares of any other member of the Group or had any options in respect of such capital.

3. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

As at Latest Practicable Date, none of the Directors and their respective associates had any interests in a business, which competed or was likely to compete, directly or indirectly, with the business of the Group.

4. SERVICE CONTRACTS WITH DIRECTORS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group which was not determinable by the Group within one year without payment of compensation (other than statutory compensation).

GENERAL INFORMATION

APPENDIX I

5. INTERESTS IN ASSETS AND/OR CONTRACTS AND OTHER INTERESTS

Save for the framework agreement dated 7 June 2016 between the Company and Wai Kee (in which Mr. Zen Wei Peu, Derek holds shares as disclosed in paragraph 2(I)(B) above) in respect of the continuing sale and purchase of Concrete from 2016 to 2018, pursuant to which the Company may purchase ready mixed concrete from Wai Kee (the details of the agreement are set out in the circular issued by the Company dated 16 June 2016), since 31 December 2016, being the date to which the latest published audited accounts of the Company were made up, none of the Directors was interested in any assets which have been acquired or disposed of by or leased to (or are proposed to be acquired or disposed of by or leased to) any member of the Group since the date of the latest published audited accounts of the Company.

As at the Latest Practicable Date, save as disclosed above, none of the Directors was materially interested in any subsisting contract or arrangement which is significant in relation to the business of the Group.

6. MATERIAL ADVERSE CHANGES

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, being the date to which the latest published audited consolidated financial statements of the Group were made up.

7. EXPERT AND CONSENT

The following are the qualifications of the expert who has given opinions or advice which are contained in this circular:

Name Qualification

Veda Capital Limited a licensed corporation which is licensed to carry out type 6 (advising on corporate finance) regulated activities under the SFO

The Independent Financial Adviser has given and has not withdrawn its written consent to the issue of this circular, with the inclusion of its letter as set out in this circular and references to its name in the form and context in which it appears.

GENERAL INFORMATION

APPENDIX I

As at the Latest Practicable Date, the Independent Financial Adviser did not have any shareholding, directly or indirectly, in any member of the Group nor have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, the Independent Financial Adviser did not have any direct or indirect interests in any assets which have been, since 31 December 2016, being the date to which the latest published audited consolidated financial statements of the Group were made up, acquired or disposed of by, or leased to any member of the Group, or proposed to be acquired or disposed of by, or leased to, any member of the Group.

8. MISCELLANEOUS

The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. (other than Saturdays, Sundays and public holidays) at the principal place of business of the Company in Hong Kong from the date of this circular up to and including 15 December 2017:

(a) the letter from the Independent Financial Adviser, the text of which is set out on pages 16 to 35 of this circular;
(b) the letter from the Independent Board Committee, the text of which is set out on pages 14 to 15 of this circular;
(c) the Framework Agreement; and
(d) this circular.

NOTICE OF SPECIAL GENERAL MEETING

APPENDIX II

BUILD KING HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 00240)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Special General Meeting of Build King Holdings Limited (the “ Company ”) will be held at Unit 1103, 11th Floor, East Ocean Centre, 98 Granville Road, Tsimshatsui, Kowloon, Hong Kong on Friday, 15 December 2017 at 10:00 a.m. to transact the following businesses:

ORDINARY RESOLUTION

“ THAT :

(a) the terms of and the proposed annual caps in relation to the transactions contemplated under the framework agreement dated 24 November 2017 (the “ Framework Agreement ”) entered into between the Company and Road King Infrastructure Limited (“ Road King ”) in relation to the possible engagement of the Company (and its subsidiaries) as the main contractor (subject to successful tender) in respect of the existing and potential property development projects of Road King and its subsidiaries in Hong Kong for the three years ending 31 December 2020 be and are hereby approved; and
(b) the directors of the Company be and are hereby authorised for and on behalf of the Company to do all such acts and take all steps which they may consider necessary, desirable or expedient in connection with the Framework Agreement and otherwise in connection with the implementation of the transactions contemplated thereunder including without limitation to the execution, amendment, supplement, delivery, waiver, submission and implementation of any further documents or agreements.”

By Order of the Board Company Secretary

Chang Kam Chuen, Desmond

Hong Kong, 29 November 2017

NOTICE OF SPECIAL GENERAL MEETING

APPENDIX II

Registered Office: Principal Place of Business in Clarendon House Hong Kong: 2 Church Street Units 601-605A, 6th Floor Hamilton HM 11 Tower B, Manulife Financial Centre Bermuda 223 Wai Yip Street Kwun Tong, Kowloon Hong Kong

Notes:

Any member of the Company entitled to attend and vote at the meeting by the above notice shall be entitled to appoint another person as his/her proxy to attend and vote instead of such member. Votes may be given either personally or by proxy or by a duly authorized corporate representative. A member may appoint more than one proxy to attend on the same occasion. A proxy need not be a member of the Company.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer or attorney duly authorised to sign the same.
The instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority shall be delivered to the Company’s branch share registrar, Tricor Progressive Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposed to vote and in default the instrument of proxy shall not be treated as valid.
Delivery of an instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.
In the case of joint holders of a share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such share shall alone be entitled to vote in respect thereof.

AI assistant

Build King Holdings Limited — Proxy Solicitation & Information Statement 2017

49060_rns_2017-11-28_835da473-40ce-4498-8210-54cd13e7f214.pdf

BUILD KING HOLDINGS LIMITED

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF SPECIAL GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

BUILD KING HOLDINGS LIMITED

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

BACKGROUND INFORMATION AND REASONS FOR AND BENEFITS OF THE ENTERING INTO OF THE FRAMEWORK AGREEMENT

LETTER FROM THE BOARD

THE FRAMEWORK AGREEMENT

Subject matter

LETTER FROM THE BOARD

Term

Conditions

LETTER FROM THE BOARD

PRICING BASIS OF THE GROUP’S SUBMISSION OF TENDER

General pricing policy

LETTER FROM THE BOARD

ANNUAL CAPS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

SGM

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

RECOMMENDATION

BUILD KING HOLDINGS LIMITED

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF SPECIAL GENERAL MEETING

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Ved aCaptia lLimtied Room 1106, 11/F, Wing On Centre, 111 Connaught Road Central, Hong Kong

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

THE INDEPENDENT BOARD COMMITTEE

OUR INDEPENDENCE

BASIS AND ASSUMPTIONS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

(i) Information on the related parties

Background of the Company

Background of Road King

(ii) Background Information and reasons for and benefits of the entering into of the Framework Agreement

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Principal terms of the Framework Agreement

Term

Conditions

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) Pricing policies and internal procedures in relation to tender

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

General pricing policy

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Internal control procedures

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Expertise and qualifications

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(v) Annual caps for the Framework Agreement

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

(I) Interests and short positions of the Directors and chief executive in the Company and its associated corporations

APPENDIX I

(A) The Company

Interests in Shares

(B) Associated corporations

Build King Holdings Limited Proxy Solicitation & Information Statement 2017