China Galaxy Securities Co., Ltd. — M&A Activity 2017

Jun 6, 2017

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

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(A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock code: 6881)

VOLUNTARY ANNOUNCEMENT

PARTNERSHIP WITH CIMB THROUGH THE ACQUISITION OF 50% OF ISSUED SHARE CAPITAL OF CSI

THE SALE AND PURCHASE AGREEMENT

The Board wishes to announce that on 6 June 2017, the Purchaser, a wholly-owned subsidiary of the Company, and the Seller entered into the SPA, pursuant to which the Purchaser has conditionally agreed to acquire, and the Seller has conditionally agreed to sell, the Sale Shares, representing 50% of the issued share capital of CSI at Completion for a consideration of SG$166,964,921 (subject to completion audit adjustment, if any).

CSI is an investment holding company incorporated in Singapore and together with the CSI Subsidiaries engage in cash equities business comprising institutional and retail brokerage, equity research and associated securities businesses in Hong Kong, India, Indonesia, Singapore, South Korea, Thailand, the United Kingdom and the United States of America.

THE SHAREHOLDERS’ AGREEMENT

It is proposed that a Shareholders’ Agreement shall be entered into between, inter alia, the Seller, the Purchaser and CSI upon Completion.

WARNING: Shareholders and potential investors of the Company should note that completion of the Acquisition is subject to fulfilment of the conditions under the Sale and Purchase Agreement. As the Acquisition may or may not complete, shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

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THE SALE AND PURCHASE AGREEMENT

The Board wishes to announce that on 6 June 2017, the Purchaser and the Seller entered into the SPA in respect of the Acquisition.

CSI is an investment holding company incorporated in Singapore and together with the CSI Subsidiaries engage in cash equities business comprising institutional and retail brokerage, equity research and associated securities businesses in Hong Kong, India, Indonesia, Singapore, South Korea, Thailand, the United Kingdom and the United States of America. CSI is consistently ranked as one of the leading equity research houses and is one of the leading brokerage houses in terms of market share in countries such as Indonesia, Singapore and Thailand.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, (i) the principal activity of the Seller is investment holding; and (ii) each of the Seller and its ultimate beneficial owners is an Independent Third Party.

Consideration

The consideration for the Sale Shares payable by the Purchaser to the Seller is SG$166,964,921 (subject to completion audit adjustment, if any) and shall be calculated and paid in accordance with the SPA.

Conditions precedent

Completion is conditional upon certain conditions precedent, including obtaining the relevant regulatory consents, completion of Reorganization steps and other conditions precedent for a transaction of this nature and scale.

Completion

Subject to fulfilment or waiver (as the case may be) of all the conditions precedent under the SPA, Completion shall take place on the Completion Date or at such other time as the Seller and the Purchaser may agree but in any event no later than the Long Stop Date. Immediately after Completion, each of the Seller and the Purchaser will hold 50% of the issued shared capital of CSI.

THE SHAREHOLDERS’ AGREEMENT

It is proposed that a Shareholders’ Agreement shall be entered into between, inter alia, the Seller, the Purchaser and CSI upon Completion. Pursuant to the Shareholders’ Agreement, the Seller and Purchaser have agreed upon certain reserved matters which shall not be undertaken by any member of CSI and its affiliates unless with the prior written approval of each of the CSI Shareholders.

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Other principal terms of the Shareholders’ Agreement are as follows:

Restriction on disposals of Shares

No disposal of any CSI Share or any legal or beneficial interest in a CSI Share shall be permitted except as permitted by the other terms of the Shareholders’ Agreement.

Lock-up period

No transfer of CSI Shares shall be permitted prior to:

• (A) in the case of the Purchaser, the third anniversary of Completion; and

• (B) in the case of the Seller, the expiry of the pre-determined period within which the options described in the section headed “Put and call options” below may be exercised by either the Seller or Purchaser in accordance with the terms of the Shareholders’ Agreement,

except in the case of permitted transfers, transfer of shares on default and exercise of put and call options in accordance with the terms of the Shareholders’ Agreement.

Shareholders’ right of first refusal

Prior to making any transfer of any CSI Share (other than permitted transfer under the Shareholders’ Agreement), the person whose CSI Shares are to be transferred shall provide a notice offering the other CSI Shareholders the opportunity to exercise its right of first refusal pursuant to the Shareholders’ Agreement. The exercise of any such rights by the Purchaser may be subject to compliance with the Listing Rules by the Company.

Transfer of CSI Shares on Event of Default

If an event of default (as defined in the Shareholders’ Agreement) occurs and is continuing in relation to any CSI Shareholder (the “ Defaulting Shareholder ”), the other CSI Shareholder (other than any member of the Defaulting Shareholder’s Shareholder Group) (the “ Non-Defaulting Shareholder ”) may require the Defaulting Shareholder to sell all of its CSI Shares or acquire all of the Non-Defaulting Shareholder’s CSI Shares at a discount or premium to then market value of the relevant CSI Shares. Events of default under the Shareholders’ Agreement are as follows:

• (i) any disposal of any CSI Shares which is in breach of the Shareholders’ Agreement;

• (ii) any CSI Shareholder is in material or persistent breach of any of the other provisions of the Shareholders’ Agreement;

• (iii) if there is a change of control (as defined in the SPA) of any CSI Shareholder;

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• (iv) any procedure or step is commenced with a view to the winding-up or re-organization (other than a solvent amalgamation or reconstruction) or the appointment of an administrator, receiver, administrative receiver or trustee in bankruptcy in relation to any CSI Shareholder or its Ultimate Parent or all or substantially all of its assets;

• (v) the holder of any security over all or substantially all of the assets of any CSI Shareholder or its Ultimate Parent takes any step to enforce that security;

• (vi) all or substantially all of the assets of any CSI Shareholder or its Ultimate Parent is subject to attachment, sequestration, execution or any similar process;

• (vii) any CSI Shareholder is unable to pay its debts as they fall due;

• (viii) any CSI Shareholder or its Ultimate Parent enters into, or any step is taken, whether by either of their boards of directors or otherwise (including any proposal, sanction or approval), towards (i) a scheme of arrangement of its affairs with all or substantially all of its creditors, or (ii) a compromise or arrangement between a CSI Shareholder or its Ultimate Parent and all or substantially all of its creditors or any class of its creditors, for the purposes of debt restructuring; or

• (ix) any CSI Shareholder or its Ultimate Parent ceasing or threatening to cease wholly or substantially to carry on its business.

Put and call options

The Seller has granted call options to the Purchaser, and the Purchaser has granted put options to the Seller, exercisable at pre-determined periods after Completion, which allows the Seller to sell and the Purchaser to acquire CSI Shares as will increase the Purchaser’s holding of CSI Shares in stages.

Any exercise of the abovementioned options shall be subject to the compliance by the Ultimate Parent of the Seller of the Main Market Listing Requirements issued by Bursa Malaysia Securities Berhad and the compliance by the Company of the Listing Rules. In the event that the exercise of the options requires the approval of the shareholders of the Company under the Listing Rules, such option shall not be exercised unless approval by the shareholders of the Company is obtained in accordance with the Listing Rules.

An announcement regarding further details of the Shareholders’ Agreement will be made at Completion.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is a leading comprehensive financial services provider in the securities industry in the PRC and provides comprehensive securities services, including brokerage, sales and trading, investment banking and investment management.

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The Company is committed to build and further strengthen its international presence as part of its long term strategic development, and the partnership with CIMB will offer an unique opportunity for the Company to establish a more comprehensive platform to better serve its clients in China, South East Asia and globally. CIMB is one of the leading financial institutions in ASEAN with presence in nine countries within ASEAN. CSI Group has consistently been ranked among the top brokerage firms in Singapore, Indonesia and Thailand in terms of market share. The Board believes the Acquisition will significantly strengthen the Group’s international research services and equity distribution capabilities and by leveraging on CSI Group’s strong reputation and market position in the ASEAN, the Acquisition will complement China’s “One Belt One Road” strategic development and lay a solid foundation to facilitate the Company’s ability to connect China to international markets and vice versa. The Board sees that the business and strengths of CSI Group in ASEAN complement well with that of the Group in the Greater China Region, with only a small portion of overlapping business. The Board is optimistic that such partnership will generate synergy for the Group as well as CSI Group.

In addition, the Board considers CIMB to be a strong partner for the Company to joint forces in building the equity platform across Asia. The Company sees the joint venture in the stockbroking business as the first step to a long term strategic partnership with CIMB.

The terms of the SPA and the Shareholders’ Agreement were determined after arm’s length negotiations between the parties thereto and the Directors are of the view that the terms of the SPA and the Shareholders’ Agreement are on normal commercial terms and are fair and reasonable and in the interests of the Company and its shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

As none of the applicable percentage ratios as defined in Rule 14.07 of the Listing Rules in respect of the Acquisition exceeds 5%, the Acquisition does not constitute a notifiable transaction under Chapter 14 of the Listing Rules. The Board determines and considers that the applicable percentage ratios in respect of the Acquisition, having considered the maximum consideration of the Acquisition after completion audit adjustments, will not exceed 25% and therefore the Acquisition will not constitute a major transaction under Chapter 14 of the Listing Rules.

PROPOSED PARTNERSHIP ON CIMB’S MALAYSIA CASH EQUITIES BUSINESS

The Purchaser and the Seller are in discussions in respect of the cash equities business and the share margin financing and equity financing services business presently undertaken by subsidiaries of the Seller in Malaysia (“ MY Transaction ”).

The Company will make further announcement(s) if the MY Transaction materialises as and when appropriate in accordance with the Listing Rules.

This announcement is made on a voluntary basis.

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WARNING: Shareholders and potential investors of the Company should note that completion of the Acquisition is subject to fulfilment of the conditions under the Sale and Purchase Agreement. As the Acquisition may or may not complete, shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

DEFINITIONS

Unless otherwise specified, the following terms have the following meanings in this announcement:

• “Acquisition” the acquisition of the Sale Shares by the Purchaser pursuant to the terms of the SPA;

• “Board” the Board of Directors; “Business Day” a day other than Saturday or a Sunday on which banks are open for general business in Kuala Lumpur, Beijing, Singapore and Hong Kong;

• “CIMB” CIMB Group Holdings Berhad, an investment holding company incorporated in Malaysia with limited liability, and listed on the Main Market of Bursa Malaysia Securities Berhad;

• “Company” China Galaxy Securities Co., Ltd. ( 中國銀河證券股份有限公司 ), a joint stock company incorporated in the PRC with limited liability, whose H Shares are listed on the Main Board of the Stock Exchange (stock code: 6881) and A shares are listed on the Shanghai Stock Exchange (stock code: 601881);

• “Completion” completion of the sale and purchase of the Sale Shares under the SPA; “Completion Date” (i) in the case where the day on which the last in time the condition precedents shall have been satisfied or waived (the “ Unconditional Date occurs before the tenth day of a calendar month, the last business day of that calendar month; or

• (ii) in the case where the Unconditional Date occurs after the tenth day of a calendar month, the last business day of the following calendar month,

or such other date as the Seller and the Purchaser may agree;

“CSI” CIMB Securities International Pte. Ltd., a company incorporated in Singapore with limited liability, and together with its subsidiaries engage in cash equities, research and associated securities businesses in among others various South East Asia countries. It is owned by the Seller (holding 27,550,000 ordinary shares and 246,315 redeemable preference shares) and CIMB (holding 390,000 cumulative redeemable preference shares) prior to the Acquisition;

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collectively, CSI and the Subsidiaries;

“CSI Group” collectively, CSI and the Subsidiaries; “CSI Shares” shares in the issued share capital of CSI; “CSI Shareholders” the shareholders of CSI, being the Purchaser and the Seller as at the date of Completion; “CSI Subsidiaries” subject to terms of the SPA, all the subsidiaries of CSI following completion of the Reorganisation, including CIMB Securities Limited, CIMB Securities (India) Private Limited, CIMB Securities (USA) Inc., CIMB Securities (UK) Ltd., CIMB Securities (Singapore) Pte. Ltd., CIMB Research Pte. Ltd., CIMB Securities (Thailand) Co. Ltd, PT CIMB Sekuritas Indonesia, and PT CIMB Futures Indonesia; “Directors” the director(s) of the Company; “Group” collectively, the Company and its subsidiaries “H Share(s)” overseas listed foreign share(s) in the share capital of the Company with a nominal value of RMB1.00 each, which is(are) listed on the Main Board of the Stock Exchange and traded in Hong Kong dollars; “Hong Kong” the Hong Kong Special Administrative Region of the PRC; “Independent a party who is not a connected person of the Company and is independent of Third Party(ies)” the Company and its connected persons; “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange; “Long Stop Date” 14 months after the date of the SPA; “PRC” or “China” the People’s Republic of China, but for the purposes of this announcement, excluding Hong Kong, Macau Special Administrative Region and Taiwan region; “Purchaser” China Galaxy International Financial Holdings Limited ( 中國銀河國際金融 控股有限公司 ), a company registered in Hong Kong with limited liability, a wholly-owned subsidiary of the Company; “Reorganisation” the reorganization steps set out in the SPA;

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“Sale Shares” such number of ordinary share representing 50% of all of the issued share capital of CSI as at Completion; “Seller” CIMB Group Sdn Bhd, an investment holding company incorporated and registered in Malaysia with limited liability and wholly owned by CIMB; “SG$” Singapore Dollars, the lawful currency of Singapore; “Shareholder Group” in relation to any shareholder, means its ultimate parent and any affiliate of that ultimate parent; “Shareholders’ Agreement” the shareholders’ agreement entered into between, inter alia, the Seller, the Purchaser and CSI in relation to CSI to be effective upon Completion; “SPA” or “Sale and the sale and purchase agreement entered into between the Seller, the Purchaser Purchase Agreement” and CSI on 6 June 2017; “Stock Exchange” the Stock Exchange of Hong Kong Limited; “Ultimate Parent” for the purposes of the Shareholders’ Agreement, the Ultimate Parent of the Seller is CIMB and the Ultimate Parent of the Purchaser is the Company “%” per cent.

On behalf of the Board China Galaxy Securities Co., Ltd. Chen Gongyan Chairman and Executive Director

Hong Kong, 6 June 2017

As at the date of this announcement, the Executive Directors of the Company are Mr. CHEN Gongyan, Mr. GU Weiguo and Mr. WU Chengming; the Non-executive Directors are Mr. DU Ping, Mr. SHI Xun, Mr. ZHANG Jinghua and Mr. LI Chaoyang; and the Independent Non-executive Directors are Mr. LIU Feng, Mr. LUO Lin, Mr. WU Yuwu and Mr. CHI Fulin.

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