China Silver Group Limited — Capital/Financing Update 2016

Dec 2, 2016

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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China Silver Group limited 中國白銀集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 815)

diSCloSeaBle tranSaCtion in relation to the deemed diSpoSal oF an approXimatelY 9.93% intereSt in CSmall BY the CompanY

the SuBSCription aGreementS

On 2 December 2016 (after trading hours), CSMall, a subsidiary of the Company, entered into a Subscription Agreement with each of the Subscribers. Pursuant to the Subscription Agreements, CSMall has agreed to allot and issue, and the Subscribers have agreed to subscribe for, a total of 118,059,000 Subscription Shares at the Subscription Price of RMB1.26 per Subscription Share for an aggregate consideration of approximately RMB148,754,340 (or its equivalent) in cash, whereby:

• (i) Caitong Funds SPC is the Subscriber under the Caitong Funds SPC Issuance, subscribing for 60,059,000 Subscription Shares for a total consideration of approximately RMB75,674,340 (being the RMB equivalent of US$11,000,000); and

• (ii) Best Conduct is the Subscriber under the Best Conduct Issuance, subscribing for 58,000,000 Subscription Shares for a total consideration of RMB73,080,000.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Caitong Funds SPC and Best Conduct and their respective ultimate beneficial owners are third parties independent of the Company and its connected persons.

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impliCationS under the liStinG ruleS

Immediately following the Issuances, the percentage shareholding of the Company in CSMall will be diluted from approximately 70.00% to approximately 60.07%, which constitutes a Deemed Disposal of the Company’s interest in CSMall under Rule 14.29 of the Listing Rules. Notwithstanding such dilution, CSMall will remain a subsidiary of the Company.

Since certain of the Applicable Percentage Ratios are 5% or more but all of the Applicable Percentage Ratios are less than 25%, the Deemed Disposal (when aggregated with the Previous Deemed Disposal) constitutes a discloseable transaction of the Company and is subject to the notification and announcement requirements under Chapter 14 of the Listing Rules.

introduCtion

The Board is pleased to announce that on 2 December 2016 (after trading hours), CSMall, a subsidiary of the Company, entered into a Subscription Agreement with each of the Subscribers. Pursuant to the Subscription Agreements, CSMall has agreed to allot and issue, and the Subscribers have agreed to subscribe for, a total of 118,059,000 Subscription Shares at the Subscription Price of RMB1.26 per Subscription Share for an aggregate consideration of approximately RMB148,754,340 (or its equivalent) in cash.

the SuBSCription aGreementS

date

2 December 2016 (after trading hours)

parties

The parties to the Caitong Funds SPC Subscription Agreement are (i) CSMall (as issuer), (ii) Caitong Funds SPC (as subscriber), and (iii) the Company.

The parties to the Best Conduct Subscription Agreement are (i) CSMall (as issuer), (ii) Best Conduct (as subscriber), and (iii) the Company.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Caitong Funds SPC and Best Conduct and their respective ultimate beneficial owners are third parties independent of the Company and its connected persons.

the issuances

Pursuant to the Caitong Funds SPC Subscription Agreement, CSMall has agreed to allot and issue, and Caitong Funds SPC has agreed to subscribe for, 60,059,000 Subscription Shares. Caitong Funds SPC is subscribing for such Subscription Shares on behalf and for the benefit of one of its segregated portfolios, Caitong Pine Ocean New Economy Fund SP.

Pursuant to the Best Conduct Subscription Agreement, CSMall has agreed to allot and issue, and Best Conduct has agreed to subscribe for, 58,000,000 Subscription Shares.

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The Subscription Shares in total represent approximately 16.53% of the existing issued share capital of CSMall, and approximately 14.18% of the issued share capital of CSMall as enlarged by the Issuances.

The subsequent transfer of the Subscription Shares is not subject to any restrictions, except that the board of directors of CSMall may, with reasons, resolve to refuse or delay the registration of a transfer in accordance with the memorandum and articles of association of CSMall.

Consideration

The Subscription Price under both Subscription Agreements is RMB1.26 per Subscription Share. The consideration for the Caitong Funds SPC Issuance is approximately RMB75,674,340 (being the RMB equivalent of US$11,000,000). The consideration for the Best Conduct Issuance is RMB73,080,000. The aggregate consideration for the Issuances is therefore approximately RMB148,754,340. The consideration for the Caitong Funds SPC Issuance will be funded by cash contribution by Caitong Funds SPC – Caitong Pine Ocean New Economy Fund SP. The consideration for the Best Conduct Issuance will be funded by cash contribution by Mr. Shi and Mr. Huang.

The Subscription Price was determined after arm’s length negotiations between the Company and each of the Subscribers after taking into account, among others, (i) the historical financial performance of CSMall including but not limited to the information set out in the section headed “Financial Information of CSMall” of this announcement as well as the Company’s 2015 Annual Report and 2016 Interim Report, (ii) the operating performance of CSMall including but not limited to the number of registered online customers, number of jewellery brands on the CSMall platform and number of franchised outlets, (iii) the business prospects of CSMall, and (iv) the current market conditions of wholesaling and retailing business in the PRC.

Conditions precedent

Completion of the Issuances is not subject to any conditions precedent.

The Issuances are not inter-conditional upon each other.

Completion

For each of the Issuances, completion shall take place at 10:00 a.m. on a Business Day (as may be agreed between CSMall and the relevant Subscriber in writing) falling within the five Business Days immediately following the date of the relevant Subscription Agreement, or such other date as may be agreed between CSMall and the relevant Subscriber in writing.

termination

Each of the Subscription Agreements (other than certain customary surviving provisions thereunder) shall cease and terminate if completion does not take place on or before 31 January 2017, or such other date as may be agreed in writing between the parties to the relevant Subscription Agreement.

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reaSonS and BeneFitS oF the iSSuanCeS

As disclosed in the Company’s 2016 Interim Report, the O2O Segment enjoyed considerable growth throughout the first half of 2016 and has become the major revenue contributor to the Group. Caitong Funds SPC is a professional institutional investor, and Mr. Shi and Mr. Huang are veteran investors, both with knowledge and experience in investments including areas of e-commerce and internet-based companies as well as other companies in the technology and innovation-based businesses. The Company believes that having the Subscribers becoming CSMall’s shareholders will bring a wealth of experience and resources to the further development of CSMall’s business. The Issuances will help expand CSMall’s shareholding base and raise capital for CSMall’s future growth, thereby working towards the Group’s long-term goal of becoming a leading fully-integrated silver and precious metals enterprise in the PRC.

The Directors consider that the terms of the Issuances are fair and reasonable and that the Issuances are in the interests of the Company’s shareholders as a whole.

impliCationS under the liStinG ruleS

Immediately following the Issuances, the percentage shareholding of the Company in CSMall will be diluted from approximately 70.00% to approximately 60.07%, which constitutes a Deemed Disposal of the Company’s interest in CSMall under Rule 14.29 of the Listing Rules. Notwithstanding such dilution, CSMall will remain a subsidiary of the Company.

Upon the aggregation of the Deemed Disposal with the Previous Deemed Disposal as disclosed in the Company’s announcement dated 6 June 2016 and circular dated 12 July 2016, the percentage shareholding of the Company in CSMall will be diluted from 100% to approximately 60.07% on a cumulative basis.

Pursuant to Rule 14.20 of the Listing Rules, the Company has applied to the Stock Exchange for, and the Stock Exchange has agreed to the Company, using alternative tests for the “profits ratio” under Rule 14.07(2) of the Listing Rules, being (i) a “segment results ratio” (being the portion of the O2O Segment’s result attributable to the Deemed Disposal (when aggregated with the Previous Deemed Disposal) divided by the Company’s consolidated results before non-segment items), and (ii) a “gross profits ratio” (being the portion of CSMall’s gross profit attributable to the Deemed Disposal (when aggregated with the Previous Deemed Disposal) divided by the Company’s gross profit) as two of the Applicable Percentage Ratios. Since certain of the Applicable Percentage Ratios are 5% or more but all of the Applicable Percentage Ratios are less than 25%, the Deemed Disposal (when aggregated with the Previous Deemed Disposal) constitutes a discloseable transaction of the Company and is subject to the notification and announcement requirements under Chapter 14 of the Listing Rules.

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FinanCial inFormation oF CSmall

The unaudited financial information of CSMall for the years ended 31 December 2014 and 31 December 2015 respectively is set out as follows:

	For the year ended	For the year ended
	31 december 2015	31 december 2014
	RMB’000	RMB’000
Revenue	835,345	291,218
Net profit before taxation	25,012	13,700
Net profit after taxation	18,275	8,802

The unaudited net asset value of CSMall attributable to owners of the Company as at 31 December 2015 was approximately RMB148,400,000.

FinanCial impaCt oF the deemed diSpoSal on the Group

Immediately following the Issuances, the shareholding of the Company in CSMall will be diluted from approximately 70.00% to approximately 60.07%. Notwithstanding such dilution, CSMall will remain a subsidiary of the Company and its financial results, assets, liabilities and cash flows will continue to be consolidated into the Company’s consolidated financial statements in accordance with the International Financial Reporting Standards. As the Deemed Disposal will not result in the Company’s loss of control over CSMall, the Deemed Disposal will be accounted for as an equity transaction and will not result in the recognition of any gain or loss in the Company’s consolidated statement of profit or loss and other comprehensive income.

The Group intends to utilise the proceeds from the Issuances as general working capital of the O2O Segment.

inFormation aBout the partieS

the Group and CSmall

As at the date of this announcement, the Group comprises three principal operating segments, including (i) the O2O Segment, being the retailing and wholesaling of silver jewellery and collectibles in the PRC, (ii) the manufacturing segment, being the manufacturing and sales of silver ingots and other non-ferrous metals in the PRC, and (iii) the silver exchange segment, being the operation of Shanghai White Platinum & Silver Exchange (上海華通鉑銀交易市場有限公司), an integrated precious metal and non-ferrous metal exchange in the PRC.

Together with its direct and indirect subsidiaries, CSMall owns and operates the Group’s O2O Segment, which was launched in 2014.

Caitong Funds SpC

Caitong Funds SPC is a segregated portfolio company owned and managed by Caitong International Asset Management, which is in turn ultimately wholly owned by Caitong Securities Co., Limited (財通證券有限責任公司), a securities firm headquartered in the PRC.

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Best Conduct

Best Conduct is an investment holding vehicle beneficially owned as to 70% by Mr. Shi and 30% by Mr. Huang.

deFinitionS

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

• “Applicable Percentage the percentage ratios stipulated in Rule 14.07 of the Listing Rules Ratios” as applicable to the Deemed Disposal (when aggregated with the Previous Deemed Disposal), one of which is substituted with two alternative percentage ratios as more particularly disclosed in the section headed “Implications under the Listing Rules” of this announcement

• “Best Conduct” Best Conduct Investments Limited, a company incorporated in the British Virgin Islands with limited liability

• “Best Conduct Issuance” the issuance of 58,000,000 Subscription Shares by CSMall to Best Conduct pursuant to the Best Conduct Subscription Agreement

• “Best Conduct Subscription the subscription agreement dated 2 December 2016 entered into Agreement” between, among others, CSMall as issuer and Best Conduct as subscriber

• “Board” the board of Directors “Business Day(s)” any day(s) (excluding a Saturday, Sunday and any other public holiday and any day on which a tropical cyclone warning signal number 8 or above or a “black” rainstorm warning signal is hoisted or remains hoisted in Hong Kong at any time between 9:00 a.m. and 12:00 noon and is not lowered or discontinued at or before 12:00 noon) on which banks generally are open for business in Hong Kong

• “Caitong Funds SPC the issuance of 60,059,000 Subscription Shares by CSMall to Issuance” Caitong Funds SPC pursuant to the Caitong Funds SPC Subscription Agreement

• “Caitong Funds SPC the subscription agreement dated 2 December 2016 entered into Subscription Agreement” between, among others, CSMall as issuer and Caitong Funds SPC as subscriber

• “Caitong International Caitong International Asset Management Co., Limited (財通國際 Asset Management” 資產管理有限公司), a company incorporated in Hong Kong with limited liability which is licensed under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) to carry on Type 4 (advising on securities) and Type 9 (asset management) regulated activities

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“Company”	China Silver Group Limited (中國白銀集團有限公司), a company
	incorporated in the Cayman Islands with limited liability, the shares
	of which are listed on the Main Board of the Stock Exchange
“connected person(s)”	has the meaning ascribed thereto in the Listing Rules
“CSMall”	CSMall Group Limited (金貓銀貓集團有限公司), a company
	incorporated in the British Virgin Islands with limited liability and a
	subsidiary of the Company
“Deemed Disposal”	the Issuances as viewed under Rule 14.29 of the Listing Rules as a
	deemed disposal of the Company’s interest in CSMall
“Director(s)”	director(s) of the Company
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China
“Issuances”	collectively, the Caitong Funds SPC Issuance and the Best Conduct
	Issuance, and an “Issuance” shall mean one of them
“Listing Rules”	the Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited
“Mr. Huang”	Mr. Huang Yuanzhe (黃遠哲), a PRC national
“Mr. Shi”	Mr. Shi Jinlei (石勁磊), a PRC national
“O2O Segment”	the retailing and wholesaling of silver jewellery and collectibles in
	the PRC, being one of the Group’s operating segments
“PRC”	the People’s Republic of China, which, for the purposes of this
	announcement only, shall exclude Hong Kong, the Macau Special
	Administrative Region and Taiwan
“Previous Deemed	the transactions disclosed in the Company’s announcement dated
Disposal”	6 June 2016 and circular dated 12 July 2016 as viewed under Rule
	14.29 of the Listing Rules as a deemed disposal of the Company’s
	interest in CSMall
“RMB”	Renminbi, the lawful currency of the PRC
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscribers”	collectively, Caitong Funds SPC and Best Conduct, and a
	“Subscriber” shall mean one of them

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• “Subscription Agreements” collectively, the Caitong Funds SPC Subscription Agreement and the Best Conduct Subscription Agreement, and a “Subscription Agreement” shall mean one of them

• “Subscription Price” the subscription price for the Issuances, being RMB1.26 per Subscription Share

• “Subscription Share(s)” share(s) in CSMall to be issued pursuant to the Issuances “subsidiary(ies)” has the meaning ascribed thereto in the Listing Rules “US$” United States dollar(s), the lawful currency of the United States of America

• “%” per cent

• This announcement contains conversion between US$ and RMB at US$1 to approximately RMB6.8795. The translation shall not be taken as representation that US$ could actually be converted into RMB at that rate, or at all.

By order of the Board China Silver Group limited Chen Wantian Chairman

Hong Kong, 2 December 2016

As at the date of this announcement, the executive Directors are Mr. Chen Wantian, Mr. Sung Kin Man, Mr. Song Guosheng and Mr. Chen Guoyu, and the independent non-executive Directors are Mr. Guo Bin, Mr. Song Hongbing, Dr. Li Haitao and Dr. Zeng Yilong.

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