China Silver Group Limited — Capital/Financing Update 2016

Jun 6, 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.

==> picture [183 x 131] intentionally omitted <==

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 30.00% intereSt in CSmall BY the CompanY and ConneCted tranSaCtion in relation to the iSSuanCe oF neW ShareS BY CSmall

the SuBSCription aGreementS

On 6 June 2016 (after trading hours), CSMall, a direct wholly-owned 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 214,275,000 Subscription Shares at the Subscription Price of RMB0.40 per Subscription Share for an aggregate consideration of RMB85,710,000 in cash, whereby:

• (i) Blaze Loop (of which Mr. Lin is the sole shareholder who will hold the Blaze Loop Subscription Shares for and on behalf of the Blaze Loop Beneficiaries; please refer to the section headed “The Employee Trust Arrangement” for further details) is the Subscriber under the Blaze Loop Issuance, subscribing for 178,525,000 Subscription Shares;

• (ii) Silver Apex (of which Mr. Chen is the sole shareholder) is the Subscriber under the Silver Apex Issuance, subscribing for 21,250,000 Subscription Shares; and

• (iii) Treasure Delight (of which Mr. Qian is the sole shareholder) is the Subscriber under the Treasure Delight Issuance, subscribing for 14,500,000 Subscription Shares.

After the Subscription, the O2O Employees will effectively own approximately 30.00% of CSMall. The Board believes that the Issuances show the high confidence and commitment level of the O2O Employees in developing the O2O Segment and can further align their interests with those of the Group.

1

impliCationS under the liStinG ruleS

Immediately following the Issuances, the percentage shareholding of the Company in CSMall will be diluted from 100% to approximately 70.00%, 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 constitutes a discloseable transaction of the Company and is subject to the notification and announcement requirements under Chapter 14 of the Listing Rules.

As each of Silver Apex, Mr. Chen, Treasure Delight and Mr. Qian is a connected person of the Company, each of the Silver Apex Issuance and the Treasure Delight Issuance constitutes a non-exempt connected transaction of the Company and is subject to the announcement, circular, shareholders’ approval and reporting requirements under Chapter 14A of the Listing Rules.

The Company will duly convene an EGM, at which ordinary resolutions will be proposed to the relevant Independent Shareholders to approve each of (i) the Silver Apex Issuance and the transactions contemplated under the Silver Apex Subscription Agreement, and (ii) the Treasure Delight Issuance and the transactions contemplated under the Treasure Delight Subscription Agreement.

The Company expects to despatch a circular to the Shareholders no later than 28 June 2016 containing, among other things, (i) further details of the Issuances, (ii) a letter from the Independent Board Committee, (iii) a letter from the Independent Financial Adviser, and (iv) a notice of the EGM.

introduCtion

The Board is pleased to announce that on 6 June 2016 (after trading hours), CSMall, a direct wholly-owned 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 214,275,000 Subscription Shares at the Subscription Price of RMB0.40 per Subscription Share for an aggregate consideration of RMB85,710,000 in cash.

the SuBSCription aGreementS

date

6 June 2016 (after trading hours)

parties

The parties to the Blaze Loop Subscription Agreement are (i) CSMall (as issuer), (ii) Blaze Loop (as subscriber), (iii) Mr. Lin, and (iv) the Company.

2

The parties to the Silver Apex Subscription Agreement are (i) CSMall (as issuer), (ii) Silver Apex (as subscriber), (iii) Mr. Chen, and (iv) the Company.

The parties to the Treasure Delight Subscription Agreement are (i) CSMall (as issuer), (ii) Treasure Delight (as subscriber), (iii) Mr. Qian, and (iv) the Company.

As more particularly disclosed in the section headed “Implications under the Listing Rules” of this announcement, each of Silver Apex, Mr. Chen, Treasure Delight and Mr. Qian is a connected person of the Company.

Save as disclosed above, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Blaze Loop, Mr. Lin and the Blaze Loop Beneficiaries are third parties independent of the Company and its connected persons.

the issuances

Pursuant to the Blaze Loop Subscription Agreement, CSMall has agreed to allot and issue, and Blaze Loop has agreed to subscribe for, 178,525,000 Subscription Shares. Mr. Lin is the sole shareholder of Blaze Loop and a trustee holding the Blaze Loop Subscription Shares for and on behalf of the Blaze Loop Beneficiaries. Please refer to the section headed “The Employee Trust Arrangement” of this announcement for further details.

Pursuant to the Silver Apex Subscription Agreement, CSMall has agreed to allot and issue, and Silver Apex has agreed to subscribe for, 21,250,000 Subscription Shares. Mr. Chen is the ultimate beneficial owner of such Subscription Shares by virtue of his being the sole shareholder of Silver Apex.

Pursuant to the Treasure Delight Subscription Agreement, CSMall has agreed to allot and issue, and Treasure Delight has agreed to subscribe for, 14,500,000 Subscription Shares. Mr. Qian is the ultimate beneficial owner of such Subscription Shares by virtue of his being the sole shareholder of Treasure Delight.

The Subscription Shares in total represent approximately 42.86% of the existing issued share capital of CSMall, and approximately 30.00% 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 all of the Subscription Agreements is RMB0.40 per Subscription Share. The aggregate consideration for the Issuances is RMB85,710,000. The consideration for the Blaze Loop Issuance will be funded by cash contributions by the Blaze Loop Beneficiaries in proportion to the number of Subscription Shares to which each of them is entitled. The consideration for the Silver Apex Issuance will be funded by cash contribution by Mr. Chen. The consideration for the Treasure Delight Issuance will be funded by cash contribution by Mr. Qian.

3

The Subscription Price was determined after arm’s length negotiations between the Company and the O2O Employees after taking into account, among others, (i) the historical financial performance of CSMall (in particular its unaudited net asset value attributable to owners of the Company as set out in the section headed “Financial Information of CSMall” of this announcement), (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 prospect of CSMall, and (iv) the current market conditions of wholesaling and retailing business in the PRC.

Conditions precedent

Completion of the Blaze Loop Issuance is conditional upon the completion of the Reorganisation by the Company and CSMall.

Completion of each of the Silver Apex Issuance and the Treasure Delight Issuance is conditional upon (i) the completion of the Reorganisation by the Company and CSMall, and (ii) the approval of the relevant Issuance and the transactions contemplated under the relevant Subscription Agreement by the relevant Independent Shareholders in accordance with the Listing Rules.

All of these conditions precedent are not capable of being waived by any party to the relevant Subscription Agreement.

Completion

For the Blaze Loop Issuance, completion shall take place at 10:00 a.m. on the later of (i) the Business Day immediately following the fulfilment of the condition precedent, and (ii) the Business Day immediately following the EGM (regardless of whether or not the Shareholders’ resolutions are passed), or such other date and time as may be agreed in writing between the parties to the Blaze Loop Subscription Agreement.

For each of the Silver Apex Issuance and the Treasure Delight Issuance, completion shall take place at 10:00 a.m. on the Business Day immediately following the fulfilment of all conditions precedent, or such other date and time as may be agreed in writing between the parties to the relevant Subscription Agreement.

termination

Each of the Subscription Agreements (other than certain customary surviving provisions thereunder) shall cease and terminate if the relevant condition(s) precedent is/are not fully fulfilled on or before 31 August 2016, or such other date as may be agreed in writing between the parties to the relevant Subscription Agreement.

the emploYee truSt arranGement

On 6 June 2016 (after trading hours), a Trust Deed in respect of the Employee Trust Arrangement was entered into between (i) Blaze Loop (as settlor), (ii) Mr. Lin (as trustee), and (iii) CSMall, pursuant to which Mr. Lin agrees to hold the Blaze Loop Subscription Shares and any cash and non-cash income arising therefrom for and on behalf of the Blaze Loop Beneficiaries. The Trust Deed will take effect immediately upon completion of the Blaze Loop Issuance.

4

The Employee Trust Arrangement is a fixed trust whereby each Blaze Loop Beneficiary will be entitled to a pre-determined number of Subscription Shares in proportion to his/her cash contribution and Mr. Lin shall, among other things, dispose of or otherwise deal with the Blaze Loop Subscription Shares only in accordance with directions given by or on behalf of the relevant Blaze Loop Beneficiary (save where a Blaze Loop Beneficiary ceases to be an eligible participant under the Employee Trust Arrangement, in which case Mr. Lin is entitled to deal with the relevant Blaze Loop Subscription Shares in accordance with the Trust Deed).

reaSonS and BeneFitS oF the iSSuanCeS

The Group’s O2O Segment has enjoyed remarkable growth since its launch in 2014. In order to further align the interests of the O2O Employees with those of the Group and motivate the O2O Employees to bring the O2O Segment to new heights, the Board decided to provide this investment opportunity to the O2O Employees.

The Board believes that the Issuances show the high confidence and commitment level of the O2O Employees in developing the O2O Segment. Through the Issuances, the O2O Employees can together enjoy the growth in the O2O Segment with the Company by way of share entitlement while the Company can continue to consolidate the financial results of CSMall. The Board also considers that the Issuances can strengthen the capital base of CSMall which can help meet capital needs and facilitate growth in the future.

The Directors consider that the terms of the Issuances are fair and reasonable and that the Issuances are in the interests of the 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 100% to approximately 70.00%, 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.

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 segment result attributable to the 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 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 constitutes a discloseable transaction of the Company and is subject to the notification and announcement requirements under Chapter 14 of the Listing Rules.

5

The sole shareholder of Silver Apex is Mr. Chen, who is (i) a substantial shareholder of Shenzhen Yinruiji, which is treated as an indirect subsidiary of the Company by virtue of certain contractual arrangements, (ii) a director of Shenzhen Guoyintongbao Limited (深圳國銀通寶有限公司), an operating subsidiary of CSMall, and (iii) the nephew of Chairman Chen, an executive Director and the controlling shareholder of the Company and the sole director of CSMall. The sole shareholder of Treasure Delight is Mr. Qian, who is a substantial shareholder of Shenzhen Yinruiji. Accordingly, each of Silver Apex, Mr. Chen, Treasure Delight and Mr. Qian is a connected person of the Company. Each of the Silver Apex Issuance and the Treasure Delight Issuance therefore constitutes a non-exempt connected transaction of the Company and is subject to the announcement, circular, shareholders’ approval and reporting requirements under Chapter 14A of the Listing Rules.

The Company will duly convene an EGM, at which ordinary resolutions will be proposed to the relevant Independent Shareholders to approve each of (i) the Silver Apex Issuance and the transactions contemplated under the Silver Apex Subscription Agreement, and (ii) the Treasure Delight Issuance and the transactions contemplated under the Treasure Delight Subscription Agreement.

Pursuant to Rule 14A.39 of the Listing Rules, the Company has established an Independent Board Committee to advise the Independent Shareholders on the Silver Apex Issuance and the Treasure Delight Issuance and how to vote on the Shareholders’ resolutions in respect thereof at the EGM, and will appoint an Independent Financial Adviser to advise the Independent Board Committee and the Shareholders on the Silver Apex Issuance and the Treasure Delight Issuance.

As disclosed above, Mr. Chen is a director of an operating subsidiary of CSMall and the nephew of Chairman Chen. Accordingly, Chairman Chen has a material interest in the Issuances and will, together with his associate(s) (if any), be required to abstain from voting on the Shareholders’ resolutions in respect of the Silver Apex Issuance at the EGM. Save as disclosed above, so far as the Company is aware as at the date of this announcement, no other Shareholder will be required to abstain from voting on the Shareholders’ resolutions in respect of any of the Issuances at the EGM.

The Company expects to despatch a circular to the Shareholders no later than 28 June 2016 containing, among other things, (i) further details of the Issuances, (ii) a letter from the Independent Board Committee, (iii) a letter from the Independent Financial Adviser, and (iv) a notice of the EGM.

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.

6

FinanCial impaCt oF the deemed diSpoSal on the Group

Immediately following the Issuances, the shareholding of the Company in CSMall will be diluted from 100% to approximately 70.00%. 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 IFRSs. 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.

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.

the Subscribers

Blaze Loop, Silver Apex and Treasure Delight, which are solely held by Mr. Lin, Mr. Chen and Mr. Qian respectively, are special purpose vehicles set up for the purposes of the Issuances. Details of the roles played by each Subscriber in the Issuances are disclosed in the sub-section headed “The Issuances” under the section headed “The Subscription Agreements” of this announcement.

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, 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

• “associate(s)” has the meaning ascribed thereto in the Listing Rules

• “Blaze Loop” Blaze Loop Limited, a company incorporated in the British Virgin Islands with limited liability

7

“Blaze Loop	all O2O Employees other than Mr. Chen and Mr. Qian, being third
Beneficiaries”	parties independent of the Company and its connected persons, and a
	“Blaze Loop Beneficiary” shall mean one of them
“Blaze Loop Issuance”	the issuance of 178,525,000 Subscription Shares by CSMall to Blaze
	Loop pursuant to the Blaze Loop Subscription Agreement
“Blaze Loop Subscription	the subscription agreement dated 6 June 2016 entered into between,
Agreement”	among others, CSMall as issuer and Blaze Loop as subscriber
“Blaze Loop Subscription	the Subscription Shares issued by CSMall to Blaze Loop
Shares”
“Board”	the board of Directors
“Business Day”	any day (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
“Chairman Chen”	Mr. Chen Wantian (陳萬天), a PRC national, the Chairman, an
	executive Director and the controlling shareholder of the Company
	and the sole director of CSMall
“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
	direct wholly-owned 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
“EGM”	an extraordinary general meeting of the Company to be convened
	to, among other things, approve the Silver Apex Issuance and the
	Treasure Delight Issuance
“Employee Trust	the trust arrangement effected by the Trust Deed, as more
Arrangement”	particularly disclosed in the section headed “The Employee Trust
	Arrangement” of this announcement

8

“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollar, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China
“IFRSs”	the International Financial Reporting Standards
“Independent Board	an independent committee of the Board that comprises all
Committee”	independent non-executive Directors who do not have a material
	interest in any of the Issuances
“Independent Financial	an independent financial adviser to be appointed by the Company to
Adviser”	advise on the Silver Apex Issuance and the Treasure Delight Issuance
“Independent Shareholders”	in relation to the Silver Apex Issuance, all Shareholders other than
	Chairman Chen and his associate(s) (if any), and, in relation to the
	Treasure Delight Issuance, all Shareholders
“Issuances”	collectively, the Blaze Loop Issuance, the Silver Apex Issuance and
	the Treasure Delight 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. Chen”	Mr. Chen He (陳和), a PRC national, an O2O Employee and the
	nephew of Chairman Chen
“Mr. Lin”	Mr. Lin Ting (林挺), a PRC national and an O2O Employee
“Mr. Qian”	Mr. Qian Pengcheng (錢鵬程), a PRC national and an O2O Employee
“O2O Employees”	63 employees of the O2O Segment who are the ultimate participants
	in the Issuances, and an “O2O Employee” shall mean one of them
“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 purpose of this
	announcement only, shall exclude Hong Kong, the Macau Special
	Administrative Region and Taiwan
“Reorganisation”	a reorganisation being carried out by the Company and CSMall,
	pursuant to which CSMall will become a direct or indirect holding
	company of certain members of the Group engaging in the O2O
	Segment
“RMB”	Renminbi, the lawful currency of the PRC

9

“Shareholders” shareholders of the Company

• “Shenzhen Yinruiji” Shenzhen Yinruiji Cultural Development Company Limited (深圳銀 瑞吉文化發展有限公司), a company incorporated in the PRC with limited liability which is treated as an indirect subsidiary of the Company by virtue of certain contractual arrangements

• “Silver Apex” Silver Apex Holdings Limited, a company incorporated in the British Virgin Islands with limited liability

• “Silver Apex Issuance” the issuance of 21,250,000 Subscription Shares by CSMall to Silver Apex pursuant to the Silver Apex Subscription Agreement

• “Silver Apex Subscription the subscription agreement dated 6 June 2016 entered into between, Agreement” among others, CSMall as issuer and Silver Apex as subscriber “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Subscribers” collectively, Blaze Loop, Silver Apex and Treasure Delight, and a “Subscriber” shall mean one of them

• “Subscription Agreements” collectively, the Blaze Loop Subscription Agreement, the Silver Apex Subscription Agreement and the Treasure Delight Subscription Agreement, and a “Subscription Agreement” shall mean one of them

• “Subscription Price” the subscription price for the Issuances, being RMB0.40 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

• “Treasure Delight” Treasure Delight International Limited, a company incorporated in the British Virgin Islands with limited liability

• “Treasure Delight Issuance” the issuance of 14,500,000 Subscription Shares by CSMall to Treasure Delight pursuant to the Treasure Delight Subscription Agreement

10

“Treasure Delight the subscription agreement dated 6 June 2016 entered into between, Subscription Agreement” among others, CSMall as issuer and Treasure Delight as subscriber “Trust Deed” the trust deed dated 6 June 2016 entered into between, among others, Blaze Loop as settlor and Mr. Lin as trustee in respect of the Employee Trust Arrangement “%” per cent

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

Hong Kong, 6 June 2016

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

11