China Silver Group Limited — Proxy Solicitation & Information Statement 2016

Jul 12, 2016

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 a licensed securities dealer or other registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in the Company, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or 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.

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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)

CONNECTED TRANSACTION – ISSUANCE OF NEW SHARES BY CSMALL TO CONNECTED PERSONS AND NOTICE OF EGM

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

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A letter from the Board is set out on pages 6 to 13 of this circular. A letter from the Independent Board Committee (as defined herein) is set out on pages 14 to 15 of this circular. A letter of advice from the Independent Financial Adviser (as defined herein) containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders (as defined herein) is set out on pages 16 to 25 of this circular.

A notice convening the EGM to be held at Cliftons Hong Kong, Level 5, Hutchison House, 10 Harcourt Road, Central, Hong Kong on Wednesday, 27 July 2016 at 2:30 p.m. is set out on pages 31 to 32 of this circular. A form of proxy for use at the EGM is also enclosed. Such form of proxy is also published on the websites of Hong Kong Exchanges and Clearing Limited (http://www.hkexnews.hk) and the Company (http://www.chinasilver.hk).

Whether or not you are able to attend the EGM, please complete and sign the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the EGM or any adjournment(s) thereof if they so wish.

12 July 2016

CONTENTS

DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . .	14
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . .	16
APPENDIX – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . .	26
NOTICE OF THE EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31

– i –

DEFINITIONS

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

• “Announcement”

• the announcement dated 6 June 2016 published by the Company in respect of the Issuances

• “Applicable Percentage Ratios”

• the percentage ratios stipulated in Rule 14.07 of the Listing Rules 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 circular

• “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

• “Blaze Loop Beneficiaries”

• all O2O Employees other than Mr. Chen and Mr. Qian, being third 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 CSMall Shares by CSMall to Blaze Loop pursuant to the Blaze Loop Subscription Agreement

• “Blaze Loop Subscription Agreement”

• the subscription agreement dated 6 June 2016 entered into between, among others, CSMall as issuer and Blaze Loop as subscriber

• “Blaze Loop Subscription Shares”

• the 178,525,000 CSMall Shares to be issued by CSMall to Blaze Loop pursuant to the Blaze Loop Subscription Agreement

• “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

– 1 –

DEFINITIONS

• “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

• “CSMall Shares” ordinary shares in CSMall of USD0.0001 each

• “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 on Wednesday, 27 July 2016 at 2:30 p.m. to, among other things, approve the Silver Apex Issuance and the Treasure Delight Issuance

• “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 Committee” an independent committee of the Board that comprises all independent non-executive Directors who do not have a material interest in any of the Issuances

– 2 –

DEFINITIONS

• “Independent Financial Adviser”

• Convoy Capital Hong Kong Limited, a company incorporated in Hong Kong with limited liability and licensed under the SFO to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities in Hong Kong

• “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

• “Latest Practicable Date” 6 July 2016

• “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, the nephew of Chairman Chen and a connected person

• “Mr. Qian”

• Mr. Qian Pengcheng (錢鵬程), a PRC national, an O2O Employee and a connected person

• “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 circular 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

– 3 –

DEFINITIONS

“SFO”

the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Shanghai Huatong” Shanghai White Platinum & Silver Exchange* (上海華通 鉑銀交易市場有限公司), 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

• “Shareholders” shareholders of the Company

• “Shares”

• ordinary shares in the Company of HK$0.01 each

• “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 CSMall Shares by CSMall to Silver Apex pursuant to the Silver Apex Subscription Agreement

• “Silver Apex Subscription Agreement”

• the subscription agreement dated 6 June 2016 entered into between, among others, CSMall as issuer and Silver Apex as subscriber

• “Silver Apex Subscription Shares”

• the 21,250,000 CSMall Shares to be issued by CSMall to Silver Apex pursuant to the Silver Apex Subscription Agreement

• “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

– 4 –

DEFINITIONS

• “Subscription Price”

• the subscription price for the Issuances, being RMB0.40 (equivalent to HK$0.464) per Subscription Share

• “Subscription Share(s)”

• The Blaze Loop Subscription Shares, the Silver Apex Subscription Shares and the Treasure Delight Subscription Shares

• “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 CSMall Shares by CSMall to Treasure Delight pursuant to the Treasure Delight Subscription Agreement

• “Treasure Delight Subscription the subscription agreement dated 6 June 2016 entered Agreement” into between, among others, CSMall as issuer and Treasure Delight as subscriber

• “Treasure Delight Subscription Shares”

• the 14,500,000 CSMall Shares to be issued by CSMall to Treasure Delight pursuant to the Treasure Delight Subscription Agreement

• “USD”

• United States Dollar, the lawful currency of the United States of America

• “%” per cent

• English names of the PRC entities are the literal translations of their Chinese names and are included for identification purposes only.

• ** This circular contains conversion between RMB and Hong Kong dollars at RMB1 to HK$1.16. The conversion shall not be taken as representation that RMB could actually be converted into Hong Kong dollars at that rate, or at all.

– 5 –

LETTER FROM THE BOARD

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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)

Executive Directors: Mr. Chen Wantian (Chairman) Mr. Sung Kin Man (Chief Executive Officer) Mr. Song Guosheng Mr. Chen Guoyu

Independent Non-executive Directors: Mr. Guo Bin Mr. Song Hongbing Dr. Li Haitao Dr. Zeng Yilong

Registered Office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business in the PRC: Rm 5A & 6 Floor Baolin International Gold Jewelry Trade Center, 2nd Building 3 Shuitian Second Street, Shuibei Louhu District, Shenzhen PRC

Principal place of business in Hong Kong: Unit 2602 China Merchants Tower 168-200 Connaught Road Central Hong Kong

12 July 2016

To the Shareholders

Dear Sir/Madam,

CONNECTED TRANSACTION – THE ISSUANCE OF NEW SHARES BY CSMALL TO CONNECTED PERSONS AND NOTICE OF EGM

INTRODUCTION

Reference is made to the Announcement. 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 which CSMall has agreed to allot and issue, and the

– 6 –

LETTER FROM THE BOARD

Subscribers have agreed to subscribe for, a total of 214,275,000 CSMall Shares at the Subscription Price of RMB0.40 per Share for an aggregate consideration of RMB85,710,000.

The Blaze Loop Issuance, the Silver Apex Issuance and the Treasure Delight Issuance are a part of the Group’s employee incentive initiative to provide an investment opportunity to the O2O Employees and to 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. Together, these Issuances constitutes a Deemed Disposal of the Company’s interest in CSMall under Rule 14.29 of the Listing Rules and as 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, which have been satisfied by the publication of the Announcement on 6 June 2016.

Pursuant to the Silver Apex Issuance and the Treasure Delight Issuance, CSMall has agreed to allot and issue, and Silver Apex and Treasure Delight have agreed to subscribe for, a total of 35,750,000 CSMall Shares at the Subscription Price of RMB0.40 per Share for an aggregate consideration of RMB14,300,000 in cash, whereby:

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

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

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 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 purpose of this circular is to provide you with, among other things, (i) further details of the Silver Apex Subscription Agreement and the Treasure Delight Subscription Agreement, (ii) recommendations from the Independent Board Committee to the Independent Shareholders; (iii) the advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; (iv) other information as required under the Listing Rules, and (v) the enclosed notice of the EGM.

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LETTER FROM THE BOARD

THE SILVER APEX SUBSCRIPTION AGREEMENT AND THE TREASURE DELIGHT SUBSCRIPTION AGREEMENT

Date

6 June 2016 (after trading hours)

Parties

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.

The Silver Apex Issuance

Pursuant to the Silver Apex Subscription Agreement, CSMall has agreed to allot and issue, and Silver Apex has agreed to subscribe for, the Silver Apex Subscription Shares, representing approximately 4.25% of the existing issued share capital of CSMall, and approximately 2.98% of the issued share capital of CSMall as enlarged by the Issuances. Mr. Chen is the ultimate beneficial owner of the Silver Apex Subscription Shares by virtue of his being the sole shareholder of Silver Apex.

The Treasure Delight Issuance

Pursuant to the Treasure Delight Subscription Agreement, CSMall has agreed to allot and issue, and Treasure Delight has agreed to subscribe for, the Treasure Delight Subscription Shares, representing 2.90% of the existing issued share capital of CSMall, and approximately 2.03% of the issued share capital of CSMall as enlarged by the Issuances. Mr. Qian is the ultimate beneficial owner of the Treasure Delight Subscription Shares by virtue of his being the sole shareholder of Treasure Delight.

Together with the Blaze Loop Subscription Shares, the CSMall Shares in total to be issued by CSMall to the O2O Employees 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.

– 8 –

LETTER FROM THE BOARD

Consideration

The Subscription Price under the Silver Apex Subscription Agreement and Treasure Delight Subscription Agreement is RMB0.40 per Share. The consideration for the Silver Apex Issuance is RMB8,500,000 and the consideration for the Treasure Delight Issuance is RMB5,800,000. 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.

The Subscription Price under the Blaze Loop Subscription Agreement is RMB0.40 per Share which is funded by cash contributions by the Blaze Loop Beneficiaries in proportion to the number of Subscription Shares to which each of them is entitled. Together with the Silver Apex Issuance and the Treasure Delight Issuance, the aggregate consideration for the Issuances is RMB85,710,000.

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

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

All of the above conditions precedent are not capable of being waived.

For the avoidance of doubt, completion of the Blaze Loop Issuance, the Silver Apex Issuance and the Treasure Delight Issuance is not inter-conditional.

Completion

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.

– 9 –

LETTER FROM THE BOARD

Termination

Each of the Silver Apex Subscription Agreement and Treasure Delight Subscription Agreement (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.

REASONS FOR THE SILVER APEX ISSUANCE AND THE TREASURE DELIGHT ISSUANCE AND USE OF PROCEEDS

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, including Mr. Chen and Mr. Qian. In particular, Mr. Chen is the Chief Executive Officer of CSMall and Mr. Qian is the Deputy Chief Financial Officer of CSMall. Each of them plays an important role to the start-up, development and historical growth of the Group’s O2O Segment and the Board believes that the continuation of their high performance and contribution will be critical to the O2O Segment’s future growth.

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 Silver Apex Issuance and the Treasure Delight Issuance are fair and reasonable and are in the interests of the Shareholders as a whole.

The Group intends to utilise the proceeds from the Silver Apex Issuance and the Treasure Delight Issuance as general working capital.

IMPLICATIONS UNDER THE LISTING RULES

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.

– 10 –

LETTER FROM THE BOARD

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 therefore (i) has abstained from voting on the Board resolutions in respect of the Silver Apex Issuance, and (ii) 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 (i.e. resolution number 1 as set out in the notice of the EGM appended hereto). Save as disclosed above, (i) no other Director has any material interest in the Issuances and hence no other Director has abstained from voting on the Board resolutions in respect of any of the Issuances, and (ii) so far as the Company is aware as at the Latest Practicable Date, no other Shareholder will be required to abstain from voting on the Shareholders’ resolutions in respect of any of the Issuances at the EGM.

As at the Latest Practicable Date, Chairman Chen is deemed to be interested in 405,722,187 Shares owned by Rich Union Enterprises Limited as the sole director and shareholder of Rich Union Enterprises Limited, and is the beneficial owner of 1,050,000 Shares. Chairman Chen has full control and is entitled to exercise full control over the voting right in respect of these 406,772,187 Shares (representing an approximately 28.38% interest in the Company).

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.

– 11 –

LETTER FROM THE BOARD

FINANCIAL IMPACT ON THE GROUP

Immediately following the Silver Apex Issuance and the Treasure Delight Issuance, the shareholding of the Company in CSMall will be diluted from 100% to approximately 94.99% and together with the Blaze Loop Issuance, 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 Issuances will not result in the Company’s loss of control over CSMall, they 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.

INFORMATION ABOUT THE PARTIES

As at the Latest Practicable Date, 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 Huatong, 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.

Silver Apex and Treasure Delight, which are solely held by Mr. Chen and Mr. Qian respectively, are special purpose vehicles respectively set up for the purposes of the Silver Apex Issuance and Treasure Delight Issuance. Mr. Chen is the Chief Executive Officer of CSMall and details of the role he plays in the Silver Apex Issuances is disclosed in the sub-section headed “The Silver Apex Issuance” under the section headed “The Silver Apex Subscription Agreement and Treasure Delight Subscription Agreement” of this circular. Mr. Qian is the Deputy Chief Financial Officer of CSMall and details of the role he plays in the Treasure Delight Issuances is disclosed in the sub-section headed “The Treasure Delight Issuance” under the section headed “The Silver Apex Subscription Agreement and Treasure Delight Subscription Agreement” of this circular.

EGM

The notice of the EGM is set out on pages 31 to 32 of this circular. At the EGM, a resolution will be proposed to approve the Silver Apex Subscription Agreement and the Treasure Delight Subscription Agreement and all other documents that are necessary to effect each of these Subscription Agreements.

Pursuant to Rule 13.39(4) of the Listing Rules (except for administrative matters) and the articles of association of the Company currently in force, any vote of the Shareholders at a general meeting must be taken by poll. An announcement on the poll vote results will be published by the Company after the EGM in the manner prescribed under Rule 13.39(5) of the Listing Rules.

– 12 –

LETTER FROM THE BOARD

A form of proxy for use at the EGM is enclosed with this circular and such form of proxy is also published on the websites of Hong Kong Exchanges and Clearing Limited (http://www.hkexnews.hk) and the Company (http://www.chinasilver.hk). To be valid, the form of proxy must be completed and signed in accordance with the instructions printed thereon and deposited, together with the power of attorney or other authority (if any) under which it is signed or a certified copy of that power of attorney or authority at the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and delivery of the form of proxy will not preclude you from attending and voting at the EGM or any adjournment(s) thereof if you so wish.

As the completion of the Silver Apex Subscription Agreement and the Treasure Delight Subscription Agreement is subject to the fulfillment of a number of conditions precedent, the Silver Apex Issuance and the Treasure Delight Issuance and the transactions contemplated thereunder may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the Shares.

RECOMMENDATION

The Directors (including the independent non-executive Directors whose views have been set out in this circular after taken into consideration the advice of the Independent Financial Adviser) consider that the terms of the Silver Apex Subscription Agreements and the Treasure Delight Subscription Agreements are fair and reasonable and the transactions contemplated thereunder are in the interests of the Company and the Shareholders taken as a whole. Accordingly, the Directors (including the independent non-executive Directors) recommend the Independent Shareholders to vote in favour of the relevant resolution to approve the terms of the Silver Apex Subscription Agreements and the Treasure Delight Subscription Agreements, the transactions thereunder contemplated thereunder and all other documents that are necessary to effect each of these Subscription Agreements.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board China Silver Group Limited Chen Wantian

Chairman

– 13 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee, setting out its recommendation to the Independent Shareholders in relation to the Silver Apex Subscription Agreement and Treasure Delight Subscription Agreement, prepared for the purpose of inclusion in this circular.

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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)

12 July 2016

To the Independent Shareholders,

Dear Sir or Madam,

CONNECTED TRANSACTION – THE ISSUANCE OF NEW SHARES BY CSMALL

We refer to the circular issued by the Company to the Shareholders of even date (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 and to advise you as to the fairness and reasonableness of the terms of the Silver Apex Subscription Agreement and Treasure Delight Subscription Agreement and the transactions contemplated thereunder and to recommend whether or not the Independent Shareholders should approve them. Convoy Capital Hong Kong Limited has been appointed as the Independent Financial Adviser to advise you and us 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 in arriving such advice, are set out on pages 16 to 25 of the Circular.

RECOMMENDATION

We wish to draw your attention to the letter from the Board and the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders which contains its advice to us in relation to the Silver Apex Subscription Agreement and Treasure Delight Subscription Agreement.

– 14 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the terms of the Silver Apex Subscription Agreement and Treasure Delight Subscription Agreement and the reasons and benefits of the transactions contemplated thereunder, and the opinion of the Independent Financial Adviser as stated in its letter of advice, we are of the view that the Silver Apex Subscription Agreement and the Treasure Delight Subscription Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned, and that the Silver Apex Issuance and the Treasure Delight Issuance are in the interests of the Company and the Shareholders as a whole.

We therefore recommend the Independent Shareholders to support and to vote in favour of the relevant resolution to approve the Silver Apex Subscription Agreement and Treasure Delight Subscription Agreement, the transactions contemplated thereunder and all other documents that are necessary to effect each of these Subscription Agreements.

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

China Silver Group Limited Mr. Guo Bin Mr. Song Hongbing Dr. Li Haitao Dr. Zeng Yilong Independent non-executive Directors

– 15 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter received from the Independent Financial Adviser setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Silver Apex Issuance and the Treasure Delight Issuance, which was prepared for the purpose of inclusion in this Circular.

==> picture [170 x 40] intentionally omitted <==

12 July 2016

• To the Independent Board Committee and the Independent Shareholders of China Silver Group Limited

Dear Sirs,

CONNECTED TRANSACTION – ISSUANCE OF NEW SHARES BY CSMALL TO CONNECTED PERSONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Silver Apex Issuance and the Treasure Delight Issuance, whether the Silver Apex Issuance and the Treasure Delight Issuance are fair and reasonable as far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Details of the Silver Apex Issuance and the Treasure Delight Issuance are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular of the Company dated 12 July 2016 (the “ Circular ”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular or (if not defined in the Circular) in the Announcement unless the context requires otherwise.

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 CSMall 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) is the Subscriber under the Blaze Loop Issuance, subscribing for 178,525,000 CSMall 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 CSMall 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 CSMall Shares.

– 16 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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. 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.

As disclosed more particularly in the Circular, 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 Latest Practicable Date, no other Shareholder will be required to abstain from voting on the Shareholders’ resolutions in respect of any of the Issuances at the EGM.

Pursuant to Rule 14A.39 of the Listing Rules, the Company has established an Independent Board Committee, comprising all independent non-executive Directors, 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.

As the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, our role is to give independent opinion to the Independent Board Committee for it to advise the Independent Shareholders as to (i) whether the Silver Apex Subscription Agreement and the Treasure Delight Subscription Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) whether the Silver Apex Issuance and the Treasure Delight Issuance are in the interests of the Company and the Shareholders as a whole.

BASIS OF OUR OPINION

In formulating our view and recommendation to the Independent Board Committee and the Independent Shareholders, we have relied on the information and representations provided to us by the Company, which the Company considers to be complete and relevant.

We have also relied on the information and representations contained in the Letter from the Board and have assumed that all statements of belief, opinion and intention made by the Directors in the Circular were true, accurate and complete at the time they were made and continue to be true and accurate as at the Latest Practicable Date. We have assumed that all statements of belief, opinion and intention made by the Directors in the Letter from the Board were reasonably made after due enquiry. We consider that we have reviewed sufficient information to reach an informed view and have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company. We have been advised by the Company that no material facts have been withheld or omitted from the information provided and referred to in the Circular.

– 17 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have not, however, carried out any independent verification of the information provided by the management of the Company and the Directors, nor have we conducted any independent investigation into the business and affairs of the Company, the Subscribers or any of their respective subsidiaries, controlled entities, jointly controlled entities or associates. We consider that we have performed our duties with impartiality and independence from the Company.

As at the Latest Practicable Date, Convoy Capital Hong Kong Limited (“ Convoy Capital ”) did not have any relationships or interests with the Company or the Subscribers that could reasonably be regarded as relevant to the independence of Convoy Capital. In the last two years, there was no engagement between the Group and Convoy Capital. Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangements exist whereby we had received any fees or benefits from the Company or the Subscribers. Accordingly, we are qualified to give independent advice in respect 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.

PRINCIPAL REASONS AND FACTORS CONSIDERED

In arriving at our recommendation to the Independent Board Committee and the Independent Shareholders in respect of the Silver Apex Issuance and the Treasure Delight Issuance, we have taken into consideration the following principal factors and reasons:

(1) Background information of the Group

The Group is principally engaged in the manufacture of silver and other non-ferrous metals for sales and retailing of silver products in the PRC. As at the Latest Practicable Date, the Group comprises three principal operating segments, including (i) the manufacturing segment, being the manufacturing and sales of silver ingots and other non-ferrous metals in the PRC, (ii) the O2O Segment, being the retailing and wholesaling of silver jewellery and collectibles in the PRC, and (iii) the silver exchange segment, being the operation of Shanghai Huatong, an integrated precious metal and non-ferrous metal exchange in the PRC. We have reviewed and compared the business of the Group based on the different segments.

– 18 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following sets out the financial performance of the Group for the two years ended 31 December 2014 (“ YR2014 ”) and 2015 (“ YR2015 ”) respectively as extracted from the 2015 annual report of the Company (the “ 2015 AR ”):

	For the year ended	For the year ended
	31 December
	2014	2015
	RMB’000	RMB’000
Revenue
(i) Manufacturing segment	1,231,498	871,320
(ii) O2O Segment	291,218	835,345
Sub-total	1,522,716	1,706,665
Gross profit	343,391	174,812
Administrative expenses	(50,251)	(134,900)
Selling and distribution expenses	(8,172)	(18,404)
Other expenses	(244)	(22,867)
Profit before tax	276,794	7,004
Profit/(Loss) for the year attributable to:
Owners of the Company	248,340	(10,969)
Non-controlling interests	–	(2)

The Group recorded an increase in revenue by approximately RMB183.9 million to approximately RMB1,706.7 million for the YR2015 from approximately RMB1,522.7 million for the YR2014. Such increase was attributable to the increase in revenue from the O2O Segment by approximately RMB544.1 million, which was offset by the decrease in revenue generated from the manufacturing segment by approximately RMB360.2 million. According to the 2015 AR, the O2O Segment has become a major revenue contributor to the Group.

Net loss was recorded for the YR2015. As stated in the 2015 AR, the loss was primarily due to (i) the decrease in gross profit of the smelting business (being part of the manufacturing segment) due to further decline in international silver price throughout the YR2015 and the initial adoption of the new environmental laws by the government of the PRC; (ii) the increase in non-cash share option expense of approximately RMB35 million; (iii) the increase in operating costs in the O2O Segment during the early rapid development stage; (iv) the non-recurring expenses of approximately RMB26 million incurred for acquisitions and fund-raising activities in the YR2015; and (v) the absence of a one-off tax reversal of approximately RMB19 million recorded in the YR2014.

• (2) Background of and reasons for the Silver Apex Issuance and the Treasure Delight Issuance

Information of CSMall

CSMall is principally engaged in the retailing and wholesaling of silver jewellery and collectibles in the PRC. It owns and operates the Group’s O2O Segment, which was launched in 2014.

– 19 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following sets out the unaudited financial performance of the CSMall for the two years ended 31 December 2015 (assuming the Reorganisation had taken place on 1 January 2014):

	For the year ended	For the year ended
	31 December
	2014	2015
	RMB’000	RMB’000
Revenue	291,218	835,345
Gross profit	38,578	84,679
Profit for the year	8,802	18,275
Net asset value attributable to owners of
the Company	59,809	148,400
	RMB	RMB
Net asset value attributable to owners of
the Company per share	0.12	0.30

CSMall recorded an increase in profit by approximately RMB9.5 million to approximately RMB18.3 million for the YR2015 from approximately RMB8.8 million for the YR2014. Such increase was attributable to the increase in revenue from the O2O Segment by approximately RMB544.1 million to approximately RMB835.3 million for the YR2015 from approximately RMB291.2 million for the YR2014, mainly due to the numerous new initiatives launched and expansion of its sales network in 2015, which was partly offset by the increase in operating costs in the O2O Segment during the early rapid development stage. During 2015, CSMall opened approximately 80 outlets, including 38 CSmall stores.

As at 31 March 2016, the unaudited net asset value of CSMall attributable to owners of the Company was approximately RMB150.6 million (assuming the Reorganisation had taken place on 1 January 2014).

Prospect of the business of CSMall

According to the statistics released by the China Chanye Xinxi website (中國產業 信息網), the market size of China’s jewellery industry increased from approximately RMB296.0 billion in 2010 to RMB492.0 billion in 2014, representing an increase of approximately 66.2%. In addition, its jewellery sales contribution through online channels increased from approximately 0% in 2010 to approximately 4% in 2015. Such increasing trend in these two figures in the China’s jewellery industry market indicates that the sales of jewellery through online channels in the PRC were growing in size during the relevant period. Nonetheless, as shown in the latest annual reports of the Comparables mentioned below, half of them recorded a decrease in revenue compared to the year before their respective latest financial year. This is mainly attributable to the softness in spending by customers and slowdown of economic growth. However, the Directors are confident about the future of CSMall based on its past performance and the increasing trend in sales through online channels in the PRC market.

– 20 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Reasons for and benefits of entering into the Silver Apex Subscription Agreement and the Treasure Delight Subscription Agreement

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, including Mr. Chen and Mr. Qian. In particular, Mr. Chen is the chief executive officer of CSMall and Mr. Qian is the deputy chief financial officer of CSMall. Each of them plays an important role to the start-up, development and historical growth of the Group’s O2O Segment and the Board believes that the continuation of their high performance and contribution will be critical to the O2O Segment’s future growth.

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.

Having considered that (i) the Silver Apex Issuance and the Treasure Delight Issuance can align the interests of the O2O Employees with those of the Group; (ii) the Group can continue to consolidate the financial results of CSMall; and (iii) the capital base of CSMall can be strengthened, the Directors consider that the terms of these two Issuances are justifiable and that such Issuances are in the interests of the Shareholders as a whole.

(3) Principal terms of the Silver Apex Subscription Agreement and the Treasure Delight Subscription Agreement

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, which will be paid at the completion of the Issuances. 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.

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; (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 condition of wholesaling and retailing business in the PRC.

– 21 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have searched for (i) listed companies in Hong Kong and the PRC which are engaged in a similar line of business as CSMall, the O2O Segment, being retailing and wholesaling of silver jewellery and collectibles in the PRC, based on their respective latest published financial information; and (ii) connected transactions in relation to the disposal of companies which engage in a similar line of business as CSMall in 2016 by listed companies in Hong Kong. However, to the best of our knowledge and endeavour, there is no listed company which meets the said criteria. In this regard, in order to assess the fairness and reasonableness of the Subscription Price, we have expanded our search and to our best knowledge identified four listed companies (“ Comparables ”) in Hong Kong which (i) are principally engaged in retailing and wholesaling of jewellery in the PRC with online channels; and (ii) recorded at least 40% of revenues being generated from the PRC for their respective latest financial year, for comparisons under price-to-earnings ratio (“ P/E ”) and the ratio of market capitalisation to the latest published net asset value of the Comparables (“ P/B ”). It should be noted that the operations and prospects of CSMall are not exactly the same as those of the Comparables even though the Comparables are likewise engaged in the jewellery industry and we have not conducted any in-depth investigation into the businesses and operations of the Comparables. We consider the Comparables as an exhaustive list of entities based on the said criteria above and our findings are summarised below:

					Latest
		Market	Latest		published net
		capitalisation	published		asset value
		as at the	net profit		attributable
		Latest	attributable		to owners of
		Practicable	to owners of		the company
	Stock	Date	the company	P/E	(“NAV”)	P/B
Company1	Code	(“A”)	(“B”)	(=A/B)	(“C”)	(=A/C)
		HK$’000	HK$’000	times	HK$’000	times
Chow Sang Sang
Holdings
International Ltd.	0116	10,235,030	1,130,320	9.1	9,077,915	1.1
Tse Sui Luen Jewellery
(International) Ltd.	0417	452,223	23,623	19.1	1,030,803	0.4
Chow Tai Fook
Jewellery Group Ltd.	1929	56,000,000	2,941,400	19.0	34,904,300	1.6
Hong Kong Resources
Holdings Co. Ltd.	2882	348,717	(93,862)	N/A2	366,534	1.0
			Maximum	19.1		1.6
			Minimum	9.1		0.4
			Average	15.7		1.0
The Silver Apex
Issuance and the
Treasure Delight
Issuance				15.6		1.9

Source: Website of the Stock Exchange

Notes:

1. Extracted from the latest annual/interim reports of the respective companies.

2. Price-to-earnings ratio is not applicable as the computed figure is negative.

– 22 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Price-to-earnings approach

As disclosed in the paragraphs under the section headed “Information of CSMall”, the unaudited profit for the YR2015 was approximately RMB18.3 million, whereas the consideration for (i) the Blaze Loop Issuance and (ii) the Silver Apex Issuance and the Treasure Delight Issuance is RMB71.41 million and RMB14.30 million in aggregate respectively and upon the completion of the Issuances, (i) the Group, (ii) Blaze Loop and (iii) Silver Apex and Treasure Delight will own approximately 70.0%, 25.0% and 5.0% of the enlarged issued share capital of CSMall respectively. Therefore, the P/E of the Silver Apex Issuance and the Treasure Delight Issuance is approximately 15.6 times, which is calculated based on the consideration for approximately 30.0% of the enlarged issued share capital of CSMall and the unaudited profit of CSMall for the YR2015.

The P/E of the Silver Apex Issuance and the Treasure Delight Issuance is approximately 15.6 times, which falls within the range of P/E among the Comparables of approximately 9.1 times to 19.1 times, and is similar to the average of the Comparables of approximately 15.7 times.

Net asset value approach

The P/B of the Silver Apex Issuance and the Treasure Delight Issuance is approximately 1.9 times, calculated as the consideration of RMB14.3 million divided by approximately 5.0% of the sum of the unaudited net asset value of CSMall attributable to owners of the Company as at 31 December 2015 of approximately RMB148.4 million (assuming that the Reorganisation had taken place on 1 January 2014).

The P/B of the Silver Apex Issuance and the Treasure Delight Issuance is approximately 1.9 times, which is slightly higher than the high end P/B among the Comparables of approximately 1.6 times and the average of the Comparables of approximately 1.0 times. As such, we consider that the consideration of the Silver Apex Issuance and the Treasure Delight Issuance, with reference to P/B, is fair and reasonable given the current market valuation of the Comparables and taking into account the financial performance and positive prospect of the business of CSMall as mentioned above.

Having considered that (i) in light of the profits made by CSMall in YR 2015 which represents a substantial increase in profit in YR 2015 compared to YR 2014 (and after comparing the overall performance of the Group which made a loss in YR 2015), the Group believes that the O2O Employees have made such contributions to deserve the opportunity to invest in CSMall, and the Group wishes to provide the O2O Employees with incentives to continue bringing the O2O Segment to new heights and further improving the financial performance of the Group; (ii) the Silver Apex Issuance and the Treasure Delight Issuance would not only enhance the capital and shareholder base of the CSMall but also align the interests of the O2O Employees with those of the Group; (iii) the Subscription Price by Silver Apex and Treasure Delight is the same as other

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Subscribers and slightly above the unaudited net asset value per share of CSMall attributable to owners of the Company as at 31 December 2015 (assuming that the Reorganisation had taken place on 1 January 2014); (iv) the P/E of the Silver Apex Issuance and the Treasure Delight Issuance falls within the range of P/E among the Comparables; and (v) the P/B of the Silver Apex Issuance and the Treasure Delight Issuance is higher than the P/B among the Comparables, we consider that the terms and basis for determining the Subscription Price under the Silver Apex Issuance and the Treasure Delight Issuance are fair and reasonable.

(4) Financial effects of the Silver Apex Issuance and the Treasure Delight Issuance

The following sets out the potential effects on the financial position of the remaining Group upon completion of the Silver Apex Issuance and the Treasure Delight Issuance:

Net asset value

As at 31 December 2015, the net asset value attributable to owners of the Company amounted to approximately RMB1,446.5 million. Immediately following the Issuances, the Company and the Subscribers including Blaze Loop, Silver Apex and Treasure Delight, will own approximately 70.0% and 30.0% (approximately 25.0%, 3.0% and 2.0%) of the enlarged issued share capital of CSMall respectively, and CSMall will remain as a subsidiary of the Company. Hence, the financial information of CSMall will remain to be consolidated in the accounts of the Company upon the completion of the Issuances. Based on the existing information available to the Company, with no material gain or loss, it is expected that there will not be material changes to the net asset value of the Group.

Earnings

Upon the completion of the Issuances, the Company and the Subscribers will own approximately 70.0% and 30.0% of the enlarged issued share capital of CSMall respectively, and CSMall will remain as a subsidiary of the Company. Save for the expenses relating to the Issuances, it is expected there will be no immediate and material effect on the earnings of the Group.

Gearing

According to the 2015 AR, the gearing ratio of the Group, illustrated as a percentage of total borrowings divided by total assets, was approximately 7.4%. It is expected that the gearing ratio of the Group will decrease upon the completion of the Issuances, implying a healthier financial condition since the Group will gain additional cash from the net proceeds of the Issuances upon the completion of the Issuances.

Cash flow

As the consideration for the Silver Apex Issuance and the Treasure Delight Issuances of RMB14.3 million in aggregate will be funded by cash contribution, the cash position of the Group will improve immediately after the completion of such issuances.

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having considered the principal factors and reasons discussed above, in particular (i) that in light of the profits made by CSMall in YR 2015 which represents a substantial increase in profit in YR 2015 compared to YR 2014 (and after comparing the overall performance of the Group which made a loss in YR 2015), the Group believes that the O2O Employees have made such contributions to deserve the opportunity to invest in CSMall, and the Group wishes to provide the O2O Employees with incentives to continue bringing the O2O Segment to new heights and further improving the financial performance of the Group; (ii) the positive prospect of CSMall; (iii) that the Silver Apex Issuance and the Treasure Delight Issuance are an opportunity for the Group to align the interests of the O2O Employees with those of the Group and to facilitate growth in the future; (iv) that the Silver Apex Agreement and the Treasure Delight Agreement are on normal commercial terms and the Subscription Price offered to Silver Apex and Treasure Delight is the same as that offered to other independent Subscribers (all O2O Employees other than Mr. Chen and Mr. Qian); and (v) the positive financial impact of the Group as a result of the Silver Apex Issuance and the Treasure Delight Issuance (in particular, improved cash position), we concur with the Directors and are of the view that the terms of the Silver Apex Issuance and the Treasure Delight Issuance are on normal commercial terms and are fair and reasonable, and both Issuances are in the interests of the Company and the Shareholders as a whole even though it is not conducted in the ordinary and usual course of business of the Group.

Accordingly, we recommend the Independent Shareholders, and advise the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the relevant resolutions to be proposed at the EGM to approve the the Silver Apex Issuance and the Treasure Delight Issuance.

Yours faithfully, For and on behalf of

Convoy Capital Hong Kong Limited Chu Tat Hoi

Managing Director

Mr. Chu Tat Hoi has been a responsible officer of Type 6 (advising on corporate finance) regulated activity under the SFO since 2003. He has participated in the provision of independent financial advisory services for various connected transactions involving companies listed in Hong Kong.

– 25 –

GENERAL INFORMATION

APPENDIX

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. SHARE CAPITAL OF CSMALL

The issued and fully paid share capital of CSMall as at the Latest Practicable Date and immediately after completion of the Issuances are set out as follow:

As at Latest Practicable Date

	Issued and fully	% of total issued
	paid CSMall	share capital
Shareholder	Shares	of CSMall
The Company	500,000,000	100%

Upon completion of the Issuances

	Issued and fully	% of total issued
	paid CSMall	share capital
Shareholder	Shares	of CSMall
The Company	500,000,000	70.00%
Blaze Loop	178,525,000	24.99%
Silver Apex	21,250,000	2.98%
Treasure Delight	14,500,000	2.03%
Total	714,275,000	100.00%

As at the Latest Practicable Date, CSMall had no other outstanding convertible debt securities, options, warrants or conversion rights affecting the CSMall Shares.

3. DISCLOSURE OF INTERESTS

(a) Directors’ and chief executives’ interests and short positions in Shares, underlying Shares and debentures of the Company

As of the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the Shares, underlying Shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO

– 26 –

GENERAL INFORMATION

APPENDIX

(i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which were taken or deemed to have under such provisions of the SFO), or (ii) which were required, pursuant to section 352 of the SFO, to be entered into the register maintained by the Company, or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) were as follows:

			Approximate
			percentage of
	Capacity/Nature	Number	interest in the
Name of Director	of Interest	of Shares	Company
Mr. Chen Wantian	Interest in controlled	411,422,187	28.70%
	corporation/
	Beneficial Interest1
Mr. Song Guosheng	Beneficial Interest2	2,006,797	0.14%

Notes:

1. Mr. Chen Wantian is deemed to be interested in 405,722,187 Shares owned by Rich Union Enterprises Limited as the sole director and shareholder of Rich Union Enterprises Limited. Mr. Chen Wantian was granted share options to subscribe for 4,650,000 Shares. Further, Mr. Chen Wantian is the beneficial owner of 1,050,000 Shares.

2. Mr. Song Guosheng was granted share options to subscribe for 1,550,000 Shares. Further, Mr. Song Guosheng is the beneficial owner of 456,797 Shares.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and the chief executive of the Company had or was deemed to have any interest or short position in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) that was required to be recorded in the register of the Company required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

(b) Substantial shareholders’ interests and short positions in shares and underlying shares

The register of substantial shareholders required to be kept by our Company under Section 336 of Part XV of the SFO shows that as of the Latest Practicable Date, in addition to the interests disclosed under the paragraph headed “Directors’ and Chief Executives’ Interests and Short Positions in Shares, Underlying Shares and Debentures of the Company”, the Company was notified of the following substantial shareholders’ interests and short positions in the Shares and underlying Shares, being interests of 5% or more.

– 27 –

GENERAL INFORMATION

APPENDIX

			Approximate
		Number	percentage of
	Capacity/Nature	of shares in	interest in the
Name	of Interest	the Company	Company
Mr. Luo Shandong	Beneficial Interest	132,996,000	9.28%
FIL Limited	Investment Manager	72,018,000	5.02%

Except as disclosed above, as at the Latest Practicable Date, the Company has not been notified by any person or corporation who had interests or short positions in the Shares or underlying Shares as recorded in the register required to be kept by our Company under Section 336 of Part XV of the SFO.

4. DIRECTORS’ COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective associates is and was interested in any business (other than the Group’s business) which competes or is likely to compete, either directly or indirectly, with the businesses of the Group.

5. DIRECTORS’ INTERESTS IN ASSETS

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors had any interest, either directly or indirectly, in any assets which has since 31 December 2015 (being the date to which the latest published audited consolidated financial statements of the Group were made up), up to the Latest Practicable Date, been acquired or disposed of by or leased to, any member of the Group or are proposed to be acquired or disposed of by, or leased to, any member of the Group.

6. DIRECTORS’ SERVICE CONTRACTS

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

7. DIRECTORS’ INTERESTS IN CONTRACT OR ARRANGEMENT OF SIGNIFICANCE

As at the Latest Practicable Date, none of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group subsisting at the date of this circular and which is significant in relation to the businesses of any member of the Group.

8. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against any member of the Group.

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GENERAL INFORMATION

APPENDIX

9. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirm that there has been no material adverse change in the financial or trading position of the Group since 31 December 2015, being the date to which the latest published audited financial statements of the Company were made up.

10. EXPERT AND CONSENT

The following are the qualifications of the expert who has given opinion contained in this circular:

Name

Qualification

Convoy Capital Hong Kong Limited

a corporation licensed under the SFO to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities in Hong Kong

As at the Latest Practicable Date, Convoy Capital Hong Kong Limited did not have any shareholding in any member of the Group and it does not 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, Convoy Capital Hong Kong Limited did not have any direct or indirect interest in any assets which have been, since 31 December 2015 (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 are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, Convoy Capital Hong Kong Limited has not withdrawn its written consent to the issue of this circular with its opinion included in the form and context in which it is included.

11. MATERIAL CONTRACTS

Saved as disclosed below, no material contracts (not being contract entered into in the ordinary course of business carried out by the Group), have been entered into by any member of the Group within the two years immediately preceding the date of this circular:

• (a) the Subscription Agreements;

• (b) the trust deed entered into between CSMall, Mr. Lin Ting (林挺) and Blaze Loop on 6 June 2016 in respect of the employee trust arrangements that is disclosed in the section headed “The Employee Trust Arrangement” in the Announcement;

• (c) the sale and purchase agreement entered into between, among others, Silver Universe Investments Limited and the Company on 6 July 2015 in respect of the Company’s acquisition of a 25% equity interest in Shanghai Huatong; and

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GENERAL INFORMATION

APPENDIX

• (d) the sale and purchase agreement entered into between, among others, Silver Universe Investments Limited and the Company on 11 December 2015 in respect of the Company’s acquisition of the remaining 75% equity interest in Shanghai Huatong.

12. MISCELLANEOUS

• (a) The company secretary of the Company is Mr. Moy Yee Wo Matthew, who is a member of Hong Kong Institute of Certified Public Accountants.

• (b) The registered office of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The principal place of business of the Company in Hong Kong is at Unit 2602, China Merchants Tower, 168-200 Connaught Road Central, Hong Kong.

• (c) The share registrar of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (d) The English text of this circular shall prevail over its respective Chinese text for the purpose of interpretation.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the Company’s head office and principal place of business in Hong Kong at Unit 2602, China Merchants Tower, 168-200 Connaught Road Central, Hong Kong during normal business hours on any business day from the date of this circular up to and including the date of the EGM:

• (a) the letter from the Independent Board Committee, the text of which is set out on pages 14 to 15 of this circular;

• (b) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 16 to 25 of this circular;

• (c) the memorandum of association and articles of association of the Company;

• (d) the written consent referred to in the paragraph headed “Expert and Consent” in this appendix;

• (e) the material contracts referred to under the section headed “Material Contracts” in this appendix; and

• (f) this circular.

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NOTICE OF THE EGM

==> picture [135 x 95] 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)

12 July 2016

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of China Silver Group Limited (the “ Company ”) will be held at Cliftons Hong Kong, Level 5, Hutchison House, 10 Harcourt Road, Central on Wednesday, 27 July 2016 at 2:30 p.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolution(s) as an ordinary resolution(s) of the Company:

ORDINARY RESOLUTIONS

“ THAT :

1. (i) a subscription agreement dated 6 June 2016 entered into between, among others, CSMall Group Limited (金貓銀貓集團有限公司) (“CSMall”) as issuer and Silver Apex Holdings Limited as subscriber in respect of the issuance of 21,250,000 subscription shares at a subscription price of RMB0.40 per CSMall Share and the allotment and issuance of the Silver Apex Subscription Shares by CSMall be and is hereby approved is hereby approved, confirmed and ratified; and (ii) any one Director, or any one Director and the company secretary of the Company if the affixation of the common seal of the Company is necessary, be and is hereby authorised for and on behalf of the Company and any one director of CSMall, or any one director and the company secretary of CSMall if the affixation of the common seal of CSMall is necessary, be and is hereby authorised for and on behalf of CSMall, in each case to do all such acts and things and execute all such documents which he considers necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Silver Apex Subscription Agreement and the transactions contemplated thereunder;

2. (i) a subscription agreement dated 6 June 2016 entered into between, among others, CSMall as issuer and Treasure Delight International Limited as subscriber in respect of the issuance of 14,500,000 subscription shares at a subscription price of RMB0.40 per CSMall Share and the allotment and issuance of the Treasure Delight Subscription Shares by CSMall be and is hereby approved is hereby approved,

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NOTICE OF THE EGM

confirmed and ratified is hereby approved, confirmed and ratified; and (ii) any one Director, or any one Director and the company secretary of the Company if the affixation of the common seal of the Company is necessary, be and is hereby authorised for and on behalf of the Company and any one director of CSMall, or any one director and the company secretary of CSMall if the affixation of the common seal of CSMall is necessary, be and is hereby authorised for and on behalf of CSMall, in each case to do all such acts and things and execute all such documents which he considers necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Treasure Delight Subscription Agreement and the transactions contemplated thereunder.”

By Order of the Board China Silver Group Limited Moy Yee Wo Matthew Company Secretary

Hong Kong, 12 July 2016

Principal Place of Business in Hong Kong:

Unit 2602

China Merchants Tower 168-200 Connaught Road Central Hong Kong

Notes:

1. Every member entitled to attend and vote at the above EGM (or at any adjournment thereof) is entitled to appoint another person as his proxy. Any member who holds two or more Shares may appoint more than one proxy. A proxy need not be a member of the Company. The number of proxies appointed by a clearing house (or its nominee) is not subject to the aforesaid limitation.

2. Where there are joint holders of any Share, any one of such persons may vote at the EGM, 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 the EGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share will alone be entitled to vote in respect thereof.

3. To be valid, a form of proxy, together with the power of attorney or other authority (if any) under which it is signed (or a notarially certified copy of that power or authority), must be deposited at the Company’s share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, of Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for the holding of the EGM. Completion and return of the form of proxy will not be preclude a member from attending the AGM and voting in person if he so wishes and in such event, the form of proxy should be revoked.

4. Pursuant to Rule 13.94(4) of the Listing Rules all the resolutions set out in this notice shall be decided by poll at the meeting except where the chairman, in good faith, decides to allow a resolution which related purely to a procedural or administrative matter to be voted on by a show of hands.

As at the date hereof, the Board comprises Mr. Chen Wantian, Mr. Sung Kin Man, Mr. Song Guosheng and Mr. Chen Guoyu as executive Directors; Mr. Guo Bin, Mr. Song Hongbing, Dr. Li Haitao and Dr. Zeng Yilong as independent non-executive Directors.

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