Chinney Alliance Group Limited - Proxy Solicitation & Information Statement 2018

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Chinney Alliance Group Limited , you should at once hand this circular, together with the accompanying form of proxy, 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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(Stock Code: 385)

CONNECTED TRANSACTION IN RELATION TO CONSTRUCTION WORKS

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

Capitalized terms used in this cover shall have the same meanings as defined in this circular.

A letter from the Board is set out on pages 7 to 19 of this circular. A letter from the Independent Board Committee to the Independent Shareholders is set out on page 20 of this circular. A letter from Veda Capital, the Independent Financial Adviser containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders, is set out on pages 21 to 37 of this circular.

A notice convening the SGM to be held at Full Moon Shanghai Restaurant, Macau Jockey Club, 3rd Floor, East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong on Friday, 24 August 2018 at 2:30 p.m., at which the Resolution as stated in the aforesaid notice will be considered, is set out on pages 43 to 44 of this circular.

A form of proxy for use at the SGM and at any adjournment thereof is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible, but in any event no later than 2:30 p.m. on Wednesday, 22 August 2018, being not less than 48 hours before the time fixed for the SGM and any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM and at any adjournment thereof should you so wish.

for identification purpose only

8 August 2018

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . .	20
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . .	21
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
NOTICE OF SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43

– i –

DEFINITIONS

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

“Agreements” collectively, the Consultancy Agreement and the Framework Agreement
“Architect” Andrew Lee King Fun & Associates Architects Limited, the architect engaged by the Employer in respect of the Project
“associate(s)” has the meaning ascribed to it under the Listing Rules
“Board” the board of Directors
“Building Occupation Permit”
the occupation permit to be issued by the Buildings Department of Hong Kong in respect of the Project in accordance with the Buildings Ordinance, Chapter 123 of the Laws of Hong Kong
“Chinney Investments”
Chinney Investments, Limited (建業實業有限公司), a company incorporated in Hong Kong with limited liability, the issued shares of which are listed on the Stock Exchange (Stock Code: 216) and is holding approximately 68.09% and 29.10% of the issued shares of Hon Kwok and the Company, respectively, as at the Latest Practicable Date
“Chinney Investments Group”
Chinney Investments and its subsidiaries
“Companies”
Chinney Investments, Hon Kwok and the Company
“Company”
Chinney Alliance Group Limited (建聯集團有限公司*), a company incorporated in Bermuda with limited liability, the issued shares of which are listed on the Stock Exchange (Stock Code: 385)
“Conditions Precedent to the Framework Agreement”
the conditions precedents set out under the paragraph “Conditions Precedent to the Framework Agreement” in the “Letter from the Board” in this circular
“connected person(s)”

has the meaning ascribed to it under the Listing Rules

for identification purpose only

– 1 –

DEFINITIONS

“Construction Works”

the construction of the data centre and the provision of ancillary building services relating to the Project, including but not limited to:

(a) take over, alter, modify and maintain the existing hoarding, covered walkway, fences, gantry, piling, temporary shoring system for excavation and lateral support works and the like, as required;
(b) carry out substructure and superstructure building works and finishes including but not limited to plastering and tiling, roofing system, waterproofing, windows, louvres, metal grilles, doors, ironmongery, fixtures, fittings, sundries and all builder’s works in connection with building services installations;
(c) design, supply, submission, installation and preparation of shop drawings for windows, curtain wall, aluminium cladding and louvres works, external false ceiling, gondola installation, etc.;
(d) all associated plumbing, drainage and underground drainage works and external works including hard landscaping, ducts and pits, connections to the public service mains and services diversions within and outside the site boundary;
(e) reinstatement of all excavation, adjacent land, pavement and roads, and the construction of runin/out and road widening works including application of all excavation permits;
(f) preparation and submission of the necessary records, plans, reports in accordance with relevant laws and regulations to the satisfaction of the Architect and relevant government departments;
(g) attendance on and co-ordination with various subcontractors, separate contractors, specialist contractors, government departments;

– 2 –

DEFINITIONS

(h) locate, lower or divert as necessary and maintain all existing utilities services and arrange with government departments and public utilities undertakings for disconnection, diversion and/or sealing of all encountered utilities without affecting adjoining building’s services;
(i) carry out all necessary works including construction, alteration and maintenance of all permanent and temporary works and measures necessary to obtain the occupation permit; and
(j) any other works as instructed by the Architect to satisfy the requirements of relevant government departments,

as more particularly set out in the Contract Documents

“Consultancy Agreement”
“Contract Documents”
“Contractor”
“Director(s)”
“Dr. James Sai-Wing Wong”
the consultancy agreement dated 12 June 2018 entered into between the Employer and Shun Cheong Data Centre Solutions in relation to the provision of consultancy services for the Project
the contract documents in respect of the Construction Works to be entered into between the Employer and the Contractor in accordance with and substantially in the same form and substance as annexed to the Framework Agreement
Chinney Construction Company, Limited (建業建築有限公司), a company incorporated in Hong Kong with limited liability, and an indirect wholly-owned subsidiary of the Company
the director(s) of the Company
Dr. James Sai-Wing Wong, the chairman and executive director of each of Chinney Investments, Hon Kwok and the Company

– 3 –

DEFINITIONS

“Employer” Gold Famous Development Limited (金譽發展有限公司), a company incorporated in Hong Kong with limited liability, and an indirect wholly-owned subsidiary of Hon Kwok and an indirect non wholly-owned subsidiary of Chinney Investments
“Framework Agreement” a framework agreement dated 12 July 2018 entered into between the Contractor and the Employer in relation to the Construction Works
“Group” the Company and its subsidiaries
“HK$”
Hong Kong dollar(s), the lawful currency of Hong Kong
“Hon Kwok”
Hon Kwok Land Investment Company, Limited (漢國置業有限公司), a company incorporated in Hong Kong with limited liability and the issued shares of which are listed on the Stock Exchange (Stock Code: 160)
“Hon Kwok Group”
Hon Kwok and its subsidiaries
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”
the committee of the Board consisting of all the independent non-executive Directors, namely Mr. YuenTin Ng, Mr. Chi-Chiu Wu and Mr. Ronald James Blake, established to advise the Independent Shareholders in respect of the Proposed CT
“Independent Shareholders”
Shareholders other than Dr. James Sai-Wing Wong together with his associates
“Latest Practicable Date”
2 August 2018, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular
“Laws”

includes the Listing Rules, all laws, bye-laws, rules, regulations, guidelines, orders, judgments, decrees or rulings of any court, government, governmental or regulatory authority whether or not ejusdem generis with any of the foregoing and the “Law” shall be construed accordingly

– 4 –

DEFINITIONS

“Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange
“Long-Stop Date” 31 December 2018
“Macau” the Macau Special Administrative Region of the PRC
“Model Code”
Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules
“Parties” the Contractor and the Employer, the parties to the Framework Agreement and a “Party” shall be construed accordingly
“PRC” the People’s Republic of China, and for the purpose of this circular, excludes Hong Kong and Macau
“Project” the construction and development of a data centre in a parcel of land situated at and known as K.C.T.L. No. 495, Kin Chuen Street, Kwai Chung, New Territories, Hong Kong
“Proposed CT” the proposed connected transaction and the ancillary transactions contemplated under the Framework Agreement
“Provisional Sum”
an amount not exceeding Hong Kong dollars thirty-three million (HK$33,000,000.00) being the estimated additional costs of Construction Works in the event that an application for exempting an area of approximately 1,200 square meters as non-accountable gross floor area under the original building plans of the Project is being approved by the relevant government departments
“Quantity Surveyor”
Beria Consultants Limited, an independent quantity surveyor engaged by the Employer in respect of the Project
“Resolution”
the proposed ordinary resolution approving the Proposed CT as referred to in the notice of the SGM
“SFO”
the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong

– 5 –

DEFINITIONS

“SGM”

the special general meeting of the Company to be convened for the purpose of, among other things, seeking approval from the Independent Shareholders in respect of the Proposed CT

“Shareholder(s)” the shareholder(s) of the Company
“Shun Cheong Data Centre Solutions”
Shun Cheong Data Centre Solutions Company Limited (順昌數據中心創展有限公司), a company incorporated in Hong Kong with limited liability, and an indirect whollyowned subsidiary of the Company
“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Tender Sum”

a sum of Hong Kong dollars seven hundred twenty-four million eight hundred thirty-eight thousand six hundred and ninety-one and seventy cents (HK$724,838,691.70) as offered by the Contractor in the tendering documents relating to the Construction Works

“Total Contract Sum”

the aggregate of the Tender Sum and the potential Provisional Sum of the amount not exceeding Hong Kong dollars seven hundred fifty-seven million eight hundred thirty-eight thousand six hundred and ninety-one and seventy cents (HK$757,838,691.70), being the total value of the Construction Works under the Framework Agreement

“Veda Capital” or “Independent Financial Adviser”

Veda Capital Limited, a corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser appointed by the Company in respect of the Proposed CT

“%”

per cent

– 6 –

LETTER FROM THE BOARD

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(Stock Code: 385)

Executive Directors: Dr. James Sai-Wing Wong (Chairman) Mr. Yuen-Keung Chan (Vice Chairman and Managing Director) Mr. James Sing-Wai Wong Mr. Philip Bing-Lun Lam

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Non-executive Director: Ms. Wendy Kim-See Gan

Independent non-executive Directors: Mr. Yuen-Tin Ng Mr. Chi-Chiu Wu Mr. Ronald James Blake

Head Office and Principal Place of Business: 23rd Floor Wing On Centre 111 Connaught Road Central Hong Kong

8 August 2018

To the Shareholders

Dear Sir/Madam,

CONNECTED TRANSACTION IN RELATION TO CONSTRUCTION WORKS

INTRODUCTION

With reference to the joint announcement dated 12 July 2018 as announced by Chinney Investments, Hon Kwok and the Company, the Contractor and the Employer entered into the Framework Agreement, pursuant to which the Employer conditionally agreed to engage the Contractor, and the Contractor conditionally agreed to act as the main contractor to carry out the Construction Works for the Project at the Tender Sum of HK$724,838,691.70, subject to a potential Provisional Sum not exceeding HK$33,000,000.00.

On 12 June 2018, the Employer and Shun Cheong Data Centre Solutions, an indirect wholly-owned subsidiary of the Company, entered into the Consultancy Agreement, pursuant to which Shun Cheong Data Centre Solutions was appointed by the Employer as a consultant to provide consultancy services for the Project at a fixed fee of HK$16,200,000.00. Details of the Consultancy Agreement were set out in the joint announcement of the Companies dated 12 June 2018.

* for identification purpose only

– 7 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the Employer is an indirect wholly-owned subsidiary of Hon Kwok and an indirect non wholly-owned subsidiary of Chinney Investments, and the Contractor is an indirect wholly-owned subsidiary of the Company. Chinney Investments is interested in approximately 68.09% and 29.10% of the issued shares of Hon Kwok and the Company, respectively. Dr. James Sai-Wing Wong is the chairman and executive director of Chinney Investments, Hon Kwok and the Company and is beneficially interested in (a) approximately 62.02% of the issued shares of Chinney Investments; (b) approximately 69.72% of the issued shares of Hon Kwok (including those interests held through Chinney Investments); and (c) approximately 73.43% of the issued shares of the Company (including those interests held through Chinney Investments). Thus Chinney Investments, Hon Kwok and the Company are connected persons to one another within the meaning of the Listing Rules.

The entering into of the Framework Agreement constitutes a connected transaction for each of the Companies under the Listing Rules. As disclosed in the joint announcement of the Companies dated 12 June 2018, the entering into of the Consultancy Agreement also constituted a connected transaction for each of the Companies under the Listing Rules. Pursuant to Rules 14A.81 and 14A.82 of the Listing Rules, the Agreements shall be aggregated as a series of transactions as the transactions concerning the Project were entered into within a 12-month period and involved parties which are connected with one another among the Companies. As the applicable percentage ratios of the Proposed CT, on both stand-alone and the basis when aggregated with the Consultancy Agreement, are more than 5% and the Total Contract Sum is more than HK$10 million, the Proposed CT constitutes a non-exempt connected transaction under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The purpose of this circular is to provide you with, among other things, (a) further details of the Proposed CT; (b) a letter from the Independent Board Committee to the Independent Shareholders in respect of the Proposed CT; (c) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed CT; (d) a notice of the SGM; and (e) other information as required under the Listing Rules.

THE CONSULTANCY AGREEMENT

Date

12 June 2018 (after trading hours)

Parties to the Consultancy Agreement

(a) The Employer, an indirect wholly-owned subsidiary of Hon Kwok and an indirect non wholly-owned subsidiary of Chinney Investments, is the owner and developer of the Project and is principally engaged in property development business in Hong Kong; and

– 8 –

LETTER FROM THE BOARD

(b) Shun Cheong Data Centre Solutions, an indirect wholly-owned subsidiary of the Company, is a consultancy company and is principally engaged in providing solutions in respect of design and planning, project management, facilities delivery, operation and maintenance of data centres.

Consultancy services

Pursuant to the Consultancy Agreement, Shun Cheong Data Centre Solutions was appointed as a consultant to provide consultancy services for the Project, which mainly include:

(a) To illustrate the optional layouts in the test-fits of the data centre;
(b) To liaise with utilities companies regarding the maximum electrical loading requirements and telecommunication capacities;
(c) To provide principal data centre design concept and overall planning review of the development;
(d) To review with the project architectural consultant team to formalise infrastructural provisions for the statutory submissions;
(e) To study and develop the optimum rack layout for the modular data halls such as effective rack load density, circulating corridor, maintenance space, rack height, cabling zone, facility zone and spacing, etc.;
(f) To provide detailed design for modular data halls and consultancy services for statutory submissions in accordance with the design;
(g) To attend project management and progress meetings and to monitor and review the latest project schedule and identify critical milestones during the construction and development stages; and
(h) To explore potential tenants globally and create tailored proposals to meet customer’s specific requirements on data centre design and specifications.

Term and consultancy fee

The term of the engagement under the Consultancy Agreement has commenced from the date of the Consultancy Agreement and covers the whole construction and development period of the Project until 12 months after issuance of the Building Occupation Permit. The Building Occupation Permit is now expected to be issued in late 2019.

The consultancy fee under the Consultancy Agreement is fixed at HK$16,200,000.00 and payable by the Employer to Shun Cheong Data Centre Solutions in stages.

– 9 –

LETTER FROM THE BOARD

THE FRAMEWORK AGREEMENT

Date

12 July 2018 (after trading hours)

Parties to the Framework Agreement

(a) The Employer, an indirect wholly-owned subsidiary of Hon Kwok and an indirect non wholly-owned subsidiary of Chinney Investments, is the owner and developer of the Project and is principally engaged in property development business in Hong Kong; and
(b) The Contractor, an indirect wholly-owned subsidiary of the Company, is a general building contractor and is principally engaged in the provision of building construction works and services to the public and private sectors in Hong Kong.

Construction Works

Pursuant to the Framework Agreement, the Employer conditionally agreed to engage the Contractor and the Contractor conditionally agreed to act as the main contractor to carry out the Construction Works for the Project at the Tender Sum (and subject to the potential Provisional Sum) on the terms and subject to the Conditions Precedent to the Framework Agreement, and the terms and conditions as contained in the Contract Documents. The period of the Construction Works is estimated to be approximately 465 calendar days.

Total Contract Sum and terms of payment

The Contractor was selected through a tendering process in which three companies had submitted tenders to the Quantity Surveyor and the Architect, both being independent third parties, for review and assessment. The Tender Sum represents the amount offered by the Contractor under the lump sum fixed price tender which is HK$724,838,691.70.

In addition, the Employer intends to apply to the government departments for exempting an area of approximately 1,200 square meters as non-accountable gross floor area under the original building plans of the Project. In the event that such application is approved, the floor area of the building to be constructed would be increased and it is estimated by the Quantity Surveyor that the Tender Sum would be increased by the potential Provisional Sum which is capped at HK$33,000,000.00 under the Framework Agreement. Accordingly, the Total Contract Sum representing the Tender Sum plus the potential Provisional Sum of the Construction Works under the Framework Agreement will not be exceeding HK$757,838,691.70.

Payment of the Total Contract Sum will follow common industry practice which is to be effected in stages based on the progress of the Construction Works properly executed by the Contractor and the materials and goods delivered, as certified by the Architect in the architect’s certificates to be delivered to the Employer from time to time.

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LETTER FROM THE BOARD

The Employer has engaged the Architect and the Quantity Surveyor to conduct the tendering process and both of them have examined and assessed the merits of the tenders received.

Nevertheless, in determining the main contractor of the Project, the Architect and the Quantity Surveyor did not only consider the tender prices but also other factors relating to the tenderers such as the number of projects they have completed, their experiences of building contracts with similar nature, project scale and complexity, the competence of their technical staff and also the quality of their technical proposals submitted. Each tenderer was scored by the Architect after consideration of the above factors. Based on the examination and assessment by the Architect and the Quantity Surveyor, the Contractor was ranked the highest score amongst the three tenderers and the Quantity Surveyor recommended to award the tender to the Contractor. In determining the prevailing market rates relating to the Total Contract Sum, the Employer engaged the Quantity Surveyor to preliminarily assess the contract value of the Construction Works and carried out a competitive tendering procedure. Seven contractors, including the Contractor and six independent third parties, were invited for submission of tender for the Construction Works. Out of the three tenders received by the Employer, the Tender Sum offered by the Contractor represented the second lowest bid as compared to the other two tenderers. Each of the tender sums submitted by all three tenderers was less than the amount estimated by the Quantity Surveyor. The difference between the highest bid and the lowest bid was within 3% whereas the difference between the second lowest bid and the lowest bid was 0.5%. In accordance with the market practice, the Quantity Surveyor also sent tender questionnaires and conducted tender interview with each of the tenderers in the presence of the Architect and the Employer to ascertain the methodology and the completeness and sufficiency of each of the tender submissions. Based on the report from the Quantity Surveyor and its recommendation therein, the Employer believes that the Total Contract Sum is in line with the prevailing market rate for the Construction Works.

The Architect is experienced in providing architectural services for property and infrastructural projects for both the public and private sectors in Hong Kong. The officer responsible for the engagement by the Employer is a member of the Hong Kong Institute of Architects, Registered Architect, Authorised Person (Architect) and BEAM Professional with about 20 years of experience in the design, planning and project administration of property projects.

The Quantity Surveyor has provided full quantity surveying services in a number of projects in Hong Kong. The officer responsible for the engagement by the Employer is a Professional Member of the Royal Institution of Chartered Surveyors, a member of the Hong Kong Institute of Surveyors, Registered Professional Surveyor (Quantity Surveying Division) and Registered Cost Engineer (PRC) with over 20 years of experience in all aspects of quantity surveying and cost management duties.

– 11 –

LETTER FROM THE BOARD

As to the Contractor, the Tender Sum offered by the Contractor to the Employer was determined based on the estimated project costs (including machinery usage costs, direct labour costs, subcontracting charges and construction materials costs, etc.) by reference to the prevailing market rates, and were comparable to those offered to other independent third parties for similar Construction Works.

The Contractor has established standard internal pricing procedures to ensure proper pricing for all the tenders it submits, including the tendering of the Construction Works. In particular, after assessment and examination of all specifications in respect of the Construction Works, the in-house quantity surveyors of the Contractor has identified the principle materials and works required, such as concrete, rebar, formwork and curtain wall, and obtained quotations from at least two independent suppliers/subcontractors as reference to estimate the project costs of the Construction Works. Such cost estimation was counter-checked by the responsible contract manager to ensure that the unit rates of all major items applied for calculating the estimated costs are not lower that the unit rates obtained from the quotations of independent suppliers/subcontractors. The contract manager then worked with the managing director of the Contractor to determine a gross profit margin, which was based on a variety of factors including but not limited to project complexity and difficulty, current project pipeline, and availability of resources, on top of the estimated project costs to arrive at the final Tender Sum. The Board considers that such clear and hierarchical assignment of authority and responsibility could ensure the consistent application of the Contractor’s internal control procedures on pricing policy and is satisfied that the Tender Sum is arrived at with reference to the prevailing market rates and is comparable to those offered to other independent third parties for similar Construction Works.

Conditions Precedent to the Framework Agreement

The engagement of the Contractor by the Employer and the acceptance of such engagement by the Contractor, and the obligations of the Parties under the Framework Agreement are conditional upon:

(a) the passing by the independent shareholders of each of the Companies in their respective special general meetings or extraordinary general meetings (as the case may be) by way of poll of resolution(s) approving, amongst other things, the Proposed CT and authorising the execution, delivery and performance of all the transactions contemplated under the Framework Agreement and any agreement ancillary thereto;
(b) all requirements imposed by the Stock Exchange under the Listing Rules or otherwise in connection with all the transactions contemplated by the Framework Agreement having been fully complied with; and

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LETTER FROM THE BOARD

(c) all waivers, consents, approvals or confirmations of the Stock Exchange which are required or appropriate or in relation thereto, and all relevant waivers, consents, approvals or confirmations required for the purposes of the Parties for the entry into and the implementation of the Framework Agreement having been obtained.

None of the conditions precedent to the Framework Agreement can be waived by the Contractor or the Employer.

The Parties shall use their reasonable endeavours to procure that the Conditions Precedent to the Framework Agreement shall be fulfilled by the Long-Stop Date.

If the Conditions Precedent to the Framework Agreement shall not have been fulfilled by the Long-Stop Date, or such other date as the Parties may agree in writing (time in either case being of the essence), then save in respect of any antecedent breach of the Framework Agreement, all rights and liabilities of the Parties shall cease and no Party shall have any claim against the other Party.

INFORMATION ON THE COMPANIES

The Company is incorporated in Bermuda with limited liability. The Group is mainly engaged in trading of plastics and chemical products; provision of building related contracting services; provision of foundation piling works and sub-structure works; and provision of construction works.

Hon Kwok is an investment holding company incorporated in Hong Kong with limited liability. Hon Kwok Group is mainly engaged in property development, property investment and property related businesses.

Chinney Investments is an investment holding company incorporated in Hong Kong with limited liability. Chinney Investments Group (excluding Hon Kwok Group and the Group) is mainly engaged in garment manufacturing and trading and investment holding.

REASONS FOR AND BENEFITS OF THE PROPOSED CT

The principal activities of Hon Kwok Group are property development and investment. From time to time, Hon Kwok Group engages contractors for construction works of its property development projects. The land site of the Project was acquired by Hon Kwok Group through government public tender in Hong Kong in 2015, and is planned to be developed as a data centre for recurring rental income. The management of Hon Kwok considers that it is in the best interests of Hon Kwok and its shareholders as a whole to engage a technically competent contractor at a competitive price to carry out the Construction Works. The Contractor is considered an appropriate choice given that (a) the recommendation by the Architect and the Quantity Surveyor by reference to the technical aspect and pricing of the all three tenders

– 13 –

LETTER FROM THE BOARD

received by the Employer; (b) same as the Employer, it is under the control of Dr. James Sai-Wing Wong who has the objective of achieving the well-being for all of the Companies; and (c) the long established relationship amongst the Companies will enhance work efficiency and effective communication.

Dr. James Sai-Wing Wong, being a controlling shareholder of each of the Companies, will abstain from voting at the special or extraordinary general meeting of each of the Companies in respect of the Proposed CT. Hon Kwok and the Company are run by separate board of directors. Should the Proposed CT receive approval from the independent shareholders of the respective Companies, Dr. James Sai-Wing Wong as the chairman of each of the Companies has fiduciary duties as a director to ensure that relevant parties shall work in the interest of the shareholders of their respective Companies with regard to the timely completion of the Construction Works in a quality manner and within the approved Total Contract Sum. As such, the well-being for the Companies can be achieved.

The relationships among the Companies can be traced back to 1985. Hon Kwok was acquired by Chinney Investments in 1985 and has been the flagship of the Chinney Investments Group undertaking property development and investment activities in Hong Kong and the PRC. The Company was acquired by Chinney Investments in 1998 and is now an associate of Chinney Investments focusing on construction businesses in Hong Kong and Macau. The Contractor, founded in 1975, was a subsidiary of Chinney Investments prior to its disposal to the Company in 2007.

The Group has been engaging in construction works in Hong Kong and Macau through its respective subsidiaries, including the Contractor, Kin Wing Foundations Limited (建榮地基有限公司) and Kin Wing Engineering Company Limited (建榮工程有限公司). The Contractor commenced building construction business since its establishment in 1975, while Kin Wing Engineering Company Limited (建榮工程有限公司) and Kin Wing Foundations Limited (建榮地基有限公司), which are both engaged in foundation construction business, were established in 1994 and 1995, respectively. The management of the Group considers that the submission of the tender and the acceptance of it (if being awarded) relating to the Construction Works are within its normal course of business. The Tender Sum offered to the Employer was determined based on the estimated project costs (including machinery usage costs, direct labour costs, subcontracting charges and construction materials costs etc.) by reference to the prevailing market rates, and were comparable to those offered to other independent third parties by the Contractor for similar Construction Works.

The conditional engagement by the Employer and the conditional acceptance by the Contractor to act as the main contractor to carry out the Construction Works represent activities within the ordinary and usual course of business of each of Chinney Investments Group, Hon Kwok Group and the Group. The terms of the Framework Agreement were arrived at by the Contractor and the Employer after arm’s length negotiations.

– 14 –

LETTER FROM THE BOARD

In light of the above, the Board (including the independent non-executive Directors after considering the advice from Veda Capital) considers that the terms of the Framework Agreement are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Under the bye-laws of the Company, a Director should not vote (nor be counted in the quorum) on any resolution of the Board in respect of any contract or arrangement in which he/she is to his/her knowledge materially interested. Accordingly, Dr. James Sai-Wing Wong has not voted or been counted in the quorum on the resolutions of the Board approving the Framework Agreement. Mr. James Sing-Wai Wong, being the son of Dr. James Sai-Wing Wong, has also abstained from voting on the said resolutions of the Board voluntarily for the purpose of good corporate governance.

LISTING RULES IMPLICATIONS

– 15 –

LETTER FROM THE BOARD

The relationships of Dr. James Sai-Wing Wong, the Parties and the Companies are set out in the structure chart below:

==> picture [427 x 378] intentionally omitted <==

----- Start of picture text -----

Dr. James Sai-Wing Wong
61.93%
0.09%
44.33%
Chinney Investments, Limited
（建業實業有限公司） 1.63%
29.10% (Hong Kong)
Chinney Alliance
Group Limited 68.09%
（建聯集團有限公司 [] ）
(Bermuda)
Hon Kwok Land Investment
Company, Limited
（漢國置業有限公司）
(Hong Kong)
100.00%
100.00%
Chinney Construction Gold Famous
Company, Limited Development Limited
（建業建築有限公司）（金譽發展有限公司）
(Hong Kong) (Hong Kong)
----- End of picture text -----*

for identification purpose only

Notes:

1. represents indirect shareholding interests 2. represents direct shareholding interests

3. The percentages are subject to rounding

Accordingly, the entering into of the Framework Agreement constitutes a connected transaction for each of the Companies under the Listing Rules.

On 12 June 2018, the Employer entered into the Consultancy Agreement with Shun Cheong Data Centre Solutions relating to the provision of consultancy services for the Project, details of which are set out in the joint announcement of the Companies dated 12 June 2018. Having considered that (a) the Agreements were both entered into between subsidiaries of Hon Kwok and the Company; (b) the Agreements were entered into within a period of 12 months up to the date of the joint announcement of the Companies dated 12 July 2018; and (c) the

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LETTER FROM THE BOARD

respective transactions contemplated under the Agreements are both related to the Project, the Directors consider that the transactions under the Agreements should be aggregated for the purpose of determining the relevant requirements applicable to the Framework Agreement pursuant to Rule 14A.81 and Rule 14A.82 of the Listing Rules.

As the applicable percentage ratios of the Proposed CT, on both stand-alone and the basis when aggregated with the Consultancy Agreement, are more than 5% and the Total Contract Sum is more than HK$10 million, the Proposed CT constitutes a non-exempt connected transaction under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

SGM

The SGM will be convened and held at Full Moon Shanghai Restaurant, Macau Jockey Club, 3rd Floor, East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong on Friday, 24 August 2018 at 2:30 p.m. to consider and, if thought fit, to approve the Proposed CT. A notice convening the SGM is set out on pages 43 to 44 of this circular.

As at the Latest Practicable Date, Dr. James Sai-Wing Wong together with his associates will be required to abstain from voting on the Resolution. Dr. James Sai-Wing Wong is currently indirectly holding 436,860,216 shares of the Company, representing approximately 73.43% of the issued shares of the Company. Save as aforementioned, to the best of the knowledge, information and belief of the Directors and having made all reasonable enquiry, no other Shareholder has a material interest in the Proposed CT and therefore no other Shareholder is required to abstain from voting at the SGM.

For the purpose of determining the entitlement to attend and vote at the SGM to be held on Friday, 24 August 2018 (and at any adjournment thereof), the register of members of the Company will be closed from Tuesday, 21 August 2018 to Friday, 24 August 2018 (both days inclusive), during which period no share transfers will be registered. In order to be eligible to attend and vote at the SGM, all transfer forms accompanied by relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, no later than 4:30 p.m. on Monday, 20 August 2018.

There is a form of proxy for use at the SGM accompanying this circular. If you are not able to attend the SGM and any adjournment thereof, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible, but in any event no later than 2:30 p.m. on Wednesday, 22 August 2018, being not less than 48 hours before the time fixed for the SGM and any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM and at any adjournment thereof should you so wish.

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LETTER FROM THE BOARD

In accordance with Rule 13.39(4) of the Listing Rules, all the resolutions proposed at the SGM will be voted on by way of poll except where the chairman of the SGM, in good faith, decide to allow a resolution which relates purely to procedural or administrative matter to be voted on by a show of hands. The chairman of the SGM will at the meeting demand, pursuant to bye-law 66(a) of the bye-laws of the Company, voting by way of poll on the Resolution. On a poll, subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the bye-laws of the Company, every Shareholder present in person (or being a corporation, is present by a representative duly authorised), or by proxy shall have one vote for every fully paid share of which he/she is the holder. The Company will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising all the independent non-executive Directors has been established to advise the Independent Shareholders in respect of the Proposed CT.

INDEPENDENT FINANCIAL ADVISER

Veda Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed CT. The appointment of Veda Capital as the Independent Financial Adviser has been approved by the Independent Board Committee.

RECOMMENDATION

The Independent Board Committee, having considered the advice from Veda Capital, considers that the Proposed CT is in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole and the terms of the Framework Agreement are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the Resolution to be proposed at the SGM to approve the Proposed CT.

The Directors (including the independent non-executive Directors after taking into account the advice from Veda Capital) consider that the terms of the Framework Agreement are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is drawn to (a) the “Letter from the Independent Board Committee” set out on page 20 of this circular, which contains its recommendation to the Independent Shareholders; (b) the “Letter from the Independent Financial Adviser” set out on pages 21 to 37 of this circular, which contains its advice and recommendation to the Independent Board Committee and the Independent Shareholders; and (c) the additional information set out in the appendix to this circular.

Yours faithfully, By Order of the Board Yuen-Keung Chan

Vice Chairman and Managing Director

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Stock Code: 385)

8 August 2018

To the Independent Shareholders

Dear Sir/Madam,

CONNECTED TRANSACTION IN RELATION TO CONSTRUCTION WORKS

We refer to the circular issued by the Company to the Shareholders dated 8 August 2018 (the “ Circular ”), of which this letter forms part. Capitalised terms defined in the Circular have the same meanings when used herein unless the context otherwise requires.

We have been appointed by the Board as members of the Independent Board Committee to advise the Independent Shareholders on the terms of the Proposed CT. Veda Capital has been appointed as the Independent Financial Adviser to advise us and the Independent Shareholders in this respect.

We wish to draw your attention to the “Letter from the Board” set out on pages 7 to 19 of the Circular and the “Letter from the Independent Financial Adviser” to us and the Independent Shareholders set out on pages 21 to 37 of the Circular.

Having considered the terms of the Proposed CT, and taking into account the advice of Veda Capital, in particular the principal factors, reasons and advice as set out in its letter, we consider that the entering into of the Framework Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole, the terms of the Framework Agreement are on normal commercial terms and in the ordinary and usual course of business of the Group and are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the Resolution to be proposed at the SGM to approve the Proposed CT.

Yours faithfully,

For and on behalf of the Independent Board Committee Mr. Yuen-Tin Ng Mr. Chi-Chiu Wu Mr. Ronald James Blake Independent non-executive Directors

for identification purpose only

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter from Veda Capital Limited setting out the advice to the Independent Board Committee and the Independent Shareholders of Chinney Alliance Group Limited in respect of the Proposed CT, which has been prepared for the purpose of inclusion in this Circular.

==> picture [108 x 46] intentionally omitted <==

Room 1106, 11/F. Wing On Centre 111 Connaught Road Central Hong Kong

8 August 2018

To the Independent Board Committee and the Independent Shareholders of Chinney Alliance Group Limited

Dear Sir/Madam,

CONNECTED TRANSACTION IN RELATION TO CONSTRUCTION WORKS

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 Proposed CT. Details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular of the Company dated 8 August 2018 (the “ Circular ”) of which this letter forms part. Terms used in this letter have the same meanings as defined elsewhere in the Circular unless the context requires otherwise.

On 12 July 2018 (after trading hours), the Contractor and the Employer entered into the Framework Agreement, pursuant to which the Employer conditionally agreed to engage the Contractor, and the Contractor conditionally agreed to act as the main contractor to carry out the Construction Works for the Project at the Tender Sum of HK$724,838,691.70, subject to a potential Provisional Sum not exceeding HK$33,000,000.00.

Reference is also made to the joint announcement of the Company, Chinney Investments and Hon Kwok dated 12 June 2018 (the “ Consultancy Joint Announcement ”) in relation to the Consultancy Agreement and the transactions contemplated thereunder, the Employer and Shun Cheong Data Centre Solutions, an indirect wholly-owned subsidiary of the Company, entered into the Consultancy Agreement, pursuant to which Shun Cheong Data Centre Solutions was appointed by the Employer as the consultant to provide consultancy services in respect of the construction and development of the Project for a fixed fee of HK$16,200,000.00.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As set out in the Board Letter, as at the Latest Practicable Date, the Employer is an indirect wholly-owned subsidiary of Hon Kwok and an indirect non wholly-owned subsidiary of Chinney Investments, and the Contractor is an indirect wholly-owned subsidiary of the Company. Chinney Investments is interested in approximately 68.09% and 29.10% of the issued shares of Hon Kwok and the Company respectively. Dr. James Sai-Wing Wong is the chairman and executive director of Chinney Investments, Hon Kwok and the Company and is beneficially interested in (a) approximately 62.02% of the issued shares of Chinney Investments; (b) approximately 69.72% of the issued shares of Hon Kwok (including those interests held through Chinney Investments); and (c) approximately 73.43% of the issued shares of the Company (including those interests held through Chinney Investments). Thus, Chinney Investments, Hon Kwok and the Company are connected persons to one another within the meaning of the Listing Rules.

The entering into of the Framework Agreement constitutes a connected transaction for each of the Companies under the Listing Rules. As disclosed in the Consultancy Joint Announcement, the entering into of the Consultancy Agreement also constituted a connected transaction for each of the Companies under the Listing Rules. Pursuant to Rules 14A.81 and 14A.82 of the Listing Rules, the Agreements shall be aggregated as a series of transactions as they were entered into within a 12-month period and involved parties which are connected with one another among the Companies. As the applicable percentage ratios of the Proposed CT, on both stand-alone and the basis when aggregated with the Consultancy Agreement, are more than 5% and the Total Contract Sum is more than HK$10 million, the Proposed CT constitutes a non-exempt connected transaction under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Dr. James Sai-Wing Wong, who is an executive Director and the chairman of the Company and also the executive directors of Hon Kwok and Chinney Investments, and having a material interest in the Proposed CT, has abstained from voting on the board resolution passed on 12 July 2018 for approving the Proposed CT. Mr. James Sing-Wai Wong, being the son of Dr. James Sai-Wing Wong, has also abstained from voting voluntarily on the board resolution on the ground of good corporate governance. Saved as disclosed above, none of the other Directors has a material interest in the Proposed CT or was required to abstain from voting on such board resolution.

Save for (i) Dr. James Sai-Wing Wong and any of his associates; and (ii) those who have a material interest in the Framework Agreement and/or the Consultancy Agreement, to the best of the Directors’ knowledge, none of the Shareholders is required to abstain from voting on the Resolution regarding the entering into of the Framework Agreement at the SGM.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising the independent non-executive Directors, namely Mr. Yuen-Tin Ng, Mr. Chi-Chiu Wu and Mr. Ronald James Blake, has been established to advise the Independent Shareholders on whether (i) the terms of the Framework Agreement are fair and reasonable; (ii) the Framework Agreement is on normal commercial terms and in the ordinary and usual course of business of the Group; (iii) the Framework Agreement is in the interests of the Group and the Shareholders as a whole; and (iv) the Independent Shareholders should vote in favour of the Resolution approving the Framework Agreement to be proposed at the SGM so far as the Independent Shareholders are concerned. In this regard, we, Veda Capital, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on this matter.

OUR INDEPENDENCE

During the past two years, we have been engaged as an independent financial adviser to Hon Kwok as stated in Hon Kwok’s circular dated 21 October 2016. We have reviewed our independence and are satisfied with it that it is in compliance with the requirements as set out in the Listing Rules. In addition, apart from the aforementioned previous engagement, we do not have any relationship with the Company and/or its connected parties. The professional fees for the previous engagement and the engagement for Proposed CT do not represent a substantial portion of the revenue of Veda Capital, hence, we are of the view that the previous engagement does not affect our independence and views to the Proposed CT. Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial Adviser in relation to the Proposed CT, no arrangements exist whereby we had received or will receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, we consider that we are independent pursuant to Rule 13.84 of the Listing Rules.

BASIS AND ASSUMPTIONS OF OUR OPINION

In formulating our opinion and advice, we have relied upon accuracy of the information and representations contained in the Circular and information provided to us by the Company, the Directors and the management of the Group. We have assumed that all statements, information and representations made or referred to in the Circular and all information and representations which have been provided by the Company, the Directors and the management of the Group, for which they are solely and wholly responsible, were true at the time they were made and continue to be true as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due and careful enquiry and were based on honestly-held opinions. The Shareholders will be notified of material changes as soon as practicable, if any, to the information and representations provided and made to us after the Latest Practicable Date and up to and including the date of the SGM.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries that, to the best of their knowledge and belief, there are no other facts the omission of which would make any statements in the Circular misleading. We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have not, however, conducted any independent in-depth investigation into the business affairs, financial position or prospects of the Group, nor have we carried out any independent verification of the information provided by the Directors and the management of the Company.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. However, we have not, carried out any independent verification of the information provided by the Directors and the management of the Group, nor have conducted any independent investigation into the business, financial conditions and affairs of the Company or its future prospects.

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

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

(i) Information on the Parties

Background of the Contractor, the Company and the Group

The Contractor is a company incorporated in Hong Kong with limited liability, and an indirect wholly-owned subsidiary of the Company, which is a general building contractor and principally engaged in provision of building construction works and services to the public and private sectors in Hong Kong.

The Company is incorporated in Bermuda with limited liability. The Group is mainly engaged in (i) trading of plastics and chemical products; (ii) provision of building related contracting services; (iii) provision of foundation piling works and sub-structure works; (iv) provision of construction works.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Background of the Employer, Chinney Investments and Hon Kwok

The Employer, a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of Hon Kwok and an indirect non wholly-owned subsidiary of Chinney Investments, is the owner and developer of the Project and is principally engaged in property development business in Hong Kong.

(ii) Reasons for and benefits of the Proposed CT

As mentioned in the Board Letter, the principal activities of Hon Kwok Group are property development and investment. From time to time, Hon Kwok Group engages contractors for construction works of its property development projects. The land site of the Project, which was acquired by Hon Kwok Group through government public tender in Hong Kong in 2015, is planned to be developed as a data centre for recurrent rental income. The management of Hon Kwok considers that it is in the best interest of Hon Kwok and its shareholders as a whole to engage a technically competent contractor at a competitive price to carry out the Construction Works.

In accordance with the annual report of the Company for the year ended 31 December 2017, the majority of revenues came from the construction activities including building related contracting services and building construction, and the revenue of which accounted for approximately 68.40% and approximately 57.71% of total revenue of the Group for the year ended 31 December 2017 and 2016 respectively. Given the Company’s well-established reputation in the building construction and building related contracting services industry, together with the talented and highly motivated staff led by a group of committed executives, the management of the Group has confidence on the expansion of the business and client base under the existing challenging environment. The management of the Group thereby considers that the submission of the tender and the acceptance of it (if being awarded) relating to the Construction Works are within its normal course of business.

In addition, we noted from the management of the Group that Dr. James Sai-Wing Wong, being a controlling shareholder of each of the Companies, will abstain from voting at the special or extraordinary general meeting of each of the Companies in respect of the Proposed CT. Hon Kwok and the Company are run by separate board of directors. Should the Proposed CT receive approval from the independent shareholders of the respective Companies, Dr. James Sai-Wing Wong as the chairman of the Companies has fiduciary duties as a director to ensure

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

that the relevant parties shall work in the interest of the shareholders of their respective Companies with regard to the timely completion of the Construction Works in a quality manner and within the approved Total Contract Sum. As such, the well-being for the Companies can be achieved.

Moreover, the relationship among the Companies can be traced back to 1985. Hon Kwok was acquired by Chinney Investments in 1985 and has been the flagship of the Chinney Investments Group undertaking property development and investment activities in Hong Kong and the PRC. The Company was acquired by Chinney Investments in 1998 and is now an associate of Chinney Investments focusing on construction businesses in Hong Kong and Macau. The Contractor, founded in 1975, was a subsidiary of Chinney Investments prior to its disposal to the Company in 2007.

As further understood from the management of the Group, the Group has been engaging in construction works in Hong Kong and Macau through its respective subsidiaries, including the Contractor, Kin Wing Foundations Limited (建榮地基有限公司) and Kin Wing Engineering Company Limited (建榮工程有限公司). The Contractor commenced building construction business since its establishment in 1975, while Kin Wing Engineering Company Limited (建榮工程有限公司) and Kin Wing Foundations Limited (建榮地基有限公司), which are both engaged in foundation construction business, were established in 1994 and 1995, respectively. Given abovementioned, the Directors believe that the long relationship amongst the Companies would enhance work efficiency and effective communications amongst Parties and the joint efforts of the Parties would provide more comprehensive and coordinated services in relation to the Proposed CT.

Given the abovementioned and with reference to the joint announcement of the Company, Chinney Investments and Hon Kwok dated 12 July 2018, we understood that both the Employer and the Contractor are under the control of Dr. James Sai-Wing Wong and the relationship amongst the Companies has been established for long time, hence we concur with the Director’s view that the long established relationship amongst the Companies will enhance work efficiency and effective communication and provide more comprehensive and coordinated services for the Proposed CT.

As stated in the Board Letter, the Employer conditionally engaged and the Contractor conditionally agreed to carry out the Construction Works for the Project for the Tender Sum (and subject to the potential Provisional Sum) on the terms and subject to the Conditions Precedent to the Framework Agreement and the terms and conditions as contained in the Contract Documents. The period of the Construction Works is estimated to be approximately 465 calendar days. We have obtained and reviewed the Framework Agreement from the management of the Group, and agreed with the management and are of the view that the conditional acceptance by the Contractor to act as the main contractor to carry out the Construction Works represents activities within the ordinary and usual course of business of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As the Tender Sum offered to the Employer was determined based on the estimated project costs (including machinery usage costs, direct labour costs, subcontracting charges and construction materials costs etc.) by reference to the prevailing market rates, and were comparable to those offered to other independent third parties for similar Construction Works, the Directors (including the independent non-executive Directors whose views have been set out in the Letter from the Independent Board Committee) consider that the terms of the Framework Agreement are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole. We have performed our independent analysis regarding the Tender Sum and the Total Contract Sum, details of which have been set out in the sub-section headed “Analysis on the basis of Total Contract Sum” below. We therefore concur with the management of the Group and are of the view that the Tender Sum offered by the Contractor to the Employer is comparable to those offered to other independent third parties for similar Construction Works.

Having considered (i) the conditional acceptance by the Contractor to carry out the Construction Works represents activities within the ordinary and usual course of business of the Group; (ii) the joint efforts of the Contractor and the Employer would provide more comprehensive and coordinated services in relation to the Construction Works; (iii) the long established relationship among the Contractor and the Employer will enhance work efficiency and effective communication; (iv) the Tender Sum offered by the Contractor to the Employer was comparable to those offered to other independent third parties for similar Construction Works; and (v) the terms of the Framework Agreement are on normal commercial terms, we concur with the Directors’ view that the entering into of the Framework Agreement regarding the Construction Works is in the interests of the Company and the Independent Shareholders as a whole.

(iii) The Framework Agreement

A summary of the principal terms of the Framework Agreement is set out below:

Date: 12 July 2018 (after trading hours)

Parties: (i) the Contractor

Chinney Construction Company, Limited, an indirect whollyowned subsidiary of the Company, is a general building contractor and is principally engaged in the provision of building construction works and services to the public and private sectors in Hong Kong.

(ii) the Employer

Gold Famous Development Limited, a company incorporated under the laws of Hong Kong with limited liability, is an indirect wholly-owned subsidiary of Hon Kwok and an indirect non wholly-owned subsidiary of Chinney Investments.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Construction Works:

Pursuant to the Framework Agreement, the Employer conditionally engaged the Contractor and the Contractor conditionally agreed to act as the main contractor to carry out the Construction Works for the Project at the Tender Sum (and subject to the potential Provisional Sum) on the terms and subject to the Conditions Precedent to the Framework Agreement, and the terms and conditions as contained in the Contract Documents. The period of the Construction Works is estimated to be approximately 465 calendar days.

According to the Board Letter, we noted that the Construction Works principally involve the construction of data centre and the provision of ancillary building services relating to the Project, including but not limited to:

(a) take over, alter, modify and maintain the existing hoarding, covered walkway, fences, gantry, piling, temporary shoring system for excavation and lateral support works and the like, as required;
(b) carry out building works and finishes including but not limited to plastering and tiling, roofing system, waterproofing, windows, louvres, metal grilles, doors, ironmongery, fixtures, fittings, sundries and all builder’s works in connections with building services installations;
(c) design, supply, submission, installation and preparation of shop drawings for windows, curtain wall, aluminium cladding and louvres works, external false ceiling, gondola installation, etc.;
(d) all associated plumbing, drainage and underground drainage works and external works including lard landscaping, ducts and pits, connections to the public service mains and services diversions within and outside the site boundary;
(e) reinstatement of all excavation, adjacent land, pavement and roads, and the construction of run-in/out and road widening works including application of all excavation permits;
(f) preparation and submission of the necessary records, plans, reports in accordance with relevant laws and regulations to the satisfaction of the Architect and relevant government departments;
(g) attendance on and co-ordination with various sub-contractors, separate contractors, specialist contractors, government departments;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(h) locate, lower or divert as necessary and maintain all existing utilities services and arrange with government departments and public utilities undertakings for disconnection, diversion and/or sealing of all encountered utilities without affecting adjoining building’s services;
(i) carry out all necessary works including construction, alteration and maintenance of all permanent and temporary works and measures necessary to obtain the occupation permit; and
(j) any other works as instructed by the Architect to satisfy the requirements of relevant government departments.

Total Contract Sum and terms of payment

As stated in the Board Letter, the Contractor was selected through a tendering process in which three companies (as tenderers) had submitted tenders to the Quantity Surveyor and the Architect. Both the Quantity Surveyor and the Architect are independent third parties and have been engaged by the Employer to examine and assess the merits of the tenders received, including tender prices and other factors relating to the three tenderers, such as the number of projects which the tenderers have completed, their experiences of building contracts with similar nature, project scale and complexity, the competences of their technical staff and the quality of technical proposals submitted by the tenderers. Based on above factors, each tenderer was scored by the Architect and the Quantity Surveyor, and the Contractor was ranked the highest score amongst the three tenderers. Therefore, the Quantity Surveyor recommended to award the tender to the Contractor.

As referred to the Board Letter, we noted that, in determining the prevailing market rates relating to the Total Contract Sum, the Employer has engaged the Quantity Surveyor to preliminarily assess the contract value of the Construction Works and carried out a competitive tendering procedure. Seven contractors, including the Contractor and six independent third parties, were invited for submission of tender for the Construction Works. Out of the three tenders received by the Employer, the Tender Sum offered by the Contractor represented the second lowest bid as compared to the other two tenderers. Each of the tender sums submitted by all three tenders was less than the amount estimated by the Quantity Surveyor. The difference between the highest bid and the lowest bid was within 3% whereas the difference between the second lowest bid and the lowest bid was 0.5%. In accordance with the market practice, the Quantity Surveyor also sent tender questionnaires and conducted tender interview with each of the tenderers in the presence of the Architect and the Employer to ascertain the methodology and the completeness and sufficiency of each of the tender submissions. Based on the report from the Quantity Surveyor and its recommendation therein, the Employer believes that the Total Contract Sum is in line with the prevailing market rate for the Construction Works.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We further noted from the Board Letter, as to the Contractor, the Tender Sum of HK$724,838,691.70 offered by the Contractor to the Employer was determined based on the estimated project costs (including machinery usage costs, direct labour costs, subcontracting charges and construction materials costs etc.) by reference to the prevailing market rates, and were comparable to those offered to other independent third parties for similar Construction Works. The Employer intends to apply to the government departments for exempting an area of approximately 1,200 square meters as nonaccountable gross floor area under the original building plans of the Project. In the event that such application is approved, the floor area of the building to be constructed would be increased and it was estimated by the Quantity Surveyor that the Tender Sum would be increased by the potential Provisional Sum which is capped at HK$33,000,000.00 under the Framework Agreement. Accordingly, the Total Contract Sum, representing the Tender Sum plus the potential Provisional Sum of the Construction Works under the Framework Agreement, will not be exceeding HK$757,838,691.70.

Tendering Process Procedure

The Contractor has established a set of work procedure of tendering to determine appropriate price for construction works (the “ Tendering Process Procedure ”) in order to ensure proper compliance with the pricing procedures. We have obtained the Tendering Process Procedure from the management of the Group. As per our discussion with the Contractor, the quotations offered by the Contractor vary from projects but the Contractor would follow the general guidelines as set out in the pricing policies of Tendering Process Procedure. Therefore, we have reviewed the documents setting out the Tendering Process Procedure in determining appropriate price for construction works through the various business departments of the Contractor.

As we noted from the Tendering Process Procedure, when the Contractor receives an invitation to tender, a secretary or clerk (the “ SEC ”) will assign a tender number and will register the tender documents such as drawings, specification, contract particulars and all addenda. Upon the tender documents are well prepared, the managing director of the Contractor (the “ MD ”) will decide whether to tender the project in the weekly tender review meeting.

The outline of tender work procedure is as follows: (a) a number of standard tasks will be completed by in-house quantity surveyor of the Contractor for each tender and reported to commercial manager or contract manager of the Contractor (the “ CM ”); (b) CM will review tender documents and relevant information of the tender to ensure there is no ambiguous, contracting or outstanding tender information to be resolved by clients; (c) when the required information for tender documents are prepared, CM will check the sufficiency of such information for tender pricing and tender submission; (d) a tender cost

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estimate will be prepared by senior estimator based on quotations obtained from independent subcontractors for the principle materials of relevant construction works identified by the in-house quantity surveyor, such as concrete, rebar, formwork and curtain wall; (e) CM will counter-check the estimation of draft tender cost to ensure that the unit rates of all principle items applied for calculating the estimated project costs are not lower that the unit rates obtained from the quotations of independent subcontractors; (f) upon tender cost estimated being checked by CM, the final tender sum and tender qualifications will be approved by MD; (g) a technical submission, which is required for tender submission, will be prepared by project manager of the Contractor and further checked by CM; and (h) when tender price and tender submission are reviewed and finalised by CM, SEC will submit the tender documents accordingly.

As advised by the management of the Group, the principle items for the Construction Works were identified by the in-house quantity surveyor of the Contractor with reference to the specifications of the Project as contained in the Employer’s tender documents and Building Contract Standard (as defined below). Given that the principle items (i.e. concrete, rebar and formwork) for the Construction Works (i) are common materials and work processes involved in most building construction works in Hong Kong; (ii) were specified in the tender documents provided by the Employer which includes all construction plans and drawings for the Project; and (iii) Building Contract Standard (as defined below) is a normal and common standard adopted by the market, the Directors believe that the principle items for the Construction Works are representative for estimating the project cost for the Construction Works (the “ Estimated Cost ”) and are satisfied that the basis of determination of the Tender Sum is equivalent to other projects with independent third parties. In addition, we are also given to understand that the Tendering Process Procedure is also the standard procedure under the internal control measures adopted by the Contractor for tendering of other projects with independent third parties. Given abovementioned, we concur with the management of the Group that the Contractor has set up a clear and hierarchical assignment of authority and responsibility as well as proper internal measures and controls that are in place to ensure the pricing policies to be followed with proper approvals before offering to potential employers, including but not limited to the Employer, and hence we are of the view that the determination of the Estimated Cost is aligned with the pricing standards of the Contractor for projects with independent third parties.

We understood from the management of the Group that, after receiving a tender invitation from the Employer and prior to determining the Tender Sum, the Contractor had assigned principle items for the Construction Works to at least two independent suppliers/subcontractors as reference to the Estimated Cost. For our due diligence purpose, we have obtained a list of price quotations from independent suppliers/subcontractors for the principle items of the Construction Works and a list of unit rates of principle items offered by the Contractor to the Employer, and noted that unit rates offered by the Contractor to the Employer are not lower than the unit rates under the price quotations from the independent suppliers/subcontractors. We understood that majority of unit rates of the principle items offered by the Contractor to the Employer represent premium to the unit rates offered by independent suppliers/subcontractors to the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Contractor. In this regard, we had accordingly enquired with the management of the Group and were advised that such premium was determined in line with pricing standards under the Tendering Process Procedure after taken into account of other factors, including but not limited to the complexity, the estimated amount of time and materials required to be involved for the Construction Works. Therefore, we concur with the management’s view that the determination of the Estimated Cost is arrived at with reference to the prevailing market prices of the principle items of the Construction Works and also aligned with the pricing standards of the Contractor.

Analysis on the basis of Total Contract Sum

In order to assess the fairness and reasonableness of the Total Contract Sum and terms of payment of the Framework Agreement, we have obtained (i) a comparison list of gross margin of each of the Sample Projects (as defined below) and the estimated gross margin of the Tender Sum under the Framework Agreement (the “ Estimated GM ”); (ii) the detailed breakdown of the Tender Sum; and (iii) the internal control procedures of the Contractor to monitor progress of the Construction Works.

The Tender Sum was determined based on gross margin for the Project which is considered by the Contractor as a good benchmark to evaluate the profitability of each project. Gross profit assesses a company’s efficiency at using its labour and supplies, the metric of which only considers variable costs, that is, costs that fluctuate with the level of output, such as materials and direct labour. We concur with the Contractor’s view and we have reviewed the comparison list of gross margins of projects (the “ Sample Projects ”) which are (i) in similar work nature of the Construction Works; (ii) with tender sums over HK$200 million, together with their contract costs and profits; (iii) entered into between the Contractor and other independent third parties; and (iv) completed in the period from 2016 to 2018, and compared them with the Estimated GM. Under above selection criteria, a comparison list of 9 Sample Projects were identified. We are of the view that the above selection criteria and the Sample Projects are fair and representative.

In addition, we noted that the Contractor has offered different quotations based on the contractual terms of construction works to be performed for the Sample Projects. Regarding the determination of contractual terms (including the payment terms), we understood from the management of the Group that such terms were determined in accordance with “Agreement & Schedule of Conditions of Building Contract for use in the Hong Kong Special Administrative Region” (“ Building Contract Standard ”), jointly issued and adopted by The Hong Kong Institute of Architects, The Hong Kong Institute of Surveyors and The Hong Kong Institute of Construction Managers, which is a general standard for the Contractor to determine contractual terms for different projects. As further advised by the management of the Group, 6 out of 9 Sample Projects followed Building Contract Standard while the remaining 3 Sample Projects, which were engaged by a governmental authority, adopted the government’s standard to conclude the terms of construction works. We have also reviewed the terms of those Sample Projects and are not

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

aware of any terms which are uncommon to normal market practices and Building Contract Standard, and hence, we are of the view that the Sample Projects are comparable to the Project and the contractual terms of the Project are comparable to those of the Sample Projects.

As per our discussion with the management of the Group, we understand that it is difficult and impracticable to directly compare the tender sums, terms of payment and other terms of each Sample Projects to those of the Project since each project varies from each other in respect of (i) the size of the construction site; (ii) landscape and geological condition of the construction site; (iii) complexity and difficulty of work to be performed; and (iv) amount of resources to be devoted into the project. As the financial information of each project is considered highly confidential to the Contractor, we have illustrated the summary of the information on an anonymous basis to safeguard the interest of the Contractor as follows:

	Estimated
Project	gross margin
	(%)
Project 1	2.19
Project 2	2.27
Project 3	2.17
Project 4	2.66
Project 5	1.74
Project 6	1.66
Project 7	1.92
Project 8	3.21
Project 9	1.51
Average	2.14
Maximum	3.21
Minimum	1.51
Framework Agreement	3.45

As illustrated above, we noted the estimated gross margins of the Sample Projects range from approximately 1.51% to 3.21% (the “ Estimated GM Range ”) with an average of approximately 2.14% (the “ Average Estimated GM ”). The Estimated GM, which is approximately 3.45%, is above the Average Estimated GM of the Sample Projects and is even higher than the maximum of the Estimated GM Range of 3.21%, representing the gross profit margin of the Project will be higher than those of the Sample Projects to the independent third parties, hence, we are of the view that the Tender Sum is no less favourable than those charged to the aforesaid independent third parties under the Sample Projects.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Moreover, we have obtained and reviewed a breakdown of the Tender Sum from the management of the Group. We understood that the construction works of data centre and the provision of ancillary building services relating to the Project involve enormous factors and items, which influence the Tender Sum, such as (i) the size of the construction site; (ii) landscape and geological condition of the construction site; and (iii) complexity and difficulty of work to be performed. However, for our due diligence purpose, we selected those elemental material costs composing the Tender Sum to serve as an indicator for comparison with other projects entered into with independent third parties.

As we noted in the breakdown of the Tender Sum and were advised by the management of the Group, there are several elemental material costs to the Construction Works which accounts for approximately 43.18% of the Tender Sum. These elemental materials include concrete, rebar, curtain wall and cladding works, and formwork. We have then obtained a summary list of 5 comparable projects (the “ Critical Elements Comparables ”) setting out their respective costs of concrete, rebar, curtain wall and cladding works, and formwork which are the elemental materials costs to the Tender Sum. These Critical Elements Comparables were selected based on (i) the critical elements to be used are comparable to the Project; and (ii) the completion of the comparable projects are expected to be 2018 and 2019 for the purpose to demonstrate the prevailing market practice and to serve as a reference in assessing the fairness and reasonableness of Critical Elements Costs (as defined below). Under above selection criteria, we are of the view that the Critical Elements Comparables are fair and representative to the Critical Elements Costs. We noted that the average unit cost of concrete, formwork, rebar and curtain wall and cladding works of the Project are from approximately HK$1,910.50 per cubic meter, HK$663.00 per square meter, HK$16.41 per kilogram and HK$5,680.00 per square meter respectively (collectively, the “ Critical Elements Costs ”). As financial information of each project is considered highly confidential to the Contractor, we have illustrated the summary of the information on an anonymous basis to safeguard the interest of the Contractor as follows:

				Curtain
				wall/glass
Comparable project	Concrete	Formwork	Rebar	clapping
	(per cubic	(per square	(per	(per square
	meter)	meter)	kilogram)	meter)
Project A	1,513	442	8.45	–
Project B	1,210	377	7.55	–
Project C	1,588	415	8.42	4,700
Project D	1,418	582	9.18	4,050
Project E	2,380	562	11.00	10,707
Maximum	2,380	582	11.00	10,707
Minimum	1,210	377	7.55	4,050
Average	1,621.73	475.60	8.92	6,485.67
Project	1,910.50	663	16.41	5,680

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated above, we noted the unit costs of each of the Critical Elements Comparables range from (i) approximately HK$1,210 per cubic meter to approximately HK$2,380 per cubic meter for concrete; (ii) approximately HK$377 per square meter to approximately HK$582 per square meter for formwork; (iii) approximately HK$7.55 per kilogram to approximately HK$11.00 per kilogram for the rebar; and (iv) approximately HK$4,050 per square meter to approximately HK$10,707 per square meter for curtain wall and cladding works. The Critical Elements Costs of the Project of concrete, formwork and rebar are HK$1,910.50 per cubic meter, HK$663.00 per square meter and HK$16.41 per kilogram respectively, which are above the average cost of concrete of approximately HK$1,621.73 per cubic meter, formwork of approximately HK$475.60 per square meter and rebar of the Project of approximately HK$8.92 per kilogram of Critical Elements Comparables and the average cost of curtain wall and cladding works of the Project are within the range of Critical Elements Comparables. Although the range of unit rate of curtain wall and cladding works is wide, we understand from the management of the Company that the wide range of unit rate of curtain wall and glass clapping was mainly due to (i) the complexity and difficulty of the works to be performed; and (ii) the amount and availability of resources required to be devoted into the project. As further shown in above table, we noted that (a) the unit rate for concrete for the Construction Works is above the average of the Critical Elements Comparables; and (b) respective unit rate for formwork and rebar for the Construction Works is above the range of the Critical Elements Comparables, and were advised by the management of the Company that (i) the higher unit rate for concrete for the Construction Works as compared to the average of Critical Elements Comparables was mainly due to the tight schedule for the Construction Works; and (ii) the higher unit rates for formwork and rebar for the Construction Works were mainly due to the tight schedule for the Construction Works and the complexity and difficulty of the works to be performed, and that the material price of rebar in the market had been increased substantially at the time when the tender for the Construction Works was submitted, which was beyond the control of Company. In such, we understood that costs of construction work may vary substantially between each project. The comparison between the Critical Elements Comparables and Critical Elements Costs serves as a reference in assessing the fairness and reasonableness of Critical Elements Costs. We consider the Critical Elements Costs under the Framework Agreement are comparable to the Critical Elements Comparables, which the Critical Elements Costs (under the Estimated Cost) are in line with the Contractor’s pricing standards (details of which have been set out in the sub-section headed “Tendering Process Procedure” above) and are no less favorable to the Group, and hence we believe the Critical Elements Costs are fair and reasonable.

Taking into account of (i) the determination of the Estimated Cost is in line with the Contractor’s pricing standards; (ii) the Estimated GM lies above the Average Estimated GM and is even higher than the maximum of the Estimated GM Range, representing the Tender Sum is no less favourable than those charged to the independent third parties under the Sample Projects; and (iii) the Critical Elements Costs are comparable to the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Critical Elements Comparables, and the Critical Element Costs (under the Estimated Cost) are in line with the Contractor’s pricing standards and are no less favorable to the Group, we are of the view that the Tender Sum under the Framework Agreement is fair and reasonable.

As further referred to the Board Letter, the Employer intends to make an application to the government departments for exempting an area of approximately 1,200 square meters (the “ Additional Areas ”) as non-accountable gross floor area under the original building plans of the Project and once such application is granted, the Total Contract Sum, would be increased to HK$757,838,691.70, which is equivalent to the Tender Sum plus the potential Provisional Sum. Given that (i) the potential Provisional Sum is an estimated additional cost of Construction Works under the original building plans of the Project; (ii) the materials to be used for construction works of the Additional Areas is similar to materials to be used for remaining areas of the Project; and (iii) the potential Provisional Sum is determined by the Quantity Surveyor based on unit rates of all relevant materials offered by the Contractor, which are determined in line with the pricing standards of the Contractor and under the Tendering Process Procedure adopted by the Contractor to tender other contraction projects of independent third parties, we are of the view that the potential Provisional Sum is fair and reasonable and the Total Contract Sum is also fair and reasonable so far as the Independent Shareholders are concerned.

As for the terms of payment under the Framework Agreement, we were advised by the management of the Group that payment, which is to be effected in stages based on the progress of work properly carried out, is common market practice, and such payment terms are similar to those offered to independent third parties in relation to similar construction works. In this regard, we have also obtained and reviewed the payment terms of the Sample Projects and noted that the payment terms of the Sample Projects (except for the government projects) are comparable to the Framework Agreement. Hence, we believe the payment terms under the Framework Agreement is a common practice and no less favourable than those entered into with independent third parties. In addition, we were advised that the Contractor follows appropriate internal control procedures to monitor the progress of the Construction Works (the “ Internal Control Procedures ”), which is also adopted for the monitoring of other construction works entered into with independent third parties. Hence, we have obtained and reviewed the Internal Control Procedures.

As set out the Internal Control Procedures, we noted (i) the Contractor will submit master programme to the Architect for approval, (ii) following the approved schedule and time frame, project manager of the Contractor will review the actual progress of daily construction works, (iii) based on the actual progress, the master programme will be updated by the Contractor periodically, and (iv) the Contractor will discuss with the Architect to further review the progress if there is material delay in the progress. Given that (a) the Internal Control Procedures have been adopted for the monitoring of other construction works entered into with other independent third parties; and (b) the actual

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

progress of construction works would be continuously monitored and reviewed by the Contractor and, if necessary, the consultation team of the Employer such as the Architect, we believe Internal Control Procedures for the Construction Works is practicable and fair and reasonable.

In light of the above, we therefore consider the Tender Sum, the potential Provisional Sum, the Total Contract Sum and terms of payment offered by the Contractor to the Employer under the Framework Agreement are comparable to those offered to other independent third parties for similar Construction Works.

RECOMMENDATION

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

Yours Faithfully, For and on behalf of

Veda Capital Limited

Hans Wong Julisa Fong Chairman Managing Director

Note:

Mr. Hans Wong is a Responsible Officer under the SFO to engage in Type 6 (advising on corporate finance) regulated activity and has over 23 years of experience in investment banking and corporate finance.

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

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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. DISCLOSURE OF INTERESTS

Directors’ interests and short positions in the shares and underlying shares of the Company

As at the Latest Practicable Date, the interests and short positions of the Directors or 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) that 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 they were taken or deemed to have under such provisions of the SFO), or that were required, pursuant to Section 352 of the SFO, to be entered into the register referred to therein, or that were required, pursuant to the Model Code to be notified to the Company and the Stock Exchange, were as follows:

Long position in the ordinary Shares of the Company

		Number of	Percentage of
	Capacity and	ordinary shares	the Company’s
Name of director	nature of interest	held	issued shares
Dr. James	Through controlled	436,860,216	73.43
Sai-Wing Wong	corporations	Note

Note:

Amongst these 436,860,216 shares, 243,244,521 shares are held by Enhancement Investments Limited; 20,522,000 shares are held by Chinney Capital Limited; and 173,093,695 shares are held by Multi-Investment Group Limited, all of which Dr. James Sai-Wing Wong is a director and a controlling shareholder and has beneficial interests in.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors or the chief executives of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), 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 they are taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered into the register referred to therein, or which were required, pursuant to the Model Code to be notified to the Company and the Stock Exchange.

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GENERAL INFORMATION

APPENDIX

Substantial Shareholders’ and other persons’ interests and short positions in shares and underlying shares of the Company

As at the Latest Practicable Date and so far as is known to the Directors, the following persons had or were deemed or taken to have interests or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

Long positions in ordinary shares of the Company

			Number of	Percentage of	Percentage of
		Capacity and nature	ordinary shares	the Company’s
Name	Notes	of interest	held	issued shares
Dr. James Sai-Wing	1, 2, 3	Through controlled	436,860,216		73.43
Wong		corporations
Lucky Year Finance	1	Through a controlled	173,093,695		29.10
Limited		corporation
Chinney Holdings	1	Through a controlled	173,093,695		29.10
Limited		corporation
Chinney Investments	1	Through a controlled	173,093,695		29.10
		corporation
Newsworthy	1	Through a controlled	173,093,695		29.10
Resources Limited		corporation
Multi-Investment	1	Beneficial owner	173,093,695		29.10
Group Limited
Enhancement	2	Beneficial owner	243,244,521		40.89
Investments
Limited

Notes:

1. Dr. James Sai-Wing Wong, Lucky Year Finance Limited, Chinney Holdings Limited, Chinney Investments, Newsworthy Resources Limited and Multi-Investment Group Limited are deemed to be interested in the same parcel of the 173,093,695 shares by virtue of Section 316 of the SFO;

2. Enhancement Investments Limited is beneficially wholly-owned by Dr. James Sai-Wing Wong; and

3. 20,522,000 shares are held by Chinney Capital Limited, which is beneficially wholly-owned by Dr. James Sai-Wing Wong.

Save as disclosed above, as at the Latest Practicable Date, the Directors were not aware of any other persons (not being the Directors) who had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who was directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group, or in any options in respect of such capital.

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GENERAL INFORMATION

APPENDIX

3. DIRECTORS’ INTERESTS IN ASSETS AND CONTRACTS

The Company paid a management fee of HK$4,500,000.00 to Chinney Investments for the year ended 31 December 2017. The management fees were charged to the Company based on time involvement of the personnel of Chinney Investments providing administrative and general services. Dr. James Sai-Wing Wong, a director of the Company, is also a director of and has beneficial interests in Chinney Investments.

As announced on 12 June 2018, the Employer, an indirect wholly-own subsidiary of Hon Kwok and an indirect non wholly-owned subsidiary of Chinney Investments, and Shun Cheong Data Centre Solutions, an indirect wholly-owned subsidiary of the Company, entered into the Consultancy Agreement, pursuant to which Shun Cheong Data Centre Solutions was appointed by the Employer as a consultant to provide consultancy services for the Project at a fixed fee of HK$16,200,000.00. Dr. James Sai-Wing Wong, a director of the Company, is also a director of and has beneficial interests in Chinney Investments and Hon Kwok.

As at the Latest Practicable Date, the Employer is an indirect wholly-owned subsidiary of Hon Kwok and an indirect non wholly-owned subsidiary of Chinney Investments, and the Contractor and Shun Cheong Data Centre Solutions are indirect wholly-owned subsidiaries of the Company. Chinney Investments is interested in approximately 68.09% and 29.10% of the issued shares of Hon Kwok and the Company, respectively. Dr. James Sai-Wing Wong is the chairman and executive director of Chinney Investments, Hon Kwok and the Company and is beneficially interested in (a) approximately 62.02% of the issued shares of Chinney Investments; (b) approximately 69.72% of the issued shares of Hon Kwok (including those interests held through Chinney Investments); and (c) approximately 73.43% of the issued shares of the Company (including those interests held through Chinney Investments).

As far as the Directors are aware and, save as disclosed in this circular, as at the Latest Practicable Date:

(a) none of the Directors had, any material direct or indirect interest in any assets which had been, since 31 December 2017, being the date to which the latest published audited 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; and
(b) none of the Directors was materially interested in any contract or arrangement subsisting which is significant in relation to the business of the Group.

4. COMPETING INTERESTS OF DIRECTORS AND ASSOCIATES

As at the Latest Practicable Date, none of the Directors or their associates was interested in any business which competes or is likely to compete, either directly or indirectly, with the business of Group.

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GENERAL INFORMATION

APPENDIX

5. 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 (excluding contracts expiring or terminable by any member of the Group within one year without payment of compensation, other than statutory compensation).

6. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2017 (being the date to which the latest published audited financial statements of the Group were made up).

7. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given their opinions or advice which are contained in this circular:

Name Qualification

Veda Capital A corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the SFO

Andrew Lee King Fun & Registered Architect Associates Architects Limited (“Andrew LKF & Associates”)
Beria Consultants Limited Chartered Quantity Surveyor (“Beria Consultants”)
(a) As at the Latest Practicable Date, each of Veda Capital, Andrew LKF & Associates and Beria Consultants did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(b) As at the Latest Practicable Date, each of Veda Capital, Andrew LKF & Associates and Beria Consultants has given and has not withdrawn its written consent to the issue of this circular, with the inclusion of its letter or references to its name in the form and context in which they are included.
(c) As at the Latest Practicable Date, each of Veda Capital, Andrew LKF & Associates and Beria Consultants did not have any direct or indirect interest in any assets which have been, since 31 December 2017 (being the date to which the latest published

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GENERAL INFORMATION

APPENDIX

audited financial statements of the Group were made up), acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

8. MISCELLANEOUS

(a) The company secretary of the Company is Mr. Yun-Sang Lo, a fellow member of the Association of Chartered Certified Accountants and a member of the Hong Kong Institute of Certified Public Accountants.
(b) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(c) The English text of this circular and the accompanying form of proxy shall prevail over their respective Chinese text for the purpose of interpretation.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on a business day in Hong Kong at the principal place of business of the Company at 23rd Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong, for a period of 14 days from the date of this circular:

(a) the Framework Agreement;
(b) the Consultancy Agreement;
(c) the memorandum of association and bye-laws of the Company;
(d) the letter from the Board, the text of which is set out on pages 7 to 19 of this circular;
(e) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on page 20 of this circular;
(f) 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 21 and 37 of this circular;
(g) the written consents as referred to under the section headed “Experts and Consents” in this appendix; and
(h) this circular.

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NOTICE OF SGM

==> picture [302 x 41] intentionally omitted <==

(Stock Code: 385)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Chinney Alliance Group Limited (the “Company”) will be held at Full Moon Shanghai Restaurant, Macau Jockey Club, 3rd Floor, East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong on Friday, 24 August 2018 at 2:30 p.m. (the “SGM”) for the purpose of considering and, if thought fit, passing the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT:

(a) the framework agreement dated 12 July 2018 (the “Framework Agreement”) entered into between Chinney Construction Company, Limited (建業建築有限公司) (the “Contractor”) and Gold Famous Development Limited (金譽發展有限公司) (the “Employer”) in relation to the construction of the data centre and the provision of ancillary building services (the “Construction Works”) in a parcel of land situated at and known as K.C.T.L. No. 495, Kin Chuen Street, Kwai Chung, New Territories, Hong Kong, as more particularly set out in the contract documents in respect of the Construction Works to be entered into between the Employer and the Contractor in accordance with and substantially in the same form and substance as annexed to the Framework Agreement and all the transactions contemplated under the Framework Agreement, and a copy of the Framework Agreement marked “A” is tabled before the meeting and signed for identification purpose by the Chairman of the meeting, as more particularly described in the circular to the shareholders of the Company dated 8 August 2018 of which this notice forms part, be approved, ratified and confirmed; and
(b) the directors of the Company be and are hereby authorised to exercise all the powers of the Company and take all steps as might in their absolute discretion consider necessary, desirable or expedient to give effect to or in connection with the Framework Agreement including, without limitation to:
(i) the execution, amendment, supplement, delivery, submission and implementation of any further documents or agreements with any other parties in connection with or incidental to the Framework Agreement; and
(ii) the taking of all necessary actions to implement the transactions contemplated under the Framework Agreement.”

By Order of the Board Yun-Sang Lo Company Secretary

Hong Kong, 8 August 2018

for identification purpose only

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NOTICE OF SGM

Notes:

(1) A member entitled to attend and vote at the SGM is entitled to appoint another person as his proxy to attend and, on a poll, vote instead of him/her. A member who is the holder of two or more shares may appoint more than one proxy to attend and vote on his/her behalf. A proxy need not be a member of the Company.
(2) For the purpose of determining the entitlement to attend and vote at the SGM to be held on Friday, 24 August 2018 (and at any adjournment thereof), the register of members of the Company will be closed from Tuesday, 21 August 2018 to Friday, 24 August 2018 (both days inclusive), during which period no share transfers will be registered. In order to be eligible to attend and vote at the SGM, all transfer forms accompanied by relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, no later than 4:30 p.m. on Monday, 20 August 2018.
(3) In order to be valid, the form of proxy completed in accordance with the instructions set out therein, together with the power of attorney or other authority, if any, under which it is signed, or a certified copy of such power of attorney, must be deposited at the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible, but in any event no later than 2:30 p.m. on Wednesday, 22 August 2018, being not less than 48 hours before the time fixed for the SGM and any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM should you so wish.
(4) In the case of joint holders of any share, any one of such joint holders may vote at the SGM, either in person or by proxy, in respect of such share as if he/she were solely entitled thereto, but if more than one of such joint holders be present at the meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint registered holders and for this purpose seniority shall be determined by the order in which the names stand in the register of members in respect of the joint holding.
(5) In accordance with Rule 13.39(4) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), the resolution proposed at the SGM will be voted on by way of poll except where the chairman of the SGM, in good faith, decide to allow a resolution which relates purely to procedural or administrative matter to be voted on by a show of hands. The chairman of the SGM will at the meeting demand, pursuant to bye-law 66(a) of the bye-laws of the Company, voting by way of poll on the resolution proposed at the SGM. On a poll, subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the bye-laws of the Company, every Shareholder present in person (or being a corporation, is present by a representative duly authorised), or by proxy shall have one vote for every fully paid share of which he/she is the holder. An announcement will be made by the Company following the conclusion of the SGM to inform the results of the SGM.
(6) At the date hereof, the board of Directors comprises eight Directors, of which four are executive Directors, namely Dr. James Sai-Wing Wong (Chairman), Mr. Yuen-Keung Chan (Vice Chairman and Managing Director), Mr. James Sing-Wai Wong and Mr. Philip Bing-Lun Lam; and one is non-executive Director, namely Ms. Wendy Kim-See Gan; and three are independent non-executive Directors, namely Mr. Yuen-Tin Ng, Mr. Chi-Chiu Wu and Mr. Ronald James Blake.

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Chinney Alliance Group Limited — Proxy Solicitation & Information Statement 2018

49180_rns_2018-08-07_28961f0e-2f30-4747-a50f-f9aab8c07247.pdf

(Stock Code: 385)

CONNECTED TRANSACTION IN RELATION TO CONSTRUCTION WORKS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(Stock Code: 385)

To the Shareholders

CONNECTED TRANSACTION IN RELATION TO CONSTRUCTION WORKS

INTRODUCTION

LETTER FROM THE BOARD

THE CONSULTANCY AGREEMENT

Date

Parties to the Consultancy Agreement

Consultancy services

Term and consultancy fee

THE FRAMEWORK AGREEMENT

Date

Parties to the Framework Agreement

Construction Works

Total Contract Sum and terms of payment

Conditions Precedent to the Framework Agreement

INFORMATION ON THE COMPANIES

REASONS FOR AND BENEFITS OF THE PROPOSED CT

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

SGM

LETTER FROM THE BOARD

INDEPENDENT BOARD COMMITTEE

INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

ADDITIONAL INFORMATION

CONNECTED TRANSACTION IN RELATION TO CONSTRUCTION WORKS

Yours faithfully,

CONNECTED TRANSACTION IN RELATION TO CONSTRUCTION WORKS

INTRODUCTION

THE INDEPENDENT BOARD COMMITTEE

OUR INDEPENDENCE

BASIS AND ASSUMPTIONS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

(i) Information on the Parties

Background of the Contractor, the Company and the Group

Background of the Employer, Chinney Investments and Hon Kwok

(ii) Reasons for and benefits of the Proposed CT

(iii) The Framework Agreement

(ii) the Employer

Construction Works:

Total Contract Sum and terms of payment

Tendering Process Procedure

Analysis on the basis of Total Contract Sum

RECOMMENDATION

Yours Faithfully, For and on behalf of

Veda Capital Limited

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

Directors’ interests and short positions in the shares and underlying shares of the Company

Long position in the ordinary Shares of the Company

Substantial Shareholders’ and other persons’ interests and short positions in shares and underlying shares of the Company

Long positions in ordinary shares of the Company

3. DIRECTORS’ INTERESTS IN ASSETS AND CONTRACTS

4. COMPETING INTERESTS OF DIRECTORS AND ASSOCIATES

5. DIRECTORS’ SERVICE CONTRACTS

6. NO MATERIAL ADVERSE CHANGE

7. EXPERTS AND CONSENTS

Name Qualification

8. MISCELLANEOUS

9. DOCUMENTS AVAILABLE FOR INSPECTION

(Stock Code: 385)

NOTICE OF SPECIAL GENERAL MEETING

ORDINARY RESOLUTION

“ THAT:

NOTICE OF SGM

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Chinney Alliance Group Limited Proxy Solicitation & Information Statement 2018