CMON Limited — Capital/Financing Update 2019

Oct 28, 2019

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

瀋陽公用發展股份有限公司 Shenyang Public Utility Holdings Company Limited

(a joint stock limited company incorporated in the People’s Republic of China)

(Stock code: 747)

MAJOR TRANSACTION IN RELATION TO ACQUISITION OF 78% EQUITY INTEREST IN SAN HE JING JIAO PROPERTY DEVELOPMENT COMPANY LIMITED

THE ACQUISITION

The Board is pleased to announce that on 28 October 2019 (after trading hours), the Purchaser, a wholly-owned subsidiary of the Company and the Vendors entered into the Sale and Purchase Agreement, pursuant to which the Purchaser has conditionally agreed to purchase and the Vendors have conditionally agreed to sell the Sale Shares, representing 78% equity interest of the Target Company at the consideration of RMB321,000,000.

Upon Completion, the Target Company will become a subsidiary of the Company and accordingly, the financial results of the Target Company will be consolidated into the accounts of the Company.

LISTING RULES IMPLICATIONS

As more than one of the applicable ratios (as defined in the Listing Rules) in respect of the Acquisition are more than 25% but less than 100%, the Acquisition constitutes a major transaction for the Company under Chapter 14 of the Listing Rules, and is subject to the requirements of reporting and announcement pursuant to Chapter 14 of the Listing Rules and the approval of the Shareholders under Chapter 14 of the Listing Rules.

GENERAL

The EGM will be convened to consider and, if thought fit, approve, among other things, the Sale and Purchase Agreement and the transactions contemplated thereunder.

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A circular containing, among others, further details of (i) the Sale and Purchase Agreement and the transactions contemplated thereunder; (ii) the valuation report of the Target Company; (iii) the financial information and other information of the Group and the Target Company; and (iv) a notice convening the EGM, will be despatched to the Shareholders on or before 18 November 2019 in accordance with the Listing Rules.

The Acquisition is subject to a number of conditions precedents which may or may not be fulfilled. Shareholders and potential investors are reminded to exercise caution when dealing in the Shares.

The Board is pleased to announce that on 28 October 2019 (after trading hours), the Purchaser and the Vendors entered into the Sale and Purchase Agreement, pursuant to which the Purchaser has conditionally agreed to purchase and the Vendors have conditionally agreed to sell the Sale Shares at the consideration of RMB321,000,000.

THE SALE AND PURCHASE AGREEMENT

Date

28 October 2019

Parties

• (I) Shenzhen Shenhe Chuangli Investment and Development Company Limited (“ Purchaser* ”) 深圳市深合創立投資發展有限公司

• (II) Shanghai Wanbang Enterprise Group Company Limited (“ Vendor I* ”) 上海萬邦企業集團有限公司

• (III) Shenzhen Wanbang Real Estate Company Limited (“ Vendor II* ”) 深圳市萬邦置業有限公司

• (IV) Shenzhen Zhaowanda Investment Company Limited (“ Vendor III* ”) 深圳市兆萬達投資有限公司

• (V) San He Jing Jiao Property Development Company Limited* 三河京郊房地產開發有限公司

• (VI) Beijing Shen Shang Investment & Consulting Company Limited* 北京瀋商投資諮詢有限公司

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, Each of the Vendors and their ultimate beneficial owner(s) is/are third party(ies) independent of the Company and its connected persons (as defined in Chapter 14A of the Listing Rules).

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Assets to be acquired

Pursuant to the Sale and Purchase Agreement, the Purchaser has conditionally agreed to acquire and the Vendors have conditionally agreed to sell the Sale Shares, representing 78% equity interest of the Target Company, comprising 53%, 20% and 5% equity interest in the Target Company held by Vendor I, Vendor II and Vendor III, respectively.

Consideration

Pursuant to the Sale and Purchase Agreement, the total consideration is in the amount of RMB321,000,000.

Payment schedule

The Consideration shall be payable in cash to Vendors in the following manner:

• i. the first instalment, being the amount of RMB110,000,000, shall be payable by the Purchaser to Vendor I in the manner designated by the Sale and Purchase Agreement within 1 month subsequent to the entering into of the Sale and Purchase Agreement.

• ii. the second instalment, being the amount of RMB100,000,000, shall be payable by the Purchaser to Vendor I and Vendor II, as to RMB72,000,000 and RMB28,000,000 to Vendor I and Vendor II respectively, within 10 business days from the date of despatch of the circular of the Company; and the Vendors shall submit the change of registration with respect to the transfer of equity interest in the Target Company to the administration bureau for industry and commerce within 5 days from the receipt of payment by Vendor I and Vendor II.

• iii. the remaining balance of the consideration for transfer of equity interest, being the amount of RMB111,000,000, shall be payable by the Purchaser to the Vendors within 3 months subsequent to the date of passing of the transfer of equity interest under the Sale and Purchase Agreement at the general meeting of the Company and the manner of payment is as follows:

• (1) the remaining balance payable to Vendor I of RMB36,115,384.62, of which RMB13,000,000 shall be payable by the Purchaser in cash and the remainder of RMB23,115,384.62 shall be deducted from the amount due to the Target Company from Vendor I;

• (2) the remaining balance payable to Vendor II of RMB54,307,692.31, after deducting the amount due to the Target Company from Vendor II (the outstanding amount assessed by the auditor shall prevail), the remainder shall be payable by the Purchaser to Vendor II in cash;

• (3) the amount payable to Vendor III of RMB20,576,923.08 shall be deducted from the amount due to the Target Company from Vendor III and the remaining debt after deduction shall be borne by Vendor I (the outstanding amount assessed by the auditor shall prevail).

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The Consideration was determined after arm’s length negotiations among the Purchaser and the Vendors on normal commercial terms with reference to the fair market value of the existing and properties to be built the Target Company of RMB503,000,000 as at 31 August 2019 valued by an independent professional valuer, and unaudited net asset value of the Target Company of RMB420,763,215.80 as at 31 August 2019 respectively.

The Consideration under the Sale and Purchase Agreement will be settled by the internal resources of the Group.

Conditions Precedent

Completion of the Acquisition will take place on the completion date, which shall be conditional upon and subject to:

• i. the Company having convened the EGM and passed the ordinary resolution to approve the Sale and Purchase Agreement and the transactions contemplated thereunder;

• ii. all necessary permissions, consents and approvals in relation to the Sale and Purchase Agreement and the transactions contemplated thereunder having been obtained by the Purchaser (including but not limited to the approval from the Board);

• iii. all necessary permissions, consents and approvals in relation to the Sale and Purchase Agreement and the transactions contemplated thereunder having been obtained by the Vendors (including but not limited to the approval from the Board);

• iv. the waivers, consents, approvals, permissions, authorizations and commands, if necessary, which in relation to the government, the regulatory authorities or the third party with respect to the Sale and Purchase Agreement and the transactions contemplated thereunder have been obtained;

• v. the representations and warranties made by each of the Vendors remaining true and correct and not misleading and no facts or circumstances in relation to any relevant Vendors shall constitute or may constitute any breach of the warranties made by the Vendors to the Purchaser or the Sale and Purchase Agreement;

• vi. the obligations of each of the Vendors under the Sale and Purchase Agreement not being violated;

• vii. the effective operation right of the Target Company having been obtained by the Purchaser.

The above conditions are expected to be satisfied or waived on or before 30 April 2020 (or such later date as the Purchaser and the Vendors may agree in writing).

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Undertakings given by the Vendors

• i. The Vendors shall guarantee and undertake that all assets of the Target Company shall be owned legally and validly, and the Target Company shall have full and valid ownership of the assets. Save as disclosed directly to the Purchaser, no assets have been charged, pledged or held as collateral for themselves or others etc.

• ii. The Vendors shall guarantee and undertake that the Target Company, as an enterprise principally engaged in professional real estate project development, shall have obtained all qualification certificates and approvals required for such business, and guarantee that the equity transfer would not affect the Target Company such that the Target Company shall remain in possession of all of the qualification certificates and approvals mentioned above and shall continue to engage in such business.

• iii. The Vendors shall guarantee and undertake that they shall be responsible for obtaining all approval documents from the government and legal documents in relation to Building No.1, Building No.2, Building No.7 and Building No.8 of Apartment Area B as well as the underground car parking spaces of Building No.1 of Apartment Area B of Phase 5 of Tian Zi Zhuang Yuan (天子莊園), and coordinating with the relevant governmental departments. At the same time, the Vendors shall guarantee and undertake to obtain the construction permit for Building No.1 and Building No.2 of Apartment Area B of Phase 5 of Tian Zi Zhuang Yuan (天子莊園) by 31 July 2020.

• iv. The Vendors shall guarantee and undertake that as at the effective date of the Sale and Purchase Agreement, the production and operating activities that Target Company engages in shall be in compliance with the PRC laws and regulations and within the scope of operation as approved in its business licence, and that the Target Company shall continue to be entitled to operate such assets and business after the completion of the equity transfer.

• v. The Vendors shall guarantee and undertake that all the written materials including documents and information submitted to the Purchaser by the Vendors are true and reliable, and such written materials, if being copies, are consistent with the original.

• vi. The Vendors shall guarantee and undertake that on the date when the Purchaser performs its payment obligation pursuant to the Sale and Purchase Agreement, the Vendors shall transfer to the Purchaser all documents of the Tian Zi Zhuang Yuan real estate project to facilitate the Purchaser’s construction and management of the Tian Zi Zhuang Yuan real estate project.

• vii. The Vendors shall guarantee and undertake that the financial statements and the relevant financial documents of the Target Company provided to the Purchaser are true, accurate, complete, legal and valid, which truly and fairly reflect the Target Company’s assets, liabilities (including contingent liabilities, liabilities not yet recognised or in dispute) and earnings or losses as at the effective date of the Sale and Purchase Agreement.

• viii. The Vendors shall guarantee and undertake that, as at the effective date of the Sale and Purchase Agreement, the Vendors are liable to the other off balance sheet liabilities (including contingent liabilities, liabilities not yet recognised or in dispute) of the Target Company save as those disclosed under Clause (vii) as recorded in the financial statements and the Purchaser shall take no responsibility as to economic and legal liabilities in this respect.

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• ix. The Vendors shall guarantee and undertake that, prior to the effective date of the Sale and Purchase Agreement, the Vendors have truly and comprehensively disclosed to the Purchaser all matters that have taken place or are evidenced to take place in the immediate future which have a material and adverse impact on the operation and management of the Target Company, and the Vendors shall guarantee that the list of assets and liabilities of the Target Company provided to the Purchaser is true and accurate.

Completion

Completion shall take place upon the fulfillment or waiver of the conditions precedent of the Sale and Purchase Agreement (or such later date as the Purchaser and the Vendors may agree in writing).

Operation of the Target Company

1. The Purchaser will take the control and operate the Target Company upon completion of payment of the consideration;

2. The Purchaser, being the new shareholder of the Target Company has right to reorganize the board of directors of the Target Company and elect supervisors; and

3. The Purchaser will be in charge of the amendments to the articles of the Target Company, and the Vendor I shall fully cooperate.

INFORMATION ON THE COMPANY, THE VENDORS AND THE TARGET COMPANY

Information on the Purchaser and the Group

The Purchaser is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of the Company. Its principal business is investment holding.

The Company was incorporated in the PRC with limited liability and the Shares are listed on the Main Board of the Stock Exchange. The Company is an investment holding company and the Group is principally engaged in infrastructure and construction business in the PRC.

Information on the Vendors

To the best of the knowledge, information and belief of the Directors, having made all reasonable enquiries, (i) each of the Vendors is a company established under the laws of the PRC with limited liability; (ii) Vendor I is principally engaged in property investment; (iii) Vendor II is principally engaged in the real estate management and development, real estate brokerage consulting, investment consulting; and (iv) Vendor III is principally engaged in investment holding.

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Information on the Target Company

The Target Company is principally engaged in the property investment as well as development and sales of properties.

As at the date of this announcement, the Target Company is owned as to 75%, 20% and 5% by Vendor I, Vendor II and Vendor III, respectively. Upon completion of the Acquisition, the Target Company will be owned as to 78% indirectly by the Company, 22% by Vendor I. The Target Company will become a subsidiary of the Company and accordingly, the financial results of the Target Company will be consolidated into the accounts of the Company.

The Target Company is currently engaged in a property development project, namely Tian Zi Zhuang Yuan (the “ Project ”). It is a large scale residential development project developed on a site formed by various parcels of land with a total land area of approximately 300,243.3 square meter located at the northern side of Jingha Road (京哈路) within Yanjiao National High-Tech Industrial Development Area, Sanhe City.

The development of Project is divided into five phases. As of the date of this announcement, the development of the 1st to 4th phases have been completed while the development of 5th phase is still in progress. The total construction area of the properties to be built in 5th phase of the Project is 28,171.16 square meters, comprising four residential buildings, to provide over 288 residential units in aggregate and 189 car parking spaces on the basement level.

Financial information of the Target Company

Set out below is a summary of the financial information of the Target Company for the years ended 31 December 2017 (“ FY2017 ”) and 31 December 2018 (“ FY2018 ”), extracted from the combined management accounts of the Target Company prepared in accordance with the Hong Kong Financial Reporting Standards (“ HKFRSs ”):

	For the year ended	31 December
	2017	2018
	(RMB)	(RMB)
	(Unaudited)	(Unaudited)
Revenue	16,931,000	1,132,000
Net loss before taxation and extraordinary items	(6,256,000)	(13,740,000)
Net loss after taxation and extraordinary items	(12,505,000)	(13,717,000)

During FY2017 and FY2018, the Target Company generated revenue from completed properties held for sale. The Target Company has incurred finance costs, administrative and selling and distribution expenses in an aggregate amount of approximately RMB18,245,000 (unaudited) and RMB14,987,000 (unaudited) for FY2017 and FY2018, respectively. As a result, the Target Group recorded unaudited net losses before taxation for both FY2017 and FY2018.

The unaudited net asset value of Target Company as of 30 April 2019 was approximately RMB82,070,000.

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REASONS FOR AND BENEFITS OF THE SHARE TRANSFERS

As at the date of this announcement, the Group is principally engaged in infrastructure and construction business in the PRC.

In line with its business strategies, the Group has been exploring opportunities to expand its property investment and operation business segment with an aim to capture the steady growth in the property market of various regions in the PRC. The Group has been actively looking for suitable projects in major developing cities in the PRC for expanding its property business portfolio.

Taking into consideration the prospect of the property market in Sanhe City, the Directors are of the view that the Acquisition is in the interests of the Company and the Shareholders as a whole, and are also of the view that the terms of the Agreement, are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

As more than one of the applicable ratios (as defined in the Listing Rules) in respect of the Acquisition are more than 25% but are less than 100%, the Acquisition constitutes a major transaction for the Company under Chapter 14 of the Listing Rules, and is subject to the requirements of reporting and announcement pursuant to Chapter 14 of the Listing Rules and the approval by the Shareholders under Chapter 14 of the Listing Rules.

GENERAL

The EGM will be convened to consider and, if thought fit, approve, among other things, the Sale and Purchase Agreement and the transactions contemplated thereunder.

To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, no Shareholder has a material interest in the Agreement and the Acquisition. As such, no Shareholder is required to abstain from voting at the EGM in respect of the resolution approving the Sale and Purchase Agreement and the Acquisition.

A circular containing, among others, further details of (i) the Sale and Purchase Agreement and the transactions contemplated thereunder; (ii) the valuation report of the Target Company; (iii) the financial information and other information of the Group and the Target Company; and (iv) a notice convening the EGM, will be despatched to the Shareholders on or before 18 November 2019 in accordance with the Listing Rules.

The Acquisition is subject to a number of conditions precedents which may or may not be fulfilled. Shareholders and potential investors are reminded to exercise caution when dealing in the Shares.

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DEFINITIONS

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

“Acquisition”	the acquisition of the Sale Shares by the Purchaser from the
	Vendors pursuant to the Sale and Purchase Agreement
“Board”	the board of Directors
“Business Days”	a day (excluding Saturday, Sunday and any other public
	holidays) on which banks in the PRC are generally open for
	settlement business
“Company”	Shenyang Public Utility Holdings Company Limited, a
	company incorporated in the PRC with limited liability and the
	Shares are listed on the Main Board of the Stock Exchange
“Completion”	the completion of Acquisition in accordance with the terms and
	conditions of the Sale and Purchase Agreement
“Connected person(s)”	has the same meaning ascribed to it in the Listing Rules
“Consideration”	the consideration payable by the Purchaser to the Vendors for
	the Acquisition
“Director(s)”	means the directors of the Company
“Domestic Share(s)”	domestic share(s) with a nominal value of RMB1 each in the
	share capital of the Company which are subscribed for in RMB
“EGM”	the extraordinary general meeting to be convened and held by
	the Company for the Shareholders to consider and approve,
	if thought fit, the Acquisition and transactions contemplated
	thereunder
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China
“H-Share(s)”	overseas listed foreign ordinary share(s) in share capital of the
	Company, with a nominal value of RMB1 each, all of which are
	listed on the main board of the Stock Exchange, and subscribed
	for and traded in Hong Kong dollars
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange

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“PRC”	the People’s Republic of China
“Purchaser”	Shenzhen Shenhe Chuangli Investment and Development
	Company Limited (深圳市深合創立投資發展有限公司), a
	wholly-owned subsidiary of the Company
“Sale and Purchase	the sale and purchase agreement dated 28 October 2019 entered
Agreement”	into between the Purchaser and the Vendors in respect of the
	Acquisition
“Sale Shares”	78% of the equity interests held by the Vendors in the Target
	Company
“Shareholder(s)”	holder(s) of the H-Shares and the Domestic Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Target Company”	San He Jing Jiao Property Development Company Limited* (三
	河京郊房地產開發有限公司)
“HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“Vendors”	Vendor I, Vendor II and Vendor III
“%”	per cent

• For identification purpose only

By Order of the Board Shenyang Public Utility Holdings Company Limited Zhang Jing Ming Chairman

Shenyang, the PRC, 28 October 2019

As at the date of this announcement, the executive directors of the Company are Mr. Zhang Jing Ming, Mr. Chau Ting Yan and Mr. Leng Xiao Rong, the non-executive directors of the Company are Mr. Yin Zong Chen and Mr. Ye Zhi E and the independent non-executive directors of the Company are Mr. Chan Ming Sun Jonathan, Mr. Guo Lu Jin and Ms. Gao Hong Hong.

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