DIT Group Limited - Proxy Solicitation & Information Statement 2015

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in South East Group Limited , you should at once hand this circular together with the accompanying form of proxy to the purchaser or the transferee or to the bank, licensed securities dealer, or registered institutions in securities, stockbroker or other agent through whom the sale 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.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of South East Group Limited , and it must not be used for the purpose of offering or inviting offers for any securities.

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(Incorporated in Bermuda with limited liability) (Stock Code: 726)

(1) PROPOSED ISSUE OF NEW SHARES UNDER SPECIFIC MANDATE

(2) WHITEWASH WAIVER

(3) PROPOSED ISSUE OF CONVERTIBLE BONDS

(4) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

(5) PROPOSED MAJOR TRANSACTION RELATING TO SUBSCRIPTION FOR GUARANTEED NOTE AND

(6) NOTICE OF SGM

Financial adviser to the Share Subscriber

Financial adviser to the Company

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

A letter from the Board is set out on pages 6 to 32 of this circular. A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on pages 34 to 59 of this circular. A letter from the Independent Financial Adviser, Nuada Limited, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on page 33 of this circular.

A notice convening the SGM to be held at Island Shangri-La, Hong Kong at Two Pacific Place, Supreme Court Road, Central, Hong Kong on Monday, 18 May 2015 at 2:30 p.m. is set out on pages 139 to 141 of this circular.

Whether or not you are able to attend the SGM, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Ltd., at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or at any adjourned meeting thereof and, in such event, the relevant form of proxy shall be deemed to be revoked.

For identification purpose only

30 April 2015

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . . .	33
LETTER FROM NUADA LIMITED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . . . . . . . . . . .	60
APPENDIX II – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	127
NOTICE OF THE SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	139

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms or expressions shall have the meanings set out below:

“acting in concert”
has the meaning ascribed to it in the Takeovers Code and the expression “concert party(ies)” shall be construed accordingly
“Announcement”
the announcement of the Company dated 9 March 2015 in relation to, among other things, the Share Subscription, the CB Subscription, the Specific Mandates and the Whitewash Waiver
“associate(s)”
has the meaning ascribed to it under the Listing Rules
“Board”
the board of Directors
“Bond Instrument”
the instrument to be executed by the Company constituting the Convertible Bonds, together with the schedules (as from time to time altered in accordance with the instrument) and any other document executed in accordance with the instrument (as from time to time so altered) and expressed to be supplemental to the instrument
“CB Subscriber”
Honghu Capital Company Limited, a company incorporated in the British Virgin Islands with limited liability and is wholly and beneficially owned by Mr. Deng Jun Jie who is an Independent Third Party. Mr. Deng Jun Jie does not have any relationship with the Share Subscriber, China Minsheng Investment and the 59 shareholders of China Minsheng Investment
“CB Subscription”
the subscription for the Convertible Bonds pursuant to the terms of the CB Subscription Agreement and the Bond Instrument
“CB Subscription Agreement”
the subscription agreement dated 9 February 2015 and entered into between the Company and the CB Subscriber in connection with the CB Subscription
“CB Subscription Completion Date”
the day on which the completion of CB Subscription takes place, which shall be the fifth business day after the date on which the last of the conditions precedent to the CB Subscription Agreement is fulfilled or such other date as the parties may agree in writing
“CB Subscription
31 August 2015
Long Stop Date”
“China Minsheng Investment”
China Minsheng Investment Corp., Ltd.*, which holds 90% of the total share capital of the Share Subscriber

DEFINITIONS

“Company” South East Group Limited, a company incorporated in Bermuda and the Shares of which are listed on the main board of the Stock Exchange
“Conversion Price” the initial conversion price of HK$0.20 per Conversion Share (subject to adjustments as set out in the Bond Instrument)
“Conversion Shares” up to 1,000,000,000 new Shares falling to be allotted and issued upon exercise of the conversion rights attached to all of the Convertible Bonds at the Conversion Price
“Convertible Bonds” the unsecured zero-coupon convertible bonds in the principal amount of HK$200,000,000 to be created by the Bond Instrument and for the time being outstanding or, as the context may require, any part of the principal amount
“Director(s)” director(s) of the Company “Executive” the Executive Director of the Corporate Finance Division of the SFC or any delegate of such Executive Director
“Group” the Company and its subsidiaries “Guarantor” Mingzhu Construction Engineering Co., Ltd.* (名築建工集團有限公司), a company established under the laws of the PRC with limited liability
“HK$” or “HK dollars” Hong Kong Dollars, the lawful currency of Hong Kong “Holding Announcement” the holding announcement of the Company dated 2 March 2015 in relation to, among other things, the proposed Share Subscription and CB Subscription
“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“Increase in Authorised Share the proposed increase in the authorised share capital of the Capital” Company from HK$400,000,000 divided into 4,000,000,000 Shares to HK$2,500,000,000 divided into 25,000,000,000 Shares by the creation of additional 21,000,000,000 Shares “Independent Board Committee” the independent board committee comprising of Mr. Lee Chi Ming, Mr. Chan Chi Hung, Anthony and Mr. Jiang Hongqing, all being the independent non-executive Directors, formed to consider the terms of the Share Subscription Agreement and the transactions contemplated under the Share Subscription Agreement and the Whitewash Waiver

DEFINITIONS

“Independent Financial Adviser”
Nuada Limited, a licensed corporation to carry out type 6 regulated activity (advising on corporate finance) under the SFO and the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders with regard to the Share Subscription, the Specific Mandate and the Whitewash Waiver
“Independent Shareholders”
Shareholders other than those who have a material interest or who are involved in or interested in the Share Subscription and/ or the Whitewash Waiver (including Taiping Quantum Strategic Fund, Taiping Quantum Prosperity Fund, Taiping Quantum China Opportunities Fund and Quantum Advantage Fund)
“Independent Third Party(ies)”
third party(ies) independent of the Company and its connected persons as defined under the Listing Rules
“Issuer”
Mingzhu Construction Engineering Group (Hong Kong) Limited* (名築建工集團（香港）有限公司), a company established under the laws of Hong Kong with limited liability
“Last Trading Day”
6 February 2015, being the last trading day immediately prior to the date of the Share Subscription Agreement and the date of the CB Subscription Agreement
“Latest Practicable Date”
27 April 2015, being the latest practicable date for ascertaining certain information contained in this circular
“Listing Committee”
the listing committee of the Stock Exchange for considering applications for listing and the granting of listing approval
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“Maturity Date”

the third anniversary of the date of issue of the Convertible Bonds

“Mr. Yeung”
Mr. Yeung Chun Wai, Anthony, the chairman of the Company and an executive Director
“Note”
the guaranteed note in a principal amount of HK$250,000,000 due 2018 of the Issuer to be created and issued to the Company pursuant to the Note Subscription Agreement
“Note Subscription Agreement” the subscription agreement dated 23 April 2015 entered into R14.58(3) between the Company, the Issuer and the Guarantor in relation to the subscription for the Note

DEFINITIONS

“PRC”	the People’s Republic of China, which for the purpose of
	this circular, shall exclude Hong Kong, the Macau Special
	Administrative Region of the PRC and Taiwan
“PRC Authorities”	all governmental or trade agencies, courts or other regulatory
	bodies of the PRC whose relevant licences, authorisations,
	registrations or approvals are required for effecting any
	transaction contemplated by the Share Subscription Agreement
	and other related transaction documents
“Relevant Period”	the period commencing from 2 September 2014, being six months
	prior to 2 March 2015, i.e. the date of the Holding Announcement,
	and up to and including the Latest Practicable Date
“Relevant Securities”	securities as defined in Note 4 to Rule 22 of the Takeovers Code
	(which include (a) securities of the Company which are being
	subscribed for pursuant to the Share Subscription or which
	carry voting rights; (b) equity share capital of the Company and
	the Share Subscriber (and parties acting concert with it); (c)
	securities of the Share Subscriber (and parties acting in concert
	with it) which carry the same or substantially the same rights as
	any to be issued as consideration for the Share Subscription; (d)
	securities carrying conversion or subscription rights into any of
	the foregoing; and (e) options and derivatives in respect of any of
	the foregoing)
“RMB”	Renminbi, the lawful currency of the PRC
“SFC”	the Securities and Futures Commission of Hong Kong
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“SGM”	the special general meeting of the Company to be convened at
	Island Shangri-La, Hong Kong at Two Pacific Place, Supreme
	Court Road, Central, Hong Kong on Monday, 18 May 2015 at
	2:30 p.m. to approve, among other things, (i) the Increase in
	Authorised Share Capital; (ii) the Share Subscription Agreement;
	(iii) the CB Subscription Agreement; (iv) the granting of the
	Specific Mandates; (v) the Whitewash Waiver and (vi) the Note
	Subscription Agreement
“Share(s)”	share(s) of par value HK$0.10 each in the share capital of the
	Company
“Shareholder(s)”	person(s) registered in the books of the Company as the holder(s)
	of Share(s) for the time being
“Share Subscriber”	China Minsheng Jiaye Investment Co., Ltd.*, a company
	established in the PRC

DEFINITIONS

“Share Subscription”
“Share Subscription Agreement”
“Share Subscription Completion Date”
“Share Subscription Long Stop Date”
“Specific Mandate(s)”
“Stock Exchange”
“Strategic Cooperation Framework Agreement”
“Subscription Shares”
“Subscription Price”
“Takeovers Code”
“Whitewash Waiver”

“%”

the subscription for the Subscription Shares by the Share Subscriber (or its nominee(s)) pursuant to the terms of the Share Subscription Agreement the subscription agreement dated 9 February 2015 entered into between the Company and the Share Subscriber in connection with the Share Subscription (as supplemented by a supplemental agreement dated 7 March 2015)

the day on which the completion of the Share Subscription takes place, which shall be the fifth business day after the date on which the conditions precedent to the Share Subscription Agreement are fulfilled and/or waived (if applicable) or such other date as the parties may agree in writing

31 August 2015
a specific mandate to be granted to the Directors in relation to the proposed allotment and issue of the Subscription Shares to be approved by the Independent Shareholders at the SGM and a specific mandate to be granted to the Directors in relation to the proposed allotment and issue of the Conversion Shares upon the full conversion of the Convertible Bonds to be approved by the Shareholders at the SGM (as the case may be)

The Stock Exchange of Hong Kong Limited

the strategic cooperation framework agreement dated 23 April 2015 entered into between the Company and the Guarantor
6,500,000,000, being the number of Shares equals to HK$1,300,000,000 (being the total subscription consideration under the Share Subscription Agreement) divided by the Subscription Price
the subscription price of HK$0.20 per Subscription Share under the Share Subscription Agreement

the Code on Takeovers and Mergers issued by the SFC

a waiver from the obligation of a nominee to be nominated by the Share Subscriber to take up the Subscription Shares, which will be a wholly-owned subsidiary of the Share Subscriber, to make a mandatory general offer for all the Shares not already owned or agreed to be acquired by it or its concert parties under Rule 26 of the Takeovers Code as a result of the Share Subscription

per cent.

For identification purposes only

LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

(Stock Code: 726)

Executive Directors: Mr. Yeung Chun Wai, Anthony (Chairman, Chief Executive Officer) Mr. Chen Domingo (Deputy Chairman) Mr. Chan Chi Yuen

Registered office: Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Independent non-executive Directors: Mr. Lee Chi Ming Mr. Jiang Hongqing Mr. Chan Chi Hung, Anthony

Principal place of business in Hong Kong: Suites 1001-1004 on Level 10 One Pacific Place 88 Queensway Admiralty, Hong Kong 30 April 2015

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED ISSUE OF NEW SHARES UNDER SPECIFIC MANDATE (2) WHITEWASH WAIVER

(3) PROPOSED ISSUE OF CONVERTIBLE BONDS

(4) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

(5) PROPOSED MAJOR TRANSACTION RELATING TO SUBSCRIPTION FOR GUARANTEED NOTE

AND

(6) NOTICE OF SGM

INTRODUCTION

Reference is made to the Holding Announcement, the Announcement, the clarification announcement of the Company dated 24 March 2015 and the announcement of the Company in relation to the subscription for the Note dated 23 April 2015.

The purpose of this circular is to:

(a) provide further details of the Increase in Authorised Share Capital, the Share Subscription, the CB Subscription, the Specific Mandates, the Whitewash Waiver and the subscription for the Note;
(b) set out (i) the letter from the Independent Financial Adviser (namely, Nuada Limited) to the Independent Board Committee (comprising of all the independent non-executive Directors) and the Independent Shareholders; and (ii) the recommendation and opinion of the Independent Board Committee to the Independent Shareholders after having considered the advice of the Independent Financial Adviser in relation to the Share Subscription, the Specific Mandate in relation to the Share Subscription and the Whitewash Waiver; and

LETTER FROM THE BOARD

(c) give you notice of the SGM to consider and, if thought fit, approve, among other things, the Increase in Authorised Share Capital, the Share Subscription, the CB Subscription, the Specific Mandates, the Whitewash Waiver and the subscription for the Note.

A. PROPOSED ISSUE OF NEW SHARES

On 9 February 2015, the Share Subscriber and the Company entered into the Share Subscription Agreement pursuant to which the Share Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to allot and issue, on the Share Subscription Completion Date, 6,500,000,000 new Shares which has been determined by dividing HK$1,300,000,000 (being the total subscription consideration under the Share Subscription Agreement) by HK$0.20 (being the Subscription Price per Subscription Share).

Principal terms of the Share Subscription Agreement

Date:

9 February 2015

Parties:

(a) The Company, as the issuer of the Subscription Shares; and
(b) The Share Subscriber, as the subscriber of the Subscription Shares.

Total subscription consideration: HK$1,300,000,000 Subscription Price per Subscription Share: HK$0.20

The Subscription Shares represent:

(a) approximately 1.75 times of the existing issued share capital of the Company;
(b) approximately 63.67% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares, assuming no other changes to the issued share capital of the Company until the Share Subscription Completion Date; and
(c) approximately 57.99% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares and the Conversion Shares (assuming that the Convertible Bonds will be fully converted and there are no other changes to the issued share capital of the Company until such full conversion).

Ranking of the Subscription Shares

The Subscription Shares, when allotted and issued, will rank pari passu in all respects among themselves and with the Shares in issue as at the date of allotment and issue of the Subscription Shares, including the right to receive all future dividends and distributions which may be declared, made or paid by the Company on or after the date of allotment and issue of the Subscription Shares.

LETTER FROM THE BOARD

The Subscription Price

The Subscription Price of HK$0.20 per Subscription Share represents:

(a) a discount of approximately 42.86% to the closing price of HK$0.35 per Share on the Stock Exchange on the Last Trading Day;
(b) a discount of approximately 35.06% to the average closing price of approximately HK$0.308 per Share for the last 5 trading days up to and including the Last Trading Day;
(c) a discount of approximately 23.37% to the average closing price of approximately HK$0.261 per Share for the last 30 trading days up to and including the Last Trading Day;
(d) a discount of approximately 19.35% to the average closing price of approximately HK$0.248 per Share for the last 60 trading days up to and including the Last Trading Day;
(e) a premium of approximately 16.96% to the average closing price of approximately HK$0.171 per Share for the last 180 trading days up to and including the Last Trading Day; and
(f) a discount of 75% to the closing price of HK$0.80 per Share on the Stock Exchange on the Latest Practicable Date.

In addition, by reference to the net liability position of the Company as of 30 September 2014 of approximately HK$7.88 million (equivalent to a negative amount of approximately HK$0.022 per Share based on 364,955,880 Shares then in issue), the Subscription Price represents a substantial premium over this amount. In October 2014, the Company has completed an equity fund raising exercise by way of rights issue and raised net proceeds of approximately HK$283 million. Based on the net liability of the Company as at 30 September 2014, and taking into account the net proceeds from the aforementioned rights issue and based on the 3,709,602,920 Shares in issue as at the Latest Practicable Date, the adjusted estimated net asset value of the Company is approximately HK$0.074 per Share. The Subscription Price therefore represents a premium of over 170% to the adjusted estimated net asset value per Share of the Company.

The net aggregate proceeds from the Share Subscription, after deduction of relevant expenses (including but not limited to the legal expenses and disbursements), is estimated to be approximately HK$1,296 million. The net price per Subscription Share is approximately HK$0.199 after deduction of relevant expenses of the Share Subscription.

The Subscription Price was determined after arm’s length negotiations between the Company and the Share Subscriber with reference to the recent closing prices of the Shares on the Stock Exchange and the financial position of the Group. The Directors (including the independent nonexecutive Directors after taking into account the advice of the Independent Financial Adviser) consider that the Share Subscription Agreement has been entered into upon normal commercial terms and the terms of the Share Subscription Agreement (including, without limitation, the Subscription Price) are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

LETTER FROM THE BOARD

Conditions for the Share Subscription

Completion of the Share Subscription is conditional upon the satisfaction (if applicable, waiver) of the following conditions:

(a) Shareholders approving at the SGM the Increase in Authorised Share Capital;
(b) Independent Shareholders approving at the SGM the issuance of the Subscription Shares pursuant to the Share Subscription Agreement and the transactions contemplated thereunder, including the appointment of directors recommended by the Share Subscriber (in the case of any such appointment, the effective date would be on the Share Subscription Completion Date), the Share Subscription and the Whitewash Waiver;
(c) the Executive granting the Whitewash Waiver to the Share Subscriber, and the Whitewash Waiver remaining valid;
(d) the Listing Committee granting approval for the listing of, and dealing in, the Subscription Shares;
(e) the Company is not, as a result of the Share Subscription or any other transactions contemplated under the Share Subscription Agreement, being deemed by the Stock Exchange as a reverse takeover transaction, and/or the Company is not being required by the Stock Exchange to suspend trading until fulfilment of the requirements of a new listing application under the Listing Rules;
(f) all warranties in the Share Subscription Agreement being true, accurate and not misleading as at the date of the Share Subscription Agreement and the Share Subscription Completion Date and the Company does not breach any of its undertakings in the Share Subscription Agreement;
(g) from the date of the Share Subscription Agreement until the Share Subscription Completion Date, the Company and other members of the Group complying with the pre-completion undertakings set out in the Share Subscription Agreement;
(h) from the date of the Share Subscription Agreement until the Share Subscription Completion Date, the Shares continuing to be listed and traded on the Stock Exchange (except for suspension of trading in connection with the Share Subscription Agreement and the CB Subscription Agreement or suspension of trading for not more than five trading days) and no requests having been received from the SFC and/or the Stock Exchange that the listing status of the Shares on the Stock Exchange will be revoked or cancelled as a result of the completion under the Share Subscription Agreement or any terms thereunder or other matters;
(i) the minimum public float requirements under the Listing Rules not being breached by the Company as result of the Share Subscription;

LETTER FROM THE BOARD

(j) from the date of the Share Subscription Agreement until the Share Subscription Completion Date, no person (except a party to the Share Subscription Agreement) having obtained a binding order from any relevant authorities restricting or prohibiting any party to the Share Subscription Agreement to complete the transactions contemplated thereunder at any relevant authorities and the Share Subscription Agreement and the transactions contemplated thereunder comply with applicable laws and regulations;
(k) all relevant government authorities or regulatory authorities having granted to the Company or the Share Subscriber (or its nominee(s)) all necessary consents, approvals, reports and filings (if applicable) in respect of the entry into and performance of the Share Subscription Agreement;
(l) the Board having passed a resolution on or before 30 June 2015 to change the Company’s financial year end date from 31 March to 31 December commencing from the financial year of 2015;
(m) since the date of the Share Subscription Agreement, (i) there having been no events, conditions, occurrence or development of a state of circumstances or facts which has had or reasonably could be expected to have a material and adverse change or effect on the business, operations, assets or liabilities, financial conditions or prospects of the Group or any of its subsidiaries (as applicable) and; (ii) there having been no change in the applicable laws in each of the jurisdictions in which the Group has business operations which may lead to material and adverse effect to the Group as a whole;
(n) the Share Subscriber having received a legal opinion issued by Bermuda counsel on matters of Bermuda law in a form reasonably satisfactory to the Share Subscriber; and
(o) there are proposals or arrangements in place whereby the Stock Exchange will not regard the Company as a cash company under Rule 14.82 of the Listing Rules.

The Share Subscriber may at its discretion waive compliance of any or all of the above conditions, except the condition stated in paragraphs (a), (b), (c), (d), (k) and (o) above and except where such conditions are mandatory pursuant to the laws and regulations applicable to the Company, the Listing Rules and the Takeovers Code.

If the above conditions have not been fully fulfilled, satisfied or waived on or before the Share Subscription Long Stop Date (or such other date as may be agreed between the parties to the Share Subscription Agreement), the Share Subscription Agreement shall be of no further effect and the parties thereto shall forthwith be released from performing or further performing their obligations under the Share Subscription Agreement, save in respect of any antecedent breach or any accrued right or remedies, which shall not be prejudiced or affected.

If all the conditions have been fulfilled, satisfied or, if applicable, waived on or before the Share Subscription Long Stop Date (or such other date as may be agreed between the parties to the Share Subscription Agreement), completion under the Share Subscription Agreement shall take place on the Share Subscription Completion Date. On such date the Company will issue the Subscription

LETTER FROM THE BOARD

Shares upon the payment of the total subscription consideration under the Share Subscription Agreement, and the Company understands from the Share Subscriber that it and/or its nominated wholly-owned subsidiaries will take up the Subscription Shares.

As at the Latest Practicable Date, none of the above conditions has been satisfied or waived.

Information of the Share Subscriber

The Share Subscriber is the real estate arm of China Minsheng Investment and its investment scope includes high quality real properties in first-tier cities, investment and operation of multipliable assets, development of industrial parks, infrastructure and city construction, theme industry such as aged care and tourist industry, and other high criterion and high profitability investment opportunities. 90% of the total share capital of the Share Subscriber is held by China Minsheng Investment and the remaining 10% is held by China Industrial International Trust Limited (“ CIIT ”). As disclosed on CIIT’s official website, CIIT is controlled by Industrial Bank Co., Ltd. (“ CIB ”), a commercial bank incorporated in the PRC and listed on the Shanghai Stock Exchange. Based on the latest quarterly report issued by CIB on 29 October 2014, a substantial shareholder of CIB as of 30 September 2014 is the Finance Department of China Fujian Provincial Government, which holds 17.86% of the total issued share capital of CIB. None of CIIT, CIB or the Finance Department of China Fujian Provincial Government is acting in concert with the Share Subscriber in respect of the Share Subscription.

China Minsheng Investment is a large private investment company organized by The All-China Federation of Industry and Commerce in China and was launched by 59 well-known private enterprises throughout China. The shareholders of China Minsheng Investment are all large scale private enterprises, some of which are among China’s top 500 companies. The business scope of the shareholders of China Minsheng Investment involves a variety of industries such as machinery manufacturing, metallurgy, information technology, asset management, garment, biological pharmacy, environmental protection, new energy, culture and media, commerce and trade, electric power, home appliances stores, e-commerce, real estate and so forth. As at the Latest Practicable Date, no single shareholder of China Minsheng Investment holds more than 4% of the voting rights or equity contributed in China Minsheng Investment. None of the shareholders of China Minsheng Investment is acting in concert with the Share Subscriber in respect of the Share Subscription (save for those shareholders whose ultimate beneficial owners are also directors of the Share Subscriber or directors of China Minsheng Investment). To the knowledge of the Share Subscriber, none of the shareholders of China Minsheng Investment is acting in concert with each other in respect of their investment in China Minsheng Investment.

China Minsheng Investment was established and registered in Shanghai in May 2014, with a registered capital of RMB50 billion. It is a conglomerate with a wide variety of businesses including equity investment, equity investment management, business consulting, financial consulting, industrial investment, asset management, and investment consulting. China Minsheng Investment’s strategy is to fully utilise its competitive strengths in terms of national brand, integration of resources, financial strength, comprehensive operations, management output and other competitive advantages in the implementation of its strategic integration in key target industries, with the objectives to create a strategic and sustainable business model. China Minsheng Investment will, through capital investment and leverage, and featured by business consolidation

LETTER FROM THE BOARD

and the full range of financial licenses, apply its resources and efforts in developing distinctive business portfolios and key segments. In terms of the specific implementation path, China Minsheng Investment, relying on industrial integration, industrial strategic investment, mixed investment, establishment of full financial licenses platform and exploration of overseas investment market, will actively carry out the relevant business activities.

The directors of the Share Subscriber, the directors and the president of China Minsheng Investment as well as those shareholders of China Minsheng Investment whose ultimate beneficial owners are directors of the Share Subscriber or directors of China Minsheng Investment are considered to be parties acting in concert with the Share Subscriber in respect of the Company.

Dealings and interest held in the Company’s securities by the Share Subscriber and its concert parties

Save for the entering into of the Share Subscription Agreement, none of the Share Subscriber or parties acting in concert with it, during the Relevant Period, has acquired or disposed of any voting rights and rights over the Shares, convertible securities, warrants or options in the Company or outstanding derivatives in respect of the securities of the Company.

As at the Latest Practicable Date, the Share Subscriber and parties acting in concert with it are Independent Third Parties, and the Share Subscriber and parties acting in concert with it do not hold, control or direct any voting rights and rights over shares, convertible securities, warrants, options in the Company or outstanding derivatives in respect of the securities of the Company (other than those pursuant to the Share Subscription Agreement). The Share Subscriber is also independent of the CB Subscriber.

As at the Latest Practicable Date, the Share Subscriber and parties acting in concert with it have not borrowed or lent any Shares.

Whitewash Waiver

Upon completion of the Share Subscription, the Share Subscriber and parties acting in concert with it will hold approximately 6,500,000,000 Shares, representing approximately 63.67% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares, assuming no other changes to the issued share capital of the Company until the Share Subscription Completion Date. The Share Subscriber and parties acting in concert with it will incur an obligation pursuant to Rule 26 of the Takeovers Code to make a mandatory general offer to the Shareholders to acquire all the Shares other than those owned or agreed to be acquired by the Share Subscriber, its ultimate beneficial owners and parties acting in concert with any of them.

The Company understands from the Share Subscriber that, other than the Share Subscription Agreement, there are no (a) arrangements (whether by way of option, indemnity or otherwise) in relation to the shares of the Share Subscriber or the Shares which might be material to the Share Subscription Agreement and/or the Whitewash Waiver; (b) agreements or arrangements to which the Share Subscriber is a party which relate to the circumstances in which it may or may not invoke or seek to invoke a pre-condition or a condition to the Share Subscription Agreement and/or the Whitewash Waiver.

LETTER FROM THE BOARD

The Share Subscriber has made an application to the Executive for the granting of the Whitewash Waiver, which if granted, will be subject to, among other things, approval by the Independent Shareholders in respect of the Share Subscription and the Whitewash Waiver at the SGM.

As at the Latest Practicable Date, none of the Share Subscriber nor any party acting in concert with it has received an irrevocable commitment from any Shareholder to vote for or against the resolutions concerning the Share Subscription and/or the Whitewash Waiver to be proposed at the SGM.

If the Whitewash Waiver is approved by the Independent Shareholders and the Share Subscription proceeds to completion, the shareholding of the Share Subscriber and parties acting in concert with it in the Company will exceed 50% upon the allotment and issue of the Subscription Shares. The Share Subscriber and parties acting in concert with it may further increase their shareholdings in the Company without incurring any further obligations under Rule 26 of the Takeovers Code to make a general offer.

As the Share Subscription will result in the Company receiving a significant amount of cash proceeds, considering this as well as the existing cash resources of the Company, the Company may be regarded as a cash company under Rule 14.82 of the Listing Rules. Accordingly, unless there are arrangements in place whereby the Company utilises a majority of its existing cash resources so that the Company will not be regarded as a cash company, one of the conditions precedent to completion of the Share Subscription would not be satisfied and the Share Subscription will not proceed to completion.

B. PROPOSED ISSUE OF CONVERTIBLE BONDS

On 9 February 2015, the CB Subscriber and the Company entered into the CB Subscription Agreement pursuant to which the Company has conditionally agreed to issue, and the CB Subscriber has conditionally agreed to subscribe for, the Convertible Bonds in an aggregate principal amount of HK$200,000,000.

Principal terms of the CB Subscription Agreement

Date: 9 February 2015 Parties: (i) the Company; and (ii) the CB Subscriber.

The CB Subscription

Subject to fulfilment of the conditions of the CB Subscription Agreement, the CB Subscriber shall subscribe or procure the subscription by his nominee(s) for the Convertible Bonds in the principal amount of HK$200,000,000 at their face value and shall pay or procure that there shall be paid to or to the order of the Company the subscription consideration under the CB Subscription Agreement in the amount of HK$200,000,000.

LETTER FROM THE BOARD

Conditions for the CB Subscription

The CB Subscription is conditional upon:

(a) Shareholders approving at the SGM the Increase in Authorised Share Capital;
(b) the Company having obtained the Shareholders’ approval of the transactions contemplated under the CB Subscription Agreement including the issue of the Conversion Shares;
(c) the Listing Committee granting approval for the listing of, and dealing in, the Conversion Shares and such approval remaining valid and effective on the CB Subscription Completion Date;
(d) the Company’s representations and warranties contained in the CB Subscription Agreement remaining true, accurate and not misleading in each case in accordance with their terms; and
(e) the CB Subscriber’ s representations and warranties contained in the CB Subscription Agreement remaining true, accurate and not misleading in each case in accordance with their terms.

The CB Subscription Agreement and the Share Subscription Agreement are not inter-conditional.

In the event that the conditions of the CB Subscription Agreement are not fulfilled or (in respect of conditions (d) and (e)) waived on or before the CB Subscription Long Stop Date (or such other date as may be agreed between the parties to the CB Subscription Agreement), the CB Subscription shall be of no further effect and the parties thereto shall be released from all obligations under the CB Subscription Agreement, save for any liability arising out of any antecedent breaches of the CB Subscription Agreement.

As at the Latest Practicable Date, none of the above conditions has been satisfied or waived.

Completion of the CB Subscription

If all the conditions have been fulfilled and/or waived (if applicable) on or before the CB Subscription Long Stop Date, completion under the CB Subscription Agreement shall take place on the CB Subscription Completion Date, and on which date the Company will issue the Convertible Bonds to the CB Subscriber upon the payment of the total principal amount of the Convertible Bonds. It is expected that completion of the CB Subscription will take place within one month after the approval of the CB Subscription at the SGM.

Information of the CB Subscriber

The CB Subscriber, namely, Honghu Capital Company Limited, is a company incorporated under the laws of the British Virgin Islands and an investment holding company wholly and beneficially owned by Mr. Deng Jun Jie. Mr. Deng Jun Jie is a businessman and a Hong Kong permanent resident. Mr. Deng Jun Jie is an Independent Third Party and does not have any relationship with the Share Subscriber, China Minsheng Investment and the 59 shareholders of China Minsheng Investment.

LETTER FROM THE BOARD

Principal terms of the Convertible Bonds

the Company

Issuer: the Company CB Subscriber: Honghu Capital Company Limited Principal amount: HK$200,000,000

Maturity Date:

The third anniversary of the date of issue of the Convertible Bonds.

Zero Coupon:

The Convertible Bonds do not carry any interest.

Security: The Convertible Bonds will be unsecured. Conversion Price:

HK$0.20 per Conversion Share.

The Conversion Price will be subject to customary adjustments for consolidations, subdivisions or reclassification of Shares which may have a dilution effect on the Conversion Shares to be allotted and issued to the holders of the Convertible Bonds upon the exercise of the conversion right attached to the Convertible Bonds.

Conversion Shares:

At the initial Conversion Price, up to 1,000,000,000 Conversion Shares (subject to adjustment) will be allotted and issued pursuant to the Specific Mandate to be sought at the SGM assuming the conversion rights attaching to the Convertible Bonds are exercised in full.

The Conversion Shares, when allotted and issued, will rank pari passu in all respects with all Shares in issue at the date of allotment and issue of such Conversion Shares.

Conversion Period:

The period from the date which is 6 months from the date of issue of the Convertible Bonds and up to ten business days prior to the Maturity Date.

Transferability:

The Convertible Bonds may be assigned or transferred in whole or in part (in whole multiples of HK$10,000,000) of its outstanding principal amount and the Company shall facilitate any such assignment or transfer of the Convertible Bonds provided that prior notification shall be given to, and consultation be made with, the Company and such transfer shall be subject to the conditions, approvals, requirements and any other provisions of the applicable laws, including the Listing Rules. In case of a transfer to a connected person (as defined under the Listing Rules), the relevant requirements under Chapter 14A of the Listing Rules have to be complied with prior to the transfer.

LETTER FROM THE BOARD

Lock-up:

During the period of 24 months immediately following the issue date of the Convertible Bonds, unless with the prior written consent of the Company:

(a) no transfer of the Convertible Bonds shall be effected and the Company shall not be obliged to effect any transfer of the Convertible Bonds during such lock-up period;
(b) no bondholder shall, during such lock-up period, (i) contract to sell, grant or agreeing to grant any option, right or warrant to purchase or subscribe for, or otherwise howsoever transfer or dispose of, either directly or indirectly, conditionally or unconditionally, any legal or beneficial interest in the Convertible Bonds or any securities convertible into or exercisable or exchangeable for, or that represent the right to receive, the Convertible Bonds or any interest (except for interest in the form of charge or mortgage) in them; or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any beneficial ownership of the Convertible Bonds or any interest in them or any of the economic consequences or incidents of ownership of the Convertible Bonds or any interest in them; or (iii) enter into any transactions directly or indirectly with the same economic effect as any transactions described in (i) or (ii) above; or (iv) contract or agree to, or publicly disclose that it will or may enter into any transaction described in (i), (ii) or (iii) above whether any such transaction described in (i), (ii) or (iii) above is to be settled by delivery of the Convertible Bonds or other securities, in cash or otherwise;
(c) no bondholder shall, during such lock-up period, designate a person or person(s) other than such bondholder in the conversion notice or otherwise in writing to become the holder of record of all or any of the Conversion Shares issuable upon the conversion of the Convertible Bonds; and
(d) no bondholder shall, during such lock-up period, (i) contract to sell, grant or agreeing to grant any option, right or warrant to purchase or subscribe for, or otherwise howsoever transfer or dispose of, either directly or indirectly, conditionally or unconditionally, any legal or beneficial interest in the Conversion Shares or any securities convertible into or exercisable or exchangeable for, or that represent the right to receive, the Conversion Shares or any interest (except for interest in the form of

LETTER FROM THE BOARD

charge or mortgage) in them; or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any beneficial ownership of the Conversion Shares or any interest in them or any of the economic consequences or incidents of ownership of the Conversion Shares or any interest in them; or (iii) enter into any transactions directly or indirectly with the same economic effect as any transactions described in (i) or (ii) above; or (iv) contract or agree to, or publicly disclose that it will or may enter into any transaction described in (i), (ii) or (iii) above whether any such transaction described in (i), (ii) or (iii) above is to be settled by delivery of the Conversion Shares or other securities, in cash or otherwise,

except for transfer to an entity which is controlling, controlled by or under the common control of such bondholder(s).

Redemption:

Any amount of the Convertible Bonds which remains outstanding on the Maturity Date shall be redeemed at its then outstanding principal amount.

Conversion Price

The initial Conversion Price of HK$0.20 per Conversion Share represents:

(a) a discount of approximately 42.86% to the closing price of HK$0.35 per Share on the Stock Exchange on the Last Trading Day of the Shares;
(b) a discount of approximately 35.06% to the average closing price of approximately HK$0.308 per Share for the last 5 trading days up to and including the Last Trading Day;
(c) a discount of approximately 23.37% to the average closing price of approximately HK$0.261 per Share for the last 30 trading days up to and including the Last Trading Day;
(d) a discount of approximately 19.35% to the average closing price of approximately HK$0.248 per Share for the last 60 trading days up to and including the Last Trading Day; and
(e) a discount of 75% to the closing price of HK$0.80 per Share on the Stock Exchange on the Latest Practicable Date.

LETTER FROM THE BOARD

on the net liability of the Company as at 30 September 2014, and taking into account the net proceeds from the aforementioned rights issue and based on the 3,709,602,920 Shares in issue as at the Latest Practicable Date, the adjusted estimated net asset value of the Company is approximately HK$0.074 per Share. The Conversion Price therefore represents a premium of over 170% to the adjusted estimated net asset value per Share of the Company.

The net Conversion Price, after deducting all relevant costs and expenses is estimated to be approximately HK$0.199 per Conversion Share.

The Conversion Price was arrived at after arm’s length negotiations between the Company and the CB Subscriber with reference to, amongst others, the recent share price performance, liquidity of the Shares and the zero coupon rate of the Convertible Bonds. The Directors consider that the initial Conversion Price and the terms of the CB Subscription Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

The Conversion Shares

Assuming full conversion of the Convertible Bonds, 1,000,000,000 Conversion Shares will be allotted and issued to the bondholder(s). The 1,000,000,000 Conversion Shares to be allotted and issued represent: (i) approximately 26.96% of the existing issued share capital of the Company as at the Latest Practicable Date; (ii) approximately 21.23% of the issued share capital of the Company as enlarged by the allotment and issue of the 1,000,000,000 Conversion Shares; and (iii) approximately 8.92% of the issued share capital of the Company as enlarged by the allotment and issue of the 6,500,000,000 Subscription Shares and the 1,000,000,000 Conversion Shares.

Reasons for the Share Subscription and the CB Subscription and intended use of proceeds

The principal business of the Company is investment holding and the Group’s business operations were principally related to property development and investment.

As stated in the Company’s interim report for the six months ended 30 September 2014, it is the Group’s ongoing plan to continue to leverage its resources in exploring opportunities in the property development and investment business. However, should there be any other potential investments in other areas that could potentially enhance the financial and operating performance of the Group and are in the interests of the Company and the Shareholders as a whole, they will also be considered.

The Directors have continued to review the Company’s existing businesses and strive to improve the business operations and financial position of the Company by proactively seeking potential investment opportunities that could diversify and expand its existing business portfolio, establish new business where desirable, broaden its source of income, and enhance value to its Shareholders. In an effort to further implement this strategy, the Directors believe that it would create business synergies if the Company were to introduce a prominent and reputable strategic investor who would be able to work with the Company to source opportunities for new business development as well as business diversification and extension along the supply chain of property development and investment.

LETTER FROM THE BOARD

The Directors have considered that:

(a) the background, industry expertise and experience of the Share Subscriber and China Minsheng Investment, as well as the variety of its business portfolios which include a specific segment engaging in property related industries;
(b) the benefits including strategic value and management expertise the Share Subscriber could bring to the Group in the future; and
(c) consistent with the strategic intention of the Group, the Share Subscriber’s intention to make investments in the extended PRC property sector including businesses that are upstream and downstream from property development and investment, as well as businesses that are ancillary to property development and investment.

The Directors are of the view that the Company will be able to capture and pursue better business and investment opportunities upon completion of the Share Subscription. In addition to introducing a strategic investor, the Directors consider that it would be a desirable opportunity to seek financial investor to provide additional funding to support the implementation of the Group’s business strategy. Accordingly, the Directors consider that the Share Subscription and the CB Subscription will provide immediate funding, benefit the long-term development of the Company by broadening its equity base and also strengthen the financial position of the Company.

The Directors believe that, with the valuable contributions and views from the Share Subscriber, the Group will be in a better position to assess and evaluate the commercial viability of the business opportunities that are currently under review, to source and identify new business development and diversification opportunities, and to capture and undertake those opportunities.

The Company has considered other fund raising methods such as rights issue or open offer, and debt financing and considered that the Share Subscription and the CB Subscription are preferable for the following reasons:

(i) substantial amount of capital requirement is required for the property development business and given the Company’s current market capitalisation, it would be difficult for financial institutions to provide facility up to such substantial amount to the Group in view of the tightened lending policies of the banks and financial institutions in the PRC on loans to property development companies, and debt financing would inevitably increase the financial costs of the Group; and
(ii) a pre-emptive issue such as rights issue or open offer would not be able to bring in strategic investors as Shareholders, particularly investors with experience and background in the property development sector in the PRC, such as the Share Subscriber.

Accordingly, the Directors consider that despite the dilution effect, it is fair and reasonable to proceed with the Share Subscription and the CB Subscription.

LETTER FROM THE BOARD

In addition to the above, although the Subscription Price and the Conversion Price represent a relatively substantial discount to the closing price of Shares on the Last Trading Day, in view of the foregoing and having further taking into account the reasons and benefits of the Share Subscription and the CB Subscription that may be brought to the Group, the Directors (including the independent nonexecutive Directors after taking into account the advice of the Independent Financial Adviser) consider that the Subscription Price and the Conversion Price are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The gross aggregate proceeds of the Share Subscription and the CB Subscription are HK$1,500 million. The net aggregate proceeds of the Share Subscription and the CB Subscription is approximately HK$1,296 million and approximately HK$199 million respectively. The Company intends to apply the net proceeds to be raised from the Share Subscription and the CB Subscription (a total of approximately HK$1,495 million) as follows:

(a) up to approximately HK$600 million for pursuing the potential acquisition referred to in the framework agreement entered into by the Company in December 2014 for the proposed acquisition of Jinhong Property Development Limited (please refer to the announcement dated 24 December 2014 for details). The usage of such proceeds would depend on whether such potential acquisition could proceed to the signing of the formal sale and purchase agreement and subsequently proceed to completion, and whether the Company will acquire a majority or minority stake in the relevant target company and the size of such stake. It would also be subject to the satisfactory findings of the due diligence investigation. It should be noted that as such potential acquisition requires the Company to provide funds proof, completion of the Share Subscription and the CB Subscription will place the Company in a position to continue the negotiations and process for such potential acquisition;
(b) approximately HK$800 million for making investment in or acquiring new business opportunities in the upstream PRC property development sector in Central, Eastern and Southern China. In this connection, the Company intends to prioritise the markets in the upstream property development sector (namely, the building of the capability of the Group in the production of pre-cast units and materials) in Guangdong Province, Shanghai Municipal City, Jiangsu Province and Zhejiang Province. It is contemplated that such HK$800 million will be utilised in stages from the completion of the Share Subscription and the CB Subscription until around the third to fourth quarter of 2016 for making investments in the acquisition of land or existing production facilities, the building and/or configuration of production facilities, as well as the purchase of equipment and machineries for installation in the production facilities to enable the Group to establish its capability in the production of pre-cast units and materials. Specific personnel has been identified to carry out detailed feasibility studies for making investments in such upstream PRC property development sector in Guangdong Province, Shanghai Municipal City, Jiangsu Province and Zhejiang Province respectively. In particular, (i) in relation to Guangdong Province, the Company is considering establishing two production facilities and priority is intended to be given to acquire land parcels with existing production facilities. The Company is currently considering acquiring a parcel of land with an existing production facility located in the Yangna Economic Development Zone in Danshui County, Huiyang District, Huizhou City, with gross floor area of approximately 26,000 square meters and storage yard of approximately 2,580 square meters. The acquisition price has been determined to be in the proximity of RMB80 million. The Company expects to enter into a letter of intent with

LETTER FROM THE BOARD

the seller in May 2015. Following the completion of such acquisition, additional funds of RMB115 million is intended to be invested into this production facility, for the purpose of reconfiguration of the facility (approximately RMB20 million), purchase of production equipment (approximately RMB60 million) and working capital (approximately RMB35 million). Meanwhile, the Company is also reviewing opportunities of making investments in Dongguan City, Foshan City, Nansha City by way of the acquisition of land parcels or the purchase or lease of existing production facilities. If these opportunities materialise, investments are intended to be made by the Group to expand or reconfigure the production facilities as well as to purchase new equipment in order to quickly build up the Group’s capability in the production of pre-cast units and materials; (ii) in relation to Zhejiang Province, the Company intends to establish one production facility. The Company is considering investing in a project by way of a joint venture and which project consists of, among others, existing land parcel with an area of approximately 100 mu. In addition, the Company may also consider acquisition of land parcels with an area of approximately 100150 mu from the local governments on which the Company can construct new production facilities; (iii) in relation to Shanghai Municipal City, the Company is considering establishing one production facility and is currently considering the acquisition of an existing production facility located in Shanghai Songjiang Industrial Park (No. 2677, Shengang Road, Shanghai) with gross floor area of approximately 19,272.81 square meters in total. In this respect, Benelux Property Development (Shanghai) Limited, a subsidiary of the Company, together with China Minsheng Zhuyou Co. Ltd. (中民築友有限公司), a subsidiary of the Share Subscriber entered into a memorandum of understanding with the seller, namely Shanghai Zhao Nian Heavy Machinery Co. Ltd. (上海兆年重工機械有限公司), for the acquisition of the production facility at a total consideration of RMB82 million on 28 April 2015, details of which are set out in the announcement of the Company dated 28 April 2015. Following the completion of such acquisition, additional funds of RMB120 million is intended to be invested into this production facility, for the purpose of reconfiguration of the facility (approximately RMB15 million), purchase of production equipment (approximately RMB65 million) and working capital (approximately RMB40 million); and (iv) in relation to other provinces in China, the Company may also consider establishing one production facility in Qingdao City, Shandong Province and is considering the acquisition of land parcels with an area of approximately 100-150 mu on which new production facilities could be constructed. Apart from the above possible opportunities, the Company is also reviewing investment opportunities in Beijing Municipal City, Hubei Province, Henan Province and Anhui Province. Whilst no formal agreement has been entered into by the Group in respect of any of the above potential opportunities, the Company’s intention is to continue with the review and studies of these opportunities and other appropriate opportunities. Depending on the circumstances and results of these studies and negotiations, the above specific locations and projects may however be subject to changes; and

(c) the remaining amount of approximately HK$95 million as general working capital of the Group, including the recruitment of personnel to expand the managerial and operational headcounts of the Group.

LETTER FROM THE BOARD

Future business plan of the Company following completion of the Share Subscription

The Directors consider that, following the completion of the Share Subscription and with the background, industry expertise and experience of the Share Subscriber and China Minsheng Investment, as well as the variety of their business portfolios which include a specific segment engaging in property related industries, it would be desirable to pursue investment opportunities in the extended real property sector including businesses that are upstream and downstream from property development and investment, as well as businesses that are ancillary to property development and investment.

In order to complement the above business development direction, it is intended that the medium to long term strategic plan of the Company would be to make investments in or acquire new business opportunities in the upstream property development sector. In the next three to five years, with the support from the Share Subscriber and China Minsheng Investment, it is the intention of the Company to strive to achieve a robust market position in the upstream property development industry and to explore market opportunities in such industry.

To achieve this strategy, the Company has formed the strategic cooperation with the Guarantor, a leading PRC construction company, which has sound and proven business record in the relevant industry. Details of such cooperation are disclosed in the announcement dated 23 April 2015 of the Company. It is expected that the combination of the business resources of the Share Subscriber and the production capability of this construction company will greatly help the Company builds up its business capacity and the Company intends to utilise the proceeds from the Share Subscription and the CB Subscription to make investments in various business opportunities in order to establish an all-round platform of business and capital operation in the upstream property development sector.

In 2015 to 2016, the Company expects to set up a strong team of professionals to drive the above strategy of the Company and it is currently identifying candidates who have solid skills and extensive experience in the relevant industry. The Company is also considering the acquisition of an A level design institute and a top-grade construction company and the establishment of three large-scale production facilities in Hunan Province, Shanghai Municipal City and Guangdong Province, respectively. In recent years, the local government in Hunan Province has promulgated a few preferential policies to support the upstream property development sector (in particular, the production of pre-cast units and materials). Likewise, the Shanghai Municipal Government published its three-year action plan in 2014 in relation to the development of environmental friendly construction industry, pursuant to which all the new civil projects outside of the Outer Ring Road must be constructed by way of assembling pre-cast units and materials. The future development of construction industry in Guangdong Province is prosperous considering the large volume of real property projects in the long-term development plan published by the local government and the large-scale real property developers based in the region.

In 2016 to 2017, the Company would expect a rapid development and expansion by establishing regional branches in Jiangsu Province and Zhejiang Province, where the upstream property development sector is greatly supported by the local government and is widely accepted by the local construction industry and market players. Hubei Province has been selected as an alternative location for market exploration. It is envisaged that the Company will focus its investments on developing its market position in these regions.

LETTER FROM THE BOARD

In 2018 to 2019, the Company intends to further expand its deployment in the PRC and optimise the business capacity in all its then production facilities, which will largely improve the Company’s financial profitability and build up its own brand in the industry. Besides, the Company will consider the exploration of international market in the upstream property development sector.

Apart from the commercial real property development projects as mentioned above, the Company is also considering to undertake projects in relation to the construction of government sponsored housings and reconstruction after serious natural disaster in the PRC to fulfil its corporate social responsibilities. There are a few potential client opportunities which include a real property developer in Hunan Province in respect of a project for government sponsored housing and a leading international real property developer in respect of a project in Malaysia.

The Company believes that investments in the upstream property development sector would provide more value-adding services and products by expanding the Company’s business to the upstream of the supply chain of the real property development industry. Such upstream property development industry is the most effective way to solve the existing problems in the traditional construction industry (being high consumption, severe contamination and inefficiency) and is the best way to upgrade the traditional construction technology. It is also in line with the national development strategy of the PRC and intrinsic demand of city development in an environmental friendly way. In addition, the market access threshold of such industry is relatively high and our competitors will be limited in numbers. Given that such industry is still in the preliminary stage in its life cycle, none of the current market pioneers has obtained a predominant market position. As such, with the support from the Share Subscriber in terms of its industry expertise and experience and extensive network resources, it would place the Company in a position to seize market opportunities effectively. If the Share Subscription does not proceed due to the Whitewash Waiver not being granted or any of the conditions precedent to the completion of the Share Subscription not being satisfied or waived, the Company would need to review the viability of the business plan as stated above since the Company would lack the necessary strategic and financial support to develop its business into the upstream property development industry.

At the current stage, the Group’s future business plan as described above is, in material respects, in line with the intention of the Share Subscriber in relation to the future business and business development of the Group upon completion of the Share Subscription. The Share Subscriber intends to review, together with the Company, the treatment of the existing business of the Group and its employees (namely, in terms of continuation or discontinuation) so that the Group could be placed in a position to execute the above future business plan.

Proposed Increase in Authorised Share Capital

As at the Latest Practicable Date, the authorised share capital of the Company is HK$400,000,000 divided into 4,000,000,000 Shares of HK$0.10 each, of which 3,709,602,920 Shares have been allotted and issued as fully paid or credited as fully paid. Under the Share Subscription and assuming full conversion of the Convertible Bonds and no adjustment will be required to be made to the Conversion Price, the Company will be required to issue an aggregate of 7,500,000,000 Shares. In order to undertake the Share Subscription and issue of Conversion Shares (assuming full conversion of the Convertible Bonds), the Board proposes to increase the authorised share capital of the Company from HK$400,000,000 divided into 4,000,000,000 Shares to HK$2,500,000,000 divided into 25,000,000,000 Shares by creating 21,000,000,000 new Shares.

LETTER FROM THE BOARD

The Increase in Authorised Share Capital is conditional upon the passing of an ordinary resolution by the Shareholders at the SGM. As no Shareholders have material interests in the Increase in Authorised Share Capital, no Shareholders are required to abstain from voting on such resolution.

Specific Mandates to issue the Subscription Shares and the Conversion Shares

The Company will seek a specific mandate from the Independent Shareholders at the SGM for the allotment and issue of the Subscription Shares and a specific mandate from the Shareholders at the SGM for the allotment and issue of the Conversion Shares upon the full conversion of the Convertible Bonds. As time will be required for the Share Subscriber (or its nominee(s)) to complete certain PRC regulatory processes for undertaking the Share Subscription, including to transfer the necessary funding to Hong Kong for the payment of the consideration for the Share Subscription, it is expected that completion of the Share Subscription, and hence the exercise of the Specific Mandate to issue the Subscription Shares, will take place within one month after the approval of the Share Subscription at the SGM but in any case, it will be prior to or on the Share Subscription Long Stop Date.

Application for listing

Application will be made by the Company to the Listing Committee for the listing of, and permission to deal in, the Subscription Shares and the Conversion Shares. No listing of the Convertible Bonds will be sought on the Stock Exchange or any other stock exchanges.

LETTER FROM THE BOARD

Fund raising activities during the past twelve months

Save as disclosed below, the Company has not conducted any other equity fund raising exercises in the past twelve months before the date of the Announcement.

Date of

Intended use of proceeds at

Date of Net proceeds Intended use of proceeds at announcement Event (approximately) that time 11 August 2014 Rights issue of HK$283 million Future development of the 2,919,647,040 Group, including but not new Shares of the limited to for the payment Company at the of the cash portion of the subscription price of consideration of the proposed HK$0.10 each acquisition of properties in Shenzhen, while the remaining proceeds (if not utilized) will be applied for other investment opportunities identified and/or the business development of the Group and/or general working capital of the Group.

announcement

Actual use of proceeds

a. HK$72 million has been used for payment of the earnest money in relation to the proposed acquisition of properties in Shenzhen (Note);
b. HK$28 million has been used for payment of the earnest money in relation to the proposed acquisition of the entire equity interest of Jinhong Property Development Limited, further information of which is set out in the announcement of the Company dated 24 December 2014;
c. approximately HK$16 million has been used for working capital of the Group; and
d. the remaining of approximately HK$167 million is yet to be utilized and has been placed in interest-bearing bank account for use in due course.

Note: As disclosed in the Holding Announcement, the framework agreement in relation to the proposed acquisition of properties in Shenzhen has been lapsed. The HK$72 million earnest money paid shall be refunded to the Company pursuant to the framework agreement and it is expected that such monies will be refunded to the Group as soon as practicable and in any event no later than 31 August 2015.

LETTER FROM THE BOARD

Changes in the shareholding structure of the Company

As at the Latest Practicable Date, the Company has 3,709,602,920 Shares in issue and does not have any other outstanding convertible securities, options warrants or other derivatives in issue which are convertible or exchangeable into Shares. The shareholding structure of the Company (a) as at the Latest Practicable Date; (b) after the completion of the Share Subscription; and (c) after the completion of the Share Subscription and the CB Subscription (assuming that all of the Convertible Bonds are converted in full and there are no other changes to the issued share capital of the Company) are as follows:

Shareholders of the Company Taiping Quantum Strategic FundNote 1 Taiping Quantum Prosperity FundNote 1 Taiping Quantum China Opportunities FundNote 1 Quantum Advantage FundNote 1 Jiang Hongqing and his associateNote 4 The Share Subscriber and its concert parties The CB Subscriber Existing public Shareholders Total	As at the Latest Practicable Date Shares % (approx.) 340,000,000 9.17 400,420,000 10.79 7,420,000 0.20 81,000,000 2.18 15,000,000 0.41 – – – – 2,865,762,920 77.25 3,709,602,920 100.00	Immediately after the issue of the Subscription SharesNote 2 Shares % (approx.) 340,000,000 3.33 400,420,000 3.92 7,420,000 0.07 81,000,000 0.79 15,000,000 0.15 6,500,000,000 63.67 – – 2,865,762,920 28.07 10,209,602,920 100.00	Immediately after the issue of the Subscription Shares and the Conversion SharesNote 3 Shares % (approx.) 340,000,000 3.03 400,420,000 3.57 7,420,000 0.07 81,000,000 0.72 15,000,000 0.13 6,500,000,000 57.99 1,000,000,000 8.92 2,865,762,920 25.57 11,209,602,920 100.00	Immediately after the issue of the Subscription Shares and the Conversion SharesNote 3 Shares % (approx.) 340,000,000 3.03 400,420,000 3.57 7,420,000 0.07 81,000,000 0.72 15,000,000 0.13 6,500,000,000 57.99 1,000,000,000 8.92 2,865,762,920 25.57 11,209,602,920 100.00
				100.00

Note 1: Each of Taiping Quantum Strategic Fund, Taiping Quantum Prosperity Fund and Taiping Quantum China Opportunities Fund and Quantum Advantage Fund is managed by Quantum China Asset Management Limited. Mr. Yeung, an executive Director, is the managing partner and chief executive officer of Quantum China Asset Management Limited.

Note 2: Assuming that the Increase in Authorised Share Capital will be approved by the Shareholders at the SGM and assuming that the CB Subscriber does not purchase any Share from the Latest Practicable Date up to the Share Subscription Completion Date and assuming no other changes to the issued share capital of the Company.

Note 3: Assuming that the Increase in Authorised Share Capital will be approved by the Shareholders at the SGM and assuming that the CB Subscriber does not purchase any Share from the Latest Practicable Date up to the issue of the Conversion Shares and assuming that the Share Subscriber and its concert parties do not acquire any Share after completion of the Share Subscription and up to the issue of the Conversion Shares.

Note 4: Mr. Jiang Hongqing is an independent non-executive Director who, together with his spouse, held 15,000,000 Shares as at the Latest Practicable Date.

LETTER FROM THE BOARD

C. MAJOR TRANSACTION RELATING TO SUBSCRIPTION FOR THE NOTE

On 23 April 2015, the Company entered into the Note Subscription Agreement with Mingzhu Construction Engineering Group (Hong Kong) Limited, as the Issuer, and Mingzhu Construction Engineering Co., Ltd., as the Guarantor, pursuant to which, the Company conditionally agreed to subscribe for the Note in the principal amount of HK$250,000,000 with a coupon rate of 4.80% per annum. The maturity date of the Note is the third anniversary date after the date of completion on which the Note is issued.

Principal terms of the Note Subscription Agreement and the Note

Subscription price

The subscription price of the Note payable by the Company is HK$250,000,000, being 100% of the principal amount of the Note, and will be paid by the Company upon completion of the Note Subscription Agreement by utilising its then existing cash resources. The subscription price was determined after arm’s length negotiations between the Company and the Issuer. The Note is guaranteed by the Guarantor and is not transferable.

Interest rate

The Note will bear interest at the rate of 4.80% per annum. The interest will be payable by the Issuer semi-annually in arrears.

Conditions precedent

Completion of the Note Subscription Agreement is conditional upon the satisfaction (or, if applicable, waiver) of the following conditions:

(a) completion of the Share Subscription Agreement in accordance with the terms thereof;
(b) the passing of a resolution by the Company at the SGM to approve the entering into of the Note Subscription Agreement and the transactions contemplated thereunder;
(c) the representations and warranties of the Issuer and the Guarantor in the Note Subscription Agreement are true in all material respects;
(d) no default is outstanding or would result from the completion of the Note Subscription Agreement; and
(e) no customary and industrial material adverse event has occurred.

As at the Latest Practicable Date, none of the above conditions is fulfilled. For the avoidance of doubt, further information of the reasons for the completion of the Note Subscription Agreement being subject to the satisfaction of condition (a) above is set out under the paragraph headed “Reasons for and the benefits of the Note Subscription Agreement and the Strategic Cooperation Framework Agreement” below.

LETTER FROM THE BOARD

Completion

Completion would take place on the date when all the conditions precedent have been satisfied or otherwise waived and should not be later than 31 August 2015.

Guarantee

The Guarantor agreed to guarantee to the Company the punctual performance by the Issuer of all its obligations under the Note Subscription Agreement and the terms and conditions of the Note and that, unless all amounts which may be or become payable by the Issuer under or in connection with the Note Subscription Agreement have been irrevocably paid in full, amongst others, the rights of the Guarantor will be subrogated to any rights, security or moneys held, received or receivable by the Company.

Maturity date

The maturity date is the third anniversary date after the completion of the Note Subscription Agreement i.e. the date on which the Note is issued.

Redemption

At any time commencing from twelve months after the date on which the Note is issued, the Company or the Issuer may, by giving not less than three months’ notice, request for early redemption of the Note in whole (but not in part), or, on and at any time after the occurrence of an event of default specified in the terms and conditions of the Note prior to the maturity date, the Company may by notice to the Issuer demand that the Note should immediately be redeemed by the Issuer.

The Strategic Cooperation Framework Agreement

On 23 April 2015, in conjunction with the entering into of the Note Subscription Agreement, the Company entered into a Strategic Cooperation Framework Agreement with the Guarantor whereby the Company and the Guarantor agreed to strengthen the cooperation in relation to business activities and opportunities in the property development, project construction and production of pre-cast materials in the PRC. Pursuant thereto, the Company and the Guarantor should consider each other as a strategic cooperation partner and should strengthen the cooperation in relation to business activities and opportunities in property development, project construction and production of pre-cast materials in the PRC.

Pursuant to the Strategic Cooperation Framework Agreement, the Guarantor agrees to offer the most favorable prices, and to give priorities to the arrangement of construction and engineering professionals and experts, for the construction of the Company’s future real property development projects in the PRC, including the production of pre-cast units and materials.

The term of the Strategic Cooperation Framework Agreement is three years which can be extended by mutual agreement.

LETTER FROM THE BOARD

The terms and conditions of the cooperation to be reached under the Strategic Cooperation Framework Agreement should be fair and reasonable and be determined after arm’ s length negotiations between the Company and the Issuer.

Reasons for and the benefits of the Note Subscription Agreement and the Strategic Cooperation Framework Agreement

As mentioned in the paragraph headed “ Reasons for the Share Subscription and the CB Subscription and intended use of proceeds” in this letter from the Board, the Company plans to utilize part of the net proceeds to be raised from the Share Subscription to make further investments in property projects, including projects that could facilitate its development in the upstream property development sector and the building of its capability in the production of pre-cast units and materials in various regions in the PRC such as Guangdong Province, Shanghai Municipal City, Jiangsu Province and Zhejiang Province. Hence, the Company has been seeking to establish strategic alliances with construction company(ies) that would better commit its resources to support the Company’s proposed property related projects and would offer commercially favourable and competitive terms to the Company in terms of the construction services to be provided by it to the Group.

In view of the above, the Directors consider that it is critical to the success of the Company’s future business to develop strategic cooperation with a construction company and solidify the relationship with it. The Directors consider that the subscription for the Note to be issued by the Issuer and the strategic cooperation with the Guarantor, being qualified as a Grade 1 General Construction Contractor in the PRC, will enable the Company to achieve this and is also an alternative way to assure the Company of a priority in securing construction service supplier at a competitive cost, to ensure its commitment and support to the Company’s property projects, including projects in the upstream property development sector, and to leverage the Guarantor’s strength in the area of real property construction to further explore the market for the Company’s production of pre-cast construction units and materials. Such commitment in the form of prioritizing resources, timely delivery and better quality control is of substantial benefits to the Company’s business and will allow the Company to improve its profit margin and enhance customer satisfaction. Therefore, the Note Subscription Agreement is aimed at facilitating the future plans and development of the Group contemplated by the entering into of the Share Subscription Agreement. The completion of the Note Subscription Agreement is therefore conditional upon the completion of the Share Subscription Agreement.

The Directors (including the independent non-executive Directors) are of the view that the terms and conditions of the Note Subscription Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Effect of the subscription for the Note on the earnings and assets and liabilities of the Company

As a result of the Note Subscription Agreement, the financial assets of the Group would increase by HK$250,000,000, whereas cash and cash equivalent of the Group would decrease by HK$250,000,000. The subscription for the Note had no impact on the liabilities of the Group. The subscription for the Note would enable the Group to earn an aggregate income of HK$12,000,000 per annum.

LETTER FROM THE BOARD

Information on the Issuer and the Guarantor

The Issuer is a construction company whose principal businesses include project construction, engineering, project management and decoration in Hong Kong.

The Guarantor is a large-scale construction company and holds the entire issued share capital of the Issuer. The Guarantor was established in 1978 and its principal businesses include construction and engineering, decoration and reconfiguration, foundation structuring and other specialised construction and technical service. The Guarantor, with its headquarters based in Fuzhou City, has branches and representative offices in a few provinces and cities in the PRC, including Shanghai Municipal City, Guangdong Province, Jiangsu Province, Shaanxi Province, Shanxi Province, Lanzhou City and Xiamen City.

The Issuer, the Guarantor and their ultimate beneficial owners are independent of and not connected with the Company and its connected persons, the Share Subscriber and parties acting in concert with it and the CB Subscriber. None of the Issuer, the Guarantor or their ultimate beneficial owners is a Shareholder.

LISTING RULES IMPLICATIONS

The subscription for the Note constitutes financial assistance to be provided by the Company to the Issuer falling within the meaning of Rule 14.04(1)(e) of the Listing Rules. In addition, as one or more of the applicable percentage ratios (as defined in the Listing Rules) in respect of the subscription for the Note under the Note Subscription Agreement exceed 100%, the entering into of the Note Subscription Agreement is subject to the reporting, announcement and Shareholders’ approval requirements under the Listing Rules.

SGM

The notice convening the SGM to be held at Island Shangri-La, Hong Kong at Two Pacific Place, Supreme Court Road, Central, Hong Kong on Monday, 18 May 2015 at 2:30 p.m. is set out on pages 139 to 141 of this circular.

The SGM will be convened at which ordinary resolutions will be proposed to the Shareholders or the Independent Shareholders (as the case may be) to approve, among other things, (i) the Increase in Authorised Share Capital; (ii) the Share Subscription Agreement and the transactions contemplated thereunder; (iii) the CB Subscription Agreement and the transactions contemplated thereunder; (iv) the granting of the Specific Mandates for the allotment and issue of the Subscription Shares and the Conversion Shares; (v) the Whitewash Waiver; and (vi) the Note Subscription Agreement and the transactions contemplated thereunder. Pursuant to the Listing Rules, any vote at the SGM shall be taken by poll.

As at the Latest Practicable Date, the Share Subscriber and parties acting in concert with it do not hold any Shares or other securities in the Company and accordingly are not entitled to vote on any of the resolutions to be proposed at the SGM. The CB Subscriber and its ultimate beneficial owner do not hold any Shares or other securities in the Company and accordingly are not entitled to vote on any

LETTER FROM THE BOARD

of the resolutions to be proposed at the SGM. Only Shareholders who do not have a material interest or who are not involved in or interested in the Share Subscription, the CB Subscription or the Whitewash Waiver can vote on the relevant resolution, and, as Mr. Yeung has been involved in the negotiation for the Share Subscription in his capacity as an executive Director, and is the managing partner and chief executive officer of Quantum China Asset Management Limited, which in turn manages each of Taiping Quantum Strategic Fund, Taiping Quantum Prosperity Fund, Taiping Quantum China Opportunities Fund and Quantum Advantage Fund, Taiping Quantum Strategic Fund, Taiping Quantum Prosperity Fund, Taiping Quantum China Opportunities Fund and Quantum Advantage Fund are therefore required to abstain from voting, in respect of their 828,840,000 Shares, of which the four aforesaid funds, in total, control or are entitled to exercise control over the voting rights, on the aforesaid resolutions regarding the Share Subscription and the Whitewash Waiver at the SGM. Since no Shareholders have material interests in the Increase in Authorised Share Capital, the CB Subscription and the subscription for the Note, no Shareholders are required to abstain from voting in respect of the resolution to approve the Increase in Authorised Share Capital, the CB Subscription and the Note Subscription Agreement.

A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to Computershare Hong Kong Investor Services Ltd., at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof. An announcement on the results of the SGM will be made by the Company following the SGM in accordance with the Takeovers Code and the Listing Rules.

If the Whitewash Waiver is not granted or any of the conditions precedent to the completion of the Share Subscription is not satisfied (or waived as the case may be), the Share Subscription will lapse and will not proceed. Shareholders and potential investors of the Company should exercise caution when dealing in the Shares or other securities of the Company.

Completion of each of the Share Subscription and the CB Subscription is subject to the fulfilment of the conditions precedent in each of the Share Subscription Agreement and the CB Subscription Agreement respectively. The Share Subscription and the CB Subscription are not inter-conditional. As the Share Subscription and/or the CB Subscription may or may not proceed, Shareholders and potential investors are advised to exercise caution when dealing in the Shares or any other securities of the Company.

Completion of the Note Subscription Agreement is subject to the fulfilment of certain conditions precedent, including but not limited to the completion of the Share Subscription Agreement, accordingly the subscription for the Note may or may not proceed. Shareholders and potential investors are advised to exercise caution when dealing in the Shares or other securities of the Company.

LETTER FROM THE BOARD

RECOMMENDATIONS

Your attention is drawn to:

(1) the letter from the Independent Board Committee set out on page 33 of this circular which contains the recommendation of the Independent Board Committee to the Independent Shareholders concerning, among others, the Share Subscription, the Specific Mandate in relation to the Share Subscription and the Whitewash Waiver; and
(2) the letter from the Independent Financial Adviser set out on pages 34 to 59 of this circular which contains its recommendations to the Independent Board Committee and the Independent Shareholders on, among others, the Share Subscription, the Specific Mandate in relation to the Share Subscription and the Whitewash Waiver and the principal factors and reasons considered by the Independent Financial Adviser in arriving at its recommendations.

The Directors (including the independent non-executive Directors after taking the advice of the Independent Financial Adviser) consider that the terms of the Share Subscription Agreement, the Specific Mandate in relation to the Share Subscription and the Whitewash Waiver are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the SGM.

In addition, the Directors are of the view that the terms of the CB Subscription and the Note Subscription Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolutions to be proposed at the SGM to approve the CB Subscription Agreement and the Note Subscription Agreement and the transactions contemplated thereunder.

FURTHER INFORMATION

Your attention is also drawn to the information set out in the appendices to this circular and the notice of the SGM.

Yours faithfully, South East Group Limited Mr. Yeung Chun Wai, Anthony Chairman and Executive Director

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in Bermuda with limited liability)

(Stock Code: 726)

30 April 2015

To the Independent Shareholders

Dear Sir or Madam,

PROPOSED SUBSCRIPTION FOR NEW SHARES, SPECIFIC MANDATE IN RELATION TO THE SHARE SUBSCRIPTION AND WHITEWASH WAIVER

We refer to the circular dated 30 April 2015 of the Company (the “ Circular ”) of which this letter forms part.

Terms defined in the Circular bear the same meanings herein unless the context otherwise requires.

We have been appointed to form the Independent Board Committee to consider the proposed Share Subscription, the Specific Mandate in relation to the Share Subscription and the Whitewash Waiver (collectively, the “ Proposed Transactions ”) and to advise the Independent Shareholders as to whether, in our opinion, the Proposed Transactions are fair and reasonable so far as the Independent Shareholders are concerned.

Nuada Limited has been appointed as the independent financial adviser with the Independent Board Committee’s approval to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed Transactions.

We wish to draw your attention to the letter from the Board set out on pages 6 to 32 of the Circular which contains, among others, information on the Proposed Transactions as well as the letter from the Independent Financial Adviser set out on pages 34 to 59 of the Circular which contains its advice in respect of the Proposed Transactions.

Having considered the principal factors and reasons and the advice of the Independent Financial Adviser as set out in the letter from the Independent Financial Adviser, we consider that the Proposed Transactions are fair and reasonable, entered into on normal commercial terms, and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM in respect of the Proposed Transactions.

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

South East Group Limited

Mr. Lee Chi Ming Mr. Jiang Hongqing Mr. Chan Chi Hung, Anthony Independent Non-Executive Directors

LETTER FROM NUADA LIMITED

Set out below is the text of a letter received from Nuada Limited, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders regarding the Share Subscription and the Whitewash Waiver for the purpose of inclusion in this circular.

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Unit 1805-08, 18/F OfficePlus@Sheung Wan 93-103 Wing Lok Street Sheung Wan, Hong Kong 香港上環永樂街93-103號協成行上環中心18樓1805-08室

30 April 2015

To the Independent Board Committee

and the Independent Shareholders of South East Group Limited

Dear Sirs,

(1) PROPOSED ISSUE OF NEW SHARES UNDER SPECIFIC MANDATE AND (2) WHITEWASH WAIVER

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Share Subscription and the Whitewash Waiver, details of which are set out in the letter from the Board (the “ Letter ”) contained in the circular of the Company to the Shareholders dated 30 April 2015 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

As set out in the Letter on 9 February 2015, the Share Subscriber and the Company entered into the Share Subscription Agreement pursuant to which the Share Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to allot and issue, on the Share Subscription Completion Date, 6,500,000,000 new Shares which has been determined by dividing HK$1,300,000,000 (being the total subscription consideration under the Share Subscription Agreement) by HK$0.20 (being the Subscription Price per Subscription Share).

Upon completion of the Share Subscription Agreement, the Share Subscriber and parties acting in concert with it will hold approximately 6,500,000,000 Shares, representing approximately 63.67% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares (assuming no other changes to the issued share capital of the Company). The Share Subscriber and parties acting in concert with it would incur an obligation pursuant to Rule 26 of the Takeovers Code to make a mandatory general offer to the Shareholders to acquire all the Shares other than those owned or agreed to be acquired by the Share Subscriber, its ultimate beneficial owners and parties acting in concert with any of them.

LETTER FROM NUADA LIMITED

The Share Subscriber has made an application to the Executive for the Whitewash Waiver, which if granted, will be subject to, among other things, approval by the Independent Shareholders in respect of the Share Subscription and the Whitewash Waiver at the SGM by way of poll.

The Company understands from the Share Subscriber that, other than the Share Subscription Agreement there are no (a) arrangements (whether by way of option, indemnity or otherwise) in relation to the shares of the Share Subscriber or the Shares which might be material to the Share Subscription Agreement and/or the Whitewash Waiver; (b) agreements or arrangements to which the Share Subscriber is a party which relates to the circumstances in which it may or may not invoke or seek to invoke a pre-condition or a condition to the Share Subscription Agreement and/or the Whitewash Waiver.

As at the Latest Practicable Date, the Share Subscriber and the parties acting in concert with it are Independent Third Parties, and the Share Subscriber and the parties acting in concert with it do not hold, control or direct any voting rights and rights over shares, convertible securities, warrants, options in the Company or outstanding derivatives in respect of the securities of the Company. The Share Subscriber is also independent of the CB Subscriber.

If the Whitewash Waiver is approved by the Independent Shareholders, the shareholding of the Share Subscriber and parties acting in concert with any of them in the Company will exceed 50% upon the allotment and issue of the Subscription Shares. The Share Subscriber and parties acting in concert with it may further increase their shareholdings in the Company without incurring any further obligations under Rule 26 of the Takeovers Code to make a general offer.

As set out in the Letter from the Board, on 9 February 2015 the CB Subscriber and the Company entered into the CB Subscription Agreement pursuant to which the Company has conditionally agreed to issue, and the CB Subscriber has conditionally agreed to subscribe for, the Convertible Bonds in an aggregate principal amount of HK$200,000,000. The CB Subscriber, namely, Honghu Capital Company Limited, is a company incorporated under the laws of the British Virgin Islands and an investment holding company wholly and beneficially owned by Mr. Deng Jun Jie. Mr. Deng Jun Jie is a businessman and a Hong Kong permanent resident. Mr. Deng Jun Jie is an Independent Third Party and does not have any relationship with the Share Subscriber, China Minsheng Investment and the 59 shareholders of China Minsheng Investment, and the CB Subscription Agreement and the Share Subscription Agreement are not inter-conditional. Further details of the CB Subscription including, among others, the terms and conditions of the CB Subscription Agreement can be found in the Letter.

Also as set out in the Letter, on 23 April 2015, the Company entered into the Note Subscription Agreement with Mingzhu Construction Engineering Group (Hong Kong) Limited, as the Issuer, and Mingzhu Construction Engineering Co., Ltd., as the Guarantor, pursuant to which, the Company conditionally agreed to subscribe for the Note in the principal amount of HK$250,000,000 with a coupon rate of 4.80% per annum at a subscription price of HK$250,000,000. The maturity date of the Note is the third anniversary date after the date of completion on which the Note is issued. To the best of

LETTER FROM NUADA LIMITED

the Director’s knowledge, information and belief having made all reasonable enquiries, the Issuer, the Guarantor and their ultimate beneficial owners are independent of and not connected with the Company and its connected persons.

The Independent Board Committee has been established to advise the Independent Shareholders in relation to the Share Subscription and the Whitewash Waiver. We, Nuada Limited, have been appointed, which has been approved by the Independent Board Committee, as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Share Subscription and the Whitewash Waiver. Nuada Limited is not connected with the directors, chief executive and substantial shareholders of the Company or the Share Subscriber or any of their respective subsidiaries or their respective Associates or parties acting in concert with any of them and do not have any shareholding, directly or indirectly, 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 as at the Latest Practicable Date and therefore is considered suitable to give independent advice to the Independent Shareholders. During the last two years, there was no engagement between the Group and Nuada Limited. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby Nuada Limited will receive any fees or benefits from the Group or the directors, chief executive and substantial shareholders of the Company or the Subscriber or any of its subsidiaries or their respective associates or parties acting in concert with any of them.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the accuracy of the statements, information, opinions and representations contained or referred to in the Circular and the information and representations provided to us by the Company, the Directors and the management of the Company. 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 assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, the Directors and the management of the Company and for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true up to the Latest Practicable Date and should there be any material changes after the Latest Practicable Date, Shareholders would be notified as soon as possible.

LETTER FROM NUADA LIMITED

The 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 the Circular is accurate and complete in all material respects and is not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or the Circular misleading.

The Circular includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Group. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular (other than information relating to the Share Subscriber and the CB Subscriber) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed (other than those expressed by the Share Subscriber and the CB Subscriber) in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

The directors of the Share Subscriber, namely Zhang Zhichao (Chairman), Wu Chen, Liu Yueping, Fang Rong, Shi Yuwei and Cao Zhenling jointly and severally accept full responsibility for the accuracy of the information relating to the Share Subscriber contained in the Circular and confirm having made all reasonable inquiries, that to the best of their knowledge, opinions expressed by the Share Subscriber in the Circular have been arrived at after due and careful consideration and there are no other facts in relation to itself not contained in the Circular the omission of which would make any statement in the Circular misleading.

The sole director of the CB Subscriber, namely Mr. Deng Jun Jie, accepts full responsibility for the accuracy of the information relating to the CB Subscriber contained in the Circular and confirm, having made all reasonable inquiries, that to the best of his knowledge, opinions expressed by the CB Subscriber in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, its subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Share Subscription. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date.

Nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

LETTER FROM NUADA LIMITED

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion to advise the Independent Board Committee and the Independent Shareholders, we have taken into consideration the following principal factors and reasons:

1. Information of the Company

As stated in the Letter, the principal business of the Company is investment holding and the Group’s business operations were principally related to property development and investment.

The table below shows the financial results of the Group for each of the three years ended 31 March 2012, 2013 and 2014 and each of the six months ended 30 September 2013 and 2014 as extracted from the Group’s annual reports for the financial year ended 31 March 2013 and 2014 and the Group’s interim report for the six months ended 30 September 2014 respectively.

For the six months ended 30 September 2014 2013 HK$’ 000 HK$’ 000 Turnover 225 – Cost of sales (40) – Gross profit 185 – Fair value gains on investment properties – – Other revenues 387 698 Selling and distribution costs (27) (12) Administrative expenses (7,031) (7,905) Finance costs (1,643) (1,609) Loss before Taxation (8,129) (8,828) Taxation – – Loss for the period/year (8,129) (8,828) Other comprehensive income Translation differences (33) 703 Change in fair value of available-for-sale financial assets 101 (956) Total comprehensive income/(loss) for the period/year (8,061) (9,081)	For 2014 HK$’ 000 817 (500) 317 15,215 1,154 (26) (16,632) (3,214) (3,186) (3804) (6,990) 1,513 (1,224) (6,701)	the year ended 31 March 2013 2012 HK$’ 000 HK$’ 000 732 940 (354) (700) 378 240 – – 2,773 1,919 (16) (13) (16,407) (15,621) (3,156) (3,242) (16,428) (16,717) (429) (147) (16,857) (16,864) 452 3,664 (1,175) (1,713) (17,580) (14,913)

LETTER FROM NUADA LIMITED

For the financial year ended 31 March 2013, the Group’s business operations were principally related to the selling of completed properties in the PRC. This single reportable segment reported a total turnover of approximately HK$732,000, representing a decrease of approximately 22.1% from the previous financial year. The turnover was generated solely from the sale of six car park units in Pudong, Shanghai, the PRC, and no stock of car park units was left. The Group continued to lease out part of its commercial properties and recorded rental income of approximately HK$248,000, representing an increase of approximately 40.9% from the previous financial year, which was accounted for as other revenues. The Group also recorded a net loss of approximately HK$16.9 million for the financial year ended 31 March 2013, which is approximately the same as that for the previous financial year.

For the financial year ended 31 March 2014, the Group was principally engaged in the business of property development and investments in the PRC. As at 31 March 2014, there was a gross floor area of approximately 7,845 square metres of commercial properties held by the Group in Zouping, Shandong, the PRC. Turnover of approximately HK$401,000 was recorded from property sales attributable to the aforementioned properties during the financial year. Rental income of approximately HK$416,000 was recorded in this financial year, representing an increase of approximately 67.7% from the previous financial year, which was generated from leasing out part of the commercial properties concerned. Owing to adjustment in operational structure in view of the real estate market in the PRC and the recurring nature of the leasing transactions, the Group reclassified the completed properties in Zouping formerly held for sale as investment properties. Hence, properties rental was reclassified and included as revenues generated from the Group’s main business operations for the year ended 31 March 2014, rather than accounted for as other revenues as in previous years. The net loss of the Group for the financial year ended 31 March 2014 improved to approximately HK$7.0 million, which is mainly attributable to the fair value gains on investment property.

During the six months ended 30 September 2014, the Group was principally engaged in the business of property development and investment in the PRC. According to the Group’s interim report for the six months ended 30 September 2014, the Group has generated a turnover of approximately HK$225,000 by leasing out the commercial properties held, representing an increase of approximately 11.4% from that of approximately HK$202,000 (which is accounted for as other revenue) generated in the six months ended 30 September 2013. At 30 September 2014, there was a gross floor area of approximately 7,845 square metres of the commercial properties located in Zouping. As discussed with the management of the Company, we understand that the Group will keep the current plan of holding the investment properties for generating steady rental income unless any good opportunities arise.

As at 31 March 2014, the Group had an audited net current asset of approximately HK$27.4 million, with cash and cash equivalents amounted to approximately HK$27.2 million, and an audited net asset of approximately HK$178,000. As at 30 September 2014, the Group had an unaudited net current asset of approximately HK$19.8 million, with cash and cash equivalents amounted to approximately HK$22.6 million, and an unaudited net liability of approximately HK$7.9 million. The decrease in the Group’s net asset value was mainly attributable to the cash outflow from the operating activities. In October 2014, the Company has completed an equity fund raising exercise by way of rights issue and raised net proceeds of approximately HK$283 million. Based on the net liability of the Company as at 30 September 2014, and taking into account the net proceeds from the aforementioned rights issue and based on the 3,709,602,920 Shares in issue as at the Latest Practicable Date, the adjusted estimated net asset of the Group is approximately HK$275.1 million.

LETTER FROM NUADA LIMITED

As stated in the Group’s interim report for the six months ended 30 September 2014, it is the Group’s ongoing plan to continue to leverage its resources in exploring opportunities in the property development and investment business. However, should there be any other potential investments in other areas that could potentially enhance the financial and operating performance of the Group and are in the interests of the Company and Shareholders as a whole will also be considered. Taking into consideration (i) the current financial position of the Group including, among others, only approximately HK$275.1 million of adjusted estimated net asset as mentioned above; and (ii) the potential investments and opportunities, total value of which is up to approximately HK$1,400 million, as mentioned below in the sub-section headed “2.2 Use of Proceeds”, we are of the view that the Share Subscription which can provide sufficient resources for making investment is fair and reasonable.

2. Background of and Reasons for the Share Subscription

2.1 Information of the Share Subscriber, the CB Subscriber, the Issuer and Guarantor

As disclosed in the Letter, the Share Subscriber is the real estate arm of China Minsheng Investment and its investment scope includes high quality real properties in first-tier cities, investment and operation of multipliable assets, development of industrial parks, infrastructure and city construction, theme industry such as aged care and tourist industry, and other high criterion and high profitability investment opportunities. 90% of the total share capital of the Share Subscriber is held by China Minsheng Investment and the remaining 10% is held by CIIT. As disclosed on CIIT’s official website, CIIT is controlled by CIB, a commercial bank incorporated in the PRC and listed on the Shanghai Stock Exchange. Based on the latest quarterly report issued by CIB on 29 October 2014, a substantial shareholder of CIB as of 30 September 2014 is the Finance Department of China Fujian Provincial Government, which holds 17.86% of the total issued share capital of CIB. None of CIIT, CIB or the Finance Department of China Fujian Provincial Government is acting in concert with the Share Subscriber in respect of the Share Subscription.

China Minsheng Investment was established and registered in Shanghai in May 2014, with a registered capital of RMB50 billion. It is a congolmerate with a wide variety of businesses including equity investment, equity investment management, business consulting, financial consulting, industrial

LETTER FROM NUADA LIMITED

investment, asset management, and investment consulting. China Minsheng Investment’s strategy is to fully utilize its competitive strengths in terms of national brand, integration of resources, financial strength, comprehensive operations, management output and other competitive advantages in the implementation of its strategic integration in key target industries, with the objectives to create a strategic and sustainable business model. China Minsheng Investment will, through capital investment and leverage, and featured by business consolidation and the full range of financial licenses, apply its resources and efforts in developing distinctive business portfolios and key segments. In terms of the specific implementation path, China Minsheng Investment, relying on industrial integration, industrial strategic investment, mixed investment, establishment of full financial licenses platform and exploration of overseas investment market, will actively carry out the relevant business activities.

As stated in the Letter, Directors have continued to review the Company’s existing businesses and strive to improve the business operations and financial position of the Company by proactively seeking potential investment opportunities that could diversify and expand its existing business portfolio, establish new business where desirable, broaden its source of income, and enhance value to its Shareholders. In an effort to further implement this strategy, the Directors believe that it would create business synergies if the Company were to introduce a prominent and reputable strategic investor who would be able to work with the Company to source opportunities for new business development as well as business diversification and extension along the supply chain of property development and investment.

The Directors have considered that:

(a) the background, industry expertise and experience of the Share Subscriber and China Minsheng Investment, as well as the variety of its business portfolios which include a specific segment engaging in property related industries;
(b) the benefits including strategic value and management expertise the Share Subscriber could bring to the Group in the future; and
(c) consistent with the strategic intention of the Group, the Share Subscriber’s intention to make investments in the extended PRC property sector including businesses that are upstream and downstream from property development and investment, as well as businesses that are ancillary to property development and investment.

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According to the management of the Company, we understand that the Share Subscriber and China Minsheng Investment have expertise and experience in a variety of business segments including, among others, the property related business sectors. We also noted from the company website of China Minsheng Investment that it has six major business arms, one of which is China Minsheng Property. China Minsheng Property provides services relating to and platform for integrating property management. We consider that this is consistent with the current business of the Group, i.e. property development and property investment. Given that (i) it is the Group’s ongoing plan to continue to leverage its resources in exploring opportunities in the property development and investment business as stated above; and (ii) the Share Subscriber, together with its controlling shareholder and the subsidiaries of it, could provide the Group with more business opportunities through their experiences and connections in various industries, particularly those in the property sector in the PRC, we are of the view that the Share Subscription which introduces the Share Subscriber as a Shareholder is in the interests of the Company and Shareholders as a whole.

The Directors consider that it would be a desirable opportunity to seek financial investor to provide additional funding to support the implementation of the Group’s business strategy. Accordingly, the Directors consider that the CB Subscription will provide immediate funding and also strengthen the financial position of the Company.

The Guarantor is a large-scale construction company and holds the entire issued share capital of the Issuer. The Guarantor was established in 1978 and its principal businesses include construction and engineering, decoration and reconfiguration, foundation structuring and other specialised construction and technical service. The Guarantor, with its headquarters based in Fuzhou City, has branches and representative offices in a few provinces and cities in the PRC, including Shanghai Municipal City, Guangdong Province, Shaanxi Province, Shanxi Province, Lanzhou City and Xiamen City.

The Directors consider that it is critical to the success of the Company’s future business to develop strategic cooperation with a construction company and solidify the relationship with it. The Directors consider that the subscription for the Note to be issued by the Issuer and the strategic cooperation with the Guarantor, being qualified as a Grade 1 General Construction Contractor in the PRC, under the Strategic Cooperation Framework Agreement will enable the Company to achieve this and is also an alternative way to assure the Company of a priority in securing construction service supplier at a competitive cost and to ensure its commitment and support to the Company’s property projects, including projects in the upstream property development sector, and to leverage the Guarantor’s strength in the area of real property construction to further explore the market for the Company’s production of pre-cast construction units and materials.

LETTER FROM NUADA LIMITED

2.2 Use of Proceeds

As stated in the Letter, the gross aggregate proceeds of the Share Subscription and the CB Subscription are HK$1,500 million. The net aggregate proceeds of the Share Subscription and the CB Subscription is approximately HK$1,296 million and approximately HK$199 million respectively. The Company intends to apply the net proceeds to be raised from the Share Subscription and the CB Subscription (a total of approximately HK$1,495 million) as follows:

(a) up to approximately HK$600 million for pursuing the potential acquisition referred to in the framework agreement entered into by the Company in December 2014 for the proposed acquisition of Jinhong Property Development Limited (please refer to the announcement dated 24 December 2014 for details). The usage of such proceeds would depend on whether such potential acquisition could proceed to the signing of the formal sale and purchase agreement and subsequently proceed to completion, and whether the Company will acquire a majority or minority stake in the relevant target company and the size of such stake. It would also be subject to the satisfactory findings of the due diligence investigation. It should be noted that as such potential acquisition requires the Company to provide funds proof, completion of the Share Subscription and the CB Subscription will place the Company in a position to continue the negotiations and process for such potential acquisition;
(b) approximately HK$800 million for making investment in or acquiring new business opportunities in the upstream PRC property development sector in Central, Eastern and Southern China. In this connection, the Company intends to prioritise the markets in the upstream property development sector (namely, the building of the capability of the Group in the production of pre-cast units and materials) in Guangdong Province, Shanghai Municipal City, Jiangsu Province and Zhejiang Province. It is contemplated that such HK$800 million will be utilised in stages from the completion of the Share Subscription and the CB Subscription until around the third to fourth quarter of 2016 for making investments in the acquisition of land or existing production facilities, the building and/or configuration of production facilities, as well as the purchase of equipment and machineries for installation in the production facilities to enable the Group to establish its capability in the production of pre-cast units and materials. Specific personnel has been identified to carry out detailed feasibility studies for making investments in such upstream PRC property development sector in Guangdong Province, Shanghai Municipal City, Jiangsu Province and Zhejiang Province respectively. In particular, (i) in relation to Guangdong Province, the Company is considering establishing two production facilities and priority is intended to be given to acquire land parcels with existing production facilities. The Company is currently considering acquiring a parcel of land with an existing production facility located in the Yangna Economic Development Zone in Danshui County, Huiyang District, Huizhou City, with gross floor area of approximately 26,000 square meters and storage yard of approximately 2,580 square meters. The acquisition price has been determined to be in the proximity of RMB80 million. The Company expects to enter into a letter of intent with the seller in May 2015. Following the completion of such acquisition, additional funds of RMB115 million is intended to be invested into this production facility, for the purpose of reconfiguration of the facility (approximately RMB20 million), purchase of production equipment (approximately RMB60 million) and working capital (approximately

LETTER FROM NUADA LIMITED

RMB35 million). Meanwhile, the Company is also reviewing opportunities of making investments in Dongguan City, Foshan City, Nansha City by way of the acquisition of land parcels or the purchase or lease of existing production facilities. If these opportunities materialise, investments are intended to be made by the Group to expand or reconfigure the production facilities as well as to purchase new equipment in order to quickly build up the Group’s capability in the production of pre-cast units and materials; (ii) in relation to Zhejiang Province, the Company intends to establish one production facility. The Company is considering investing in a project by way of a joint venture and which project consists of, among others, existing land parcel with an area of approximately 100 mu. In addition, the Company may also consider acquisition of land parcels with an area of approximately 100-150 mu from the local governments on which the Company can construct new production facilities; (iii) in relation to Shanghai Municipal City, the Company is considering establishing one production facility and is currently considering the acquisition of an existing production facility located in Shanghai Songjiang Industrial Park (No. 2677, Shengang Road, Shanghai) with gross floor area of approximately 19,272.81 square meters in total. In this respect, Benelux Property Development (Shanghai) Limited, a subsidiary of the Company, together with China Minsheng Zhuyou Co. Ltd. (中民築友有限公司), a subsidiary of the Share Subscriber entered into a memorandum of understanding with the seller, namely Shanghai Zhao Nian Heavy Machinery Co. Ltd. (上海兆年重工機械有限公司), for the acquisition of the production facility at a total consideration of RMB82 million on 28 April 2015, details of which are set out in the announcement of the Company dated 28 April 2015. Following the completion of such acquisition, additional funds of RMB120 million is intended to be invested into this production facility, for the purpose of reconfiguration of the facility (approximately RMB15 million), purchase of production equipment (approximately RMB65 million) and working capital (approximately RMB40 million); and (iv) in relation to other provinces in China, the Company may also consider establishing one production facility in Qingdao City. Shandong Province and is considering the acquisition of land parcels with an area of approximately 100-150 mu on which new production facilities could be constructed. Apart from the above possible opportunities, the Company is also reviewing investment opportunities in Beijing Municipal City, Hubei Province, Henan Province and Anhui Province. Whilst no formal agreement has been entered into by the Group in respect of any of the above potential opportunities, the Company’s intention is to continue with the review and studies of these opportunities and other appropriate opportunities. Depending on the circumstances and results of these studies and negotiations, the above specific locations and projects may however be subject to changes; and

(c) the remaining amount of approximately HK$95 million as general working capital of the Group, including the recruitment of personnel to expand the managerial and operational headcounts of the Group.

LETTER FROM NUADA LIMITED

As advised by the Company and as stated in the Letter, the Company has considered other fund raising methods such as rights issue or open offer, and debt financing and considered that the Share Subscription and the CB Subscription are the most preferable for the following reasons:

(i) substantial amount of capital requirement is required for the property development business and given the Company’s current market capitalisation, it would be difficult for financial institutions to provide facility up to such substantial amount to the Group in view of the tightened lending policies of the banks and financial institutions in the PRC on loans to property development companies, and debt financing would inevitably increase the financial costs of the Group; and
(ii) a pre-emptive issue such as rights issue or open offer would not be able to bring in strategic investors as Shareholders, particularly investors with experience and background in the property development sector in the PRC, such as the Share Subscriber.

Taking into account (i) the difficulties in raising a substantial amount of capital through debt financing and the financial costs incurred thereby; and (ii) the benefits of introducing strategic investors as Shareholders that would not be provided under a pre-emptive issue such as rights issue or open offer, we are of the view that the Share Subscription and the CB Subscription used for fund raising are fair and reasonable.

2.3 Future Business Plan of the Company Following Completion of the Share Subscription

We note from the Letter that the Directors consider that, following the completion of the Share Subscription and with the background, industry expertise and experience of the Share Subscriber and China Minsheng Investment, as well as the variety of their business portfolios which include a specific segment engaging in property related industries, it would be desirable to pursue investment opportunities in the extended real property sector including businesses that are upstream and downstream from property development and investment, as well as businesses that are ancillary to property development and investment.

It is intended that the medium to long term strategic plan of the Company would be to make investments in or acquire new business opportunities in the upstream property development sector. In the next three to five years, with the support from the Share Subscriber and China Minsheng Investment, it is the intention of the Company to strive to achieve a robust market position in the upstream property development industry and to explore market opportunities in such industry. Accordingly, the Company has formed the strategic cooperation with the Guarantor, a leading PRC construction company which has sound and proven business record in the relevant industry. Details of such cooperation are disclosed in the announcement dated 23 April 2015 of the Company.

LETTER FROM NUADA LIMITED

The Company is also considering the acquisition of an A level design institute and a top-grade construction company and the establishment of three large-scale production facilities in Hunan Province, Shanghai Municipal City and Guangdong Province, respectively. In recent years, the local government in Hunan Province has promulgated a few preferential policies to support the upstream property development sector (in particular, the production of pre-cast units and materials). Likewise, the Shanghai Municipal Government published its three-year action plan in 2014 in relation to the development of environmental friendly construction industry, pursuant to which all the new civil projects outside of the Outer Ring Road must be constructed by way of assembling pre-cast units and materials. The future development of construction industry in Guangdong Province is prosperous considering the large volume of real property projects in the long-term development plan published by the local government and the large-scale real property developers based in the region.

As disclosed in the Letter, the Company believes that investments in the upstream property development sector would provide more value-adding services and products by expanding the Company’s business to the upstream of the supply chain of the real property development industry. Such upstream property development industry is the most effective way to solve the existing problems in the traditional construction industry (being high consumption, severe contamination and inefficiency) and is the best way to upgrade the traditional construction technology. It is also in line with the national development strategy of the PRC and intrinsic demand of city development in an environmental friendly way. In addition, the market access threshold of such industry is relatively high and our competitors will be limited in numbers. Given that such industry is still in the preliminary stage in its life cycle, none of the current market pioneers has obtained a predominant market position. As such, with the support from the Share Subscriber in terms of its industry expertise and experience and extensive network resources, it would place the Company in a position to seize market opportunities effectively.

To further analyse the proposed acquisition of Jinhong Property Development Limited, the construction industry (in particular the pre-cast units production), and the economics of the regions in which the Company is considering the investment of the production facilities will be, set out in the below section headed “PRC Property Market Outlook” are the information and outlook of the relevant industry and regions.

LETTER FROM NUADA LIMITED

2.4 PRC Property Market Outlook

2.4.1 PRC Economy and Recent Development in the Property Market

According to the latest statistics available on the online database of the National Bureau of Statistics of the PRC (the “ NBS ”) and the Statistical Communiqué of the People’s Republic of China on the 2014 National Economic and Social Development released on 26 February 2015 by the NBS, the PRC economy has been expanding rapidly with a cumulative annual growth rate (“ CAGR ”) for the 7-year period from 2008 to 2014 of approximately 12.3%. The total investment in fixed assets (excluding rural households) in the construction industry experienced yet a higher CAGR of 24.5%, indicating that the construction industry has put more and more resources and effort into investment. The floor space of buildings under construction of Enterprises has also grew at a CAGR of approximately 17%, which implies an increasing demand of construction resource (both human resources and materials).

								2008 to
								2013
Indicators	2008	2009	2010	2011	2012	2013	2014	CAGR
Gross Domestic
Product (trillion
RMB)	31.7	34.6	40.9	48.4	53.4	58.8	63.6	12.3%
Investment in Fixed
Assets (Excluding
Rural Households),
Construction
(billion RMB)	119.6	156.9	224.1	324	368.5	353.2	445.0	24.5%
Floor Space of
Buildings under
Construction of
Enterprises
(10 sq. km)	283.3	320.4	405.4	506.8	573.4	665.6	726.5	17.0%

Source: NBS (http://data.stats.gov.cn/english/easyquery.htm?cn=C01, http://www.stats.gov.cn/english/PressRelease/201502/ t20150228_687439.html)

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2.4.2 Proposed Acquisition of Jinhong Property Development Limited

According to the management of the Company, the major asset of the Jinhong Property Development Limited, of which the Company proposed to acquire, is a property development project, namely Luwan Riverside, situated in Shanghai City, the PRC. Luwan Riverside, which is still under construction and is expected to be completed this year, will comprise a 16-storey office building and a 6-storey retail podium with a two-storey basement upon completion, erected on a site with a total site area of approximately 5,130.50 sq.m. Luwan Riverside will have 131 office units and 11 retail units with a total gross floor area of 19,057.96 sq.m.. The office portion of the Property has a total gross floor area of 15,595.19 sq.m., while the 11 retail units of the Property have a total gross floor area of 3,462.77 sq.m..

We have tried to search for official reports issued by the governments which are related to the real estate market, particularly the office market in Shanghai and upstream PRC property development sector but in vain. As such, we have looked for other sources in the following analysis.

With reference to a report published in January 2015 titled “Top Ten Trends in 2014 and Market Outlook in Shanghai” (the “ Market Outlook ”) by CBRE Group, Inc. (“ CBRE ”), a global real estate services company, the overall office vacancy rate in Shanghai dropped to 6.1% in 2014, the lowest rate recorded since the onset of the global financial crisis in September 2008. The rents also bounced back from a decline in 2013 to report growth of 4.4% year-on-year in 2014. The expert from CBRE expects that core submarkets of Puxi, including Huangpu district in which Luwan Riverside situated, may see a slight improvement in rents in the short term given a reasonable supply. Accordingly, we are of the view that the office units of Luwan Riverside, which accounts for most of the total gross floor area of the whole property, might provide steady rental income to the Group in the future.

Meanwhile, the retail rental market in Shanghai grew in 2014 according to the Market Outlook. The average ground floor rent of major shopping malls increased by 5.3% year-on-year, while the demand for retail space remained upbeat which drove vacancy rate down to 6.6%. The researchers of CBRE forecast that the demand will continue to drive up the average rent, while the vacancy rate will likely increase due to, among other things, the supply side factors such as the addition of 18 new malls scheduled to be completed causing a supply peak and the impact of electronic retailing. Without sufficient and accurate statistics, the overall effect of the supply and demand dynamic on the total rental income generated from the retail units of Luwan Riverside might be indeterminable. However, taking into consideration that (i) Luwan Riverside is in close proximity with a number of commercial buildings and hotels; and (ii) the retail units have a total gross floor area of 3,462.77 sq.m., accounting for only approximately 18.2% of the total gross floor of Luwan Riverside, and are targeted for facilitating people working nearby (though there are no tenancy agreement signed as at the Latest Practicable Date since Luwan Riverside is still under construction), we are of the view that the retails units of the project will generate rental income for the Group.

Taking into account the generally positive outlook of the office market in Shanghai and the nature of the retail units of Luwan Riverside as stated above, we are of the view that such property development project can provide steady rental income, and therefore the use of proceeds for the proposed acquisition of the shares of Jinhong Property Development Limited, of which the major asset is a property development project, situated in Shanghai City as mention above, is fair and reasonable.

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CBRE is the world’s premier, full-service real estate services company founded in 1906 with offices in 44 countries around the world. We also note that CBRE has receive a number of awards from various business magazines including, among others, (i) one of the commercial real estate services company in the Fortune 500 in 2014, where Fortune 500 is an annual list compiled by Fortune magazine ranking the top 500 public corporations of the US as measured by their gross revenue, and Fortune magazine is a business magazine published since 1930; and (ii) the only commercial real estate services firm included on the Forbes Global 2000 for third year in a row, where Forbes Global 2000 is an annual ranking of the top 2000 public companies in the world by Forbes magazine based on sales, profit, assets and market value of the companies, and Forbes magazine is a business magazine published since 1917. As such, we consider that the report published by CBRE is reliable and representative.

2.4.3 Upstream PRC property development sector in Central, Eastern and Southern China

According to the management of the Company and as stated in the Letter, the Company intends to prioritise the markets in the upstream property development sector, in particular the production of pre-cast units and materials, which are used in the method of prefabricated construction. Prefabricated construction, also known as prefabrication, here refers to the manufacture of building components, such as pre-cast walls and pre-cast staircases, constructed off-site in a factory covering manufactured, modular and pre-cut or pre-engineered systems.

According to the report titled “Prefabrication and Modularization: Increasing Productivity in the Construction Industry” published in 2011 by McGraw-Hill Construction with premier partners including National Institute of Standards and Technology under the Department of Commerce of the United States, early example of prefabrication can be found in Britain’s Great Exhibition of 1851. Prefabrication was also increasingly used in the United State due to the need for mass accommodation for military personnel during World War II and throughout 1970s to 2000s for commercial applications, as well as in Japan and Europe after the World War II to fulfill the need of massive rebuilding. The report also highlights various advantages of prefabrication, such as (i) green building and waste reduction; (ii) reduced costs and budgets; (iii) improved project schedules; and (iv) site safety. The first two benefits brought by prefabrication is especially important to the development of prefabrication materials production business of the Group as detailed below.

For more than a century, McGraw-Hill Construction has remained North America’ s leading provider of project and product information, plans and specifications, and industry news, trends, and forecasts. McGraw-Hill Construction serves more than one million customers in the global construction industry. McGraw-Hill Construction is also a subsidiary of The McGraw-Hill Companies, a leading global financial information and education company founded in 1888 with more than 280 offices in 40 countries. Accordingly, we consider that the above report published by McGraw-Hill Construction is reliable and representative.

LETTER FROM NUADA LIMITED

Pursuant to the “Twelfth Five-Year Plan for the Development of Construction Industry” (建築業發展「十二五」規劃) (the “ Twelfth Five-Year Plan ”) released by the Ministry of Housing and Urban-Rural Development of PRC in 2011, some of the major challenges faced by the construction industry are (i) the lack of sustainability of the industry due to, among other things, high usage of resources and significant carbon emission; and (ii) the insufficient investment in research and development which leads to few technology progress. Various targets are set including a 15% annual growth of gross output value of construction to strengthen the construction industry as one of the pillars.

One of the principles of the Twelfth Five-Year Plan indicate that the industry should put emphasis on energy conservation and the reduction of emissions (of pollutants) in order to develop green construction. It is therefore encouraged that the industry should facilitate environmentally friendly products and minimize impact on the environment in the construction process. Another principle highlights the importance of technological advancement and innovations in the construction industry which plays an essential role in the industry scale. With such vision to promote technological advancement, the research and production of standardized, interchangeable, modular, prefabricated units and materials are encouraged. In view of the above, we consider that the development of prefabricated materials production business of the Group is in line with the principles of the Twelfth Five-Year Plan.

As the Company intends to prioritise the markets in the upstream property development sector (namely, the building of the capability of the Group in the production of pre-cast units and materials) in Guangdong Province, Shanghai Municipal City, Jiangsu Province and Zhejiang Province, we review the relevant statistics of these four regions:

Guangdong Province

Guangdong Province
							2008 –
							2013
Year	2008	2009	2010	2011	2012	2013	CAGR
Total Population (in millions)	98.9	101.3	104.4	105.1	105.9	106.4	1.5%
Per Capita Disposable Income
of Urban Households (RMB)	19,733	21,575	23,898	26,898	30,227	33,090	10.9%
Gross Output Value of
Construction
(in billions RMB)	327	381	472	577	651	773	18.8%

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Shanghai Municipal City

Shanghai Municipal City
							2008 –
							2013
Year	2008	2009	2010	2011	2012	2013	CAGR
Total Population (in millions)	21.4	22.1	23.0	23.5	23.8	24.2	2.4%
Per Capita Disposable Income
of Urban Households
(RMB)	26,675	28,838	31,838	36,231	40,188	43,851	10.5%
Gross Output Value of
Construction
(in billions RMB)	325	383	430	430	484	510	9.5%
Jiangsu Province
							2008 –
							2013
Year	2008	2009	2010	2011	2012	2013	CAGR
Total Population (in millions)	77.6	78.1	78.7	79.0	79.2	79.4	0.5%
Per Capita Disposable Income
of Urban Households (RMB)	18,680	20,552	22,944	26,341	29,677	32,538	11.7%
Gross Output Value of
Construction
(in billions RMB)	860	1,027	1,241	1,512	1,842	2,171	20.3%
Zhejiang Province
							2008 –
							2013
Year	2008	2009	2010	2011	2012	2013	CAGR
Total Population (in millions)	52.1	52.8	54.5	54.6	54.8	55.0	1.1%
Per Capita Disposable Income
of Urban Households (RMB)	22,727	24,611	27,359	30,971	34,550	37,851	10.7%
Gross Output Value of
Construction
(in billions RMB)	816	959	1,201	1,491	1,733	2,007	19.7%

Source: NBS (http://data.stats.gov.cn/english/easyquery.htm?cn=E0103)

LETTER FROM NUADA LIMITED

We note from the above statistics that: (i) all four regions recorded small CARG of population of less than 3%; (ii) all four regions recorded double-digit CAGR of per capita disposable income of urban households; and (iii) save for Shanghai Municipal City which recorded an approximate 9.5% CAGR, all other three regions recorded double-digit CAGR of gross output value of construction and satisfied the abovementioned 15% CAGR target set in the Twelfth Five-Year Plan. These figures suggest that (i) albeit small, the populations in these four regions have been growing and this suggests that there would be need for housing, which in turn leads to the demand for construction and construction materials; (ii) in light of the rising purchasing power of urban households in these four regions, demand for residential properties would continue to grow with improving living standards and conditions; and (iii) the construction industry in these four regions have all been growing faster than expected. Accordingly, we consider that locations being considered by the Group for the development of the upstream property development sector are fair and reasonable.

Taking into account that (i) the Group can diversify its business portfolio and broaden the source of income by developing new upstream property development business; (ii) the introduction of the Guarantor, which has experiences in project construction, engineering, project management and decoration, as a strategic cooperation partner can strengthen the cooperation in relation to business activities and opportunities in, among others, production of pre-cast materials in the PRC; (ii) the upstream property development business, in particular the prefabricated materials production business, is in line with the Twelfth Five-Year Plan; and (iii) the locations being considered by the Group for the development of the upstream property development sector have been growing in terms of population, purchasing power and construction industry, we consider that the Company’s intention to develop a new upstream property development business is fair and reasonable and is in the interests of the Company and Shareholders as a whole.

3. Principal Terms of the Share Subscription Agreement

3.1 Issue of Subscription Shares

Pursuant to the Share Subscription Agreement, the Share Subscriber has conditionally agreed to subscribe for and the Company has conditionally agreed to allot and issue, on the Share Subscription Completion Date, 6,500,000,000 new Shares which has been determined by dividing HK$1,300,000,000 (being the total subscription consideration under the Share Subscription Agreement) by HK$0.20.

The Subscription Shares represent: (i) approximately 1.75 times of the existing issued share capital of the Company; (ii) approximately 63.67% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares, assuming no other changes to the issued share capital of the Company until the Share Subscription Completion Date; and (iii) approximately 57.99% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares and the Conversion Shares (assuming that the Convertible Bonds will be fully converted and there are no other changes to the issued share capital of the Company until such full conversion).

LETTER FROM NUADA LIMITED

The Subscription Shares, when allotted and issued, will rank pari passu in all respects among themselves and with the Shares in issue as at the date of allotment and issue of the Subscription Shares. An application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Subscription Shares.

3.2 The Subscription Price

The Subscription Price of HK$0.20 per Subscription Share represents:

(i) a discount of approximately 42.86% to the closing price of HK$0.35 per Share on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 35.06% to the average closing price of approximately HK$0.308 per Share for the last 5 trading days up to and including the Last Trading Day;
(iii) a discount of approximately 23.37% to the average closing price of approximately HK$0.261 per Share for the last 30 trading days up to and including the Last Trading Day;
(iv) a discount of approximately 19.35% to the average closing price of approximately HK$0.248 per Share for the last 60 trading days up to and including the Last Trading Day;
(v) a premium of approximately 16.96% to the average closing price of approximately HK$0.171 per Share for the last 180 trading days up to and including the Last Trading Day;
(vi) a discount of approximately 75% to the closing price of HK$0.8 per Share on the Stock Exchange on the Latest Practicable Date.

LETTER FROM NUADA LIMITED

3.2.1 Historical Share Price Performance

In order to assess the fairness and reasonableness of the Subscription Price, we have reviewed the daily closing price of the Shares (the “ Closing Price ”) for the period from 7 February 2014, being the 12-month period prior to the date of the Share Subscription Agreement, up to and including 6 February 2015 (being the Last Trading Day) (the “ Pre-announcement Period ”) and further up to the Latest Practicable Date (the “ Review Period ”). Set out below is the Closing Price as quoted from the Stock Exchange.

==> picture [416 x 192] intentionally omitted <==

Source: Website of the Stock Exchange (www.hkex.com.hk)

During the Pre-announcement Period, the closing prices per Share ranged from HK$0.114 to HK$0.36 with an average closing price of approximately HK$0.164 per Share. The highest closing price per Share HK$0.36 was recorded on 1 December 2014, while the lowest closing price per Share HK$0.114 was recorded on 31 October 2014. During the Pre-announcement Period, the Subscription Price represents (i) a premium of approximately 75.4% over the lowest closing price per Share of HK$0.114; (ii) a discount of approximately 44.4% to the highest closing price per Share of HK$0.36; and (iii) a premium of approximately 22.0% over the 12-month average closing price of the Pre-announcement Period of HK$0.164.

During the Review Period, the highest closing price per Share HK$0.8 was recorded on 23 April 2015 and 27 April 2015, while the lowest closing price per Share was the same as in the Pre-announcement Period being HK$0.114. During the Review Period, the Subscription Price represents (i) a premium of approximately 75.4% over the lowest closing price per Share of HK$0.114; and (ii) a discount of approximately 75% to the highest closing price per Share of HK$0.8.

LETTER FROM NUADA LIMITED

We notice that (i) the Share price has been fluctuating near HK$0.1114 and under HK$0.2 for the period from 7 February 2014 to 24 November 2014; (ii) the Share price then went up and fluctuated between HK$0.2 to HK$0.36 before the trading halt of the Share on 9 February 2015 and the announcement in relation to the Share Subscription and the CB Subscription; and (iii) after the Share Subscription and the CB Subscription being announced and then the resumption of trading on 9 March 2015, the Share price went up substantially. Taking into consideration that the Share price only went up significantly subsequent to the announcement in relation to the Share Subscription and the CB Subscription, we are of the view that the significant increase in Share price after the resumption of trading of Shares might be attributable to, among others, the public expectation on the Share Subscription, the CB Subscription and the future business development of the Group as detailed above in the subsection headed “Future Business Plan of the Company Following Completion of the Share Subscription”. Moreover, the Subscription Price is determined after arm’s length negotiations between the Company and the Share Subscriber with reference to, among others, the historical closing prices of the Shares before entering into the Share Subscription Agreement. Accordingly, we are of the view that the analysis of the Subscription Price should be based on the historical Closing Prices prior to the entering into of the Share Subscription Agreement.

3.2.2 Comparable Analysis

To further assess the fairness and reasonableness of the issue of Subscription Shares, we have conduct an analysis through reviewing all the comparable issues (the “ Comparables ”) initially announced since 9 November 2014 and up to 9 February 2015 (being the date of the Share Subscription Agreement) by companies listed on the Stock Exchange involving (i) subscription of new shares of the listed company by the subscriber; and (ii) application of whitewash waivers made by the subscribers, and identify an exhaustive list of 6 Comparables. We consider that the purpose of limiting a review period of three calendar months prior and up to the date of the Share Subscription Agreement is to compare the Subscription Price with those of the comparable companies in the recent stock market environment and with the similar market sentiment During the aforesaid three month period, no subscription or issuance of shares of listed company engaged in the business of property development and investment in the PRC could be identified and all the Comparables are of different financial performance. However, given that this analysis is aiming at comparing the respective subscription prices towards their prevailing market price in order to take a market general reference for the recent market practice in relation to the average discount rate of other proposed issues of new shares which would trigger mandatory general offers and with whitewash waivers, we consider that our comparable analysis on the Subscription Price is useful for the Independent Shareholders’ information and reference.

Set out below are the details of the Comparables.

LETTER FROM NUADA LIMITED

				Premium/
				(discount)
			Premium/	over/to
			(discount)	the average	Premium/
			over/to the	closing price	(discount)
			closing price	of the shares	over/to
			of the shares	for the last 5	the net
Date of	Stock		on the last	consecutive	asset value
announcement	code	Company	trading day	trading days	per share
12/12/2014	559	Goucang Group Limited	(93.30%)	(93.05%)	(84.92%)
18/12/2014	8172	China Star Cultural Media
		Group Limited	(71.40%)	(64.30%)	5.30%
7/1/2015	873	China Taifeng Beddings	(26.83%)	(25.86%)	(69.53%)
		Holdings Limited			(Note 1)
12/1/2015	874	Guangzhou Baiyunshan Pharmaceutical	(12.06%)	(10.88%)	327.24%
		Holdings Co., Ltd			(Note 2)
29/1/2015	109	Good Fellow Resources Holdings	(31.41%)	(20.76%)	57.93%
		Limited			(Note 3)
2/2/2015	1250	Jin Cai Holdings Company Limited	(43.57%)	(41.91%)	3.95%
		Average	(46.43%)	(42.79%)	39.99%
		Minimum Discount	(12.06%)	(10.88%)	327.24%
					(Note 4)
		Maximum Discount	(93.30%)	(93.05%)	(84.92%)
		The Company	(42.86%)	(35.06%)	170.00%

Source: Website of the Stock Exchange (www.hkex.com.hk)

Notes:

Calculated using the unaudited net asset value as at 30 June 2014 as disclosed in the interim report of China Taifeng Beddings Holdings Limited for the six months ended 30 June 2014, and the exchange rate of HK$1 = RMB1.2494 as at 30 June 2014 quoted from Bloomberg (http://www.bloomberg.com).
Calculated using the unaudited net asset value as at 30 June 2014 as disclosed in the interim report of Guangzhou Baiyunshan Pharmaceutical Holdings Co., Ltd for the six months ended 30 June 2014.
Calculated using the audited net asset value as at 30 June 2014 as disclosed in the annual report of Good Fellow Resources Holdings Limited for the year ended 30 June 2014.
Maximum premium of 327.24% over the net asset value per share.

LETTER FROM NUADA LIMITED

As shown in the table above, the subscription prices of all the Comparables are set at discounts to relevant market price. The Comparables show on average: (i) a discount of approximately 46.43% to the closing price of the last trading day prior to the date of the corresponding announcement; (ii) a discount of approximately 42.79% to the average closing price of the last five consecutive trading days prior to the date of the corresponding announcement; and (iii) a premium of approximately 39.99% to the net asset value. As far as the Company is concerned, the discounts of 42.86% (to the closing price on the Last Trading Day) and 35.06% (to the average closing price of the last 5 trading days up to and including the Last Trading Day) represented by the Subscription Price are lower than the respective average discounts of the Comparables. Meanwhile, the Subscription Price of HK$0.20 represents a premium of over 170% to the adjusted estimated net asset value per Share of the Company of approximately HK$0.074 per Share. Accordingly, we are of the view that the Subscription Price is fair and reasonable.

3.3 Other Principal Terms of the Share Subscription Agreement

We note that the Subscription Shares, when allotted and issued, will rank pari passu in all respects among themselves and with the Shares in issue as at the date of allotment and issue of the Subscription Shares, including the right to receive all future dividends and distributions which may be declared, made or paid by the Company on or after the date of allotment and issue of the Subscription Shares. We have also reviewed the remaining terms of the Share Subscription Agreement (including the conditions, completion, warranties and pre-completion undertakings, etc) and are not aware of any terms which are uncommon to normal market practice. Accordingly, we consider that the terms of the Share Subscription Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

4. Potential Dilution Effect on the Interests of the Independent Shareholders

As stated in the table in the section headed “CHANGES IN THE SHAREHOLDING STRUCTURE OF THE COMPANY” in the Letter, the shareholding interest of other public Shareholders, which does not include (i) Taiping Quantum Strategic Fund, Taiping Quantum Prosperity Fund and Taiping Quantum China Opportunities Fund and Quantum Advantage Fund, each of which is managed by Quantum China Asset Management Limited; (ii) Mr. Jiang Hongqing, an independent non-executive Director, and his associate; (iii) the Share Subscriber and parties acting in concert with it; and (iv) the CB Subscriber, will have a maximum dilution from approximately 77.25% to approximately 28.07% upon the issue of the Subscription Shares, and a further dilution from approximately 28.07% to approximately 25.57% upon the issue of the Conversion Shares. Accordingly, the dilution effect of the Share Subscription alone represent a maximum dilution of approximately 63.66%, and the combined dilution effect of the Share Subscription and the CB Subscription represent a maximum dilution of approximately 66.9%.

According to the Letter, save for an equity fund raising exercise by way of rights issue and raised net proceeds of approximately HK$283 million as disclosed in the section headed “FUND RAISING ACTIVITIES DURING THE PAST TWELVE MONTHS” in the Letter, the Group has not carried out any other fund raising activities during the 12 months immediately preceding the date of the Latest Practicable Date.

LETTER FROM NUADA LIMITED

Taking into account that (i) the Group would use the proceeds to seek future possible new business opportunities in the extended PRC property sector, including but not limited to the possible acquisition of the shares of Jinhong Property Development Limited which can generate steady rental income; (ii) the Share Subscription will benefit the Company’s long-term development and broaden the Company’s equity base, offers a good opportunity to raise additional funds to strengthen the financial position, and enhance its existing business operations and will further enable it to make investments in new acquisitions or business ventures when suitable opportunities arise in the future; and (iii) the Subscription Price of HK$0.20 represents a premium of over 170% to the adjusted estimated net asset value per Share of the Company of approximately HK$0.074 per Share and a premium of approximately 22.0% over the 12-month average closing price of the Pre-announcement Period of HK$0.164, we consider that the dilution effect on the Independent Shareholders is acceptable.

5. The Whitewash Waiver

As at the date of the Share Subscription Agreement and as at the date of the Latest Practicable Date, the Share Subscriber and the parties acting in concert with it are Independent Third Parties, and the Share Subscriber and parties acting in concert with it do not hold, control or direct any voting rights and rights over shares, convertible securities, warrants, options in the Company or outstanding derivatives in respect of the securities of the Company until the Share Subscription Completion Date. Upon the Subscription Completion and assuming that: (1) none of the Convertible Bonds are converted; and (2) there is no other change in the issued share capital of the Company, the Share Subscriber and the parties acting in concert with it will be interested in an aggregate of 6,500,000,000 New Shares, representing approximately 63.67% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares.

Assuming the Convertible Bonds are converted in full and there is no other change in the issued share capital of the Company, the Share Subscriber and the parties acting in concert with it will still be interested in 6,500,000,000 Shares, representing approximately 57.99% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares and the Conversion Shares. As a result of the acquisition of the voting rights of the Company under the Share Subscription and assuming none of the Convertible Bonds are converted, the Concert Group’s interests in the voting rights in the Company will increase from nil to a maximum of 63.67%.

Under Rule 26 of the Takeovers Code, the acquisition of voting rights from less than 30% to 30% or more will trigger an obligation on the Share Subscriber to make a general offer for all the securities of the Company other than those already owned or agreed to be acquired by the Concert Group, unless the Whitewash Waiver is granted by the Executive and approved by the Independent Shareholders at the SGM by way of poll. The Share Subscriber has made an application to the Executive for the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver will be subject to, among other things, approval by the Independent Shareholders at the SGM by way of poll. If the Whitewash Waiver is approved by the Independent Shareholders, the shareholding of the Share Subscriber in the Company upon the issue of the Subscription Shares will exceed 50%. The Share Subscriber may further increase its shareholdings in the Company without incurring any further obligations under Rule 26 of the Takeovers Code to make a general offer.

LETTER FROM NUADA LIMITED

Despite the dilution effect on the shareholdings of existing Shareholders in the Company as a result of the Share Subscription, taking into account that (i) the Group would use the proceeds to seek future possible new business opportunities in the extended PRC property sector, including but not limited to the possible acquisition of the shares of Jinhong Property Development Limited which can generate steady rental income; (ii) the Share Subscription will benefit the Company’s long-term development and broaden the Company’s equity base, offers a good opportunity to raise additional funds to strengthen the financial position, and enhance its existing business operations and will further enable it to make investments in new acquisitions or business ventures when suitable opportunities arise in the future; (iii) the terms of the Share Subscription Agreement are in the interests of the Company and Shareholders as a whole; and (iv) the Subscription Price of HK$0.20 represents a premium of over 170% to the adjusted estimated net asset value per Share of the Company of approximately HK$0.074 per Share and a premium of approximately 22.0% over the 12-month average closing price of the Pre-announcement Period of HK$0.164, we consider that the grant of the Whitewash Waiver (the granting of which being one of the conditions precedent to the completion of the Share Subscription) is fair and reasonable, and in the interests of the Company and the Shareholders as a whole.

RECOMMENDATION

Having taken into consideration of the above principal factors and reasons, we are of the view and concur with the view of the Boards that the terms of the Share Subscription Agreement and Whitewash Wavier are fair and reasonable, and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend (i) the Independent Board Committee to advise the Independent Shareholders; and (ii) the Independent Shareholders to vote in favor of the relevant resolution(s) at the SGM to approve the Share Subscription Agreement and the transactions contemplated thereunder, the Specific Mandate and the Whitewash Waiver.

Yours faithfully, For and on behalf of Nuada Limited Kevin Chan Executive Director

Mr. Kevin Chan is a person licensed under the SFO to carry out type 6 (advising on corporate finance) regulated activities under the SFO and regarded as a responsible officer of Nuada Limited and has over 15 years of experience in corporate finance industry.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following is a summary of the consolidated results and financial information of the Group: (a) for the three years ended 31 March 2012, 2013 and 2014, details of which were extracted from the annual reports of the Company for each of the years ended 31 March 2012, 2013 and 2014; and (b) for the six months ended 30 September 2013 and 2014, details of which were extracted from the interim report of the Company for the six months ended 30 September 2014.

Turnover Cost of properties sold Gross profit (Loss)/Profit before taxation Total tax expenses (Loss)/Profit for the period attributable to owners of the Company (Loss)/Earnings per share attributable to owners of the Company Basic and diluted (cents) Dividends Dividend Dividend per share (HK$)	For the six months ended 30 September 2013 2014 HK$’000 HK$’000 (unaudited) (unaudited) – 225 – (40) – 185 (8,828) (8,129) (8,828) (8,129) (8,828) (8,129) (2.51) (2.23) – – – –	For the year ended 31 March 2012 2013 2014 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 940 732 817 (700) (354) (500) 240 378 317 (16,717) (16,428) (3,186) (147) (429) (3,804) (16,864) (16,857) (6,990) (4.83) (4.80) (1.97) – – – – – –

The auditors of the Company for each of the three years ended 31 March 2012, 2013 and 2014, East Asia Sentinel Limited, did not issue any qualified opinion on the financial statements of the Group for each of the three years ended 31 March 2012, 2013 and 2014.

The Group did not have any items which are exceptional because of size, nature or incidence for each of the three years ended 31 March 2012, 2013 and 2014.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014

The following information is extracted from the audited financial statements of the Group as set out in the annual report of the Company for the year ended 31 March 2014:

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 March 2014

Note Turnover 6 Cost of properties sold GROSS PROFIT Fair value gains on investment properties 16 Other revenues 7 Selling and distribution costs Administrative expenses PROFIT/(LOSS) FROM OPERATIONS Finance costs 8 LOSS BEFORE TAXATION 9 Taxation 10(a) LOSS FOR THE YEAR OTHER COMPREHENSIVE INCOME/(LOSS) Items that may be reclassified subsequently to profit or loss: Translation differences Change in fair value of available-for-sale financial assets Other comprehensive income/(loss) for the year TOTAL COMPREHENSIVE LOSS FOR THE YEAR LOSS FOR THE YEAR ATTRIBUTABLE TO: Owners of the Company 11 TOTAL COMPREHENSIVE LOSS FOR THE YEAR ATTRIBUTABLE TO: Owners of the Company LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY Basic and diluted (cents) 12	2014 HK$’000 817 (500) 317 15,215 1,154 (26) (16,632) 28 (3,214) (3,186) (3,804) (6,990) 1,513 (1,224) 289 (6,701) (6,990) (6,701) (1.97)	2013 HK$’000 732 (354) 378 – 2,773 (16) (16,407) (13,272) (3,156) (16,428) (429) (16,857) 452 (1,175) (723) (17,580) (16,857) (17,580) (4.80)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2014

Note NON-CURRENT ASSETS Property, plant and equipment 13 Goodwill 14 Investment properties 16 Available-for-sale financial assets 17 Total non-current assets CURRENT ASSETS Held-to-maturity investments 18 Properties held for sale 19 Trade and other receivables 20 Cash and cash equivalents 21 Total current assets CURRENT LIABILITIES Trade and other payables 22 Tax payable 10(b) Convertible bond 23 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Convertible bond 23 Deferred tax liability 24 Total non-current liabilities NET ASSETS EQUITY Equity attributable to owners of the Company: Share capital 25 Reserves 26 TOTAL EQUITY	2014 HK$’000 26 – 37,800 2,082 39,908 780 – 3,549 27,151 31,480 1,859 165 2,040 4,064 27,416 67,324 63,312 3,834 67,146 178 36,496 (36,318) 178	2013 HK$’000 39 – – 3,306 3,345 780 22,318 3,528 39,855 66,481 2,815 165 2,040 5,020 61,461 64,806 62,143 – 62,143 2,663 35,126 (32,463) 2,663

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

STATEMENT OF FINANCIAL POSITION

As at 31 March 2014

Note NON-CURRENT ASSETS Property, plant and equipment 13 Interests in subsidiaries 15 Available-for-sale financial assets 17 Total non-current assets CURRENT ASSETS Other receivables 20 Cash and cash equivalents 21 Total current assets CURRENT LIABILITIES Other payables 22 Convertible bond 23 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Convertible bond 23 NET LIABILITIES EQUITY Share capital 25 Reserves 26(b) TOTAL DEFICIT	2014 HK$’000 – 14,251 1,898 16,149 1,791 5,225 7,016 1,076 2,040 3,116 3,900 20,049 63,312 (43,263) 36,496 (79,759) (43,263)	2013 HK$’000 – 53,775 3,122 56,897 1,767 6,489 8,256 2,162 2,040 4,202 4,054 60,951 62,143 (1,192) 35,126 (36,318) (1,192)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2014

FOR THE YEAR ENDED 31 MARCH 2013 At 1 April 2012 Comprehensive loss: Loss for the year Other comprehensive (loss)/income: Change in fair value of available-for-sale financial assets Translation differences Total comprehensive (loss)/income for the year Transactions with owners: Cancellation of share options Total transactions with owners At 31 March 2013 FOR THE YEAR ENDED 31 MARCH 2014 At 1 April 2013 Comprehensive loss: Loss for the year Other comprehensive (loss)/income: Change in fair value of available-for-sale financial assets Translation differences Total comprehensive (loss)/income for the year Transactions with owners: Exercise of share options Cancellation of share options Total transactions with owners At 31 March 2014	Share capital HK$’000 35,126 – – – – – – 35,126 35,126 – – – – 1,370 – 1,370 36,496	Share premium HK$’000 Note 26(c)(i) 11,337 – – – – – – 11,337 11,337 – – – – 4,304 – 4,304 15,641	Available- for-sale financial assets revaluation reserve HK$’000 Note 26(c)(ii) (1,742) – (1,175) – (1,175) – – (2,917) (2,917) – (1,224) – (1,224) – – – (4,141)	Equity component convertible bond HK$’000 Note 26(c)(iii) 5,888 – – – – – – 5,888 5,888 – – – – – – – 5,888	Exchange reserve HK$’000 Note 26(c)(iv) 15,106 – – 452 452 – – 15,558 15,558 – – 1,513 1,513 – – – 17,071	Contributed surplus reserve HK$’000 Note 26(c)(v) 131,166 – – – – – – 131,166 131,166 – – – – – – – 131,166	Employee share-based payment reserve HK$’000 Note 26(c)(vi) 1,897 – – – – (359) (359) 1,538 1,538 – – – – (1,458) (80) (1,538) –	Accumulated losses HK$’000 (178,535) (16,857) – – (16,857) 359 359 (195,033) (195,033) (6,990) – – (6,990) – 80 80 (201,943)	Total HK$’000 20,243
									(16,857) (1,175) 452
									(17,580)
									–
									–
									2,663

									2,663
									(6,990) (1,224) 1,513
									(6,701)
									4,216 –
									4,216
									178

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 March 2014

CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation Adjustments for: Depreciation Recovery of trade receivables Fair value gains on investment properties Interest expenses Interest income Investment income Operating loss before changes in working capital (Increase)/Decrease in properties held for sale Decrease in trade and other receivables Increase/(Decrease) in trade and other payables Cash used in operations Income taxes paid NET CASH USED IN OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Interest received Investment income NET CASH GENERATED FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Interest paid Proceeds from issue of shares NET CASH GENERATED FROM/(USED IN) FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR ANALYSIS OF CASH AND CASH EQUIVALENTS Cash and bank balances	2014 HK$’000 (3,186) 13 (158) (15,215) 3,214 (721) (111) (16,164) (267) 706 313 (15,412) – (15,412) 152 111 263 (3,314) 4,216 902 (14,247) 1,543 39,855 27,151 27,151 27,151	2013 HK$’000 (16,428) 200 (398) – 3,156 (1,807) (134) (15,411) 117 287 (371) (15,378) (54) (15,432) 146 134 280 (2,042) – (2,042) (17,194) 452 56,597 39,855 39,855 39,855

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 March 2014

1. GENERAL INFORMATION

The Company is a limited liability company incorporated in Bermuda and its shares are listed on the Main Board of the Stock Exchange. The address of its registered office is Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda. The principal place of business of the Company is 12th Floor, Entertainment Building, 30 Queen’s Road Central, Hong Kong.

The principal activity of the Company is investment holding. The principal activities and details of its subsidiaries are set out in Note 15 to the consolidated financial statements.

2. BASIS OF PREPARATION

These consolidated financial statements of the Group have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), which in collective term includes all applicable individual HKFRSs, Hong Kong Accounting Standards (“HKASs”), and Interpretations (“Ints”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong. These consolidated financial statements also comply with the applicable disclosure provisions of the Listing Rules and the disclosure requirements of the Hong Kong Companies Ordinance.

These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain investments and properties which are carried at their fair values.

These consolidated financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand unless otherwise stated.

The preparation of consolidated financial statements is conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgments in the process of applying the Group’s accounting policies. The area involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting year of the Group. Note 3 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these consolidated financial statements.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

(a) Amendments and interpretations to existing standards effective for the Group’s annual financial year beginning on 1 April 2013 and relevant to the Group

The Group has applied the following new and revised standards, amendments and interpretations (“new and revised HKFRSs”) issued by the HKICPA in the current year:

HKAS 1 (Revised) Presentation of financial statements HKAS 19 (2011) Employee benefits HKAS 27 (2011) Separate financial statements HKFRS 10 Consolidated financial statements HKFRS 13 Fair value measurement Amendments to HKFRS 7 Financial instruments: Disclosures – Offsetting financial assets and financial liabilities

Under HKAS 1 (Revised), “Presentation of financial statements”, a statement of comprehensive income is renamed as a statement of profit or loss and other comprehensive income and an income statement is renamed as a statement of profit or loss. Besides, HKAS 1 (Revised) requires additional disclosures to be made in the other comprehensive income section such that items of other comprehensive income are grouped into two categories: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. The amendments have been applied retrospectively, and hence the presentation of items of other comprehensive income has been modified to reflect the changes.

HKAS 19 (2011), “Employee benefits”, was revised in June 2011. The changes on the Group’s accounting policies has been as follows: to immediately recognise all past service costs; and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset).

HKFRS 10, “Consolidated financial statements”, replaces the parts of HKAS 27 (Revised) “Consolidated and Separate Financial Statements” that deal with consolidated financial statements and HK (SIC)-Int 12 “Consolidated – Special Purpose Entities”. HKFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor’s returns. Extensive guidance has been added in HKFRS 10 to deal with complex scenarios. The application of HKFRS 10 has had no significant impact on the financial results or position of the Group for the current and prior years.

HKFRS 13, “Fair value measurement”, establishes a single source of guidance for, and disclosures about fair value measurements, and replaces those requirements previously included in various HKFRSs. In accordance with HKFRS 13, the Group has applied the new fair value measurements and disclosure requirements. Other than the additional disclosures, the application of this standard does not have a material impact on the Group’s consolidated financial statements.

Amendment to HKFRS 7, “Financial instruments: Disclosures – Offsetting financial assets and financial liabilities”, requires new disclosure requirements which focus on quantitative information about recognised financial instruments that are offset in the statement of financial position, as well as those recognised financial instruments that are subject to master netting or similar arrangements irrespective of whether they are offset.

Except as described above, the application of the other new and revised HKFRSs in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted

Up to the date of issue of these consolidated financial statements, the HKICPA have issued a number of new standards, amendments and interpretations to existing standards which are effective for the Group’s financial period beginning on 1 April 2014, and which have not been early adopted in preparing these consolidated financial statements. These include the following which may be relevant to the Group.

	Effective for
	accounting periods
	beginning on or after
HKFRS 9, “Financial instruments”	To be confirmed
Amendments to HKAS 36, “Recoverable amount	1 January 2014
disclosures for non-financial assets”
Amendments to HKPRS 9 and HKFRS 7, “Mandatory	1 January 2015
effective date of HKFRS 9 and transition disclosures”

HKFRS 9, “Financial instruments”, addresses the classification, measurement and recognition of financial assets and financial liabilities. HKFRS 9 was issued in November 2009 and amended in October 2010. It replaces the parts of HKAS 39 that relate to the classification and measurement of financial instruments. HKFRS 9 requires financial assets to be classified into two measurement categories: those measured at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the HKAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the statement of comprehensive income, unless this creates an accounting mismatch. The Group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application.

Amendments to HKAS 36, “Recoverable amount disclosures for non-financial assets”, removed certain disclosures of the recoverable amount of cash generating units which had been included in HKAS 36 by the issue of HKFRS 13. The amendment is not mandatory for the Group until 1 April 2014.

The Group is in the process of assessing the impact of these new and revised standards, amendments and interpretations to existing standards and does not expect that there will be a material impact on the consolidation financial statements of the Group.

There are no other HKFRSs or HK(IFRIC) interpretations that are not yet effective that would be expected to have a material impact on the Group.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(a) Consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to 31 March with the exception of those excluded from consolidation as disclosed in Note 33 to the consolidated financial statements.

Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-byacquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

If the business combination is achieved in stages, the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with HKAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Inter-company transactions, balances, and unrealised gains or losses on transactions between group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s statement of financial position, the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the consideration transferred over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, liabilities and contingent liabilities assumed as at the date of acquisition.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units (“CGUs”), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying amount of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.

(c)

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources to, and assessing performance of, the Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of the products and services, the nature of the production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

(d) Foreign currency translation

(i) Functional and presentation currency

Items included in the consolidated financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entities operate (the “functional currency”), which include HK$ and Renminbi (“RMB”).

As the Company is listed in Hong Kong, for the convenience of the users of these consolidated financial statements, the results and financial position of the Group are expressed in HK$, the presentation currency for the consolidated financial statements.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of profit or loss and other comprehensive income.

Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in consolidated statement of

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in consolidated statement of profit or loss and other comprehensive income as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the available-for-sale revaluation reserve in equity.

(iii) Group entities

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

assets and liabilities for each reporting period presented are translated at the closing rate at the date of that reporting period;
income and expenses for each reporting period presented are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
all resulting exchange differences are recognised as a separate component of equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(e) Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised in the consolidated statement of profit or loss and other comprehensive income during the financial year in which they are incurred.

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate cost or revalued amounts to their residual values over their estimated useful lives, as follows:

–	Furniture and fixtures	5 years
–	Computer equipment	3 years
–	Motor vehicles	5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Gains or losses on disposal are determined by comparing the proceeds with the carrying amount and are recognised within other revenue in the consolidated statement of profit or loss and other comprehensive income.

When revalued assets are sold, the amounts included in other reserves are transferred to retained profits.

(f)

Investment properties

Investment properties are land and buildings held for long-term rental yields and for capital appreciation and is not occupied by the Group. An investment property is measured initially at its cost including all direct costs attributable to the property.

After initial recognition, the investment property is stated at its fair value representing open market value determined at each reporting date by external independent valuer. Gains or losses arising from changes in fair value of the investment property are included in the consolidated statement of profit or loss within other income/expenses for the period in which they arise.

If a property held for sale becomes an investment property, any difference resulting between the carrying amount and the fair value of this item at the date of transfer is recognised in the consolidated statement of profit or loss and other comprehensive income.

The gain or loss on disposal of an investment property is the difference between the net sales proceeds and the carrying amount of the property, and is recognised in the consolidated statement of profit or loss and other comprehensive income.

(g) Impairment of investments in subsidiaries and non-financial assets

Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

Impairment testing of investments in subsidiaries and an associate is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.

(h) Properties held for sale

Properties are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and sale is considered highly probable. They are stated at the lower of cost and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Financial instruments

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments and on a trade date basis.

Financial assets are derecognised when the contractual rights to receive cash flows from the assets expire; the Group transfers substantially all the risks and rewards of ownership of the assets; or the Group neither transfers nor retains substantially all the risks and rewards of ownership of the assets but has not retained control on the assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in the statement of profit or loss and other comprehensive income.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in the statement of profit or loss and other comprehensive income.

(i) Loans and receivables

Loans and receivables including cash and bank balances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are not held for trading. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest method less any allowance for impairment. The effective interest amortisation is included in finance income in the consolidated statement of profit or loss and other comprehensive income. The loss arising from impairment is recognised in the consolidated statement of profit or loss and other comprehensive income.

(ii) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives financial assets in listed and unlisted equity securities that are either designated as available-for-sale or are not classified in any of the other categories. At each financial reporting period end subsequent to initial recognition, availablefor-sale financial assets are measured at fair value, with unrealised gains or losses recognised as other comprehensive income in the available-for-sale financial assets revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the consolidated statement of profit or loss and other comprehensive income with other income, or until the investment is determined to be impaired, at which time the cumulative gain or loss is recognised in the consolidated statement of profit or loss and other comprehensive income and removed from the available-for-sale financial assets revaluation reserve.

Interest on available-for-sale financial assets calculated using the effective interest method is recognised in the consolidated statement of profit or loss and other comprehensive income as part of other income. Dividends on available-for-sale equity instruments are recognised in the consolidated statement of profit or loss and other comprehensive income as part of other income when the Group’s right to receive payments is established.

When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the positive intention and ability to hold to maturity. Held-to-maturity investments are carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest amortisation is included in finance income in the consolidated statement of profit or loss and other comprehensive income. The loss arising from impairment is recognised in the consolidated statement of profit or loss and other comprehensive income within finance costs.

(iv) Other financial liabilities

Financial liabilities including trade and other payables are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest method.

(j) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short- term highly liquid investments with original maturities of three months or less.

(k) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of profit or loss and other comprehensive income over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

(l) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation where, as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(m) Income tax

The tax expense for the year comprises current income tax and deferred income tax.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting period end in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates that have been enacted or substantively enacted by the reporting period end and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reverse of the temporary differences is controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

(n) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to end of the reporting period. Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Pension obligations

The Group operates a defined contribution retirement scheme under a mandatory provident fund scheme (“MPF scheme”) in Hong Kong for its employees in Hong Kong, the assets of which are held in separate trustee-administered funds. The Group’s contributions to the MPF scheme are based on a fixed percentage of the employees’ relevant income per month.

In accordance with the PRC regulations, the Group is required to pay social security contributions for its PRC staff based on certain percentage of their salaries to the social security plan organised by related governmental bodies (“PRC plan”).

The Group has no further payment obligations once the contributions have been paid to the MPF scheme and PRC plan. The Group’s contributions to the MPF scheme and PRC plan are recognised as employee benefit expense in the consolidated statement of profit or loss and other comprehensive income when they are due.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

(iv) Share-based compensation

The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any service and non-market performance vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the consolidated statement of profit or loss and other comprehensive income and a corresponding adjustment to equity over the remaining vesting period.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

(o) Revenue recognition

Revenue comprises the fair value for the sale of goods, net of value-added tax, rebates and discounts and after eliminating sales within the Group. Revenue is recognised as follows:

Sales of properties held for sale

Sales of properties held for sale is recognised when the significant risks and rewards of ownership of properties are transferred to the purchasers.

Interest income

Interest income is recognised on a time-proportion basis using the effective interest method.

Dividend income

Dividend income is recognised when the shareholders’ rights to receive payment are established.

Rental income

Rental income is recognised on time proportion basis over the term of leases.

Sundry income

Sundry income is recognised on an accrual basis.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(p) Operating leases (As a leasee)

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease payments (net of any incentives received from the lessor) are expended in the consolidated statement of profit or loss and other comprehensive income on a straight- line basis over the lease term.

(q) Related parties

A related party is a person or entity that is related to the Group if:

(a) A person or a close member of that person’s family is related to the Group if that person:
(i) has control or joint control of the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of the parent of the Group.
(b) An entity is related to the Group if any of the following conditions applies:
(i) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

(r) Convertible bond

The component of a convertible bond that exhibits characteristics of a liability is recognised as a liability in the consolidated statement of financial position, net of transactions cost. On issuance of a convertible bond, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond; and this amount is carried as a long term liability on the amortised cost basis until extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in shareholders’ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible bonds based on the allocation of proceeds to the liability and equity components when the instruments are first recognised.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

If the conversion option of a convertible bond exhibits characteristics of an embedded derivative, it is separated from its liability component. On initial recognition, the derivative component of the convertible bond is measured at fair value using the Black-Sholes model and presented as part of derivative financial instruments. Any excess of proceeds over the amount initially recognised as the derivative component is recognised as the liability component. Transaction costs are apportioned between the liability and derivative components of the convertible bond based on the allocation of proceeds to the liability and derivative components when the instruments are initially recognised. The portion of the transaction costs relating to the liability component is recognised initially as part of the liability. The portion relating to the derivative component is recognised immediately in the consolidated statement of profit or loss and other comprehensive income.

(s) Events after the end of the reporting period

Events after the end of the reporting period that provide additional information about the Group’s position at the end of the reporting period or those that indicate the going concern assumption is not appropriate are adjusting events and are reflected in the consolidated financial statements. Events after the end of the reporting period that are not adjusting events are disclosed in the notes to the consolidated financial statements if material.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Estimated income tax

The Group is subject to taxation mainly in the PRC. Significant estimates are required in determining the amount of the provision for tax and the timing of payment of the related tax. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the periods in which such determination are made.

(b) Land appreciation tax (“LAT”)

The Group is subject to LAT in the PRC. The provision for LAT is based on management’s best estimate according to its understanding of the requirements set forth in the relevant PRC tax laws and regulations. The actual LAT liabilities are subject to the determination by the tax authorities upon the completion of the disposal of its investment properties. The Group has not finalised its LAT calculation and payments with the tax authorities for the investment properties. The final outcome could be different from the amounts that were initially recorded, and any differences will have impact on the land appreciation tax expense and the related provision in the period in which the differences realise.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Estimation of realisability of deferred tax assets

Determining income tax provisions involves judgment on the future tax treatment of certain transactions. The Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislations. Deferred tax assets are recognised for tax losses not yet used and temporary deductible differences arising from depreciation of fixed assets. As those deferred tax assets can only be recognised to the extent that it is probable that future taxable profit will be available against which the unused tax credits can be utilised. Management’s judgment is required to assess the probability of future taxable profits. Management’s assessment is constantly reviewed and deferred tax assets are recognised if it becomes probable that future taxable profits will allow the deferred tax asset to be recovered.

As at 31 March 2014, the Group has unused tax losses of HK$37,732,000 (2013: HK$39,138,000) that are available for offsetting against future taxable profits. Deferred tax asset arising from the unused tax losses has not been recognised in the consolidated financial statements as, in the opinion of the management, it is not probable to determine whether sufficient future profits will be available to utilise the tax losses.

(d) Estimation of fair value of investment properties

In the absence of current prices in an active market for similar properties, the Group considers information from a variety of sources, including:

(a) current prices in an active market for properties of a different nature, condition or location, adjusted to reflect those differences;
(b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and
(c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The carrying amount of investment properties at 31 March 2014 was HK$37,800,000. Further details, including the key assumptions used for fair value measurements and a sensitivity analysis, are given in Note 16 to the consolidated financial statements.

6. TURNOVER

The Group’s turnover consists of sales of properties and rental income of investment properties, which are set out below:

Sales of properties held for sale Rental income of investment properties (Note) Total	2014 HK$’000 401 416 817	2013 HK$’000 732 –
		732

Note: The Group reclassified the properties held for sale to investment properties during the year. Rental income of HK$416,000 was generated from investment properties for the year ended 31 March 2014 while rental income of HK$248,000 was generated from properties held for sale and recognised in other revenues in previous year which included in Note 7.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. OTHER REVENUES

Interest income Investment income Recovery of trade receivables Rental income Non-refundable deposit Exchange gain Sundry income Total 8. FINANCE COSTS Interest expenses on convertible bond Others Total 9. LOSS BEFORE TAXATION Loss before taxation was arrived at after charging: Auditors’ remuneration – Current year – Under-provision for prior year Cost of properties sold Depreciation Operating lease payments Staff costs (excluding directors’ remuneration) – Salaries and allowances – Retirement benefits scheme contributions	2014 HK$’000 721 111 158 63 5 86 10 1,154 2014 HK$’000 3,209 5 3,214 2014 HK$’000 250 25 275 500 13 5,067 3,860 132	2013 HK$’000 1,807 134 398 248 – 174 12
		2,773

		2013 HK$’000 3,154 2
		3,156

		2013 HK$’000 240 24
		264 354 200 4,957 3,927 161

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. TAXATION

(a) Taxation in the consolidated statement of profit or loss and other comprehensive income represents:

The PRC Enterprise Income Tax – Provision for the year – Deferred taxation Total	2014 HK$’000 – 3,804 3,804	2013 HK$’000 429 –
		429

No provision for Hong Kong Profits Tax has been made in the consolidated financial statements as the Group did not derive any assessable profits in Hong Kong for the year (2013: nil).

Taxation on profits derived in the PRC for subsidiaries has been calculated at the rate of tax prevailing in the PRC, Enterprise Income Tax rate, of 25% (2013: 25%), which is based on existing legislation, interpretations and practices in respect thereof.

(b) At the end of the reporting period, the Group had the following income tax payable and prepayment:

The PRC Enterprise Income Tax – Tax payable – Tax prepayment Tax payable	2014 HK$’000 (383) 218 (165)	2013 HK$’000 (378) 213
		(165)

(c) Reconciliation between tax expenses and loss before taxation of the Group at the applicable tax rates are as follows:

Loss before taxation Tax calculated at the applicable tax rates Tax effect of non-deductible expenses Tax effect of non-taxable income Tax loss not recognised Total tax expenses	2014 HK$’000 (3,186) 751 193 (39) 2,899 3,804	2013 HK$’000 (16,428)
		(2,586) 207 (43) 2,851
		429

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) At the end of the reporting period, the Group has unused tax losses of HK$37,732,000 (2013: HK$39,138,000) that are available for offsetting against future taxable profits. These tax losses have no expiry dates except for the tax losses of HK$1,505,000 (2013: HK$2,910,000) which will expire at various dates up to and including year of 2019 (2013: year of 2018). Deferred tax asset arising from the unused tax losses has not been recognised in the consolidated financial statements as, in the opinion of the Directors, it is not probable to determine whether sufficient future profits will be available to utilise the tax losses.

11. LOSS ATTRIBUTABLE TO OWNERS OF THE COMPANY

The consolidated loss attributable to owners of the Company includes a loss of HK$45,063,000 (2013: loss of HK$17,891,000) dealt with in the financial statements of the Company.

12. LOSS PER SHARE

The calculation of basic loss per share is based on the consolidated loss attributable to owners for the year of HK$6,990,000 (2013: loss of HK$16,857,000) and on the weighted average of 355,091,521 (2013: 351,258,880) ordinary shares in issue during the year. No diluted loss per share has been presented as the exercise of the convertible bond would result in a decrease in loss per share for the year. The Company had no potential dilutive ordinary shares that were outstanding for the years ended 31 March 2014 and 31 March 2013.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. PROPERTY, PLANT AND EQUIPMENT

Group

COST At 1 April 2012 Exchange adjustment At 31 March 2013 Disposals Exchange adjustment At 31 March 2014 ACCUMULATED DEPRECIATION At 1 April 2012 Charge for the year Exchange adjustment At 31 March 2013 Charge for the year Eliminated on disposals Exchange adjustment At 31 March 2014 NET BOOK VALUE At 31 March 2014 At 31 March 2013	Furniture and fixtures HK$’000 125 1 126 3 129 116 1 117 3 120 9 9	Computer equipment HK$’000 2 2 2 2 1 (1) 2 2	Motor vehicles HK$’000 1,918 3 1,921 (1,580) 8 349 1,689 198 4 1,891 13 (1,580) 8 332 17 30	Total HK$’000 2,045 4 2,049 (1,580) 11 480 1,807 200 3 2,010 13 (1,580) 11 454 26 39

Depreciation expenses of HK$13,000 (2013: HK$200,000) has been charged in administrative expenses.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Company

		Motor vehicle
		HK$’000
	COST
	At 1 April 2012, 31 March 2013	1,580
	Disposals	(1,580)
	At 31 March 2014	–
	ACCUMULATED DEPRECIATION
	At 1 April 2012	1,422
	Charge for the year	158
	At 31 March 2013	1,580
	Charge for the year	–
	Eliminated on disposals	(1,580)
	At 31 March 2014	–
	NET BOOK VALUE
	At 31 March 2014	–
	At 31 March 2013	–
14.	GOODWILL
		HK$’000
	COST
	At 1 April 2012, 31 March 2013 and 31 March 2014	25
	ACCUMULATED IMPAIRMENT LOSS
	At 1 April 2012, 31 March 2013 and 31 March 2014	(25)
	CARRYING AMOUNT
	At 31 March 2014	–
	At 31 March 2013	–

Goodwill represents the excess of the cost of acquisition over the net fair value of the Group’s acquisition of 100% interest in Ricco Mining Investment Limited together with its wholly own subsidiary Excel Profit International Investment Limited (collectively, the “Ricco Mining Group”) in 2010. The carrying amount of goodwill was allocated to the cash-generating unit (“CGU”) of the Group’s operations other than property development in the PRC.

The recoverable amounts of the relevant CGU have been determined on the basis of value-in-use calculations. For the purpose of impairment testing, the recoverable amount of the CGU is determined based on its fair value less cost to sell or value-in-use calculations. The key assumption has been determined by the Group’s management based on the future income generated from the Ricco Mining Group. The directors are of the opinion that full impairment of goodwill is required.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries (Note (a)) Less: Provision for impairment (Note (b))	2014 HK$’000 52,925 132,009 (170,683) 14,251	2013 HK$’000 52,925 132,039 (131,189) 53,775

Notes:

(a) The amounts due are unsecured, interest-free and no fixed terms of repayment.

(b) An impairment was recognised during the years ended 31 March 2014 and 31 March 2013 due to the repeated losses of these subsidiaries.

The following is a summary of the principal subsidiaries of the Company that, in the opinion of the directors, were significant in relation to the results of the year or formed a portion of the net assets of the Group as at 31 March 2014 and 31 March 2013:

			Percentage of	Percentage of
			equity interests
	Place of	Issued and	attributable to
	incorporation/	paid-up capital/	the Company
Direct subsidiaries	operation	registered capital	2014	2013	Principal activities
Benelux Property Development	The PRC	US$5,000,000	100%	100%	Property development
(Shanghai) Limited
Benelux (Far East)	Hong Kong	100 ordinary shares	100%	100%	Investment holding
Company Limited		of HK$1 each
Sunshine Universal	The British Virgin	1 ordinary share	100%	100%	Inactive
Development Limited	Islands	of US$1 each
Happy Universal Investment	The British Virgin	1 ordinary share	100%	100%	Investment holding
Limited	Islands	of US$1 each
South East Property (Shandong)	The PRC	RMB15,000,000	100%	100%	Property development
Limited
Perfect Gold Investments	Hong Kong	2 ordinary shares	100%	100%	Inactive
Limited		of HK$1 each
Ricco Mining Investment	Hong Kong	1 ordinary share	100%	100%	Inactive
Limited		of HK$1 each

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Place of	Issued and	Effective	Effective
	incorporation/	paid-up capital/	equity	interest
Indirect subsidiaries	operation	registered capital	2014	2013	Principal activities
Shanghai Kaiyuen Computer	The PRC	RMB500,000	100%	100%	Inactive
Company Limited (Note)
Excel Profit International	The British Virgin	1 ordinary share	100%	100%	Inactive
Investment Limited	Islands	of US$1 each

None of the subsidiaries had issued any debt securities at 31 March 2014 or at any time during the year.

Note: The capital of the subsidiary is held by two staff members of the subsidiary for and on behalf of the Group.

16. INVESTMENT PROPERTIES

Group At 1 April Reclassification from properties held for sale Fair value gains Exchange difference At 31 March	2014 HK$’000 – 21,922 15,215 663 37,800	2013 HK$’000 – – – –
		–

The Group reclassified the properties held for sale to investment properties during the year. At the end of the reporting period, the Group measures its investment properties at fair value. The fair value of the Group’s investment properties as at 31 March 2014 has been determined on the basis of valuation carried out by Savills Valuation and Professional Services Limited, an independent firm of professional valuer by using an income capitalisation approach. The revaluation gains or losses were included in the consolidated statement of profit or loss and other comprehensive income.

Investment properties are situated in the PRC for rental purpose under short term leases.

(a) Valuation techniques

Valuation was based on income capitalisation approach which takes into account the rental incomes of tenancies and reversionary market rents.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Information about fair value measurement

Fair value hierarchy

The different levels of fair value have been defined in Note 36(f) of the consolidated financial statements. The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:

	Fair value measurement as at 31 March	Fair value measurement as at 31 March	2014 using
	Significant	Significant
	Quoted prices	observable	unobservable
	in active markets	inputs	inputs	Total
	(Level 1)	(Level 2)	(Level 3)
	HK$’000	HK$’000	HK$’000	HK$’000
Investment properties
in the PRC	–	–	37,800	37,800

There were no transfers between level 1,2 and 3 during the year.

(c) Valuation processes of the Group

The Group’s investment properties were valued at 31 March 2014 by the independent professionally qualified valuers who hold a recognised relevant professional qualification and have recent experience in the locations and segments of the investment properties valued. For all investment properties, their current use equates to the highest and best use.

The management reviews the valuations performed by the independent valuers for financial reporting purposes at least once every six months, in line with the Group’s interim and annual reporting dates. As at 31 March 2014, the fair values of the properties have been determined by Savills Valuation and Professional Services Limited.

At each financial year end, the management:

verifies all major inputs to the independent valuation report;
assess property valuations movements when compared to the prior year valuation report;
holds discussions with the independent valuer.

The following table gives information about how the fair values of the investment properties are determined:

			Range of	Relationship of
Investment properties	Valuation	Unobservable	unobservable	unobservable inputs
held by the Group	technique	inputs	inputs	for fair value
Investment properties	Income capitalisation	Market rent per month	RMB17.3-RMB31.4	the higher market rent,
in the PRC	approach	(per square meter)	per square meter	the higher fair value
		Capitalisation rate (%)	6% per annum	the higher capitalisation
				rate, the lower fair value

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) The following amounts have been recognised in the consolidated statement of profit or loss and other comprehensive income:

2014
HK$’000
Group
Fair value gains on investment properties
15,215
Rental income of investment properties
416
(e)
The future aggregate minimum rental receivables under non-cancellable operating leases are a
2014
HK$’000
Group
Not later than one year
22
Within the second to fifth year inclusive
–
22
17.
AVAILABLE-FOR-SALE FINANCIAL ASSETS
2014
HK$’000
Group
Listed equity investments in Hong Kong, at fair value (Note (a))
1,898
Unlisted equity investments, at cost (Note (b))
1,950
Less: Impairment loss (Note (b))
(1,766)
2,082
Company
Listed equity investments in Hong Kong, at fair value (Note (a))
1,898

2013
HK$’000
–
–
s follows:
2013
HK$’000
–
–
–
2013
HK$’000
3,122
1,950
(1,766)
3,306
3,122

All available-for-sale financial assets are held with the intention for a continuing strategic or long-term purpose.

Notes:

(a) The fair value of listed shares is based on quoted market price.
(b) Unlisted equity investments are measured at cost less impairment at the end of the reporting period on account that there is no quoted market price in an active market for the shares and the range of reasonable fair value estimates is so broad that the directors of the Company are of the opinion that their fair values cannot be reliably measured. The directors conduct a regular review of the investee companies’ operating results and financial position and consider that no adjustment on the impairment loss of HK$1,766,000 that has recognised in 2005.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. HELD-TO-MATURITY INVESTMENTS

2014	2013
HK$’000	HK$’000

Group
Promissory note	780	780

The promissory note represents an unlisted security which bears interest at 5% per annum and was initially due to mature in March 2008. The maturity date has been extended repeatedly until 15 December 2014.

The carrying amounts of held-to-maturity investments are denominated in United States dollars.

There were no gains or losses realised on the disposal of held-to-maturity investments for the year ended 31 March 2014 and 31 March 2013.

The maximum exposure to credit risk at the end of the reporting period is the carrying amount of held-to- maturity investments.

19. PROPERTIES HELD FOR SALE

Properties held for sale are developed commercial properties in the PRC. During the year, the Group’s properties held for sale were reclassified to investment properties. The movements are as follows:

Group At 1 April Cost of properties sold Reclassification to investment properties (Note 16) Exchange difference At 31 March	2014 HK$’000 22,318 (396) (21,922) – –	2013 HK$’000 22,435 (354) – 237
		22,318

The particulars of the properties held for sale during the year are as follows:

					Interest
	Approximate	Completed		Development	held by
	site area	GFA	Land use	status	Group
Project name	Sq.m.	Sq.m.
山東鄒平縣經濟開發區	10,292	16,558	Commercial	Completed	100%
				construction

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. TRADE AND OTHER RECEIVABLES

Group Trade receivables Less: Provision for impairment Trade receivables, net of provision Deposits and other receivables Maximum exposure to credit risk Prepayments Company Deposits and other receivables Prepayments	2014 HK$’000 1,076 (1,076) – 3,104 3,104 445 3,549 1,347 444 1,791	2013 HK$’000 1,206 (1,206) – 3,042 3,042 486 3,528 1,272 495 1,767

The carrying amounts of trade and other receivables approximated their fair values as at 31 March 2014 and 31 March 2013. The Group does not hold any collateral over these balances.

All trade receivables before provision for impairment of the Group were aged over twelve months based on the invoice issue date.

The movements on the provision for impairment of trade receivables were as follows:

At 1 April Recovery of trade receivables Exchange difference At 31 March	2014 HK$’000 1,206 (158) 28 1,076	2013 HK$’000 1,590 (398) 14 1,206

The creation and release of provision for impaired receivables has been included in administrative expenses in the consolidated statement of profit or loss and other comprehensive income. Amounts charged to the provision account are impaired when there is no expectation of recovering additional cash.

The other classes within trade and other receivables do not contain impaired assets.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The carrying amounts of the Group’s trade and other receivables were denominated in the following currencies:

Group Renminbi Hong Kong dollars	2014 HK$’000 1,757 1,792 3,549	2013 HK$’000 1,760 1,768
		3,528

The carrying amounts of the Company’s deposits and other receivables, prepayments approximated their fair values as at 31 March 2014 and 31 March 2013 and were denominated in Hong Kong dollars.

21. CASH AND CASH EQUIVALENTS

2014 HK$’000 Group Cash and bank balances 27,151 Maximum exposure to credit risk 27,079 Company Cash and bank balances 5,225 Maximum exposure to credit risk 5,222 The carrying amounts of cash and cash equivalents were denominated in the following currencies: 2014 HK$’000 Group Renminbi 26,633 Hong Kong dollars 337 Others 181 27,151 Company Renminbi 4,742 Hong Kong dollars 301 United States dollars 182 5,225	2013 HK$’000 39,855
	39,813
	6,489
	6,485

	2013 HK$’000 37,038 2,674 143
	39,855
	3,710 2,636 143
	6,489

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. TRADE AND OTHER PAYABLES

Group Trade payables Other payables and accruals Company Other payables and accruals	2014 HK$’000 334 1,525 1,859 1,076	2013 HK$’000 326 2,489
		2,815
		2,162

The carrying amounts of the Group’s trade and other payables approximated their fair values as at 31 March 2014 and 31 March 2013 were denominated in the following currencies:

Group Hong Kong dollars Renminbi	2014 HK$’000 1,078 781 1,859	2013 HK$’000 2,164 651
		2,815

The carrying amounts of the Company’s other payables and accruals approximated their fair values as at 31 March 2014 and 31 March 2013 and were denominated in Hong Kong dollars.

All trade payables of the Group were aged over twelve months based on the invoice issue date.

23. CONVERTIBLE BOND

On 7 May 2008, the Company issued a convertible bond at a coupon rate of 2.5% per annum, with a nominal value of HK$68,000,000 (the “Convertible Bond”). The Convertible Bond is convertible at the option of the bondholders into ordinary shares of the Company at a price of HK$1.03 per share on or before 7 May 2011 (the “Maturity Date”). If not converted, the Convertible Bond is redeemable at the nominal value of HK$68,000,000 on the Maturity Date.

On 9 March 2011, the Company entered into a deed of amendment (the “Deed of Amendment”) with the bondholder of the Convertible Bond to revise the coupon rate to 3% per annum with the conversion price at HK$0.418 per share and the Maturity Date extended to 7 May 2016.

The Deed of Amendment was approved by the Company’s shareholders pursuant to a special general meeting held on 18 April 2011.

The Convertible Bond was transferred from Loyal Delight Group Limited to Viva Shine Limited on 20 December 2013. It was then deposited and transferred to Kingston Securities Limited on 23 December 2013 without change in beneficial ownership.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The fair value of the liability component of the Convertible Bond is estimated at the issuance date using an equivalent market interest rate for a similar liability without a conversion option. The effective interest rate of the liability component on initial recognised is 5% per annum. The residual amount is assigned in the equity component of the Convertible Bond and is included in shareholder’s equity.

The Convertible Bond issued has been split as to the liability and equity component and movement of the Convertible Bond is as follows:

Group and Company Nominal value of the Convertible Bond Equity component Liability component – Liability component – Interest expenses Total liability component Analysis into – Current liabilities – Non-current liabilities	2014 HK$’000 68,000 (5,888) 62,112 3,240 65,352 2,040 63,312 65,352	2013 HK$’000 68,000 (5,888)
		62,112 2,071
		64,183
		2,040 62,143
		64,183

24. DEFERRED TAX LIABILITY

Deferred tax liability is recognised for the temporary difference on recognition of fair value gain of investment properties. The movement on the deferred tax liability is as follows:

At 1 April Charged for the year Exchange difference At 31 March	2014 HK$’000 – 3,804 30 3,834	2013 HK$’000 – – –
		–

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. SHARE CAPITAL

Ordinary shares of HK$0.10 each Authorised: Balance at the beginning and at the end of the year Issued and fully paid: Balance at the beginning of the year Share options exercised Balance at the end of the year	Number of 2014 ’000 4,000,000 351,259 13,697 364,956	shares 2013 ’000 4,000,000 351,259 – 351,259	Share capital 2014 2013 HK$’000 HK$’000 400,000 400,000 35,126 35,126 1,370 – 36,496 35,126	Share capital 2014 2013 HK$’000 HK$’000 400,000 400,000 35,126 35,126 1,370 – 36,496 35,126
				35,126 –
				35,126

26. RESERVES

(a) Group

The amounts of the Group’s reserves and the movement therein for the current and prior years are presented in the consolidated statement of changes in equity on page 64 of the consolidated financial statements.

Pursuant to the relevant laws and regulations for Sino-foreign joint venture enterprises, a portion of the profits of the Group’s subsidiaries which are registered in the PRC has been transferred to reserve funds which are restricted as to use.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Company

FOR THE YEAR ENDED 31 MARCH 2013 At 1 April 2012 Comprehensive loss: Loss for the year Other comprehensive loss: Change in fair value of available-for-sale financial assets Total comprehensive loss for the year Transactions with owners: Cancellation of share options Total transactions with owners At 31 March 2013 FOR THE YEAR ENDED 31 MARCH 2014 At 1 April 2013 Comprehensive loss: Loss for the year Other comprehensive loss: Change in fair value of available-for-sale financial assets Total comprehensive loss for the year Transactions with owners: Exercise of share options Cancellation of share options Total transactions with owners At 31 March 2014	Available- for-sale financial assets Employee component Equity Contributed share-based Share revaluation convertible surplus payment premium reserve bond reserve reserve HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 26(c)(i) Note 26(c)(ii) Note 26(c)(iii) Note 26(c)(v) Note 26(c)(vi) 11,337 (1,742) 5,888 157,955 1,897 – – – – – – (1,175) – – – – (1,175) – – – – – – – (359) – – – – (359) 11,337 (2,917) 5,888 157,955 1,538 11,337 (2,917) 5,888 157,955 1,538 – – – – – – (1,224) – – – – (1,224) – – – 4,304 – – – (1,458) – – – – (80) 4,304 – – – (1,538) 15,641 (4,141) 5,888 157,955 –	Accumulated losses HK$’000 (192,587) (17,891) – (17,891) 359 359 (210,119) (210,119) (45,063) – (45,063) – 80 80 (255,102)	Total HK$’000 (17,252) (17,891) (1,175) (19,066) – – (36,318) (36,318) (45,063) (1,224) (46,287) 2,846 – 2,846 (79,759)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Nature and purpose of reserves

(i) Share premium

Share premium represents premium arising from the issue of shares at a price in excess of their par value per share and is not distributable but may be applied in paying up unissued shares of the Company to be issued to the shareholders of the Company as fully paid bonus shares or in providing for the premiums payable on repurchase of shares.

(ii) Available-for-sale financial assets revaluation reserve

The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets held at the end of the reporting period and is dealt with in accordance with the accounting policies in Note 4(i)(ii) and Note 17 to the consolidated financial statements.

(iii) Equity component convertible bond

The capital reserve represents the value of the unexercised equity component of convertible bond issued by the Company recognised in accordance with the accounting policy adopted for convertible loans in Note 23 to the consolidated financial statements.

(iv) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the consolidated financial statements of the Group. The reserve is dealt with in accordance with the accounting policies set out in Note 4(d) to the consolidated financial statements.

(v) Contributed surplus reserve

The amount arose from the capital reduction, cancellation of share premium and part of which has been set-off against the accumulated losses of the Company as at 31 March 2003 pursuant to the capital re-organisation.

Under the Companies Act 1981 of Bermuda, the Company may make distributions to its owners out of the contributed surplus reserve under certain circumstances.

(vi) Employee share-based payment reserve

The employee share-based payment reserve comprised the fair value of share options granted which were yet to be exercised, as further explained in the accounting policy for share-based payment transactions in Note 4(n)(iv) to the consolidated financial statements.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. SHARE OPTION SCHEME

The Company adopted a share option scheme on 7 November 2003 (the “Scheme”), which was subsequently terminated pursuant to a resolution passed by the Company’s shareholders on 7 August 2013. A new share option scheme (the “New Scheme”) in place of the Scheme was adopted pursuant to such resolution with effect from 7 August 2013 for a period of 10 years. The following is a summary of the Scheme:

(a) Purpose

The purpose of the Scheme is to provide incentives or rewards to certain eligible participants for their contribution or potential contribution to the growth and development of the Company.

(b) Participants

Eligible participants of the Scheme include employees or officers (including executive directors), nonexecutive directors (including independent non-executive directors), suppliers, customers, consultants or advisors, and securities holders of the Company, as to be determined by the Board at its absolute discretion within the categories.

(c) Total number of shares available for issue

The maximum numbers of shares which may be issued upon the exercise of all outstanding options granted and yet to be exercised under the Scheme and any other share option schemes adopted by the Company must not in aggregate exceed 30% of the shares in issue from time to time. The total number of shares which may be issued upon the exercise of all options to be granted under the Scheme and any other share option schemes of the Company must not in aggregate exceed 10% of the shares of the Company in issue as at 7 November 2003, but the Company may seek approval of its shareholders in general meeting to refresh the 10% limit under the Scheme.

(d) Maximum entitlement of each participant

The total number of shares issued and to be issued upon exercise of the share options granted under the Scheme and any other share option schemes of the Company to each participant in any 12-month period up to the date of grant must not exceed 1% of the shares in issue at the date of grant. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates must not exceed 0.1% of the shares of the Company in issue at any time and with an aggregate value (based on the closing price of the Company’s shares at the date of each grant) in excess of HK$5 million, within any 12-month period up to and including the date of such grant.

Subject to separate approval by the shareholders in general meeting with the relevant participant and his associates (as defined in the Listing Rules) abstaining from voting provided the Company shall issue a circular to shareholders before such approval is sought, the Company may grant options to a participant which would exceed this limit.

(e) Option period

The option period within which the shares must be taken up under an option shall be determined by the Board in its absolute discretion at the time of grant, but such period must not exceed 10 years from the date of grant of the relevant option.

(f) Minimum period for which an option must be held before it can be exercised

The minimum period, if any, for which an option must be held before it can be exercised shall be determined by the Board in its absolute discretion. The Scheme itself does not specify any minimum holding period.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(g) Payment on acceptance of the option

HK$10 is payable by the grantee to the Company on acceptance of the option offer. An offer must be accepted within 28 days from the date of grant.

(h) Basis of determining the exercise price

The exercise price shall be determined by the Board in its absolute discretion at the time of the grant but shall not be less than the higher of: (i) the closing price of the shares on the date of grant; (ii) the average closing prices of the shares for the five business days immediately preceding the date of grant; and (iii) the par value of a share.

(i) Remaining life of the Scheme

The life of the Scheme is 10 years commencing on the adoption date and expired on 6 November 2013 unless otherwise terminated by resolution of shareholders in general meeting.

(j) Estimated fair value of share options

The estimated fair value of the share options granted to employees on 18 December 2003 and 9 March 2011 are measured based on Binomial Lattice Model. The variables input into the model are as follows:

Fair value of share options and assumptions:

	2011	2003
Fair value at measurement date	HK$0.12	HK$0.08
Share price	HK$0.38	HK$0.11
Exercise price	HK$0.39	HK$0.106
Expected volatility	91.21%	104.9%
Option life	3 years	12 years
Expected dividends	0%	0%
Risk-free interest rate	1.09%	4.375%

The Company did not grant any share options that no share options expense was recognised during the year (2013: nil).

The share options exercised during the year resulted in the issue of 13,697,000 (2013: Nil) new ordinary shares of the Company and an increase in issued share capital of HK$1,370,000 (2013: Nil) and a share premium of HK$4,304,000 (2013: Nil).

The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information. Expected dividends are based on historical dividends. Changes in the subjective input assumptions could materially affect the fair value estimate.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following share options are outstanding under the Scheme during the year:

At 1 April Movements during the year: – Exercised – Exercised – Cancelled At 31 March	2014 Weighted average exercise price per share HK$ 0.3117 0.1060 0.3900 0.3900 –	Number of options ’000 14,389 (3,965) (9,732) (692) –	2013 Weighted average exercise price per share HK$ 0.2866 – – 0.1770 0.3117	Number of options ’000 17,694 – – (3,305)
				14,389

There are no outstanding share options as at the end of the reporting period and the exercise prices and exercise periods of the share options outstanding in prior year are as follows:

2013

Number of	Exercise price
options	per share	Exercisable period
’000	HK$
3,965	0.106	18-Dec-2005 to 17-Dec-2015
10,424	0.390	09-Mar-2011 to 08-Mar-2014
14,389
rice per share	0.3117

Weighted average exercise price per share

A summary of the principal terms of the rules of the New Scheme are disclosed in the Company’s circular dated 9 July 2013.

No share options have been granted, exercised, cancelled or lapsed under the New Scheme since its adoption on 7 August 2013.

28. CAPITAL RISK MANAGEMENT

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products commensurately with the level of risk and by securing access to finance at a reasonable cost.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consistent with industry practice, the Group monitors its capital structure on the basis of a net debt-to- equity ratio. For this purpose the Group defines net debt as total liabilities less cash and cash equivalents.

In order to maintain or adjust the ratio, the Group may adjust the amount of dividends paid to shareholders, issue new shares, return capital to shareholders, raise new debt financing or sell assets to reduce debt. In view of the amount of cash and cash equivalents as compared to the total debts for the years ended 31 March 2014 and 31 March 2013, the directors did not find it necessary to restructure its share capital or adjust its total debts of the Group.

The net debt-to-equity ratio as at the end of the reporting period is as follows:

Group

LIABILITIES Trade and other payables Convertible bond Total debts Less: Cash and cash equivalents Net debt Total equity Net debt-to-equity ratio (times)	2014 HK$’000 1,859 65,352 67,211 (27,151) 40,060 178 225	2013 HK$’000 2,815 64,183
		66,998 (39,855)
		27,143
		2,663
		10

Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirement. As such, the directors do not have a separate capital risk management strategy for the Company. The net debt- to-equity ratio relating to the Company is not separately disclosed.

29. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

The aggregate amounts of emoluments of the directors disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance and the Listing Rules are as follows:

Fees – Executive Directors – Non-Executive Directors – Independent Non-Executive Directors Salaries, allowances and benefits in kind Retirement benefits scheme contributions	2014 HK$’000 240 214 311 3,405 26 4,196	2013 HK$’000 – 240 360 2,730 30
		3,360

100

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The number of directors whose emoluments fall within the following bands are as follows:

	Number of directors
	2014	2013
Up to HK$1,000,000	11	5
HK$1,000,001 – HK$1,500,000	1	1
HK$1,500,001 – HK$2,000,000	1	1

The emoluments of each director, on a named basis, for the year ended 31 March 2014 and 31 March 2013 were set out below:

2014

Executive Directors appointed on 20 December 2013: YU Shengming MOCK Wai Yin CHAN Chi Yuen resigned on 20 December 2013: WU Siu Chung CHEN Xiaoping Non-Executive Directors appointed on 20 December 2013: CHEN Xiaoping resigned on 20 December 2013: Eduard William Rudolf Helmuth WILL resigned on 14 January 2014: CHEN Yuan Shou, Budiman Independent Non-Executive Directors appointed on 7 October 2013: LING Kit Wah, Joseph appointed on 20 December 2013: NG Kwok Wai LEE Chi Wah resigned on 8 May 2013: David R. PETERSON resigned on 20 December 2013: LO Yuk Lam WONG Kam Wah	Fees HK$’000 120 – 120 – – 30 90 94 58 30 30 13 90 90 765	Salaries, Retirement allowances benefits and benefits scheme in kind contributions HK$’000 HK$’000 – – 120 4 – – 1,200 11 2,085 11 – – – – – – – – – – – – – – – – – – 3,405 26	Total HK$’000 120 124 120 1,211 2,096 30 90 94 58 30 30 13 90 90
			4,196

101

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2013

Executive Directors WU Siu Chung CHEN Xiaoping Non-Executive Directors CHEN Yuan Shou, Budiman Eduard William Rudolf Helmuth WILL Independent Non-Executive Directors LO Yuk Lam WONG Kam Wah David R. PETERSON	Fees HK$’000 – – 120 120 120 120 120 600	Salaries, Retirement allowances benefits and benefits scheme in kind contributions HK$’000 HK$’000 1,560 15 1,170 15 – – – – – – – – – – 2,730 30	Total HK$’000 1,575 1,185 120 120 120 120 120
			3,360

For the years ended 31 March 2014 and 31 March 2013, there was no arrangement under which a director waived or agreed to waive any remuneration. No emoluments were paid by the Group to any of the directors as an inducement to join or upon joining the Group or as compensation for loss of office.

102

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In addition, the directors are entitled to the following share option scheme:

Number of share	Number of share	options
Granted during the year – – – – – – – – – – – – – – –	Exercised during the year (3,000,000) (2,500,000) (2,500,000) (3,305,000) – (3,305,000) (330,000) (346,000) (676,000) (330,000) (346,000) (676,000) – (1,040,000) (13,697,000)	Lapsed during the year – – – – (346,000) (346,000) – – – – – – (346,000) – (692,000)	At 31 March 2014 – – – – –
			–
			– –
			–
			– –
			–
			– –
			–

The five individuals whose emoluments are the highest in the Group for the year included two (2013: two) directors whose emoluments have already been disclosed in the analysis presented above.

103

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The emoluments of the remaining three (2013: three) highest paid employees fall into the following bands:

	Number	of individuals
	2014	2013
Up to HK$1,000,000	3	3

The details of the emoluments payable to the remaining three (2013: three) non-director, highest paid employees were as follows:

Salaries, allowances and benefits in kind Retirement benefits scheme contributions 30. RETIREMENT BENEFITS SCHEMES Group Retirement benefits scheme contributions Company Retirement benefits scheme contributions	2014 HK$’000 1,554 44 1,598 2014 HK$’000 158 127	2013 HK$’000 1,597 43
		1,640

		2013 HK$’000 191 164

The Group operates a defined contribution retirement scheme under a mandatory provident fund scheme (the “MPF Scheme”) in Hong Kong for its employees in Hong Kong, the assets of which are held in separate trusteeadministered funds. The Group’s contributions to the MPF Scheme are based on a fixed percentage of the employees’ relevant income per month.

31. CONTINGENT LIABILITIES

There were no significant contingent liabilities as at 31 March 2014 and 31 March 2013.

104

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. OPERATING LEASE ARRANGEMENT

At 31 March 2014 and 31 March 2013, the Group had the total future minimum lease payments under noncancellable operating leases with respect of office premises as follows:

Group Not later than one year Within the second to fifth year inclusive Company Not later than one year Within the second to fifth year inclusive	2014 HK$’000 5,647 3,217 8,864 5,299 3,091 8,390	2013 HK$’000 2,735 –
		2,735
		2,567 –
		2,567

33. COMPANIES EXCLUDED FROM CONSOLIDATION

As reported in previous years, a claim was brought in July 1998 against Benelux Manufacturing Limited (In Liquidation) (“BML”), a company in which the Company has a direct wholly owned interest but not treated as a subsidiary, by its sub-contractor, Shenzhen Benelux Enterprise Co., Limited (“SBEC”), alleging that BML was liable for the payment of approximately HK$38 million, comprising charges in connection with the processing and assembling work rendered by SBEC and the breach of an alleged loan agreement relating to certain alleged letters of credit. SBEC further alleged that the Company had granted a guarantee to SBEC in respect of the alleged BML’s indebtedness to SBEC (the “Purported Guarantee”) in/around January 1999. Notwithstanding the allegation, SBEC has not initiated any proceedings against the Company based on the Purported Guarantee. BML was put into compulsory liquidation on 28 April 2000.

The directors have given due and careful consideration of the impact of the liquidation of BML on the Group’s operations and financial position and are of the opinion that it will not have a material adverse effect on the Group. As BML was put under severe restrictions which significantly impaired control by the Company over BML’s assets and operations, the directors have decided to exclude BML and the interest of BML from the consolidated financial statements from the date of appointment of the provisional liquidators since 2000.

105

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of the companies excluded from consolidation as at 31 March 2014 are as follows:

		Issued and fully	Effective equity
	Place of	paid-up capital	interest held
	incorporation/	or capital	before	Principal
Name	operation	contribution	liquidation	activity
Direct interest:
Benelux	Hong Kong	Ordinary HK$100	100%	In liquidation
Manufacturing		Non-voting deferred
Limited (Note 1)		HK$5,000,000
Indirect interest:
Prime Standard	Hong Kong	Ordinary HK$100,000	90%	Ceased operations
Limited (Note 2)
P.T. Beneluxindo	Indonesia	Ordinary US$10,000,000	100%	Ceased operations
(Note 3)
Notes:

Benelux Manufacturing Limited (In Liquidation) (“BML”) is excluded from consolidation because severe restrictions which significantly impaired control by the Group over BML’s assets and operations.
Prime Standard Limited (“PSL”) which is a subsidiary of BML, is excluded from consolidation because the Group’s control over PSL has been significantly impaired following the appointment of provisional liquidators to BML.
P.T. Beneluxindo (“PTB”) which is a wholly owned subsidiary of BML, is excluded from consolidation because the Group’s control over PTB has been significantly impaired following the appointment of provisional liquidators to BML.

The net losses of companies not consolidated attributable to the Group are:

		Previous
		years since
	2014	acquisition
	HK$’000	HK$’000
Dealt with in the consolidated financial statements of the Group	Nil	(46,232)
Not dealt with in the consolidated financial statements of the Group	Nil	(244,391)

34. RELATED PARTY TRANSACTIONS

Other than those disclosed in the notes elsewhere to the consolidated financial statements, the Group received from Ricco Capital (Holdings) Limited (“Ricco”), a company wholly owned by the former chairman of the Group, administrative services fees income for the provision of registered office address, in a total amount of HK$9,000 (2013: HK$12,000) during the year.

106

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. SEGMENT INFORMATION

The chief operating decision-maker has been identified as the Company’s executive directors. The Group’s principal activity is property development and property leasing in the PRC. The executive directors regard it as a single business segment and no segment information is presented.

At the end of the reporting period, non-current assets included property, plant and equipment and investment properties with carrying amount of HK$37,826,000 (2013: property, plant and equipment with carrying amount of HK$39,000) located in the PRC.

36. FINANCIAL RISK MANAGEMENT

The Group’s major financial instruments comprise trade and other receivables, cash and cash equivalents, availablefor-sale financial assets, held-to-maturity investments, trade and other payables and interest-bearing borrowings. Details of these financial instruments are disclosed in respective notes. The Group’s activities expose it to a variety of financial risks: credit risk, liquidity risk, interest rate risk, currency risk and equity price risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

(a) Credit risk

The Group’s credit risk is primarily attributable to trade and other receivables, held-to-maturity investments and cash at banks.

The Group has no significant concentration of credit risk. In respect of trade receivables, credit is offered to customers following financial assessment and an established payment record. The Group has policies in place to ensure that sales are made to customers with an appropriate credit history. Credit limits are set for all customers and these are exceeded only with the approval of senior company officers. These credit evaluations focus on the customers’ past history of making payments when due and current ability to pay, and take into account information specific to the customers. General credit terms are payment by the end of the month following the month in which sales took place. The Group will make specific provision for those balances which cannot be recovered. The management will monitor the outstanding receivables and follow up the collections. In the opinion of the directors, the default credit risk of the Group is considered to be low.

In respect of other receivables and held-to-maturity investments, the directors are of the opinion that the credit risk is low because there is no past default history.

The credit risk on liquid funds are limited because the counterparties are banks with high credit rating assigned by international credit-rating agencies and are the PRC large state-controlled banks. As such, no significant credit risk is anticipated.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated statement of financial position.

(b) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to approval by the parent company’s board when the borrowings exceed certain predetermined levels of authority. The Group’s policy is to regularly monitor its liquidity requirements to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and long terms.

107

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table details the remaining contractual maturities at the end of the reporting period of the Group’s and the Company’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group and the Company can be required to pay:

Group

Trade and other payables Convertible bond Trade and other payables Convertible bond	2014 Total contractual Within Carrying undiscounted one year or amount cash flow on demand HK$’000 HK$’000 HK$’000 1,859 1,859 1,859 65,352 72,287 2,040 67,211 74,146 3,899 2013 Total contractual Within Carrying undiscounted one year or amount cash flow on demand HK$’000 HK$’000 HK$’000 2,815 2,815 2,815 64,183 74,327 2,040 66,998 77,142 4,855	In two to three years HK$’000 – 70,247
		70,247

		In two to four years HK$’000 – 72,287
		72,287

Company

Other payables Convertible bond	2014 Total contractual Within Carrying undiscounted one year or amount cash flow on demand HK$’000 HK$’000 HK$’000 1,076 1,076 1,076 65,352 72,287 2,040 66,428 73,363 3,116	In two to three years HK$’000 – 70,247
		70,247

108

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Other payables Convertible bond	2013 Total contractual Within Carrying undiscounted one year or amount cash flow on demand HK$’000 HK$’000 HK$’000 2,162 2,162 2,162 64,183 74,327 2,040 66,345 76,489 4,202	In two to four years HK$’000 – 72,287
		72,287

(c) Interest rate risk

Other than the cash at banks which carry interest at prevailing market interest rates, the Group has no other significant interest-bearing assets or liabilities. The interest rate risk mainly arises from interest- bearing bank deposits.

At 31 March 2014, if interest rates on interest-bearing bank deposits had been 100 basis points (2013: 100 basis points) higher/lower with all other variables held constant, post-tax loss for the year would have been HK$226,000/HK$226,000 (2013: HK$332,000/HK$332,000) higher/lower, as a result of higher/lower interest income on bank deposits.

The Group does not expose to any significant fair value interest rate risk.

(d) Currency risk

Foreign exchange risk arises when future commercial transactions, assets and liabilities are denominated in a currency that is not the functional currency of the entities. The majority of the Group’s transactions and balances are denominated in Hong Kong dollars and Renminbi, which are the functional currencies of the Company and its subsidiaries respectively.

At 31 March 2014, if Renminbi had strengthen/weaken by 5% (2013: 5%) against the Hong Kong dollars with all other variable held constant, loss for the year would have been HK$198,000/HK$198,000 (2013: HK$155,000/HK$155,000) higher/lower, mainly as a result of foreign exchange gains/losses on translation of Renminbi – denominated net assets, representing trade and other receivables, cash and cash equivalents and trade and other payables.

(e) Equity price risk

Equity price risk is the risk that the fair values of equity securities decrease as a result of changes in the levels of equity indices and the value of individual securities. The Group and the Company is exposed to equity price risk arising from individual equity investments classified as available-for-sale financial assets as at 31 March 2014. The Group’s and the Company’s listed investments are listed on the Hong Kong Stock Exchange and are valued at quoted market prices at the end of the reporting period.

The market equity indices for the following stock exchange, at the close of business of the nearest trading day in the year to the end of the reporting period, and their respective highest and lowest points during the year are as follows:

	March	High/low	March	High/low
	2014	2014	2013	2013
Hong Kong – Hang Seng Index	22,151	24,039/	22,300	23,822/
		19,814		18,186

109

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table demonstrates the sensitivity to every 5% (2013: 5%) change in the fair values of the equity investments, with all other variables held constant and before any impact on tax, based on their carrying amounts at the end of the reporting period. For the available-for-sale financial assets of the Group and the Company, the impact is on the available-for-sale financial assets revaluation reserve and no account is given for factors such as impairment which might have impact on the consolidated statement of profit or loss and other comprehensive income.

	Carrying	Increase/
	amount of equity	(decrease)
	investments	in equity
	HK$’000	HK$’000
2014
Available-for-sale financial assets listed in Hong Kong:	1,898	95/(95)
2013
Available-for-sale financial assets listed in Hong Kong:	3,122	156/(156)

(f) Fair value

The carrying amounts less impairment provision of trade and other receivables, trade and other payables, available-for-sale financial assets, as well as amounts due from/to subsidiaries and a non-controlling interest of a subsidiary, are a reasonable approximation of their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments, unless the effect of discounting will be immaterial.

The fair value of derivatives embedded in the convertible bond is measured using Binomial Lattice Model in which all significant inputs are directly or indirectly based on observable market data.

The following table presents the carrying amounts of financial instruments measured at fair value at the end of the reporting period across the three levels of their value hierarchy defined in HKFRS 7, “Financial Instruments: Disclosures”, with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments.
Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data.

– Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data.

Note Group and Company For the year ended 31 March 2014 Available-for-sale financial assets 17 For the year ended 31 March 2013 Available-for-sale financial assets 17	Level 1 HK$’000 1,898 3,122	Level 2 HK$’000 – –	Level 3 HK$’000 – –	Total HK$’000 1,898

				3,122

110

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. EVENTS AFTER THE END OF THE REPORTING PERIOD

Save disclosed elsewhere in the consolidated financial statements, there is no significant event that took place after the end of the reporting period.

38. FINANCIAL INSTRUMENTS – BY CATEGORY

Group Financial assets – Loans and receivables Trade and other receivables Cash and cash equivalents Financial assets – Available-for-sale financial assets Available-for-sale financial assets Financial assets – Held-to-maturity investments Held-to-maturity investments Financial liabilities – Other financial liabilities Trade and other payables Convertible bond Company Financial assets – Loans and receivables Other receivables Cash and cash equivalents Financial assets – Available-for-sale financial assets Available-for-sale financial assets Financial liabilities – Other financial liabilities Other payables Convertible bond	2014 HK$’000 3,104 27,151 30,255 2,082 780 1,859 65,352 67,211 2014 HK$’000 1,347 5,225 6,572 1,898 1,076 65,352 66,428	2013 HK$’000 3,042 39,855
		42,897
		3,306
		780
		2,815 64,183
		66,998

		2013 HK$’000 1,272 6,489
		7,761
		3,122
		2,162 64,183
		66,345

39. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements were approved and authorised for issue by the Board of Directors on 20 June 2014.

111

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. AUDITED FINANCIAL STATEMENT FOR THE YEARS ENDED 31 MARCH 2012 AND 31 MARCH 2013

Financial information of the Group for the years ended 31 March 2012 and 2013 are disclosed in the annual results announcement of the Company ended with the same periods respectively, which are published on both the website of the Stock Exchange (www.hkexnews.hk) and the Company’s website (http://southeastgroup.todayir.com).

4. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 September 2014

Note
Turnover
3
Cost of sales
Gross profit
Fair value gains on investment properties
11
Other revenues
Selling and distribution costs
Administrative expenses
Loss from operations
5
Finance costs
7
Loss before taxation
Taxation
8(a)
Loss for the period
Other comprehensive income/(loss):
Items that may be reclassified subsequently
to profit or loss:
Translation difference
Change in fair value of available-for-sale
financial assets
Other comprehensive income/(loss) for the period
Total comprehensive loss for the period
Loss for the period attributable to:
Owners of the Company
Total comprehensive loss attributable to:
Owners of the Company
Interim dividend per share
Loss per share attributable to owners
of the Company
Basic and diluted (cents)
9

Six months ended
30 September
2014
2013
HK$’000
HK$’000
225
–
(40)
–
185
–
–
–
387
698
(27)
(12)
(7,031)
(7,905)
(6,486)
(7,219)
(1,643)
(1,609)
(8,129)
(8,828)
–
–
(8,129)
(8,828)
(33)
703
101
(956)
68
(253)
(8,061)
(9,081)
(8,129)
(8,828)
(8,061)
(9,081)
Nil
Nil
(2.23)
(2.51)

112

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 September 2014

30 September
2014
(unaudited)
Note
HK$’000
NON-CURRENT ASSETS
Property, plant and equipment
26
Goodwill
10
–
Investment properties
11
37,800
Available-for-sale financial assets
2,183
Total non-current assets
40,009
CURRENT ASSETS
Held-to-maturity investments
780
Properties held for sale
11
–
Trade and other receivables
12
1,726
Cash and cash equivalents
13
22,558
Total current assets
25,064
CURRENT LIABILITIES
Trade and other payables
14
2,992
Tax payable
8(b)
165
Convertible bond
15
2,040
Total current liabilities
5,197
NET CURRENT ASSETS
19,867
TOTAL ASSETS LESS CURRENT LIABILITIES
59,876
NON-CURRENT LIABILITIES
Convertible bond
15
63,925
Deferred tax liability
16
3,834
Total non-current liabilities
67,759
NET (LIABILITIES)/ASSETS
(7,883)
CAPITAL AND RESERVES
(Capital deficiency)/Equity attributable
to owners of the Company:
Share capital
17
36,496
Reserves
(44,379)
TOTAL (DEFICIT)/EQUITY
(7,883)

31 March
2014
(audited)
HK$’000
26
–
37,800
2,082
39,908
780
–
3,549
27,151
31,480
1,859
165
2,040
4,064
27,416
67,324
63,312
3,834
67,146
178
36,496
(36,318)
178

113

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 September 2014

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014 At 1 April 2014 Comprehensive loss: Loss for the period Other comprehensive (loss)/income: Change in fair value of available-for-sale financial assets Translation difference Total comprehensive (loss)/income for the period At 30 September 2014 FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2013 At 1 April 2013 Comprehensive loss: Loss for the period Other comprehensive (loss)/income: Change in fair value of available-for-sale financial assets Translation difference Total comprehensive (loss)/income for the period Transactions with owners: Cancellation of share options Total transactions with owners At 30 September 2013	Share capital HK$’000 36,496 – – – – 36,496 35,126 – – – – – – 35,126	Share premium HK$’000 15,641 – – – – 15,641 11,337 – – – – – – 11,337	Available- for-sale financial assets revaluation reserve HK$’000 (4,141) – 101 – 101 (4,040) (2,917) – (956) – (956) – – (3,873)	Equity component convertible bond HK$’000 5,888 – – – – 5,888 5,888 – – – – – – 5,888	Exchange reserve HK$’000 17,071 – – (33) (33) 17,038 15,558 – – 703 703 – – 16,261	Contributed surplus reserve HK$’000 131,166 – – – – 131,166 131,166 – – – – – – 131,166	Employee share-based payment reserve HK$’000 – – – – – – 1,538 – – – – (40) (40) 1,498	Accumulated losses HK$’000 (201,943) (8,129) – – (8,129) (210,072) (195,033) (8,828) – – (8,828) 40 40 (203,821)	Total HK$’000 178
									(8,129) 101 (33)
									(8,061)
									(7,883)

									2,663
									(8,828) (956) 703
									(9,081)
									–
									–
									(6,418)

114

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 September 2014

Net cash used in operating activities Net cash generated from investing activities Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of foreign exchange rates changes Cash and cash equivalents at the end of the period	Six months ended 30 September 2014 2013 HK$’000 HK$’000 (4,879) (7,022) 326 174 (7) (2,043) (4,560) (8,891) 27,151 39,855 (33) 703 22,558 31,667

115

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The unaudited condensed consolidated interim financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and the Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

These unaudited condensed consolidated interim financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand unless otherwise stated.

These unaudited condensed consolidated interim financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain investments and properties which are carried at their fair values.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the Annual Report of the Group for the year ended 31 March 2014.

2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

The accounting policies used in the unaudited condensed consolidated interim financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 March 2014 except for the adoption of new and revised Hong Kong Financial Reporting Standards, amendments and interpretations (“new and revised HKFRSs”) issued by the HKICPA which are effective for the Group’s financial year beginning on 1 April 2014. The adoption of the new and revised HKFRSs had no material impact on the results and financial position of the Group.

Impact of issued but not yet effective HKFRSs

The Group has not early adopted the new and revised HKFRSs that have been issued but are not yet effective. The Group is in the process of making an assessment of the expected impact of these new and revised HKFRSs upon initial application and so far considered that these are unlikely to have a significant impact on the results and financial position of the Group.

3. TURNOVER

The Group’s turnover consists of sales of properties and rental income of investment properties, which are set out below:

Sales of properties held for sale Rental income of investment properties	Six months ended 30 September 2014 2013 HK$’000 HK$’000 – – 225 – 225 –	Six months ended 30 September 2014 2013 HK$’000 HK$’000 – – 225 – 225 –
		–

Note: The Group reclassified the properties held for sale to investment properties during the year ended 31 March 2014. Rental income of HK$225,000 was generated from investment properties for the six months ended 30 September 2014; while rental income of HK$202,000 generated from such properties (presented as “properties held for sale”) was recognised as other revenues in previous corresponding period with its effect on profit or loss as illustrated in Note 5.

116

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. SEGMENT INFORMATION

The chief operating decision-maker has been identified as the Company’s executive directors. The Group’s principal activity is property development and property leasing in the People’s Republic of China (the “PRC”). The executive directors regard it as a single business segment and no segment information is presented.

At the end of the reporting period, non-current assets included property, plant and equipment and investment properties with carrying amount of HK$37,826,000 (31 March 2014: HK$37,826,000) located in the PRC.

5. LOSS FROM OPERATIONS

Loss from operations was arrived at after crediting and charging the following:

Crediting: Interest income Investment income Rental income (Note 3) Refund of tax Charging: Cost of sales Depreciation Expenses for rights issue Operating lease payments Directors’ remuneration – Fees – Salaries and allowances – Retirement benefits scheme contributions (Note 6) Staff costs (excluding directors’ remuneration) – Salaries and allowances – Retirement benefits scheme contributions (Note 6)	Six months ended 30 September 2014 2013 HK$’000 HK$’000 296 354 30 111 38 202 20 – 40 – – 13 1,030 – 2,866 2,794 720 253 240 1,260 8 15 1,165 1,937 65 90	Six months ended 30 September 2014 2013 HK$’000 HK$’000 296 354 30 111 38 202 20 – 40 – – 13 1,030 – 2,866 2,794 720 253 240 1,260 8 15 1,165 1,937 65 90
		– 13 – 2,794 253 1,260 15 1,937 90

6. RETIREMENT BENEFITS SCHEMES

The Group operates a Mandatory Provident Fund Scheme (“MPF Scheme”) for qualifying employees in Hong Kong, the assets of the MPF Scheme are held in separate trustee-administered funds. The Group’s contributions to the MPF Scheme are based on a fixed percentage of the employees’ relevant income per month.

In accordance with the PRC regulations, the Group is required to pay social security contributions for its PRC staff based on certain percentage of their income to the social security plan organised by related governmental bodies.

	Six months	ended
	30 September
	2014	2013
	HK$’000	HK$’000
Retirement benefits scheme contributions	73	105

117

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. FINANCE COSTS

Interest expenses on convertible bond Others	Six months ended 30 September 2014 2013 HK$’000 HK$’000 1,635 1,606 8 3 1,643 1,609	Six months ended 30 September 2014 2013 HK$’000 HK$’000 1,635 1,606 8 3 1,643 1,609
		1,609

8. TAXATION

(a) Taxation in the consolidated statement of profit or loss and other comprehensive income represented:

Current Tax – Hong Kong Profits Tax – The PRC Enterprise Income Tax Deferred taxation	Six months ended 30 September 2014 2013 HK$’000 HK$’000 – – – – – – – – – –	Six months ended 30 September 2014 2013 HK$’000 HK$’000 – – – – – – – – – –
		– –
		–

No provision for Hong Kong Profits Tax has been made in the condensed consolidated financial statements as the Group did not derive any assessable profits in Hong Kong during the interim period (six months ended 30 September 2013: nil).

(b) At the end of the reporting period, the Group had the following income tax payable and prepayment:

As at 30 September 2014 HK$’000 The PRC Enterprise Income Tax – Tax payable (383) – Tax prepayment 218 Net tax payable (165)	As at 31 March 2014 HK$’000 (383) 218
	(165)

118

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. LOSS PER SHARE

The calculation of basic loss per share for the period is based on the unaudited consolidated loss attributable to owners of the Company of HK$8,129,000 (six months ended 30 September 2013: loss of HK$8,828,000) and on the weighted average number of 364,955,880 (six months ended 30 September 2013: 351,258,880) ordinary shares in issue during the period. No diluted loss per share has been presented as the exercise of the convertible bond would result in a decrease in loss per share for both periods.

10. GOODWILL

GOODWILL
Cost At 1 April 2013, 31 March 2014 and 30 September 2014 Accumulated impairment loss At 1 April 2013, 31 March 2014 and 30 September 2014 Carrying amount At 30 September 2014 At 31 March 2014	HK$’000 25 (25)
	–

	–

11. INVESTMENT PROPERTIES

As at 30 September 2014 HK$’000 At 1 April 37,800 Reclassification from properties held for sale – Fair value gains – Exchange difference – 37,800	As at 31 March 2014 HK$’000 – 21,922 15,215 663
	37,800

The Group reclassified the properties held for sale to investment properties during the year ended 31 March 2014. The Group measures its investment properties at fair value. As at 31 March 2014, the fair values of the investment properties has been determined on the basis of valuation carried out by Savills Valuation and Professional Services Limited, an independent firm of professional valuer, by using income capitalisation approach. The revaluation gains or losses were included in the consolidated statement of profit or loss and other comprehensive income. The management reviews the valuations performed by the independent valuers for financial reporting purposes at least once every six months, in line with the Group’s interim and annual reporting dates.

Investment properties are situated in Zouping, Shandong, the PRC for rental purpose under short term lease.

119

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The future aggregate minimum rental receivables under non-cancellable operating leases are as follows:

As at 30 September 2014 HK$’000 Not later than one year – Within the second to fifth year inclusive – – TRADE AND OTHER RECEIVABLES As at 30 September 2014 HK$’000 Trade receivables 1,076 Less: Provision for impairment (1,076) Trade receivables, net of provision – Deposits and other receivables 1,486 Maximum exposure to credit risk 1,486 Prepayments 240 1,726	As at 31 March 2014 HK$’000 22 –
	22

	As at 31 March 2014 HK$’000 1,076 (1,076)
	– 3,104
	3,104 445
	3,549

12. TRADE AND OTHER RECEIVABLES

The carrying amounts of trade and other receivables approximated their fair values as at 30 September 2014 and 31 March 2014. The Group does not hold any collateral over these balances.

All trade receivables before provision for impairment were aged over twelve months based on the invoice issue date.

The carrying amounts of trade and other receivables were denominated in the following currencies:

As at 30 September 2014 HK$’000 Hong Kong dollars 1,568 Renminbi 158 1,726	As at 31 March 2014 HK$’000 1,792 1,757
	3,549

120

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. CASH AND CASH EQUIVALENTS

As at 30 September 2014 HK$’000 Cash and bank balances 22,558 Maximum exposure to credit risk 22,501 The carrying amounts of cash and cash equivalents were denominated in the following currencies: As at 30 September 2014 HK$’000 Renminbi 21,026 Hong Kong dollars 1,350 Others 182 22,558 14. TRADE AND OTHER PAYABLES As at 30 September 2014 HK$’000 Trade payables 334 Other payables and accruals 2,658 2,992	As at 31 March 2014 HK$’000 27,151
	27,079
	As at 31 March 2014 HK$’000 26,633 337 181
	27,151

	As at 31 March 2014 HK$’000 334 1,525
	1,859

The carrying amounts of trade and other payables approximated their fair values as at 30 September 2014 and 31 March 2014 and were denominated in the following currencies:

As at 30 September 2014 HK$’000 Hong Kong dollars 2,007 Renminbi 985 2,992	As at 31 March 2014 HK$’000 1,078 781
	1,859

All trade payables were aged over twelve months based on the invoice issue date.

121

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. CONVERTIBLE BOND

The convertible bond issued has been split as to the liability and equity component and movement of the convertible bond is as follows:

As at 30 September 2014 HK$’000 Nominal value of the convertible bond 68,000 Equity component (5,888) Liability component – Liability component 62,112 – Interest expenses 3,853 Total liability component 65,965 Analysis into – Current liabilities 2,040 – Non-current liabilities 63,925 65,965	As at 31 March 2014 HK$’000 68,000 (5,888)
	62,112 3,240
	65,352

	2,040 63,312
	65,352

16. DEFERRED TAX LIABILITY

Deferred tax liability is recognised for the temporary difference on recognition of fair value gain of investment properties. The movement on the deferred tax liability is as follows:

As at 30 September 2014 HK$’000 At 1 April 3,834 Charge for the period/year – Exchange difference – 3,834	As at 31 March 2014 HK$’000 – 3,804 30
	3,834

122

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. SHARE CAPITAL

	Number of shares	Number of shares	Share	capital
	30 September	31 March	30 September	31	March
	2014	2014	2014		2014
	’000	’000	HK$’000	HK$’000
Ordinary shares of HK$0.10 each
Authorised:
Balance at the beginning
and at the end of the period/year	4,000,000	4,000,000	400,000	400,000
Issued and fully paid:
Balance at the beginning
of the period/year	364,956	351,259	36,496		35,126
Share options exercised (Note)	–	13,697	–		1,370
Balance at the end of the period/year	364,956	364,956	36,496		36,496

Note: The share option scheme adopted by the Company on 7 November 2003 (the “Old Scheme”) was terminated pursuant to a resolution passed by the shareholders of the Company on 7 August 2013. A new share option scheme (the “New Scheme”) in place of the Old Scheme was adopted pursuant to such resolution with effect from 7 August 2013 for a period of 10 years. All the outstanding share options granted under the Old Scheme were execrised or lapsed during the year ended 31 March 2014, and no share options have been granted, exercised, cancelled or lapsed under the New Scheme during the period under review.

18. OPERATING LEASE ARRANGEMENT

At 30 September 2014 and 31 March 2014, the total future minimum lease payments under non-cancellable operating leases with respect of office premises are as follows:

As at 30 September 2014 HK$’000 Not later than one year 5,604 Within the second to fifth year inclusive 443 6,047	As at 31 March 2014 HK$’000 5,647 3,217
	8,864

19. RELATED PARTY TRANSACTIONS

Other than those disclosed below or in the notes elsewhere to the condensed consolidated interim financial statements, during the period, no related party transaction is entered.

During the six months ended 30 September 2013, the Group received from Ricco Capital (Holdings) Limited, a company wholly owned by the former chairman of the Group, administrative services fees income of HK$6,000 for the provision of registered office address.

123

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. EVENT AFTER REPORTING PERIOD

Subsequent to the end of reporting period, the Group has the following events:

(a) Fund raising by rights issue

As disclosed in the Company’s announcements dated 26 February 2014, 23 May 2014 and 22 August 2014, the Company entered into a non-legally binding framework agreement and supplemental framework agreements relating to a possible acquisition of certain properties in Shenzhen, the PRC. The preliminary valuation of the properties as appraised by an independent valuer amounted to approximately RMB400 million. The consideration will be in the combination of cash, issuance of shares, promissory notes or/and convertible notes by the Company and the cash portion of the consideration shall not be less than HK$300 million.

In order to finance the proposed acquisition, the Company has successfully raised fund of approximately HK$292 million before expenses in October 2014 by issuing 2,919,647,040 rights shares at the subscription price of HK$0.1 each on the basis of eight rights shares for every one existing share held on the record date.

Upon completion of the rights issue, the Company’s issued share capital increased to HK$328,460,292 (31 March 2014: HK$36,495,588) with 3,284,602,920 (31 March 2014: 364,955,880) ordinary shares in issue on 30 October 2014.

(b) Adjustment to the conversion price of the convertible bond

As a result of the rights issue, the conversion price of the convertible bond would be adjusted from HK$0.418 per share to HK$0.160 per share and based on the outstanding principal amount of HK$68 million, the number of shares to be allotted and issued to the bondholder would be adjusted from 162,679,425 shares to 425,000,000 shares with effect from 30 October 2014.

21. COMPARATIVE FIGURES

Certain comparative figures have been re-classified to conform to the current period’s presentation.

22. APPROVAL OF THE INTERIM FINANCIAL REPORT

This interim financial report was approved by the Board of Directors on 21 November 2014.

124

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. BUSINESS TREND AND FINANCIAL AND TRADING PROSPECT

Business trend

As disclosed in the annual report 2014 of the Company, the Group was principally engaged in the business of property development and investments in the PRC. As at 31 March 2014, there was a gross floor area of approximately 7,845 square metres (2013: 7,985 square metres) of commercial properties held by the Group in Zouping, Shandong, the PRC. Turnover of approximately HK$401,000 was recorded from property sales attributable to the aforementioned properties during the year under review (2013: HK$732,000 generated from sale of car parking space in Pudong, the PRC). Rental income of approximately HK$416,000 was recorded in the financial year ended 31 March 2014 which was generated from leasing out part of the commercial properties concerned. Owing to adjustment in operational structure in view of the real estate market in the PRC and the recurring nature of the leasing transactions, the Group reclassified the completed properties in Zouping formerly held for sale as investment properties. Hence, properties rental was reclassified and included as revenue generated from the Group’s main business operations for the year ended 31 March 2014, rather than accounted for as other revenue as in previous year.

As disclosed in the annual report 2014 of the Company, the Board has been reorganized. Under the leadership of the reorganized Board, the Group has made an effort to explore quality properties with a view to expanding its property portfolio so as to enhance performance and sustain growth in this business.

Major customers and suppliers

For the year ended 31 March 2014: (a) the Group’s largest customer and five largest customers accounted for approximately 49% and 66% respectively of the Group’s total turnover; and (b) no material production was carried out during the year, hence no major suppliers were identified. None of the Directors, their close associates, or any Shareholders (which to the best knowledge of the Directors owned more than 5% of the Company’s share capital) has any beneficial interests in these major customers and suppliers.

Prospects

The Company will strive to foster its business development and enhance financial and operating performances. To pursue in this direction, save for the transactions contemplated under the Share Subscription Agreement, the CB Subscriptions Agreement and the Note Subscription Agreement, and the future plans of the Group as detailed under the paragraphs headed “Reasons for the Share Subscription and the CB Subscription and intended use of proceeds” and “Future business plan of the Company following completion of the Share Subscription” in the Letter from the Board of this circular, the Group will continue to look for business opportunities and potential acquisitions actively. It will also actively search for market opportunities in order to broaden its capital base and to enhance its income source.

125

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. INDEBTEDNESS

At the close of business on 28 February 2015 being the latest practicable date for the purpose of ascertaining information contained in this statement of indebtedness prior to the printing of this circular, the details of the Group’s indebtedness are as follows:

Debt instruments

As at the close of business on 28 February 2015, the Group had no borrowings nor outstanding convertible notes.

Commitments

As at the close of business on 28 February 2015, the Group had no material capital commitment.

Pledge of assets

As at the close of business on 28 February 2015, the Group had no pledge of assets.

Contingent liabilities

As at the close of business on 28 February 2015, the Group had no material contingent liabilities.

Disclaimer

Apart from intra-group liabilities and normal trade payables in the ordinary course of business, the Group did not have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, mortgages, charges or debentures, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills and payables), acceptance credits or hire purchase commitments, guarantees or other material contingent liabilities outstanding at the close of business on 28 February 2015.

7. WORKING CAPITAL SUFFICIENCY STATEMENT

The Directors are of the opinion that, after taking into account the financial resources and credit facilities available to the Group and the net proceeds from the Share Subscription and the CB Subscription, the Group will have sufficient working capital to satisfy its present requirements for the next twelve months from the date of this circular in the absence of unforeseen circumstances.

8. MATERIAL CHANGE

As at the Latest Practicable Date, save for the rights issue which was announced by the Company on 11 August 2014 and was completed in October 2014, there was no material change in the financial or trading position or outlook of the Company since 31 March 2014, being the date to which the latest published audited financial statements of the Company were made up.

126

GENERAL INFORMATION

APPENDIX II

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 is not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

This circular includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Group. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than information relating to the Share Subscriber and the CB Subscriber) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed (other than those expressed by the directors of the Share Subscriber and the director of the CB Subscriber) in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

The directors of the Share Subscriber, namely Zhang Zhichao (Chairman), Wu Chen, Liu Yueping, Fang Rong, Shi Yuwei and Cao Zhenling jointly and severally accept full responsibility for the accuracy of the information relating to the Share Subscriber contained in this circular and confirm having made all reasonable inquiries, that to the best of their knowledge, opinions expressed by the directors of the Share Subscriber in this circular have been arrived at after due and careful consideration and there are no other facts in relation to itself not contained in this circular the omission of which would make any statement in this circular misleading.

The sole director of the CB Subscriber, namely Mr. Deng Jun Jie, accepts full responsibility for the accuracy of the information relating to the CB Subscriber contained in this circular and confirm, having made all reasonable inquiries, that to the best of his knowledge, opinions expressed by the director of the CB Subscriber in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. SHARE CAPITAL

(a) Share capital

The authorised and issued share capital of the Company (i) as at the Latest Practicable Date; and (ii) assuming completion of the Share Subscription Agreement and immediately following the exercise in full of the conversion rights attaching to the Convertible Bonds was/will be as follows:

127

GENERAL INFORMATION

APPENDIX II

(i) As at the Latest Practicable Date:

Authorised 4,000,000,000 Shares of HK$0.10 each Issued and fully paid 3,709,602,920 Shares of HK$0.10 each	HK$ 400,000,000.00

	370,960,292.00

(ii) Assuming completion of the Share Subscription Agreement and immediately following the exercise in full of the conversion rights attaching to the Convertible Bonds (which would result in an aggregate of 7,500,000,000 new Shares being allotted and issued)

Authorised 25,000,000,000 Shares Issued and fully paid 3,709,602,920 Shares 6,500,000,000 new Shares to be allotted and issued to the Subscription Agreement 1,000,000,000 new Shares to be issued upon full exercise of the conversion rights attached to the Convertible Bonds 11,209,602,920 Shares	HK$ 2,500,000,000.00

	370,960,292.00 650,000,000.00 100,000,000.00
	1,120,960,292.00

All the existing Shares in issue are listed on the Stock Exchange and rank pari passu in all respects with each other including rights to dividends, voting and return of capital.

When issued and fully paid, the new Subscription Shares and the Conversion Shares will rank pari passu in all respects with the Shares then in issue. Holders of the fully-paid new Subscription Shares or the Conversion Shares will be entitled to receive all dividends and distributions which are declared, made or paid after the date of allotment of the new Subscription Shares or the Conversion Shares in their fully-paid form.

128

GENERAL INFORMATION

APPENDIX II

Since 31 March 2014 (the date to which the latest published audited financial statements of the Company were made up) to the Latest Practicable Date, the Company has issued 3,344,647,040 new Shares as fully paid. Save as disclosed, the Company has not issued nor agreed to issue any new Shares (other than under the Share Subscription Agreement and the CB Subscription Agreement).

(b) Options, warrants and convertible securities

As at the Latest Practicable Date, the Company does not have any derivatives, options, warrants and conversion rights or other similar rights which are convertible or exchangeable into Shares.

3. MARKET PRICE

The table below shows the closing price per Share as quoted by the Stock Exchange (i) on the last day on which trading took place in each of the six calendar months during the period commencing six months preceding the Last Trading Day and ending on the Latest Practicable Date; (ii) 6 February 2015, being the Last Trading Day; and (iii) as at the Latest Practicable Date:

Date	Closing price per Share
	HK$
29 August 2014	0.119
30 September 2014	0.134
31 October 2014	0.114
28 November 2014	0.285
31 December 2014	0.250
30 January 2015	0.265
6 February 2015 (the Last Trading Day)	0.350
27 February 2015 (Note: trading suspended)	N/A
31 March 2015	0.510
Latest Practicable Date	0.800

The highest and lowest closing prices per Share recorded on the Stock Exchange during the period between 2 September 2014 (being the date falling six months prior to 2 March 2015, the date of the Holding Announcement) and ending on the Latest Practicable Date (both dates inclusive) are HK$0.80 on 23 and 27 April 2015 respectively, and HK$0.114 on 31 October 2014 respectively.

129

GENERAL INFORMATION

APPENDIX II

4. DISCLOSURE OF INTERESTS

(a) Interest in the Company

i. Directors’ interests in the Company

As at the Latest Practicable Date, the interests and short position of the Directors and the chief executive of the Company in shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (i) 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 or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) contained in the Listing Rules, were as follows:

			Approximate
			percentage
			of the issued
		Number of	share capital
Name of Director	Capacity	Shares interested	of the Company
Jiang Hongqing	Beneficial owner	15,000,000	0.40
	and deemed
	interest of spouse

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had any interests or short positions in shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (i) 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 or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code contained in the Listing Rules.

ii. Substantial shareholders’ and other persons’ interests in the Shares and underlying shares

So far as is known to each Director or the chief executive of the Company, as at the Latest Practicable Date, the following persons (other than the Directors as disclosed above) or corporations had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or who/which was, directly or indirectly, interested in 5% 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 members of the Group and the amount of each of such person’s/corporate’s interest in such securities, together with particulars of any options in respect of such capital, were as follows:

130

GENERAL INFORMATION

APPENDIX II

				Approximate
				percentage
				of the issued
			Number	share capital
Name of		Long position/	of Shares	of the
Shareholder	Capacity	Short position	interested	Company
Quantum China	Investment	Long position	828,840,000	22.34%
Asset Management	manager
Limited (Note 1)
Taiping Quantum	Beneficial	Long position	340,000,000	9.17%
Strategic Fund	owner
(Note 1)
Taiping Quantum	Beneficial	Long position	400,420,000	10.79%
Prosperity Fund	owner
(Note 1)
Deng Jun Jie (Note 2)	Interest in	Long position	1,000,000,000	26.96%
	controlled
	corporation
Honghu Capital	Beneficial	Long position	1,000,000,000	26.96%
Company Limited	owner
(Note 2)
China Minsheng	Interest in	Long position	6,500,000,000	175.22%
Investment Corp.,	controlled
Ltd. (Note 3)	corporation
China Minsheng	Beneficial	Long position	6,500,000,000	175.22%
Jiaye Investment	owner
Co., Ltd. (Note 3)

Notes:

Each of Taiping Quantum Strategic Fund, Taiping Quantum Prosperity Fund, Taiping Quantum China Opportunities Fund and Quantum Advantage Fund is managed by Quantum China Asset Management Limited. Quantum China Asset Management Limited is therefore deemed to be interested in 828,840,000 Shares, being the total number of Shares held by Taiping Quantum Strategic Fund, Taiping Quantum Prosperity Fund, Taiping Quantum China Opportunities Fund and Quantum Advantage Fund, for the purpose of SFO.
Honghu Capital Company Limited is wholly owned by Deng Jun Jie. Deng Jun Jie is therefore deemed to be interested in the Shares to be held by Honghu Capital Company Limited upon completion of the CB Subscription and the full conversion of the Convertible Bonds for the purpose of SFO.

131

GENERAL INFORMATION

APPENDIX II

China Minsheng Jiaye Investment Co., Ltd. is owned as to 90% by China Minsheng Investment Corp. Ltd. China Minsheng Investment Corp. Ltd. is therefore deemed to be interested in the Shares to be held by China Minsheng Jiaye Investment Co., Ltd. upon the completion of the Share Subscription for the purpose of SFO.

Save as disclosed above, the Directors and the chief executive of the Company were not aware that there was any person other than a Director or chief executive of the Company who, as at the Latest Practicable Date, had an interest or short position in the Shares or underlying Shares in 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 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group.

iii. The Share Subscriber and parties acting in concert with it

Save for the entering into of the Share Subscription Agreement, the Share Subscriber and parties acting in concert with it has not dealt for value in any Shares or any other convertible securities, warrants, options or derivatives in respect of the Shares during the Relevant Period. As at the Latest Practicable Date, the Share Subscriber and parties acting in concert with it did not own or control any Shares or other securities of the Company.

iv. Others

As at the Latest Practicable Date:

i. None of the subsidiaries of the Company, nor any pension funds of the Company or of any of its subsidiaries, nor the Independent Financial Adviser nor any other advisers to the Company as specified in class (2) of the definition of “associate” under the Takeovers Code owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company.
ii. No person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or any person who is an associate of the Company by virtue of clauses (1), (2), (3) and (4) of the definition of associate under the Takeovers Code, and with the Share Subscriber or any party acting in concert with it.
iii. No shareholding in the Company was managed on a discretionary basis by fund managers connected with the Company.

(b) Dealings in securities

i. Directors

Except that Mr. Jiang Hongqing, an independent non-executive Director, and his spouse acquired a total of 15,000,000 Shares during the period from 14 to 16 January 2015 on the open market of Stock Exchange, none of the Directors or parties acting in concert with any of them had dealt in any Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period. As at

132

GENERAL INFORMATION

APPENDIX II

the Latest Practicable Date, save as disclosed in the paragraph headed “DISCLOSURE OF INTERESTS – (a) Interest in the Company – i. Directors’ interests in the Company” in this appendix, none of the Directors was interested in any Shares, convertible securities, warrants, options or derivatives of the Shares. Mr. Jiang Hongqing intends to vote in favour of the resolutions approving the Share Subscription Agreement and the transactions contemplated thereunder, the Specific Mandate in relation to the Share Subscription and the Whitewash Waiver at the SGM.

ii. Others

During the Relevant Period, none of the subsidiaries of the Company, nor any pension fund of the Company or any of its subsidiaries, nor the Independent Financial Adviser nor any other advisers to the Company as specified in class (2) of the definition of “associate” under the Takeovers Code had dealt for value in any existing Shares, convertible securities, warrants, options or derivatives of the Company.

During the Relevant Period, no fund managers who managed funds on a discretionary basis connected with the Company had dealt for value in any Shares, convertible securities, warrants, options and derivatives of the Company.

During the Relevant Period, none of the Company or the Directors has borrowed or lent any existing Shares.

None of the directors of the Share Subscribers was interested in any Shares, convertible securities, warrants, options or derivatives of the Shares; nor had any such directors dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Shares during the Relevant Period.

(c) Interests and dealings in the Share Subscriber

None of the Directors or the Company had any interest in the shares, convertible securities, options, warrants or derivatives of the Share Subscriber and none of them had dealt for value in any shares, convertible securities, options, warrants or derivatives of the Share Subscriber during the Relevant Period.

5. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any service contracts with the Company or any member of the Group which (a) (including continuous and fixed term contracts) have been entered into or amended within six months before the date of the Holding Announcement; (b) are continuous contracts with a notice period of 12 months or more; (c) are fixed term contracts with more than 12 months to run irrespective of the notice period; or (d) are not determinable by any member of the Group within one year without payment of compensation (other than statutory compensation).

133

GENERAL INFORMATION

APPENDIX II

6. OTHER INTERESTS OF THE DIRECTORS

As at the Latest Practicable Date:

(a) none of the Directors had any direct or indirect interest in any assets which have, since 31 March 2014, being the date of the latest published audited consolidated financial statements of the Group were made up, been acquired or disposed of by, or leased to, or are proposed to be acquired or disposed of by, or leased to any member of the Group;
(b) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which contract or arrangement is subsisting as at the date of this circular and which is significant in relation to the business of the Group as a whole; and
(c) there was no material contract entered into by the Share Subscriber in which any Director had a material personal interest.

7. COMPETING INTERESTS

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors or their respective associates had any interests in a business which competes or may compete, either directly or indirectly, with the business of the Group or any other conflicts of interests with the Group.

8. LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, no member of the Group is engaged in any litigation or arbitration of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

9. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in ordinary course of business of the Group, have been entered into by the members of the Group within two years preceding the date of the Holding Announcement and the date of this circular and which are, or maybe, material:

(a) On 24 December 2014, the Company entered into a non-legally binding framework agreement relating to a possible acquisition of the entire equity interest of Jinhong Property Development Limited (金鴻置業有限公司) (the “ Target Company* ”) by the Company. The Target Company is principally engaged in the business of development and

134

GENERAL INFORMATION

APPENDIX II

management of a property development project situated in Shanghai City, the PRC. The initial consideration for the entire shares is RMB960 million (equivalent to approximately HK$1,211 million), which is subject to further negotiation and adjustments with reference to the valuation report to be prepared by an independent professional valuer. Details could be referred to in the Company’s announcements dated 17 December 2014 and 24 December 2014;

(b) The underwriting agreement dated 11 August 2014 entered into between the Company and Kingston Securities Limited in relation to the rights issue of 2,919,647,040 rights shares on the basis of eight rights shares for every one existing share of the Company at HK$0.1 per rights share. The net proceeds raised from the rights issue were approximately HK$283 million. Details could be referred to the Company’s announcement dated 11 August 2014, circular dated 5 September 2014 and prospectus dated 8 October 2014;
(c) On 26 February 2014, the Company (as purchaser) entered into a non-legally binding framework agreement (as supplemented by four supplemental framework agreements dated 23 May 2014, 22 August 2014, 25 November 2014 and 30 December 2014) with Mr. Liu Shu (as vendor) relating to a possible acquisition of certain properties in Shenzhen, the PRC by the Company at a consideration to be determined with reference to the finalized market value of such properties, which shall be satisfied in the combination of cash, consideration shares, promissory notes and/or convertible notes of the Company; and the cash portion of which shall not be less than HK$300 million. Subsequently, a total of HK$72 million in aggregate was paid to the vendor as earnest money. As no formal agreement was entered into by the long stop date on 25 February 2015, the framework agreement (as supplemented by the four supplemented framework agreements as mentioned above) lapsed on 25 February 2015. The HK$72 million earnest money paid shall be refunded to the Company accordingly. Details could be referred to the Company’s announcements dated 26 February 2014, 23 May 2014, 22 August 2014, 25 November 2014, 30 December 2014 and 2 March 2015, as well as in the Letter from the Board to this circular;
(d) the Share Subscription Agreement;
(e) the CB Subscription Agreement;
(f) the Note Subscription Agreement;
(g) the Strategic Cooperation Framework Agreement; and
(h) the memorandum of understanding dated 28 April 2015 entered into between Benelux Property Development (Shanghai) Limited, a subsidiary of the Company, together with China Minsheng Zhuyou Co. Ltd. (中民築友有限公司), a subsidiary of the Share Subscriber, with Shanghai Zhao Nian Heavy Machinery Co. Ltd. (上海兆年重工機械有限公司) (as vendor) in relation to the proposed acquisition of certain assets in Shanghai for a total consideration of RMB82 million.

135

GENERAL INFORMATION

APPENDIX II

10. EXPERT’S QUALIFICATION AND CONSENT

The following are the qualifications of the expert who has given its opinions and advice which are included in this circular:

Name

Qualification

Nuada Limited

a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity as defined under the SFO and the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders with regard to certain matters to be considered at the SGM

Nuada Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or opinion (as the case may be) and all references to its name in the form and context in which they appear.

As at the Latest Practicable Date, Nuada Limited was not beneficially interested in the share capital of any member of the Group nor did it has any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group nor did it has any interest, either direct or indirect, in any assets which have been, since the date to which the latest published audited consolidated financial statements of the Group were made up (that is, 31 March 2014), acquired, disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

11. CORPORATE AND OTHER INFORMATION

(a) The registered office of the Company is located at Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda.
(b) The head office and principal place of business of the Company in Hong Kong is located at Suites 1001-1004 on Level 10 One Pacific Place 88 Queensway Admiralty, Hong Kong.
(c) The company secretary of the Company is Mr. Lau Wing Chuen, HKICPA.
(d) The Company’s branch share registrar and transfer office in Hong Kong is Computershare Hong Kong Investor Services Ltd., whose address is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(e) The auditor of the Company, HLB Hodgson Impey Cheng Limited, as Certified Public Accountants, is located at 31/F, Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong.
(f) The register office of the Independent Financial Adviser, Nuada Limited, is at Unit 1805-08, 18th Floor, OfficePlus@Sheung Wan, 93-103 Wing Lok Street, Sheung Wan, Hong Kong.

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(g) As at the Latest Practicable Date, the Board comprises three executive directors who are Mr. Yeung Chun Wai, Anthony (Chairman, Chief Executive Officer), Mr. Chen Domingo (Deputy Chairman) and Mr. Chan Chi Yuen and three independent non-executive directors who are Mr. Lee Chi Ming, Mr. Jiang Hongqing and Mr. Chan Chi Hung, Anthony.
(h) As at the Latest Practicable Date, the directors of the Share Subscriber are Zhang Zhichao (Chairman), Wu Chen, Liu Yueping, Fang Rong, Shi Yuwei and Cao Zhenling. The directors of China Minsheng Investment are Dong Wenbiao (Chairman), Li Zhenxi, Yang Xiaoping, Lu Zhiqiang, Li Huaizhen, Zhang Jianhong, Shi Guilu, Li Guangrong, Li Yinheng, Sun Yinhuan, Shi Yuzhu, Zhou Haijiang, Mao Yonghong and Li Daokui. The sole director of the CB Subscriber is Mr. Deng Jun Jie.
(i) The register office of the Share Subscriber is at Room 2302, No. 100, South Zhongshan Road, Huangpu District, Shanghai, China; whereas the register office of the CB Subscriber is at P.O. Box 957, Offshore Incorporation Centre, Road Town, Tortola, British Virgin Islands.
(j) As at the Latest Practicable Date, none of the Independent Shareholders had irrevocably committed themselves to vote for or against the Share Subscription, the Specific Mandates and/or the Whitewash Waiver.
(k) As at the Latest Practicable Date, there is no agreement, arrangement or understanding (including any compensation arrangement) between the Share Subscriber or any person acting in concert with it and any of the Directors, recent Directors, Shareholders and recent Shareholders having any connection with or dependence upon the outcome of the Share Subscription, the Specific Mandate in relation to the Share Subscription and/or the Whitewash Waiver.
(l) There are no benefits to be given to any Directors as compensation for loss of office or otherwise in connection with the Share Subscription, the Specific Mandate in relation to the Share Subscription and the Whitewash Waiver.
(m) As at the Latest Practicable Date, there is no agreement or arrangement between any Directors and any other person which is conditional on or dependent upon the outcome of the Share Subscription, the Specific Mandate in relation to the Share Subscription and the Whitewash Waiver or otherwise connected therewith.
(n) The Share Subscriber, the Directors and the Company and any parties acting in concert with any of them have not borrowed or lent any Relevant Securities in the Company.
(o) None of the Directors has any interest, direct or indirect, in any assets which had been, since 31 March 2014, being the date of the latest published audited consolidated financial statements of the Company 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.

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GENERAL INFORMATION

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(p) As at the Latest Practicable Date, the Share Subscriber and parties acting in concert with it do not hold any Shares or other securities in the Company and accordingly are not entitled to vote on any of the resolutions to be proposed at the SGM.
(q) There is no agreement, arrangement or understanding to transfer, charge or pledge any voting rights over the Subscription Shares and the Conversion Shares.
(r) The English text of this circular shall prevail over the Chinese text in case of inconsistency.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours from 9:30 a.m. to 5:00 p.m. (except Saturdays and public holidays) at the principal place of business of the Company in Hong Kong at Suites 1001-1004 on Level 10, One Pacific Place, 88 Queensway, Admiralty, Hong Kong from the date of this circular up to and including the date of the SGM:

(a) this circular;
(b) the memorandum of association and the bye-laws of the Company;
(c) the articles of association of the Share Subscriber;
(d) the annual reports of the Company for the year ended 31 March 2012, 2013 and 2014;
(e) the interim reports of the Company for the six months ended 30 September 2013 and 2014;
(f) the material contracts as referred to in the paragraph headed “Material Contracts” in this Appendix;
(g) the letter from the Board, the text of which is set out on pages 6 to 32 of this circular;
(h) the letter from the Independent Board Committee, the texts of which are set out on page 33 of this circular;
(i) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which are set out on pages 34 to 59 of this circular; and
(j) the written consent referred to in the paragraph headed “Expert and Consent” in this appendix or required under paragraph 1(d) of Notes to Rule 8 of the Takeovers Code.

The above documents (except this circular) will be uploaded at the website of the SFC at www.sfc.hk and the Company’s website at http://southeastgroup.todayir.com from the date of this circular up to (and including) the date of the SGM in accordance with Notes 1 and 2 to rule 8 of the Takeovers Code.

For identification purposes only

138

NOTICE OF THE SGM

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(Incorporated in Bermuda with limited liability) (Stock Code: 726)

NOTICE OF THE SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a Special General Meeting of South East Group Limited (the “ Company ” together with its subsidiaries, the “ Group ”) will be held at Island Shangri-La, Hong Kong at Two Pacific Place, Supreme Court Road, Central, Hong Kong on Monday, 18 May 2015 at 2:30 p.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions which will be proposed as ordinary resolutions:

ORDINARY RESOLUTIONS

Words and expressions that are not expressly defined in this notice shall bear the same meaning as those defined in the circular dated 30 April 2015 issued by the Company (the “ Circular ”).

“ THAT
(a) the Share Subscription Agreement entered into between the Company and the Share Subscriber, a copy of which has been produced to the SGM and marked “A” and initialed by the chairman of the SGM for the purpose of identification, pursuant to which the Company has conditionally agreed to allot and issue, and the Share Subscriber has conditionally agreed to subscribe for, the Subscription Shares at the Subscription Price of HK$0.20 per Share and all transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the grant of the Specific Mandate to the Directors to exercise the powers of the Company to allot and issue the Subscription Shares at the Subscription Price be and is hereby approved, and any one Director be and is authorized to do all such further acts and things and to sign and execute all such documents and to take all such steps which in his opinion may be necessary, appropriate, desirable or expedient to implement and/or give effect to any matter relating to or incidental to the Specific Mandate in relation to the Share Subscription; and
(c) any one director of the Company be and is hereby authorised to do all such further acts and things and to sign and execute all such documents and to take all such steps which in his opinion may be necessary, appropriate, desirable or expedient to implement and/or give effect to the Share Subscription Agreement and the transactions contemplated thereunder.”
For identification purpose only

139

NOTICE OF THE SGM

“ THAT
(a) the CB Subscription Agreement entered into between the Company and the CB Subscriber, a copy of which has been produced to the SGM and marked “B” and initialed by the chairman of the SGM for the purpose of identification, pursuant to which the Company has conditionally agreed to issue, and the CB Subscriber has conditionally agreed to subscribe for, the Convertible Bonds in an aggregate principal amount of HK$200,000,000 and all transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the grant of the Specific Mandate to the Directors to exercise the powers of the Company to allot and issue the Conversion Shares at the Conversion Price of HK$0.20 per Conversion Shares (subject to adjustments) upon exercise of the conversion rights attached to the Convertible Bonds in accordance with the terms and conditions of the CB Subscription Agreement be and is hereby approved, and any one Director be and is authorized to do all such further acts and things and to sign and execute all such documents and to take all such steps which in his opinion may be necessary, appropriate, desirable or expedient to implement and/or give effect to any matter relating to or incidental to the Specific Mandate in relation to the allotment and issue of the Conversion Shares; and
(c) any one director of the Company be and is hereby authorised to do all such further acts and things and to sign and execute all such documents and to take all such steps which in his opinion may be necessary, appropriate, desirable or expedient to implement and/or give effect to the CB Subscription Agreement and the transactions contemplated thereunder.”
“ THAT subject to and conditional upon the passing of resolution numbered 1 above, the Whitewash Waiver granted or to be granted by the Executive be and is hereby approved and any one Director be and is hereby authorised to do all such further acts and things and to sign and execute all such documents and to take all such steps which in his opinion may be necessary, appropriate, desirable or expedient to implement and/or give effects to any matters relating to or incidental to the Whitewash Waiver.”
“ THAT the authorised share capital of the Company be increased from HK$400,000,000 divided into 4,000,000,000 shares of par value HK$0.10 each (the “Shares”) to HK$2,500,000,000 divided into 25,000,000,000 Shares with effect from the date of passing this resolution by the creation of an additional 21,000,000,000 new Shares and any one director of the Company be and is hereby authorised to do all such further acts and things and to sign and execute all such documents and to take all such steps which in his opinion may be necessary, appropriate, desirable or expedient to implement and/or give effect to the transactions contemplated under this resolution.”

140

NOTICE OF THE SGM

“ THAT
(a) the Note Subscription Agreement entered into between the Company, the Issuer and the Guarantor, a copy of which has been produced to the SGM and marked “C” and initialed by the chairman of the SGM for the purpose of identification, pursuant to which the Company has conditionally agreed to subscribe for the Note in the principal amount of HK$250,000,000 with a coupon rate of 4.80% per annum in accordance with the terms and conditions thereof, and all transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) any one director of the Company be and is hereby authorised to do all such further acts and things and to sign and execute all such documents and to take all such steps which in his opinion may be necessary, appropriate, desirable or expedient to implement and/or give effect to the Note Subscription Agreement and the transactions contemplated thereunder.”

By Order of the Board South East Group Limited Yeung Chun Wai, Anthony Chairman and Executive Director

Hong Kong, 30 April 2015

Registered Office: Head Office and Principal Place of Canon’s Court Business in Hong Kong: 22 Victoria Street Suites 1001-1004 on Level 10 Hamilton HM12 One Pacific Place Bermuda 88 Queensway Admiralty, Hong Kong

Notes:

A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxy to attend and, on a poll, subject to the provisions of the Bye-laws of the Company, vote in his stead. A proxy need not be a member of the Company.
In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the offices of the Company’s Hong Kong branch registrar, Computershare Hong Kong Investor Services Ltd., at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai Hong Kong not less than 48 hours before the time for holding the meeting or adjourned meeting.

As at the date of this notice, the Board comprises six Directors, namely Mr. Yeung Chun Wai, Anthony (Chairman), Mr. Chen Domingo (Deputy Chairman) and Mr. Chan Chi Yuen as executive Directors; Mr. Lee Chi Ming, Mr. Chan Chi Hung, Anthony and Mr. Jiang Hongqing as independent nonexecutive Directors.

141

AI assistant

DIT Group Limited — Proxy Solicitation & Information Statement 2015

49427_rns_2015-04-29_02944cc3-39e3-4904-b32d-7a411fdba3f5.pdf

(1) PROPOSED ISSUE OF NEW SHARES UNDER SPECIFIC MANDATE

(2) WHITEWASH WAIVER

(3) PROPOSED ISSUE OF CONVERTIBLE BONDS

(4) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

(5) PROPOSED MAJOR TRANSACTION RELATING TO SUBSCRIPTION FOR GUARANTEED NOTE AND

(6) NOTICE OF SGM

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(1) PROPOSED ISSUE OF NEW SHARES UNDER SPECIFIC MANDATE (2) WHITEWASH WAIVER

(4) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

(5) PROPOSED MAJOR TRANSACTION RELATING TO SUBSCRIPTION FOR GUARANTEED NOTE

AND

(6) NOTICE OF SGM

INTRODUCTION

A. PROPOSED ISSUE OF NEW SHARES

Principal terms of the Share Subscription Agreement

Ranking of the Subscription Shares

The Subscription Price

Conditions for the Share Subscription

Information of the Share Subscriber

Dealings and interest held in the Company’s securities by the Share Subscriber and its concert parties

Whitewash Waiver

B. PROPOSED ISSUE OF CONVERTIBLE BONDS

Principal terms of the CB Subscription Agreement

The CB Subscription

Conditions for the CB Subscription

Completion of the CB Subscription

Information of the CB Subscriber

Principal terms of the Convertible Bonds

LETTER FROM THE BOARD

Conversion Price

The Conversion Shares

Reasons for the Share Subscription and the CB Subscription and intended use of proceeds

LETTER FROM THE BOARD

Future business plan of the Company following completion of the Share Subscription

Proposed Increase in Authorised Share Capital

Specific Mandates to issue the Subscription Shares and the Conversion Shares

Application for listing

Fund raising activities during the past twelve months

Date of

Intended use of proceeds at

announcement

Actual use of proceeds

Changes in the shareholding structure of the Company

C. MAJOR TRANSACTION RELATING TO SUBSCRIPTION FOR THE NOTE

Principal terms of the Note Subscription Agreement and the Note

Subscription price

Interest rate

Conditions precedent

Completion

Guarantee

Maturity date

Redemption

The Strategic Cooperation Framework Agreement

Reasons for and the benefits of the Note Subscription Agreement and the Strategic Cooperation Framework Agreement

Effect of the subscription for the Note on the earnings and assets and liabilities of the Company

Information on the Issuer and the Guarantor

LISTING RULES IMPLICATIONS

SGM

LETTER FROM THE BOARD

RECOMMENDATIONS

FURTHER INFORMATION

PROPOSED SUBSCRIPTION FOR NEW SHARES, SPECIFIC MANDATE IN RELATION TO THE SHARE SUBSCRIPTION AND WHITEWASH WAIVER

(1) PROPOSED ISSUE OF NEW SHARES UNDER SPECIFIC MANDATE AND (2) WHITEWASH WAIVER

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information of the Company

LETTER FROM NUADA LIMITED

2. Background of and Reasons for the Share Subscription

2.1 Information of the Share Subscriber, the CB Subscriber, the Issuer and Guarantor

LETTER FROM NUADA LIMITED

2.2 Use of Proceeds

LETTER FROM NUADA LIMITED

DIT Group Limited Proxy Solicitation & Information Statement 2015