Founder Holdings Limited - Proxy Solicitation & Information Statement 2019

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, other licensed corporation, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in New Century Group Hong Kong Limited , you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer, other licensed corporation or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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(Incorporated in Bermuda with limited liability) (Stock Code: 234)

MAJOR AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF 60% EQUITY INTEREST IN ETC FINANCE LIMITED

Financial adviser to the Company

Optima Capital Limited

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

Able Capital Partners Limited

Capitalised terms used in this cover page shall have the same meanings as those defined in the section headed “Definitions” of this circular, unless the context otherwise requires.

A letter from the Board is set out on pages 4 to 15 of this circular. A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on page 16 of this circular. A letter from Able Capital to the Independent Board Committee and the Independent Shareholders is set out on pages 17 to 34 of this circular.

If you are not able to attend the SGM, you are requested to complete the proxy form in accordance with the instructions printed thereon and return it to the Company’s principal place of business in Hong Kong at Unit 3808, 38th Floor, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong as soon as possible and in any event not less than forty-eight (48) hours before the time appointed for holding the SGM (i.e. not later than 10:30 a.m. on Sunday, 22 September 2019 (Hong Kong time)) or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the SGM or any adjournment of it, if you so wish.

23 August 2019

For identification purpose only

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from Able Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix I – Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Appendix II – Accountants’ Report on the Target. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
Appendix III – Management Discussion and Analysis on the Target. . . . . . . . . . . . . . . .	73
Appendix IV – Unaudited Pro Forma Financial Information of the Enlarged Group. . .	77
Appendix V – Valuation of the Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	85
Appendix VI – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	92
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	102

DEFINITIONS

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

“Able Capital” or “Independent Financial Adviser”
Able Capital Partners Limited, a licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser appointed by the Company with the approval of the Independent Board Committee for the purpose of advising the Independent Board Committee and the Independent Shareholders in respect of the Acquisition
“Acquisition”

the acquisition of the Sale Shares pursuant to the Agreement

“Agreement”

the agreement dated 18 June 2019 entered into among the Purchaser and the Vendors in respect of the Acquisition

“Announcement”
the announcement of the Company dated 18 June 2019 in relation to among other things, the Acquisition
“Board” the board of Directors
“Business Day” a day (other than a Saturday, a Sunday or a public holiday) on which banks generally are open for business in Hong Kong
“BVI” British Virgin Islands
“Company”
New Century Group Hong Kong Limited, a company incorporated in Bermuda with limited liability, whose Shares are listed on the main board of the Stock Exchange with stock code 234
“Completion” completion of the Acquisition in accordance with the terms and conditions of the Agreement
“Completion Date” the date of Completion, which shall be a date which is the last day of the month in which all the Conditions are fulfilled (or waived by the Purchaser, as the case may be), or such other date as the Vendors and the Purchaser may agree in writing
“Consideration” the consideration for the Acquisition
“Director(s)” the director(s) of the Company
“Enlarged Group” the Group immediately after Completion
“Group” the Company and its subsidiaries from time to time

DEFINITIONS

“Hong Kong”
the Hong Kong Special Administrative Region of the People’s Republic of China
“Huang Group”
Huang Group (BVI) Limited, a company incorporated in the BVI with limited liability under a discretionary trust of which (i) Mr. Ng (Huang) Cheow Leng is its settlor, trustee and one of its discretionary beneficiaries; and (ii) Mr. Ng Wee Keat, Ms. Sio Ion Kuan, Ms. Ng Siew Lang, Linda, Ms. Lilian Ng, Ms. Huang Si Teng and Mr. Huang Wai Ip are among its discretionary beneficiaries
“Independent Board Committee”
the committee of the Board comprising all independent non-executive Directors established to make recommendations to the Independent Shareholders in respect of the Acquisition
“Independent Shareholders”
Shareholders other than the Vendors and their respective associates (including New Century (Huang’s) Foundation Limited, Mr. Ng (Huang) Cheow Leng and Ms. Sio Ion Kuan)
“Independent Third Party(ies)”
company(ies) which, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, is/are third party(ies) independent of the Company and its connected persons
“Knight Frank” Knight Frank Petty Limited, an independent firm of professional valuers
“Latest Practicable Date”
21 August 2019, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular
“Licensing Court” the court responsible for determination of applications for, and granting of, Money Lenders Licences
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“Long Stop Date”
31 October 2019, or such later date as the Purchaser and Vendors may agree in writing
“MLO”
the Money Lenders Ordinance (Chapter 163 of the Laws of Hong Kong)
“Money Lenders Licence”

the money lenders licence(s) issued by the Licensing Court in the name of the Target pursuant to the MLO and the Money Lenders Regulations for carrying on money lending business in Hong Kong

“Purchaser”

Able Sincere Limited, a company incorporated in the BVI with limited liability, a wholly-owned subsidiary of the Company

DEFINITIONS

“Property”	a commercial property held by the Target located at 15/F., Katherine
	House, 53-55 Chatham Road South, Kowloon, Hong Kong
“Sale Shares”	420,000,000 shares of the Target, representing 60% of the total
	issued share capital of the Target as at Completion
“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 and held
	for the Independent Shareholders to consider, and if thought fit,
	approve the Agreement and the transactions contemplated thereunder
“Share(s)”	ordinary share(s) of HK$0.0025 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of the issued Share(s)
“Shareholders’ Agreement”	the shareholders’ agreement in relation to the Target to be executed
	by the Purchaser, Vendor A and the Target at Completion
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Target”	ETC Finance Limited, a company incorporated in Hong Kong with
	limited liability which is owned as to 70% by Vendor A, 20% by
	Vendor B and 10% by Vendor C
“Target’s Share(s)”	ordinary shares in the share capital of the Target
“Vendors”	Vendor A, Vendor B and Vendor C
“Vendor A”	Huang Worldwide Holding Limited, a company incorporated in the
	BVI with limited liability, which is wholly owned by Huang Group
“Vendor B”	New Century Investment Pacific Limited, a company incorporated in
	the BVI with limited liability, which is wholly owned by Vendor A
“Vendor C”	A&C Amusement Limited, a company incorporated in the BVI with
	limited liability, which is ultimately owned as to 51% by
	Ms. Sio Ion Kuan, 33% by Ms. Huang Si Teng and 16% by
	Mr. Huang Wai Ip
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“%”	per cent.

In the event of inconsistency, the English text of the circular, the notice of SGM and the enclosed form of proxy shall prevail over the Chinese text.

LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability) (Stock Code: 234)

Executive Directors:

Mr. Ng Wee Keat (Chairman)

Ms. Sio Ion Kuan (Deputy Chairman)

Ms. Ng Siew Lang, Linda (Chief Operating Officer)

Ms. Lilian Ng

Ms. Chen Ka Chee Mr. Yu Wai Man

Independent Non-executive Directors:

Mr. Cheung Chun Kwok Mr. Kwan Kai Kin, Kenneth

Mr. Ho Yau Ming

Registered Office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head Office and Principal Place of Business in Hong Kong: Unit 3808, 38th Floor West Tower, Shun Tak Centre 168-200 Connaught Road Central Hong Kong

23 August 2019

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF 60% EQUITY INTEREST IN ETC FINANCE LIMITED

INTRODUCTION

Reference is made to the Announcement in relation to the Agreement entered into among the Purchaser and the Vendors pursuant to which the Purchaser conditionally agreed to acquire and the Vendors conditionally agreed to sell the Sale Shares (representing 60% of the total issued share capital of the Target) at the initial Consideration of HK$457,640,000 (subject to adjustment) in cash.

The purpose of this circular is to provide the Shareholders with, among other things (i) the details of the Agreement; (ii) further information of the Enlarged Group and the Target; (iii) the recommendations from the Independent Board Committee to the Independent Shareholders in respect of the Acquisition; (iv) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition; (v) the valuation report on the Property; and (vi) a notice of the SGM.

For identification purpose only

LETTER FROM THE BOARD

THE AGREEMENT

Date: 18 June 2019

Parties: (i) Able Sincere Limited, being the Purchaser;

(ii) Huang Worldwide Holding Limited, being Vendor A;
(iii) New Century Investment Pacific Limited, being Vendor B; and
(iv) A&C Amusement Limited, being Vendor C

The Vendors are investment holding companies. As at the Latest Practicable Date, Vendor B was the controlling Shareholder holding 3,556,133,691 Shares, representing approximately 61.52% of the issued share capital of the Company. Vendor B was wholly owned by Vendor A, which was in turn wholly owned by Huang Group. Vendor C was wholly owned by Sociedade De Investimento Predial Jin Ye, Limitada, which was in turn owned as to 51%, 33% and 16% by Ms. Sio Ion Kuan, Ms. Huang Si Teng and Mr. Huang Wai Ip, respectively. Huang Group was owned under a discretionary trust of which (i) Mr. Ng (Huang) Cheow Leng was the settlor, the trustee and one of its discretionary beneficiaries; and (ii) Ms. Sio Ion Kuan, Mr. Ng Wee Keat, Ms. Ng Siew Lang, Linda and Ms. Lilian Ng, each being an executive Director, and together with Ms. Huang Si Teng and Mr. Huang Wai Ip were among its discretionary beneficiaries. Accordingly, the Vendors were regarded as connected persons of the Company under Chapter 14A of the Listing Rules.

Subject matter

Pursuant to the Agreement, the Purchaser conditionally agreed to acquire and the Vendors conditionally agreed to sell the Sale Shares, which represent 60% of the issued share capital of the Target. The Sale Shares comprise 30%, 20% and 10% equity interest in the Target, held by Vendor A, Vendor B and Vendor C, respectively. The Target is a holder of the Money Lenders Licence in Hong Kong. Further information of the Target is disclosed in the section headed “Information of the Target” below.

Consideration

The initial Consideration of HK$457,640,000 (subject to adjustment as detailed below) shall be payable by the Purchaser and apportioned among the Vendors in proportion to their interests in the Sale Shares as follows:

(i) as to HK$30,000,000 in cash as refundable deposit (the “Deposit”) which had been paid by the Purchaser upon the signing of the Agreement; and
(ii) as to HK$427,640,000 in cash upon Completion.

The Deposit shall be refundable by the Vendors to the Purchaser if the Agreement is terminated in accordance with the terms thereof.

LETTER FROM THE BOARD

The initial Consideration was determined based on the initial net asset value of the Target as at 31 March 2019 of HK$762,734,874 (the “Initial Net Asset Value”) based on the unaudited management account of the Target and taking into the account (i) the proven track record and the historical financial performance of the Target; and (ii) the reasons for and benefits of the Acquisition as stated under the section headed “Reasons for and Benefits of the Acquisition” below. The Consideration will be financed by the internal resources of the Company.

Adjustment to the Consideration

Within six Business Days following the Completion Date, the Vendors and the Purchaser shall appoint Ernst & Young as the auditor (the “Auditor”) (a) to audit a statement of financial position of the Target as at the close of business on the Completion Date (the “Completion Accounts”) to be prepared by the Target, which shall adopt the same policies, bases, methods, practices and procedures of accounting as applied or adopted for the purposes of the audited accounts of the Target, including all new accounting standards which may become effective and applicable at the time of preparation; and (b) to issue a report of the factual findings of agreed-upon procedures on a report to be prepared by the Target setting out the value of the aggregate assets less the aggregate liabilities of the Target as derived from the Completion Accounts and adjusted with the valuation gain/loss of the Property determined based on the difference (if any) between (i) the carrying value of the Property as derived from the Completion Accounts; and (ii) the valuation amount of the Property as at the close of business on the Completion Date by a qualified chartered surveyor (the “Completion Net Asset Value”).

The Target owns the Property which is a commercial property located at 15/F., Katherine House, 53-55 Chatham Road South, Kowloon, Hong Kong. It had been held by the Target for its own use as branch office for the Target’s money lending business and was booked at cost minus accumulated depreciation as property, plant and equipment in the accounts of the Target as at 31 March 2019. As the Property has been vacated since the end of May and it is intended that the Property will be held for sale or lease upon Completion, the Vendors and the Purchaser have agreed to revalue the Property on the Completion Date. It is expected that there will be an adjustment of the Consideration upon Completion. According to the valuation report set out in Appendix V to this circular, the market value of the Property amounted to HK$29,200,000 as at 30 June 2019, representing a valuation surplus of HK$7,842,000 as compared with its carrying value in the Target’s accounts of approximately HK$21,358,000 as at 31 March 2019.

The Purchaser and the Vendors will each use their commercially reasonable efforts to cause the Auditor to render its determination in writing and to provide a copy to each of the Vendors and Purchaser as soon as reasonably practicable and in any event within 60 days of the Auditor’s appointment.

Following the determination of the Completion Net Asset Value, the Consideration shall be adjusted as follows:

(i) if the Completion Net Asset Value is larger than the Initial Net Asset Value, the Consideration shall be adjusted upwards in accordance with the following formula:

Consideration = HK$457,640,000 + V

V = (Completion Net Asset Value – Initial Net Asset Value) x 60% and in any event V shall not exceed HK$40,000,000,

in which case the Purchaser shall pay to the Vendors an amount equal to the upward adjustment to the Consideration in cash within five Business Days after the date of the determination of the Completion Net Asset Value, which amount shall be apportioned among the Vendors in proportion to their interests in the Sale Shares. The aforesaid cap of

LETTER FROM THE BOARD

HK$40,000,000 for the upward adjustment to the Consideration was determined after taking into account the potential add-back of provision for impairment assessment for loan and interest receivables, the projected profit to be earned from 1 April 2019 up to the Long Stop Date, the related tax effects and the valuation surplus of the Property;

(ii) if the Completion Net Asset Value is less than the Initial Net Asset Value, the Consideration shall be adjusted downwards in accordance with the following formula:

Consideration = HK$457,640,000 – X

X = (Initial Net Asset Value – Completion Net Asset Value) x 60%,

in which case the Vendors shall pay to the Purchaser an amount equal to the downward adjustment to the Consideration in cash within five Business Days after the date of the determination of the Completion Net Asset Value.

For the avoidance of doubt, there shall be no adjustment to the Consideration if the Completion Net Asset Value is the same as the Initial Net Asset Value.

Conditions precedent

Completion is conditional upon the fulfilment (or waiver, if permitted) of the following conditions:

(i) the passing by the requisite majority of Independent Shareholders in the SGM who are permitted to vote under the Listing Rules of all resolutions to approve the transactions contemplated under the Agreement, including without limitation, the Acquisition;
(ii) the due diligence and investigation of the Target to be carried out by the Purchaser having been completed to the satisfaction of the Purchaser in its sole discretion;
(iii) the warranties remaining true, accurate and not misleading as at the Completion Date by reference to the facts and circumstances then subsisting;
(iv) there being no material adverse change in respect of the financial or business condition of the Target since the date of the Agreement;
(v) the Target and the Vendors having obtained all necessary authorisations or approvals (where applicable) and completed all necessary registrations, notification and filings (where applicable) in relation to the Agreement and the Acquisition; and
(vi) the Target having renewed the Money Lenders Licence and the Purchaser having received evidence of such renewal and on terms satisfactory to the Purchaser.

The Purchaser may in its absolute discretion waive any of the conditions in (ii), (iii), (iv), (v) or (vi) by notice in writing to the Vendors. If the Conditions are not fully fulfilled or waived (as the case may be) on or before the Long Stop Date, the Agreement shall automatically terminate with immediate effect on the Long Stop Date and the Vendors shall within five Business Days after demand by the Purchaser refund the full amount of the Deposit (without interest) to the Purchaser.

LETTER FROM THE BOARD

Condition (vi) is stated to be capable of being waived by the Company to provide flexibility in terms of timing of Completion. At the time of entering into the Agreement, the Company was aware that the Money Lenders Licence would be subject to renewal. The Company therefore wanted to maintain the flexibility, at its sole discretion, to proceed to complete the Acquisition in case the renewal of the Money Lenders Licence would fall in a period shortly after the satisfaction of the last of all the conditions. In such circumstances, the Company would only agree to waive condition (vi) if the Company is satisfied that the renewal would be forthcoming. Given that the scheduled hearing for renewal application has been set on 27 August 2019, the Board confirms that it will not waive condition (vi) and will only proceed to Completion after such condition has been fulfilled.

As at the Latest Practicable Date, the Purchaser had not waived any of the above conditions and none of the above conditions had been fulfilled.

Completion

Completion shall take place on a date which is the last day of the month in which all the conditions precedent are fulfilled (or waived by the Purchaser as the case may be) or such other date as the Vendors and the Purchaser may agree in writing.

Upon Completion, the Target will be owned as to 60% by the Purchaser and as to 40% by Vendor A. The Target will become an indirect subsidiary of the Company and hence its financial results will be consolidated into the financial statements of the Group.

The Shareholders’ Agreement

Pursuant to the Agreement, the Purchaser, Vendor A and the Target shall upon Completion execute the Shareholders’ Agreement setting out the terms and conditions regulating the relationship among the Target and its shareholders and the manner in which the affairs of the Target are to be regulated after Completion. A summary of some of the principal terms of the Shareholders’ Agreement is set out as follows.

Board composition and board resolutions

The board of directors of the Target shall comprise a minimum of eight directors, of which five shall be appointed by the Purchaser, and three shall be appointed by Vendor A.

Restriction on transfer

If any shareholder of the Target proposes to transfer or sell any shares of the Target to a third party, the other shareholder of the Target shall have the right of first refusal to acquire such shares. The shareholders of the Target may at any time transfer all (but not some only) the shares of the Target held by them to their affiliate(s) without being subject to the aforesaid requirement.

Pre-emption on issue of shares

Except with the prior written approval of all the shareholders of the Target, no new shares of the Target shall be allotted or issued to any person unless the Target has offered those new shares to each of the shareholders of the Target at the relevant time, at the same price and in respect of such shareholder pro rata to its holding of shares of the Target expressed as a proportion of the total number of Target’s shares in issue immediately prior to the issue of new shares of the Target.

LETTER FROM THE BOARD

INFORMATION OF THE TARGET

The Target is a company incorporated in Hong Kong with limited liability in March 2006 and was owned as to 70% by Vendor A, 20% by Vendor B and 10% by Vendor C as at the Latest Practicable Date. It is principally engaged in provision of finance under a Money Lenders Licence which had expired on 21 June 2019. The Target has made an application to the relevant authorities for renewal of the licence and the hearing at the Licensing Court for the application has been scheduled on 27 August 2019. The management of the Target does not foresee any obstacles in renewing the licence and expects a renewal licence will be granted on the date of hearing.

Loan products

The Target focuses on provision of mortgage loans which are secured by first legal mortgage against real estates located in Hong Kong, including residential, commercial, industrial properties and car parking spaces, to individuals or corporations. It also provides unsecured personal loans to individuals who are mainly owners of real estate assets under the Home Ownership Scheme and the Tenant Purchase Scheme as well as private residential properties. As at 31 March 2019, the Target had a mortgage loan portfolio with a total outstanding amount of approximately HK$790,930,000 and a personal loan portfolio with a total outstanding amount of approximately HK$32,225,000. Set out below is the breakdown of the loan portfolio of the Target as at 31 March 2017, 2018 and 2019:

Secured first mortgage loan and interest receivables Unsecured personal loan and interest receivables Total loan portfolio	As at 31 March 2017 2018 HK$’000 HK$’000 658,991 754,209 28,814 32,171 687,805 786,380	2019 HK$’000 790,930 32,225
		823,155

Credit policy

Set out below is the credit policy which is applicable to both mortgage loans and unsecured personal loans.

Loan application and credit assessment

Loans officers of the Target will collect from the customer loan application documents including but not limited to the loan application form, the customer’s identity, the utility bills of the mortgaged or underlying property and income/employment proof. They will also conduct land search from land registry to obtain information on property title and encumbrances, collect credit report of the customer from credit reporting agencies and if required, perform general or enhanced due diligence, background search and legal search on the customer. Online search for latest property transacted prices will be conducted and property valuations will be obtained from banks and external professional property valuers. In the case of mortgage loans, physical property inspection is required unless the property is rented out. Based on the loan-to-value ratio and the debt-to-income ratio, the loans officers will make loan recommendation proposal, including but not limited to loan amount, interest rate, mode of installment repayment and the repayment tenor, to the loan committees for approval.

LETTER FROM THE BOARD

Loan approval

The Target has in place loan committees of different levels comprising directors and senior management of the Target to approve different loan products with different loan-to-value ratio and loan amount under the credit policy. During the approval process, the loan committees will consider (i) the credit history and profile of the customer; (ii) the property type, quality, liquidity and the transacted price and valuation of the underlying property; and (iii) the prevailing property market condition.

Loan documentation and drawdown

Once the loan application is approved by the loan committee and the loan terms are confirmed with the customer, the credit and loan administration team will verify all the loan application documents and information, prepare the loan documents, and in case of mortgage loans, procure the legal documents to be prepared and property title to be inspected by the legal representative. Any unsatisfactory results during the process may result in the loan application being rejected or additional conditions being imposed.

Legal search, land search and bankruptcy search will be conducted as well on the loan drawdown date. The loan will be drawn down after all the loan documents and legal documents have been duly executed. In the case of mortgage loans, the legal representatives will follow up on all necessary filing and registration with relevant authority in order to secure the priority status of the first legal mortgage.

Loan repayment

After a loan has been drawn down by the customer, the customer is required to settle the outstanding loans by monthly installment repayment in accordance with the repayment schedule in the loan documents by way of bank autopay, cheque or cash deposit.

The Target allows early repayment or partial repayment of any loan amount with prior notice from the customer.

Delinquent account

The Target has established procedures and policies for handling delinquent account. Any delinquent account will be passed to credit and loan administration team for further recovery action and legal actions (including but not limited to repossession of the mortgaged property (in case of mortgage loan), charging order and/or bankruptcy petition should proceed), unless exceptional approval from respective loan committee on a case-by-case basis is obtained after negotiation with the customer and taking into consideration of the associated credit risks.

During the three years ended 31 March 2017, 2018 and 2019, the Target had commenced legal proceedings in respect of delinquent loans in the aggregate amount (principal plus interest) of approximately HK$22,000,000, HK$79,500,000 and HK$60,500,000, which represented default rate (calculated as the aforesaid delinquent loan amount as a percentage of the average outstanding loan and interest receivables balance of the year) of approximately 3.1%, 10.7% and 7.5%, respectively. As at the Latest Practicable Date, except for those which were still in legal proceedings amounting to approximately HK$23,400,000, all such delinquent loans were settled. Given that the loans are backed by mortgaged or underlying properties, the Target does not expect any difficulty in recovering such loans in full. For the years under review, none of such loans has been written off.

LETTER FROM THE BOARD

Anti-money laundering and counter-terrorist financing measures for Licensed Money Lenders

The Target is fully committed to the prevention of money laundering and combating the financing of terrorism. The Target will conduct on-going transaction monitoring and review of business relationship with its customers by reviewing the existing records of the customers in an interval of two years after the loan drawdown or anytime upon occurrence of certain triggering events, including but not limited to a transaction conducted which is unusual or suspicious or inconsistent with the knowledge of the customer. The Target will take appropriate measures to satisfy itself of the source and legitimacy of repayment especially for partial payment or early repayment of loan. If any irregularities, unusual and suspicious transactions and any events related to money laundering or terrorist financing activity are detected, the Target will report them to Joint Financial Intelligence Unit.

Financial information

Set out below is the audited financial information of the Target for the three years ended 31 March 2017, 2018 and 2019 extracted from the accountants’ report on the Target as set out in Appendix II to this circular:

	For the year ended 31 March	For the year ended 31 March	For the year ended 31 March
	2017	2018	2019
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(audited)
Revenue	68,235	72,997	73,598
Profit before tax	50,606	53,283	57,032
Profit after tax	42,235	44,443	47,672

The Target generates revenue from interest received from provision of mortgage loans and personal loans. For the year ended 31 March 2019, the revenue from providing mortgage loan to its customers amounted to approximately HK$66,988,000, representing approximately 91.0% of the revenue of the Target. The revenue from providing personal loans to its customers amounted to approximately HK$6,610,000, representing approximately 9.0% of the revenue of the Target.

According to the audited financial statements of the Target prepared in accordance with Hong Kong Financial Reporting Standards, the net asset value and total assets as at 31 March 2019 were approximately HK$800,147,000 and HK$1,003,148,000, respectively.

The investment cost of the Vendors in the Target amounted to HK$700,000,000, which represents the share capital contributed by the Vendors since the establishment of the Target.

FINANCIAL EFFECT OF THE ACQUISITION

Effect on earnings

Upon Completion, the Target will become a subsidiary of the Group and its financial results will be consolidated into the consolidated financial statements of the Group. It is expected that the Group will record an additional revenue stream from the Target and the Acquisition will have positive impacts on the future earnings of the Group in long run.

LETTER FROM THE BOARD

Effects on asset and liabilities

As at 31 March 2019, the Group’s consolidated net asset value was approximately HK$1,703,970,000, and its total assets and total liabilities stood at approximately HK$1,877,814,000 and HK$173,844,000, respectively. Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV to this circular, assuming the Acquisition had been completed on 31 March 2019 in accordance with the Agreement, the unaudited pro forma consolidated net asset value of the Enlarged Group would have been increased to approximately HK$2,024,029,000, whereas the unaudited pro forma consolidated total assets and the unaudited pro forma consolidated total liabilities of the Enlarged Group would have been increased to approximately HK$2,400,788,000 and HK$376,759,000, respectively. Further details are set out in the unaudited pro forma financial information of the Enlarged Group in Appendix IV to this circular.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The principal activities of the Group comprise the provision of cruise ship charter services, property investments and securities trading.

In light of the rising housing prices in Hong Kong in the recent years, property owners who have urgent funding needs are keen to pledge their real estate properties to obtain financing, resulting in an increase in the demand of mortgage loans. However, the Hong Kong Monetary Authority (“HKMA”) has introduced various rounds of prudential measures, including but not limited to tightening the maximum loan-to-value ratio for mortgage loans and requiring banks to apply more prudent criteria to assess the repayment ability of the borrowers since 2009 to enhance the risk management of banks in conducting property mortgage lending business and to strengthen the resilience of the banking sector against any downturn in the property market. These measures have discouraged potential borrowers to obtain mortgage loans from banks to solve their urgent financial needs. Instead, they tend to obtain mortgage loans from licensed money lenders which are not subject to HKMA’s regulations and are able to provide mortgage loans with more flexibility (e.g. higher loan-to-value ratio, more flexible repayment schedule and shorter approval time) when compared with banks. In view of the above, the Board considers that the demand of mortgage loans from licensed money lenders will remain strong and sustainable.

The Target has approximately 12 years of operating history and has established a strong market presence in the money lending industry. As disclosed under the section headed “Accountants’ Report on the Target”, the Target had already built up a loan portfolio amounting to HK$823,155,000 as at 31 March 2019 and recorded a net profit after tax of HK$44,443,000 and HK$47,672,000 for the years ended 31 March 2018 and 2019, respectively, representing a year-on-year increase of approximately 7.27%. Based on the above, the Board is of the view that the Target is well developed with a sizeable loan portfolio and the proven track record shows that the profitability of the Target will provide a stable income with a considerable growth for the Group.

Furthermore, the executive Directors namely, Mr. Ng Wee Keat, Ms. Sio Ion Kuan, Ms. Ng Siew Lang, Linda, Ms. Chen Ka Chee and Mr. Yu Wai Man have also been serving as the directors of the Target for over ten years, and Ms. Lilian Ng for over seven years and thus possess extensive experience and knowledge in the management and operations of the Target. Upon Completion, no transition arrangements in relation to the management of the Target will have to be made and the Target can be seamlessly integrated into the Group.

LETTER FROM THE BOARD

As disclosed in the annual report of the Company for the year ended 31 March 2019, the Group will proactively look for expansion opportunities in order to create substantial returns for Shareholders. Taking into account (i) the strong demand in the money lending industry in Hong Kong; (ii) the proven track record of the Target; and (iii) the in-depth knowledge of the aforesaid executive Directors, the Board is of the view that the Acquisition represents an opportunity to broaden the Group’s revenue and income source and the Target will contribute positively to the financial performance of the Group. With the strong brand awareness, well-maintained and sizable loan portfolio and proven track record of the Target, the Company believes the Acquisition is a faster and less risky way of entry into the money lending business as compared to starting a new business, which would otherwise require substantial time and resources to build up the reputation and customer base. The Company also considers it in the interest of the Company to acquire 60% rather than 100% equity interest in the Target in order to mitigate the risk of overconcentration in the new business while still obtaining control in the board of directors and operation of the Target. It also helps preserve the capital of the Company for other potential investment opportunities.

Having considered the above, the Directors are of the view that the terms of the Agreement are normal commercial terms, fair and reasonable and in the interest of the Company and the Shareholders as a whole.

As at the Latest Practicable Date, the Company had not entered into any agreement, arrangement, understanding or negotiation, and did not have any intention, to dispose of, cease operation of or downsize the cruise ship charter services and property investment businesses within 24 months.

LISTING RULES IMPLICATIONS

As certain applicable percentage ratios in respect of the Acquisition are more than 25% but less than 100%, the Acquisition constitutes a major transaction of the Company and is subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, Vendor B was the controlling Shareholder holding 3,556,133,691 Shares, representing approximately 61.52% of the issued share capital of the Company. Vendor B was wholly owned by Vendor A, which was in turn wholly owned by Huang Group. Vendor C was wholly owned by Sociedade De Investimento Predial Jin Ye, Limitada, which was in turn owned as to 51%, 33% and 16% by Ms. Sio Ion Kuan, Ms. Huang Si Teng and Mr. Huang Wai Ip, respectively. Huang Group was owned under a discretionary trust of which (i) Mr. Ng (Huang) Cheow Leng was the settlor, the trustee and one of its discretionary beneficiaries; and (ii) Ms. Sio Ion Kuan, Mr. Ng Wee Keat, Ms. Ng Siew Lang, Linda and Ms. Lilian Ng, each being an executive Director, and together with Ms. Huang Si Teng and Mr. Huang Wai Ip were among its discretionary beneficiaries. Accordingly, the Vendors are regarded as connected persons of the Company and the Acquisition also constitutes a connected transaction and is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

By virtue of their interest in the Agreement, Mr. Ng Wee Keat, Ms. Sio Ion Kuan, Ms. Ng Siew Lang, Linda and Ms. Lilian Ng, had abstained from voting in respect of the Board resolution approving the Agreement and the transactions contemplated thereunder.

LETTER FROM THE BOARD

GENERAL

The SGM will be convened and held by the Company for considering and, if thought fit, approving the Agreement and the transaction contemplated thereunder.

As at the Latest Practicable Date, (i) 3,556,133,691 Shares (representing approximately 61.52% of the issued share capital of the Company) were held by Vendor B; (ii) 308,992,000 Shares (representing approximately 5.35% of the issued share capital of the Company) were held by New Century (Huang’s) Foundation Limited, a company limited by guarantee being a charitable institution of public character, of which Mr. Ng Wee Keat, Ms. Sio Ion Kuan, Ms. Ng Siew Lang, Linda and Ms. Lilian Ng were members and members of its council of management; and (iii) 387,060,000 Shares and 52,000,000 Shares (representing approximately 6.70% and approximately 0.90% of the issued share capital of the Company respectively) were held by Mr. Ng (Huang) Cheow Leng and Ms. Sio Ion Kuan. The Vendors and their respective associates (including New Century (Huang’s) Foundation Limited, Mr. Ng (Huang) Cheow Leng and Ms. Sio Ion Kuan) shall abstain from voting on the resolution to be proposed at the SGM to approve the Agreement and the transactions contemplated thereunder.

A notice convening the SGM to be held at Plaza 1 & 2, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong on Tuesday, 24 September 2019 at 10:30 a.m. or immediately after the conclusion of the annual general meeting of the Company to be held on the same day at 10:00 a.m. is set out on pages 102 and 103 of this circular. A proxy form for use at the SGM is enclosed herewith. If you are not able to attend the SGM, you are requested to complete the proxy form and return it to the Company’s principal place of business in Hong Kong at Unit 3808, 38th Floor, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong as soon as possible and in any event not less than forty-eight (48) hours before the time appointed for holding the SGM (i.e. not later than 10:30 a.m. on Sunday, 22 September 2019 (Hong Kong time)) or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the SGM or any adjournment of it, if you so wish.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Thursday, 19 September 2019 to Tuesday, 24 September 2019, both days inclusive, during which period, no transfer of shares will be effected. In order to be eligible to attend and vote at the SGM, all transfers of shares, accompanied by the relevant share certificates, must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, for registration not later than 4:30 p.m. on Wednesday, 18 September 2019.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 16 of this circular, which contains its recommendation to the Independent Shareholders in relation to the Agreement and its transactions contemplated thereunder, and the letter from Able Capital set out on pages 17 to 34 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in this regard.

LETTER FROM THE BOARD

The Board (including the independent non-executive Directors whose recommendation is set out in the letter from the Independent Board Committee) considers that the terms of the Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned and the Acquisition is in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Agreement and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

Yours faithfully, By order of the Board Ng Wee Keat Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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[*]

(Incorporated in Bermuda with limited liability) (Stock Code: 234)

23 August 2019

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF 60% EQUITY INTEREST IN ETC FINANCE LIMITED

We refer to the circular of the Company dated 23 August 2019 (the “Circular”) of which this letter forms part of. Unless the context specifies otherwise, capitalised terms used herein shall have the same meaning as defined in the Circular.

We have been appointed by the Board as the members of the Independent Board Committee to advise the Independent Shareholders in connection with the Agreement and the transactions contemplated thereunder. Able Capital has been appointed as the independent financial adviser to advise us in this respect. We wish to draw your attention to the letter from the Board and the letter from Able Capital as set out in the Circular.

Having considered the principal factors and reasons considered by, and the advice of Able Capital as set out in its letter of advice, we consider that the terms of the Agreement and the transactions contemplated thereunder are on normal and commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote at the SGM in favour of the ordinary resolution to be proposed to approve the Agreement and the transaction contemplated thereunder.

Yours faithfully,

Independent Board Committee

Cheung Chun Kwok Kwan Kai Kin, Kenneth Ho Yau Ming

For identification purpose only

LETTER FROM ABLE CAPITAL

The following is the text of a letter of advice from Able Capital Partners Limited to the Independent Board Committee and Independent Shareholders in connection with the Agreement and the transactions contemplated thereunder, which has been prepared for the purpose of inclusion in this circular.

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ABLE CAPITAL PARTNERS LIMITED

Unit 2201, 22nd Floor Cosco Tower 183 Queen’s Road Central Hong Kong

23 August 2019

To: The Independent Board Committee and the Independent Shareholders of
New Century Group Hong Kong Limited

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF 60% EQUITY INTEREST IN ETC FINANCE LIMITED

I. INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in connection with the Agreement and the transactions contemplated thereunder. Details of the aforesaid transactions are set out in the “Letter from the Board” (the “Letter from the Board”) contained in the circular of the Company (the “Circular”) to its Shareholders dated 23 August 2019, of which this letter forms part. Terms used in this letter shall have the same meaning as those defined in the Circular unless the context requires otherwise.

Reference is made to the Announcement in relation to the Agreement entered into among the Purchaser and the Vendors pursuant to which the Purchaser, a wholly-owned subsidiary of the Company, conditionally agreed to acquire and the Vendors conditionally agreed to sell the Sale Shares, representing 60% of the total issued share capital of the Target at the initial Consideration of HK$457,640,000 (subject to adjustment) in cash. The Target is a holder of the Money Lenders Licence in Hong Kong.

LETTER FROM ABLE CAPITAL

The Vendors are investment holding companies. As at the Latest Practicable Date, Vendor B was the controlling Shareholder holding 3,556,133,691 Shares, representing approximately 61.52% of the issued share capital of the Company. Vendor B was wholly owned by Vendor A, which was in turn wholly owned by Huang Group. Vendor C was wholly owned by Sociedade De Investimento Predial Jin Ye, Limitada, which was in turn owned as to 51%, 33% and 16% by Ms. Sio Ion Kuan, Ms. Huang Si Teng and Mr. Huang Wai Ip, respectively. Huang Group was owned under a discretionary trust of which (i) Mr. Ng (Huang) Cheow Leng was the settlor, the trustee and one of its discretionary beneficiaries; and (ii) Ms. Sio Ion Kuan, Mr. Ng Wee Keat, Ms. Ng Siew Lang, Linda and Ms. Lilian Ng, each being an executive Director, and together with Ms. Huang Si Teng and Mr. Huang Wai Ip were among its discretionary beneficiaries. Accordingly, the Vendors are regarded as connected persons of the Company and the Acquisition constitutes a connected transaction of the Company and is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Cheung Chun Kwok, Mr. Kwan Kai Kin, Kenneth and Mr. Ho Yau Ming, has been established to give recommendations to the Independent Shareholders in respect of the Agreement and the transactions contemplated thereunder. We, Able Capital Partners Limited, have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

As at the Latest Practicable Date, we did not have any relationships or interests with the Company, its subsidiaries, the Vendors, the Target or any of their respective core connected persons or close associates that could reasonably be regarded as relevant to our independence. We have not acted, within the last two years, as an independent financial adviser or a financial adviser to the Company, the Vendors, the Target or any of their respective core connected persons or close associates. Apart from normal professional fees paid or payable to us in connection with this appointment as the independent financial adviser, no arrangements exist whereby we had received any fees or benefits from the Company, its subsidiaries, Vendors, the Target or any of their respective core connected persons or close associates. Accordingly, we are qualified to give independent advice in respect of the Agreement and the transactions contemplated thereunder.

LETTER FROM ABLE CAPITAL

II. BASIS OF OUR OPINION

In formulating our opinion, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and/or provided to us by the Company, the Directors and the management of the Company (the “Management”). We have assumed that all statements, information, opinions and representations contained or referred to in the Circular and/or provided to us were true, accurate and complete in all respects as at the date thereof and may be relied upon.

We have also assumed that all views, opinions and statements of intention provided by the Directors and the Management have been arrived at after due and careful enquiry. The Directors have confirmed to us that no material facts have been withheld or omitted from the information supplied and opinions expressed. We consider that we have been provided with, and have reviewed, all currently available information and documents which are available under present circumstances to enable us to reach an informed view and to provide a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any facts or circumstances which would render the information provided and representations made to us untrue, inaccurate or misleading. We consider that we have performed all the necessary steps to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinion. We have not, however, carried out any independent verification of the information provided, nor have we conducted any form of in-depth investigation into the businesses, affairs, operations, financial position, plans, projections or future prospects of the Group. 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.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular misleading. The Company will notify the Shareholders of any material changes as soon as possible subsequent to the Latest Practicable Date and up to the date of the SGM. If we shall become aware of any such material change, we will notify the Independent Shareholders of the potential impact, if any, on our opinion and/or recommendation set out in this letter as soon as possible.

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

LETTER FROM ABLE CAPITAL

III. PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation in respect of the Agreement and the transactions contemplated thereunder, we have considered the following principal factors and reasons:

1. Information on the Group

The Group is principally engaged in the provision of cruise ship charter services, property investments and securities trading business. As disclosed in the annual report of the Company for the year ended 31 March 2019 (the “2019 Annual Report”), during the year ended 31 March 2019 (“FY2019”), the Group recorded revenue of HK$99,754,000, representing a decrease of approximately 50.6% compared to that of HK$202,055,000 for the year ended 31 March 2018 (“FY2018”). The overall decrease was mainly attributable to (i) net realised and unrealised losses of HK$6,450,000 on the Group’s equity investments at fair value through profit or loss (FY2018: net realised and unrealised gains of HK$63,015,000); and (ii) a decrease in cruise ship charter service income from HK$106,390,000 for FY2018 to HK$79,011,000 for FY2019. The profit attributable to owners of the Company decreased by approximately 87.3% to HK$18,889,000 for FY2019 (FY2018: HK$148,611,000).

As mentioned in the Chairman’s Statement in the 2019 Annual Report, the Group’s results were adversely impacted by growing uncertainties and negative sentiments of world events such as rise in trade protectionism, the Britain’s exit from the European Union and fears over social stability sparked by the controversial extradition bill amendment in Hong Kong. In the last financial year, the Group disposed of one of its three cruise ships and entered into new two-year charter agreements of its two remaining vessels at lower daily charter fees. In view of the volatility in global financial and stock markets which led to the above-mentioned loss on equity investments, the Group has reduced its securities trading operations since the second half of 2017 in exchange for a stronger financial position. The Group acknowledged the risks of slowdown in growth momentum of global economy, and would adopt a prudent approach to strengthen budget control and business structures, as well as to look for suitable expansion opportunity. The Acquisition is therefore consistent with the stated intention of the Group’s request to seek business opportunities with a view to creating substantial return for Shareholders.

2. Information on the Target

(a) Background of the Target

The Target is a company incorporated in Hong Kong with limited liability in March 2006 and was owned as to 70% by Vendor A, 20% by Vendor B and 10% by Vendor C as at the Latest Practicable Date. The Target is a licensed money lender under the Money Lenders Ordinance and first commenced its lending business in June 2006. It is principally engaged in provision of finance under a Money Lenders Licence which expired on 21 June 2019. The Target has made an application to the relevant authorities for renewal of the licence and the hearing at the Licensing Court for the application has been scheduled on 27 August 2019. As stated in the Letter from the Board, the management of the Target does not foresee any obstacles in renewing the licence and expects that a renewal licence will be granted on the date of hearing.

LETTER FROM ABLE CAPITAL

As at the Latest Practicable Date, the Target has not been notified of the outcome of the renewal application. As referred to in the Letter from the Board under the section “Conditions Precedent”, the Board will not waive condition (vi) which is related to the renewal of the Money Lenders Licence and will only proceed to Completion after the Target has successfully renewed its Money Lenders Licence.

The Target focuses primarily on the provision of mortgage loans which are secured by first legal mortgages against real estates located in Hong Kong, including residential, commercial, industrial properties and car parking spaces, to individuals or corporations. The Target also provides a small portion of unsecured personal loans to individuals who are mainly owners of real estate assets under the Home Ownership Scheme and the Tenant Purchase Scheme as well as private residential properties. As at 31 March 2019, the Target had a secured mortgage loan portfolio with a total outstanding amount of HK$790,930,000 and an unsecured personal loan portfolio with a total outstanding amount of HK$32,225,000, representing approximately 96.1% and approximately 3.9% of the total loan portfolio respectively. As discussed with the Management, the terms of the mortgage loan and unsecured personal loan offered by the Target are comparable to other money lenders based in Hong Kong. We understand from the Group that, during FY2017, FY2018 and FY2019, the Target has made adequate provision for impairment losses for loan and interest receivables in accordance with the credit policy of the Target.

Set out below is the breakdown of the loan portfolio of the Target as at 31 March 2017, 2018 and 2019:

Secured first mortgage loan and interest receivables Unsecured personal loan and interest receivables Total loan portfolio	As at 31 March 2017 2018 HK$’000 HK$’000 658,991 754,209 28,814 32,171 687,805 786,380	2019 HK$’000 790,930 32,225
		823,155

LETTER FROM ABLE CAPITAL

(b) Financial information of the Target

Set out below is the audited financial information of the Target for the three years ended 31 March 2017, 2018 and 2019 extracted from the Accountants’ Report on the Target as set out in Appendix II to the Circular:

Revenue Profit before tax Profit after tax Loan receivables (non-current) Loan and interest receivables (current) Total loan and interest receivables Cash and cash equivalents Total assets Net asset value (“NAV”)	For the year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 68,235 72,997 73,598 50,606 53,283 57,032 42,235 44,443 47,672 As at 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 201,688 192,514 270,369 486,117 593,866 552,786 687,805 786,380 823,155 184,228 128,654 141,084 912,579 955,093 1,003,148 908,032 952,475 800,147	For the year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 68,235 72,997 73,598 50,606 53,283 57,032 42,235 44,443 47,672 As at 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 201,688 192,514 270,369 486,117 593,866 552,786 687,805 786,380 823,155 184,228 128,654 141,084 912,579 955,093 1,003,148 908,032 952,475 800,147
		823,155 141,084 1,003,148 800,147

The Target generates revenue from interest received from provision of secured mortgage loans and unsecured personal loans. The revenue from providing secured mortgage loan to its customers amounted to HK$66,988,000 in FY2019 (FY2018: HK$66,962,000), representing approximately 91.0% of the total revenue of the Target (FY2018: approximately 91.7%). The revenue from providing unsecured personal loans to its customers amounted to HK$6,610,000 in FY2019 (FY2018: HK$6,035,000), representing approximately 9.0% of the total revenue of the Target (FY2018: approximately 8.3%). The profit after tax of the Target increased by approximately 7.3% to HK$47,672,000 in FY2019 as compared to that of HK$44,443,000 in FY2018.

As at 31 March 2019, the NAV and total assets were HK$800,147,000 and HK$1,003,148,000 respectively. The decrease in NAV was mainly due to an interim dividend of HK$200,000,000 declared and payable to the then shareholders in FY2019. The total loan and interest receivables of the Target increased from HK$687,805,000 as at 31 March 2017 to HK$823,155,000 as at 31 March 2019, of which approximately 67.2% was recorded as current assets. The Target did not have any bank borrowings as at 31 March 2017, 2018 and 2019.

LETTER FROM ABLE CAPITAL

The investment cost of the Vendors in the Target amounted to HK$700,000,000, which represents the share capital contributed by the Vendors since the establishment of the Target.

3. Industry overview

According to the statistics published by the Hong Kong Monetary Authority (“HKMA”) as shown in Diagram A below, the total outstanding balance of loans and advances granted by authorised institutions (which include licensed banks, restricted licensed banks and deposit-taking companies) in Hong Kong has grown steadily from December 2015 to 30 June 2019 at a compound annual growth rate (“CAGR”) of approximately 9.8% over the period. Further to the market data published by the HKMA, the loans and advances for the purchase of residential properties in Hong Kong amounted to approximately HK$1,436.1 billion, representing approximately 21.8% of the total outstanding loans and advances by authorised institutions of approximately HK$6,579.7 billion as at 30 June 2019.

Diagram A: Outstanding balance of loans and advances granted by authorised institutions for use in Hong Kong

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

7,000
6,664
6,500 6,408
6,019
6,000
5,500
5,185
5,000
4,800
4,500
4,000
2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Jun
HK$ billion
----- End of picture text -----

Source: website of HKMA

According to the residential mortgage survey results published by HKMA as shown in Diagram B below, the outstanding balance of residential mortgage loans to private individuals has been increasing from 2015 to 2019. The year-on-year (“YoY”) growth rate kept increasing during 2016 to June 2019.

LETTER FROM ABLE CAPITAL

Diagram B: Outstanding balance of residential mortgage loans and year-on-year growth from 31 December 2015 to 30 June 2019

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

1,600 12.00%
1,370 11.00%
1,400
1,311
1,200 1,206 10.00%
1,119
1,074 8.7% 9.00%
1,000 9.0% 8.9%
7.8% 8.00%
800
7.00%
600
6.00%
4,800
400 5.00%
200 4.00%
4.2%
3.00%
0
2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Jun
Residential mortgage loans outstanding balance YoY growth
HK$ billion
Percentage (%)
----- End of picture text -----

Source: website of HKMA

According to the data published by CEIC Data Company Limited (an independent database vendor founded in 1992 by a team of expert economists and analysts, which covers macro-economic, industrial, and financial time series data in both developed and developing economies around the world) in Diagram C, the Hong Kong household debt (including mortgages and consumer loans) to Gross Domestic Product (“GDP”) ratio (“Debt to GDP Ratio”) shows an increasing trend from approximately 64.9% in 2014 to approximately 72.0% in 2018, representing a CAGR of approximately 2.6%.

Diagram C: Hong Kong household debt to GDP ratio

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

74.0%
72.0%
72.0%
70.0%
70.2%
68.0%
67.1%
66.0%
66.5%
64.9%
64.0%
62.0%
60.0%
2014 2015 2016 2017 2018
Percentage (%)
----- End of picture text -----

Source: CEIC Data Company Limited

LETTER FROM ABLE CAPITAL

The increase in the outstanding balance of residential mortgage loans and the Debt to GDP Ratio implies higher demand for loans and advances from households, which will favour the money lending industry in Hong Kong for the long term. In this regard, we are of the view that the Acquisition represents a good opportunity for the Group to expand its foothold in the money lending business in Hong Kong and is in the interests of the Company and the Shareholders as a whole.

4. Reasons for and benefits of the Acquisition

The principal activities of the Group comprise the provision of cruise ship charter services, property investments and securities trading. As mentioned in the 2019 Annual Report, the financial performance of the businesses was adversely affected in the financial year ended 31 March 2019.

As a result of the historical rise in housing demand and housing prices in Hong Kong in the recent years, the demand for mortgage financing remains high, including the demand from existing property owners with funding needs who are keen to pledge their real estate properties to obtain financing or refinancing.

However, in order to enhance the risk management and control on the property mortgage lending of authorised institutions, and to strengthen the resilience of the banking sector against any significant downturn in the property market, HKMA has promulgated various rounds of prudential measures, including but not limited to tightening the maximum loan-to-value ratio for mortgage loans (to currently typically 40-50%), and requiring banks to apply more prudent criteria to assess the repayment ability of the borrowers.

As advised by the Management, the aforementioned restrictions have opened up business opportunities to non-bank and non-authorised institutions such as licensed money lenders to tap into the demand of mortgage loans not satisfied by banks and authorised institutions. As licensed money lenders are not subject to HKMA regulations, they are able to provide mortgage loans with more flexibility (e.g. higher loan-to-value ratio, more flexible repayment schedule and shorter approval time) to suit the personal circumstances of lenders when compared with banks and authorised institutions. On the other hand and in compliance with the HKMA rules, banks and authorised institutions would not normally lend to licensed money lenders.

In view of the above and taking into account the industry statistics as stated in section III.3 under the heading of “Industry overview”, we concur with the Board that mortgage financing by licensed money lenders is a major feature in the mortgage loan market in Hong Kong.

As disclosed in the Letter from the Board, the Target has approximately 12 years of operating history and has established a strong market presence in the money lending industry. As disclosed under section III.2, the Target had already built up a loan portfolio amounting to HK$823,155,000 as at 31 March 2019 and recorded a net profit of HK$44,443,000 and HK$47,672,000 for the years ended 31 March 2018 and 2019, respectively, representing a YoY growth of approximately 7.3%. Based on the above and in view of the long operating history of the Target, the Board is of the view that the Target is well developed with a sizeable loan portfolio and the proven track record shows that the profitability of the Target will provide a stable income with growth potential.

LETTER FROM ABLE CAPITAL

Furthermore, the executive Directors namely, Mr. Ng Wee Keat, Ms. Sio Ion Kuan, Ms. Ng Siew Lang, Linda, Ms. Chen Ka Chee and Mr. Yu Wai Man have also been serving as the directors of the Target for over ten years, and Ms. Lilian Ng for over seven years and thus possess extensive experience and knowledge in the management and operations of the Target. Upon Completion, the Management considers that no transition arrangements in relation to the management of the Target will have to be made and the Target can be seamlessly integrated into the Group. The Acquisition would also further align the interests of these Directors closer with that of the Company.

As disclosed in the 2019 Annual Report, the Group will proactively look for expansion opportunities in order to create returns for Shareholders. Taking into account (i) the historical needs and demand of mortgage loan financing from money lending industry participants in Hong Kong; (ii) the track record of the Target; and (iii) the in-depth knowledge of the aforesaid executive Directors in the Target’s business, we concur with the Board’s view that, having regard to the decrease in the Group’s profitability in FY2019, the scaling down of the Group’s cruise ship chartering operation and the increasing volatility and uncertainties in the general economic environment as referred to in the section III.1 of this letter, the Acquisition represents an opportunity to broaden the Group’s revenue and income source and is in the interests of the Company and the Shareholders as a whole.

5. Principal terms of the Agreement

Details of the terms of the Agreement are set out in the Letter from the Board. In summary, the Group is acquiring the Sale Shares, which represent 60% of the total issued share capital of the Target. The Sale Shares comprise 30%, 20% and 10% equity interest in the Target, held by Vendor A, Vendor B and Vendor C, respectively.

The initial Consideration of HK$457,640,000 (subject to adjustment as detailed in the Letter from the Board) shall be payable by the Purchaser and apportioned among the Vendors in proportion to their interests in the Sale Shares as follows:

(i) as to HK$30,000,000 in cash as refundable deposit which had been paid by the Purchaser upon the signing of the Agreement; and
(ii) as to HK$427,640,000 in cash upon Completion.

The deposit of HK$30,000,000 shall be refundable by the Vendors to the Purchaser if the Agreement is terminated in accordance with the terms thereof.

The initial Consideration was determined based on the initial NAV of the Target as at 31 March 2019 of HK$762,734,874 based on the unaudited management account of the Target and taking into the account (i) the proven track record and the historical financial performance of the Target; and (ii) the reasons for and benefits of the Acquisition as stated under section III.4. The Consideration will be financed by the internal resources of the Company.

LETTER FROM ABLE CAPITAL

The Consideration shall be adjusted upwards or downwards with reference to the Completion Net Asset Value based on the audit results of the Completion Accounts and the valuation of the Property, and in any event, the upward adjustment shall not exceed HK$40,000,000. Given that the final Consideration is based on the then NAV of the Target and the adjustment to the Consideration offers an upward protection to the Company, we consider that the adjustment mechanism of the Consideration is in the interests of the Company and the Shareholders as a whole.

Pursuant to the Agreement, the Purchaser, Vendor A and the Target shall upon Completion execute the Shareholders’ Agreement which contains customary terms including board composition and board resolutions, restriction on transfer and pre-emption on issue of shares of the Target.

6. Our assessment of the Consideration

As the Acquisition represents a buy-out of the majority interest in the Target whose underlying assets consists of primarily a portfolio of collateralised loan assets, we consider it is relevant to consider the basis of consideration of transactions involving investments in Hong Kong based money lending companies or loan assets in the market. In this regard, we have used our best endeavours to identify a list (albeit may not be exhaustive) of five examples of such transactions conducted by Hong Kong listed companies and announced in the last two years prior to the date of the Agreement as set out below:

LETTER FROM ABLE CAPITAL

Table A

Date of	Company	Details of the	Consideration of		Price to book	Basis of the
announcement	(Stock code)	transactions	the transactions	NAV	(“P/B”) ratio	consideration
					(Note)
07 October	DX.com Holdings	Acquisition of the entire	HK$58,266,852	HK$57,266,852	1.02	The consideration was
2016	Limited	equity interest of a				arrived at based on the
	(HK 8086)	licensed money				adjusted NAV of the target
		lending company				company of HK$57,266,852
						plus a premium of
						HK$1,000,000.
29 March	Milan Station	Acquisition of the entire	HK$1,700,000	HK$1,291,000	1.32	The consideration was
2017	Holdings Limited	equity interest of a				determined with reference to
	(HK 1150)	licensed money				(i) the historical operating
		lending company				and performance of the
						target company and (ii) the
						business and growth
						prospects of the group
						after the acquisition.
29 September	Sun International	Acquisition of the entire	HK$378,000,000	HK$375,000,000	1.01	The consideration was
2017	Resources Limited	equity interest of a money				determined by taking into
	(HK 8029)	lending company, the loan				account the NAV of the
		portfolio of which consisted of				target company of
		large and small loans provided				HK$375,000,000.
		to individuals and corporate
		clients
29 November	China Financial	Acquisition of loan book	HK$414,183,881	HK$392,546,966	1.06	The consideration shall be
2017	Services Holdings	assets from Credit Gain		(outstanding		the aggregate of (i) 105% of
	Limited	Finance Company		principal amount		the outstanding principal
	(HK 605)	Limited		of the loan book		amount of the loan book
				assets)		assets plus (ii) unpaid
						accrued fees and interests.
27 December	Success Dragon	Acquisition of the entire	HK$400,000	Net liability of	N/A	The consideration was
2018	International	equity interest of a		HK$82,830		determined with reference
	Holdings Limited	licensed money				to the valuation report
	(HK 1182)	lending company				appraised by an independent
						valuer, which adopted the
						market approach.
18 June 2019	The Company	Acquisition of 60%	HK$457,640,000	HK$762,734,874	1.00	The initial Consideration
		equity interest		(initial NAV)		was determined based on
		in the Target				the initial NAV of the
						Target.

Note: The P/B ratio is calculated as the value of the respective target companies based on consideration of the respective transactions divided by NAV of the respective target companies.

LETTER FROM ABLE CAPITAL

As set out in Table A above, the relevant announcements stated that the considerations were determined by reference, typically, to the underlying NAV of the respective companies being acquired (except in the case of Success Dragon International Holdings Limited where the consideration of HK$400,000 was settled despite the investee was in a net liability position) or the book value of the loan assets concerned. We consider that such basis of consideration to be reasonable on the ground that the underlying assets are loan assets capable of realisation into cash within defined time horizons and are income-yielding. The P/B ratios in the above example transactions are generally higher than 1.00. Under normal circumstances of a willing buyer and a willing seller and assuming that the seller is not in a distressed or forced sale situation, it is unlikely that any seller would be prepared to dispose of its interest in an income yielding and well collateralised portfolio at a discount. In this regard, the Management has confirmed that the Target’s mortgage loan facilities are entirely first mortgage loans secured by the underlying properties.

By the same token, we consider it reasonable to assume that the owners of money lending companies, with an established business track record and a sizeable loan portfolio, would expect that a disposal of partial interests in their companies in an initial public offering (“IPO”) should also command an IPO valuation that is in excess of the underlying book value of the company concerned. In this regard, we have researched the IPO statistics of certain Hong Kong based money lending companies that were listed on the Stock Exchange since 1 January 2011 with the latest NAV per respective prospectus of approximately HK$150,000,000 or above and a loan portfolio per respective prospectus of approximately HK$200,000,000 or above (the “Comparable Companies”) for reference. Consequently, we have identified an exhaustive list of 4 Comparable Companies as set out in Table B below.

We have also assessed the debt levels of the Comparable Companies by comparing their gearing ratios based on their latest audited statement of financial position per respective prospectus and noted that their gearing ratios ranged between 0.20 and 0.80 versus the zero gearing position of the Target.

We believe that any well managed and effective use of gearing would have the potential of enhancing profitability, but at the same time leverage could skew price-to-earnings (“P/E”) ratio because each company may have different gearing exposure and risk characteristics. As a private company, the Target has been, hitherto, funded entirely by share capital contributed by the Vendors, and thus its long term funding structure is fundamentally different from the Comparable Companies. We are therefore of the view that any such comparison among them on P/E ratios would not be meaningful.

Having considered that it is typical for each of the abovementioned transaction precedents to determine their respective consideration for acquisition of money lending company with a sizeable loan portfolio based on, as stated in the relevant announcement of such precedents, the underlying NAV of the respective companies being acquired or the book value of the loan assets concerned (as shown in Table A), we have adopted the parameter of P/B ratio in our analysis and the P/E ratio set out in the following table is for reference only.

LETTER FROM ABLE CAPITAL

Table B

				Size of loan
			Latest NAV	portfolio			Gearing
			as per	as per	Implied	Implied	ratio as per
	Company	Loan portfolio	respective	respective	range of	range of	respective
Date of listing	(Stock code)	components	prospectuses	prospectuses	P/B ratio	P/E ratio	prospectuses
		%	HK$’000	HK$’000	times	times
					(Note 1)	(Note 1)	(Note 2)
12 December 2014	Global	First mortgage loans	425,747	615,160	0.96 - 1.12	11.68 - 14.38	0.73
	International Credit	(76.7%); subordinated
	Group Limited	mortgage loans (22.6%);
	(HK 1669)	and others (0.7%)
02 October 2013	Hong Kong Finance	First mortgage loans	245,373	316,788	1.06 - 1.23	9.49 - 11.50	0.80
	Group Limited	(37.7%); and subordinated
	(HK 1273)	mortgage loans (62.3%)
12 March 2013	Oi Wah Pawnshop	Pawn loans (63.3%); first	145,424	194,310	1.50 - 1.78	8.99 - 11.74	0.41
	Credit Holdings	mortgage loans (23.9%);
	Limited	and subordinated mortgage
	(HK 1319)	loans (12.8%)
13 December 2011	First Credit Finance	Unsecured personal loans	201,998	188,685	1.20 - 1.41	30.18 - 38.22	0.20
	Group Limited	(31.6%); first mortgage
	(HK 8215)	loans (25.3%);
		subordinated mortgage
		loans (14.9%); and
		others (28.2%)
	Average range of the IPO precedents				1.18 - 1.39	15.09 – 18.96
	The Target	First mortgage loans	800,147	823,155	1.00	16.78	–
		(96.1%) and unsecured
		personal loan (3.9%)

Notes:

Based on the indicative range of IPO offer prices as set out in the respective prospectuses.
Gearing ratio is calculated as net debt divided by total equity as set out in the respective prospectuses. Net debt is calculated as total borrowings (including bank and other borrowings, overdrafts, obligation under finance leases and amounts due to shareholders and fellow subsidiaries) less total cash and bank balances as set out in the respective prospectuses.

We have also observed that currently the shares of the listed companies mentioned in Table B above are all trading at discounts to their respective IPO prices and their latest NAV levels. Set out in Table C below are their respective trading statistics as at the Latest Practicable Date (or “LPD”). However, we consider that comparing the Consideration with such trading statistics is not a meaningful comparison as the relevant shares are publicly traded shares in their respective illiquid counters, and such traded share prices do not reflect any control premium that the companies may attract in any takeover situations. Accordingly, we consider that the trading data set below in Table C is for information only and is not relevant for our assessment of the Consideration.

LETTER FROM ABLE CAPITAL

Table C

			Percentage of
			average daily
			trading volume
			to total number
			of publicly traded
			shares for the
			30 consecutive
			trading days
			immediately			Price to
	Closing share		prior to and	Discount to	P/E	NAV
Company	price as at	Final IPO	including	final IPO	ratio as at	ratio as at
(Stock Code)	the LPD	offer price	the LPD	offer price	the LPD	the LPD
	HK$	HK$	%	%	times	times
				(Note 1)	(Note 2)	(Note 3)
Global International Credit	0.600	1.35	0.02%	55.56%	3.51	0.32
Group Limited
(HK 1669)
Hong Kong Finance	0.485	1.03	0.01%	52.91%	4.77	0.35
Group Limited
(HK 1273)
Oi Wah Pawnshop Credit	0.270	0.98	0.02%	72.45%	5.19	0.64
Holdings Limited
(HK 1319)
First Credit Finance	0.108	0.30	N/A	64.00%	15.12	0.39
Group Limited	(last closing
(HK 8215)	price before
	trading
	suspension
	since 24
	November
	2017)

Notes:

Discount to IPO offer price is calculated based on the closing share price as at the LPD and the final IPO offer price of the respective companies.
P/E ratio is calculated as the market capitalisation of the respective companies as at the LPD divided by the latest published consolidated profits for the year attributable to equity shareholders of the respective companies.
Price to NAV ratio is calculated as the market capitalisation of the respective companies as at the LPD divided by the latest published NAV attributable to equity shareholders of the respective companies.

To supplement our assessment, we have compared the return on capital employed (“ROCE”) of the Group and the Target in the following Table D.

LETTER FROM ABLE CAPITAL

Table D

	Year	ended 31	March
	2017	2018		2019
	HK$’000	HK$’000	HK$’000
The Group
Equity attributable to Shareholders	1,474,493	1,636,670	1,653,099
Average equity attributable to Shareholders		1,555,582	1,644,885
Profit attributable to Shareholders		148,611		18,889
ROCE of the Group_(Note 1)_		9.55%		1.15%
The Target
Equity attributable to shareholders of the Target	908,032	952,475	1,000,147
			(Note 2)
Average equity attributable to shareholders of
the Target		930,254		976,311
Profit attributable to shareholders of the Target		44,443		47,672
ROCE of the Target_(Note 1)_		4.78%		4.88%

Notes:

The ROCE is calculated as the profit attributable to shareholders divided by the average of the equity attributable to shareholders for the year and the preceding year.
The equity attributable to shareholders of the Target for FY2019 is calculated as the NAV of the Target as at 31 March 2019 of HK$800,147,000 plus an interim dividend of HK$200,000,000 which was declared and payable to shareholders of the Target.

As shown in Table D, the Group experienced a significant decrease in ROCE in FY2019 due to the sharp decrease in net profit, such decrease was mainly attributable to the termination of one of the Group’s charter services of cruise ship namely “Amusement World” and the decrease in revenue generated from the Group’s securities trading segment, and we understand that the Group has reduced its securities trading operation since the second half of 2017 in exchange for a stronger financial position. In comparison, the ROCE of the Target remained stable for the last two financial years of approximately 4.8%, which is higher than the Company’s ROCE of approximately 1.15% for FY2019. Given the sizeable loan portfolio, the proven track record and the steadily increasing ROCE of the Target, we concur with the Management that the Acquisition will provide an additional stable source of income to the Group.

In conclusion and having considered the foregoing, we consider that the basis of the final Consideration which shall be determined by reference to the Target’s NAV on Completion, is reasonable and accords with market practice of this type of transaction.

LETTER FROM ABLE CAPITAL

7. Possible financial effects of the Acquisition on the Group

Upon Completion, the Target will be owned as to 60% by the Purchaser and as to 40% by Vendor A. The Target will become an indirect non-wholly owned subsidiary of the Company and hence its financial results will be consolidated into the financial statements of the Group.

(a) Working capital

As the Consideration will be settled in cash, the cash position and the working capital of the Group are expected to decrease immediately upon the Completion. As set out in the section “Working Capital” in the Appendix I to the Circular, the Directors are of the opinion that, after due and careful enquiry and taking into account the financial resources available to the Enlarged Group, the Enlarged Group has sufficient working capital to satisfy its present requirements for at least the 12 months from the date of the Circular.

(b) Earnings

Upon Completion, the Target will become an indirect non-wholly owned subsidiary of the Group and its financial results will be consolidated into the consolidated financial statements of the Group. It is expected that the Group will record an additional revenue stream from the Target.

(c) NAV

As at 31 March 2019, the Group’s consolidated NAV was HK$1,703,970,000. Upon Completion, the Target will become an indirect non-wholly owned subsidiary of the Company and all assets and liabilities of the Target will be consolidated into the financial statements of the Enlarged Group.

According to the unaudited pro forma financial information of the Enlarged Group as set out in the Appendix IV to the Circular, assuming the Acquisition had been completed on 31 March 2019 in accordance with the Agreement and the Consideration to be HK$480,088,000 which is based on 60% of the NAV of the Target as at 31 March 2019, it is expected that the NAV of the Enlarged Group would have been increased by HK$320,059,000 to HK$2,024,029,000 as compared to the NAV of the Group as at 31 March 2019.

Independent Shareholders should note that the final Consideration will depend on the NAV of the Target on the Completion Date adjusted with the fair value of the commercial property owned by the Target on the Completion Date and shall be different from the aforesaid amount. The aforementioned analyses are for illustrative purpose only and do not purport to represent how the financial position / results of the Group will be upon Completion.

LETTER FROM ABLE CAPITAL

IV. RECOMMENDATION

Having considered the aforementioned principal factors and reasons and on the Board’s representation that Completion will take place only after the Target has successfully renewed its Money Lenders Licence, we are of the opinion that the Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend and we also recommend the Independent Shareholders to vote at the SGM in favour of the ordinary resolution to be proposed to approve the Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of Able Capital Partners Limited

Ambrose Lam Director

Mr. Ambrose Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Able Capital Partners Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has over 30 years of experience in corporate finance industry.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The published audited consolidated financial statements of the Group for each of the three years ended 31 March 2017, 2018 and 2019 were set out in the Company’s annual reports for each of the three years ended 31 March 2017, 2018 and 2019, are disclosed in the following document which have been published on the respective websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.ncgrp.com.hk):

pages 68 to 200 of the annual report of the Company for the year ended 31 March 2017 published on 20 July 2017 (https://www1.hkexnews.hk/listedco/listconews/sehk/2017/0720/ ltn20170720207.pdf);
pages 70 to 200 of the annual report of the Company for the year ended 31 March 2018 published on 17 July 2018 (https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0717/ ltn20180717942.pdf); and
pages 76 to 228 of the annual report of the Company for the year ended 31 March 2019 published on 18 July 2019 (https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0718/ ltn20190718083.pdf).

2. INDEBTEDNESS STATEMENT

At the close of business on 30 June 2019 (being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular), the Enlarged Group had outstanding borrowings of approximately HK$131,823,000, being a loan advanced from a non-controlling shareholder of the Enlarged Group’s subsidiary, which was denominated in United States dollars and was unsecured, unguaranteed, interest fee and repayable on demand. Taking into account the interim dividend declared for the year ended 31 March 2019 by the Target, the Enlarged Group also had a dividend payable in an aggregate sum of HK$200,000,000 payable by the Target to Vendor A, Vendor B and Vendor C respectively.

The Enlarged Group has adopted Hong Kong Financial Reporting Standards (“HKFRS”) 16 for the accounting period beginning on 1 April 2019. As such, leases have been recognised in the form of an asset (for the right of use) and a financial liability (for payment obligation) in the Enlarged Group’s consolidated statement of financial position for accounting period beginning on 1 April 2019. As at 30 June 2019, the total lease liabilities were HK$117,000.

The Enlarged Group had outstanding guarantees of HK$190,000,000 executed by the Company to banks to secure general credit facilities for certain subsidiaries of the Enlarged Group as at 30 June 2019. No credit facility was utilized by any subsidiaries from such guarantees at the close of business on 30 June 2019.

Save as aforesaid or as otherwise disclosed herein and apart from intra-group liabilities within the Enlarged Group, at the close of business on 30 June 2019, the Enlarged Group did not have any debt securities or loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other borrowings or indebtedness in the nature of borrowing, liabilities under acceptance or acceptable credits, debentures, mortgages, charges, finance leases, hire-purchase commitments, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

The Directors are of the opinion that, after due and careful enquiry and taking into account the financial resources available to the Enlarged Group, the Enlarged Group has sufficient working capital to satisfy its requirements for at least the 12 months from the date of this circular.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse changes in the financial or trading positions of the Enlarged Group since 31 March 2019, being the date to which the latest published audited consolidated financial statements of the Group were made up.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

Upon Completion, the Enlarged Group will be principally engaged in provision of cruise ship charter services, property investments, securities trading and provision of money lending services.

The global economy remains cloudy with ongoing uncertainties regarding the United States and China trade tensions, the next interest rate move, as well as Britain’s exit from the European Union. Among which, the rise of trade protectionism has undermined investors’ confidence and triggers turbulence in global financial markets. Hong Kong is one of the core markets adversely affected by such huge volatilities. Meanwhile, the market sentiment continues to deteriorate recently amid fears over social stability sparked by the controversial extradition bill amendment in Hong Kong. Although the local property market is yet to experience significant impact, the Group is facing an extremely difficult period and is, from time to time, reviewing its business model and strategy with cautious, in order to secure its revenue as well as to capture opportunities from the volatile market.

The charter services of the Group’s three cruise ships namely as “Amusement World”, “Leisure World” and “Aegean Paradise” recorded revenue of HK$79,011,000 for the year ended 31 March 2019 (“FY2019”). During FY2019, Amusement World ceased operations from 2 July 2018, and was subsequently disposed by the Group on 31 August 2018. The Group also entered into new two-year term charter agreements with lower daily charter fees for Leisure World and Aegean Paradise, resulting in a drop in segment profit during FY2019.

Income from investment properties was HK$20,256,000. Rental income from Singapore properties recorded a slight increase due to an improvement in occupancy rates. However, rental income from Hong Kong properties fell due to a change of usage for part of the office units at Shun Tak Centre from investment properties to owner-occupied properties following the expiration of the relevant tenancy agreement on 30 April 2018. Overall investment properties in both Hong Kong and Singapore achieved excellent occupancy rates of 100% with an average annual rental yield of 3.2%.

Given the volatility in global financial and stock markets, the Group has reduced securities trading operations since the second half of 2017, which led to a revenue plunge in securities trading segment but exchanged for a stronger financial position, during FY2019. The Group will closely monitor capital markets and adjust its securities portfolio in a prudent manner in order to maximize returns.

The Enlarged Group will commence its money lending business upon Completion. In light of the stable demand for loan and the sustainability of the money lending industry in Hong Kong, the Group believes that the acquisition of the Target will provide another stream of income to the Company. At the same time, money lending business is dependent on changes in the global economy and Hong Kong’s property market. In order to mitigate risks of the Group during time of uncertainties, the Group will strengthen its risk assessment procedure and ensure that the control of credit risk is in place to reinforce the loan portfolio quality of the Target.

Looking forward, the growth momentum of global economy is expected to slow down with intensified trade protectionism, the trade tension between the United States and China and frequent financial market fluctuation. The Group will promptly and flexibly respond to the ever-changing market landscape by taking a prudent approach. The Group will leverage its years of experience and expertise to strengthen the management, budget control and business structures, so as to maximize synergies among different business segments and enhance brand image. The Group will also proactively look for expansion opportunity in order to create substantial returns for Shareholders.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

The following is the text of a report received from the Target’s reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, prepared for the purpose of incorporation in this circular.

==> picture [93 x 71] intentionally omitted <==

22/F, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong

23 August 2019

The Directors

New Century Group Hong Kong Limited

Dear Sirs,

We report on the historical financial information of ETC Finance Limited (the “Target”) set out on pages 40 to 72, which comprises the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Target for each of the years ended 31 March 2017, 2018 and 2019 (the “Relevant Periods”), and the statements of financial position of the Target as at 31 March 2017, 2018 and 2019 and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages 40 to 72 forms an integral part of this report, which has been prepared for inclusion in the circular of New Century Group Hong Kong Limited (the “Company”) dated 23 August 2019 (the “Circular”) in connection with the proposed acquisition of a 60% equity interest in the Target.

DIRECTORS’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

The directors of the Target are responsible for the preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in note 2.1 to the Historical Financial Information, and for such internal control as the directors determine is necessary to enable the preparation of the Historical Financial Information that is free from material misstatement, whether due to fraud or error.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 Accountants’ Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in note 2.1 to the Historical Financial Information, in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Historical Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

OPINION

In our opinion, the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the financial position of the Target as at 31 March 2017, 2018 and 2019 and of the financial performance and cash flows of the Target for each of the Relevant Periods in accordance with the basis of preparation set out in note 2.1 to the Historical Financial Information.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page 40 have been made.

Dividends

We refer to note 10 to the Historical Financial Information which contains information about the dividends declared/payable by the Target in respect of the Relevant Periods.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

I. HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The Historical Financial Information in this report was prepared based on previously issued financial statements of the Target for the Relevant Periods. The previously issued financial statements of the Target were audited by Sky Base Partners CPA Limited, certified public accountants, in accordance with Hong Kong Standards on Auditing issued by the HKICPA (the “Underlying Financial Statements”).

The Historical Financial Information is presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

(A) Statements of Profit or Loss and Other Comprehensive Income

Notes Revenue 5 Other income 5 Reversal of/(provision for) impairment losses on loan and interest receivables Administrative and other operating expenses PROFIT BEFORE TAX 6 Income tax expense 9 PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 68,235 72,997 73,598 463 350 1,084 (556) (717) 906 (17,536) (19,347) (18,556) 50,606 53,283 57,032 (8,371) (8,840) (9,360) 42,235 44,443 47,672

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

I. HISTORICAL FINANCIAL INFORMATION (continued)

(B) Statements of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Loan receivables 13 Other receivables 14 Deferred tax assets 18 Total non-current assets CURRENT ASSETS Loan and interest receivables 13 Repossessed asset 15 Prepayments, deposits and other receivables 14 Cash and cash equivalents 16 Total current assets CURRENT LIABILITIES Other payables and accruals 17 Dividend payable 10 Tax payable Total current liabilities NET CURRENT ASSETS Net assets EQUITY Issued capital 19 Retained profits Total equity	As at 31 March 2017 2018 HK$’000 HK$’000 24,318 22,823 201,688 192,514 569 587 272 455 226,847 216,379 486,117 593,866 14,132 14,132 1,255 2,062 184,228 128,654 685,732 738,714 2,023 1,669 – – 2,524 949 4,547 2,618 681,185 736,096 908,032 952,475 700,000 700,000 208,032 252,475 908,032 952,475	2019 HK$’000 21,710 270,369 516 306
		292,901
		552,786 14,132 2,245 141,084
		710,247
		2,047 200,000 954
		203,001
		507,246
		800,147

		700,000 100,147
		800,147

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

I. HISTORICAL FINANCIAL INFORMATION (continued)

(C) Statements of Changes in Equity

Note At 1 April 2016 Profit for the year and total comprehensive income for the year At 31 March 2017 and 1 April 2017 Profit for the year and total comprehensive income for the year At 31 March 2018 and 1 April 2018 Profit for the year and total comprehensive income for the year Interim dividend 2019 10 At 31 March 2019	Share capital HK$’000 700,000 – 700,000 – 700,000 – – 700,000	Retained profits HK$’000 165,797 42,235 208,032 44,443 252,475 47,672 (200,000) 100,147	Total equity HK$’000 865,797 42,235 908,032 44,443 952,475 47,672 (200,000) 800,147

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

I. HISTORICAL FINANCIAL INFORMATION (continued)

(D) Statements of Cash Flows

Notes
CASH FLOWS FROM
OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Bank interest income
5
Provision for/(reversal of)
impairment losses on loan and
interest receivables
6
Depreciation
6
Increase in loan and interest receivables
Increase in prepayments, deposits
and other receivables
Decrease in an amount due from
the immediate holding company
Increase/(decrease) in other
payables and accruals
Sales proceeds from disposal
of a repossessed asset
Cash generated from/(used in) operations
Hong Kong profits tax paid
Net cash flows from/(used in)
operating activities
CASH FLOWS FROM
INVESTING ACTIVITIES
Interest received
Purchases of items of property,
plant and equipment
12
Net cash flows from investing activities
NET INCREASE/(DECREASE) IN
CASH AND CASH EQUIVALENTS
Cash and cash equivalents
at beginning of year
CASH AND CASH EQUIVALENTS
AT END OF YEAR
ANALYSIS OF BALANCES OF CASH
AND CASH EQUIVALENTS
Cash and bank balances
16
Non-pledged time deposits with original
maturity of less than three months
when acquired
16
Cash and cash equivalents as stated in
the statement of financial position
and in the statement of cash flows

Year ended 31 March
2017
2018
2019
HK$’000
HK$’000
HK$’000
50,606
53,283
57,032
(308)
(75)
(860)
556
717
(906)
1,592
1,557
1,499
52,446
55,482
56,765
(354)
(99,292)
(35,869)
(145)
(825)
(112)
10,314
–
–
(2,139)
(354)
378
22,028
–
–
82,150
(44,989)
21,162
(10,125)
(10,598)
(9,206)
72,025
(55,587)
11,956
308
75
860
(44)
(62)
(386)
264
13
474
72,289
(55,574)
12,430
111,939
184,228
128,654
184,228
128,654
141,084
144,227
98,654
80,562
40,001
30,000
60,522
184,228
128,654
141,084

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. CORPORATE INFORMATION

The Target is a limited liability company incorporated in Hong Kong on 22 March 2006. The registered address of the Target is Unit 3807, 38th Floor, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong.

During the Relevant Periods, the Target is principally engaged in money lending business.

The Target is a subsidiary of Huang Worldwide Holding Limited, a company incorporated in the British Virgin Islands. In the opinion of the directors, Huang Group (BVI) Limited, which is beneficially and wholly owned by a discretionary trust, is the ultimate holding company of the Target.

2.1 BASIS OF PREPARATION

The Historical Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all HKFRSs, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA and accounting principles generally accepted in Hong Kong. All HKFRSs effective for the accounting period commencing from 1 April 2018, together with the relevant transitional provisions, have been early adopted by the Target in the preparation of the Historical Financial Information and are consistently applied throughout the Relevant Periods, except that HKFRS 9 Financial Instruments (“HKFRS 9”) is adopted by the Target prospectively from 1 April 2018 as the standard does not allow the use of hindsight if it is applied retrospectively.

The Target has not restated financial information from 1 April 2016 to 31 March 2018 for financial instruments in the scope of HKFRS 9. The financial information from 1 April 2016 to 31 March 2018 is reported under HKAS 39 Financial Instruments: Recognition and Measurement and is not comparable to the information presented for 2019.

The Target has assessed the effects of adoption of HKFRS 9 on its financial statements and it considered that the adoption did not have a significant impact on its financial position and results of operations.

The Historical Financial Information has been prepared under the historical cost convention.

2.2 ISSUED BUT NOT YET EFFECTIVE HKFRSs

The Target has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in the Historical Financial Information.

Amendments to HKFRS 3 Definition of a Business[2] Amendments to HKFRS 9 Prepayment Features with Negative Compensation[1] Amendments to HKFRS 10 Sale or Contribution of Assets between an Investor and and HKAS 28 (2011) its Associate or Joint Venture[4] HKFRS 16 Leases[1] HKFRS 17 Insurance Contracts[3] Amendments to HKAS 1 Definition of Material[2] and HKAS 8 Amendments to HKAS 19 Plan Amendment, Curtailment or Settlement[1] Amendments to HKAS 28 Long-term Interests in Associates and Joint Ventures[1] HK(IFRIC)-Int 23 Uncertainty over Income Tax Treatments[1] Annual Improvements Amendments to HKFRS 3, HKFRS 11, 2015-2017 Cycle HKAS 12 and HKAS 23[1]

1 Effective for annual periods beginning on or after 1 January 2019
2 Effective for annual periods beginning on or after 1 January 2020
3 Effective for annual periods beginning on or after 1 January 2021 4 No mandatory effective date yet determined but available for adoption

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

2.2 ISSUED BUT NOT YET EFFECTIVE HKFRSs (continued)

Further information about those HKFRSs that are expected to be applicable to the Target is described below:

Amendments to HKFRS 3 clarify and provide additional guidance on the definition of a business. The amendments clarify that for an integrated set of activities and assets to be considered a business, it must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. A business can exist without including all of the inputs and processes needed to create outputs. The amendments remove the assessment of whether market participants are capable of acquiring the business and continue to produce outputs. Instead, the focus is on whether acquired inputs and acquired substantive processes together significantly contribute to the ability to create outputs. The amendments have also narrowed the definition of outputs to focus on goods or services provided to customers, investment income or other income from ordinary activities. Furthermore, the amendments provide guidance to assess whether an acquired process is substantive and introduce an optional fair value concentration test to permit a simplified assessment of whether an acquired set of activities and assets is not a business. The Target expects to adopt the amendments prospectively from 1 April 2020.

Amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of amendments to HKFRS 10 and HKAS 28 (2011) was removed by the HKICPA in January 2016 and a new mandatory effective date will be determined after the completion of a broader review of accounting for associates and joint ventures. However, the amendments are available for adoption now.

HKFRS 16 replaces HKAS 17 Leases , HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease , HK(SIC)Int 15 Operating Leases - Incentives and HK(SIC)-Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease . The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise assets and liabilities for most leases. The standard includes two elective recognition exemptions for lessees – leases of low-value assets and short-term leases. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). The right-of-use asset is subsequently measured at cost less accumulated depreciation and any impairment losses unless the right-of-use asset meets the definition of investment property in HKAS 40, or relates to a class of property, plant and equipment to which the revaluation model is applied. The lease liability is subsequently increased to reflect the interest on the lease liability and reduced for the lease payments. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will also be required to remeasure the lease liability upon the occurrence of certain events, such as change in the lease term and change in future lease payments resulting from a change in an index or rate used to determine those payments. Lessees will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under HKFRS 16 is substantially unchanged from the accounting under HKAS 17. Lessors will continue to classify all leases using the same classification principle as in HKAS 17 and distinguish between operating leases and finance leases. HKFRS 16 requires lessees and lessors to make more extensive disclosures than under HKAS 17. Lessees can choose to apply the standard using either a full retrospective or a modified retrospective approach. The Target will adopt HKFRS 16 from 1 April 2019. The Target plans to adopt the transitional provisions in HKFRS 16 to recognise the cumulative effect of initial adoption as an adjustment to the opening balance of retained profits at 1 April 2019 and will not restate the comparatives. In addition, the Target plans to apply the new requirements to contracts that were previously identified as leases applying HKAS 17 and measure the lease liability at the present value of the remaining lease payments, discounted using the Target’s incremental borrowing rate at the date of initial application. The right-of-use asset will be measured at the amount of the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to the lease recognised in the statement of financial position immediately before the date of initial application. The Target plans to use the exemptions allowed by the standard on lease contracts whose lease terms end within 12 months as of the date of initial application.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

2.2 ISSUED BUT NOT YET EFFECTIVE HKFRSs (continued)

Amendments to HKAS 1 and HKAS 8 provide a new definition of material. The new definition states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. The Target expects to adopt the amendments prospectively from 1 April 2020. The amendments are not expected to have any significant impact on the Target’s financial statements.

Amendments to HKAS 28 clarify that the scope exclusion of HKFRS 9 only includes interests in an associate or joint venture to which the equity method is applied and does not include long-term interests that in substance form part of the net investment in the associate or joint venture, to which the equity method has not been applied. Therefore, an entity applies HKFRS 9, rather than HKAS 28, including the impairment requirements under HKFRS 9, in accounting for such long-term interests. HKAS 28 is then applied to the net investment, which includes the long-term interests, only in the context of recognising losses of an associate or joint venture and impairment of the net investment in the associate or joint venture. The Target expects to adopt the amendments on 1 April 2019 and will assess its business model for such long-term interests based on the facts and circumstances that exist on 1 April 2019 using the transitional requirements in the amendments. The Target also intends to apply the relief from restating comparative information for prior periods upon adoption of the amendments.

HK(IFRIC)-Int 23 addresses the accounting for income taxes (current and deferred) when tax treatments involve uncertainty that affects the application of HKAS 12 (often referred to as “uncertain tax positions”). The interpretation does not apply to taxes or levies outside the scope of HKAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The interpretation specifically addresses (i) whether an entity considers uncertain tax treatments separately; (ii) the assumptions an entity makes about the examination of tax treatments by taxation authorities; (iii) how an entity determines taxable profits or tax losses, tax bases, unused tax losses, unused tax credits and tax rates; and (iv) how an entity considers changes in facts and circumstances. The interpretation is to be applied retrospectively, either fully retrospectively without the use of hindsight or retrospectively with the cumulative effect of application as an adjustment to the opening equity at the date of initial application, without the restatement of comparative information. The Target expects to adopt the interpretation from 1 April 2019. The interpretation is not expected to have any significant impact on the Target’s financial statements.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset. An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/ amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Related parties

A party is considered to be related to the Target if:

(a) the party is a person or a close member of that person’s family and that person
(i) has control or joint control over the Target;
(ii) has significant influence over the Target; or
(iii) is a member of the key management personnel of the Target or of a parent of the Target;
or
(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Target are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Target 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 Target or an entity related to the Target;
(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); and
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Target or to the parent of the Target.

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classified as held for sale, it is not depreciated and is accounted for in accordance with HKFRS 5, as further explained in the accounting policy for “Non-current assets classified as held for sale”. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Target recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment and depreciation (continued)

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold land and buildings Over the lease term Office equipment 33[1] /3% Furniture and fixtures 33[1] /3% Leasehold improvements 33[1] /3%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Operating Leases

Leases that substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Target is the lessor, assets leased by the Target under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to profit or loss on the straight-line basis over the lease terms. Where the Target is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to profit or loss on the straight-line basis over the lease terms.

Investments and other financial assets (policies under HKFRS 9 applicable from 1 April 2018)

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (“OCI”), and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Target’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Target has applied the practical expedient, the Target initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Target has applied the practical expedient are measured at the transaction price determined under HKFRS 15.

In order for a non-equity financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding.

The Target’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Target commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at amortised cost (debt instruments)

The Target measures financial assets at amortised cost if both of the following conditions are met:

The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortised cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

Investments and other financial assets (policies under HKAS 39 applicable before 1 April 2018)

Initial recognition and measurement

For the Relevant Periods before 1 April 2018, financial assets are classified, at initial recognition, as loans and receivables. When financial assets are recognised initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the financial assets.

Derecognition of financial assets (policies under HKFRS 9 applicable from 1 April 2018 and HKAS 39 applicable before 1 April 2018)

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primary derecognised (i.e., removed from the Target’s statement of financial position) when:

the rights to receive cash flows from the asset have expired; or
the Target has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Target has transferred substantially all the risks and rewards of the asset, or (b) the Target has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Target has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Target continues to recognise the transferred asset to the extent of the Target’s continuing involvement. In that case, the Target also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Target has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Target could be required to repay.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of financial assets (policies under HKFRS 9 applicable from 1 April 2018)

The Target recognises an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Target expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

General approach

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

At each reporting date, the Target assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Target compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information.

The Target considers financial assets in default when contractual payments are 90 days past due. However, in certain cases, the Target may also consider a financial asset to be in default when internal or external information indicates that the Target is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Target. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Impairment of financial assets (policies under HKAS 39 applicable before 1 April 2018)

For financial assets carried at amortised cost, the Target first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Target determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition).

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Target.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other operating expenses in profit or loss.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial liabilities (policies under HKFRS 9 applicable from 1 April 2018 and HKAS 39 applicable before 1 April 2018)

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings and payables, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Target’s financial liabilities include financial liabilities included in other payables and accruals and dividend payable.

Derecognition of financial liabilities (policies under HKFRS 9 applicable from 1 April 2018 and HKAS 39 applicable before 1 April 2018)

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in profit or loss.

Offsetting of financial instruments (policies under HKFRS 9 applicable from 1 April 2018 and HKAS 39 applicable before 1 April 2018)

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise and settle the liabilities simultaneously.

Cash and cash equivalents

For the purpose of the statements of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Target’s cash management.

For the purpose of the statements of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Repossessed asset

A repossessed asset is initially recognised at the lower of its fair value less costs to sell and the amortised cost of the related outstanding loans on the date of repossession, and the related loans and advances together with the related impairment allowances are derecognised from the statement of financial position. Subsequently, the repossessed asset is measured at cost less impairment.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in profit or loss.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Target operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except:

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition

Interest income is recognised on an accrual basis using the effective interest rate method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or shorter period, when appropriate, to the net carrying amount of the financial asset.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Employee benefits

Pension scheme

The Target operates a defined contribution Mandatory Provident Fund retirement benefit scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to profit or loss as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Target in an independently administered fund. The Target’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

Termination benefits

Termination benefits are recognised at the earlier of when the Target can no longer withdraw the offer of those benefits and when the Target recognises restructuring costs involving the payment of termination benefits.

Dividends

Final dividends are recognised as a liability when they are approved by the shareholders in a general meeting.

Interim dividends are simultaneously proposed and declared, because the memorandum and articles of association of the relevant companies grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

Foreign currencies

This Historical Financial Information is presented in Hong Kong dollars, which is the Target’s functional currency. Foreign currency transactions recorded by the entities in the Target are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).

In determining the exchange rate on initial recognition of the related asset, expense or income on the derecognition of a non-monetary asset or non-monetary liability relating to an advance consideration, the date of initial transaction is the date on which the Target initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Target determines the transaction date for each payment or receipt of the advance consideration.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

4. SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of the Target’s Historical Financial Information requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Target’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the Historical Financial Information.

Current and deferred tax

Significant judgement is required in interpreting the relevant tax rules and regulations so as to determine whether the Target is subject to corporate income tax. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Target to change its judgement regarding the adequacy of the tax liabilities and such changes to tax liabilities will impact tax expenses in the period that such determination is made. Further details of the current and deferred tax are set out in note 9 to the Historical Financial Information.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Provision for expected credit losses on loan and interest receivables under HKFRS 9

The Target uses judgement in making assumptions and selecting the inputs to its ECL calculation, based on the Target’s past history, existing market conditions as well as forward-looking estimates at the end of each reporting period.

The assessment of the correlation among historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and forecast economic conditions. The Target’s historical credit loss experience and forecast of economic conditions may also not be representative of customers’ actual default in the future. The information about the ECLs on the Target’s loan and interest receivables is disclosed in note 13 to the Historical Financial Information.

Provision for impairment losses on loan and interest receivables under HKAS 39

The Target assesses provision for impairment of loan and interest receivables based on an estimate of the recoverability of these receivables. Provisions are applied to loan and interest receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment of loan and interest receivables requires the use of estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of receivables and provision for impairment losses in the period in which such estimate has been changed.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

5. REVENUE AND OTHER INCOME

Revenue represents the interest income earned from the money lending business of providing property mortgage loans and personal loans in Hong Kong. Revenue and other income recognised during the Relevant Periods are as follows:

Revenue Interest income Other income Bank interest income Others	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 68,235 72,997 73,598 308 75 860 155 275 224 463 350 1,084	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 68,235 72,997 73,598 308 75 860 155 275 224 463 350 1,084

		860 224
		1,084

6. PROFIT BEFORE TAX

The Target’s profit before tax is arrived at after charging/(crediting):

Note Depreciation 12 Minimum lease payments under operating leases Auditor’s remuneration Provision for/(reversal of) impairment losses on loan and interest receivables Employee benefit expenses (excluding directors’ remuneration_(note 7)_): Salaries, allowances and benefits in kind Pension scheme contributions	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 1,592 1,557 1,499 346 346 346 47 50 70 556 717 (906) 3,994 4,439 4,255 196 218 201 4,190 4,657 4,456	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 1,592 1,557 1,499 346 346 346 47 50 70 556 717 (906) 3,994 4,439 4,255 196 218 201 4,190 4,657 4,456
		4,456

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

7. DIRECTORS’ REMUNERATION

The remuneration of each of the Target’s directors is set out below:

Fees Other emoluments: Salaries, allowances and benefits in kind Performance-related bonuses Pension scheme contributions Total	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 – – – 2,288 2,356 2,508 585 632 652 144 150 158 3,017 3,138 3,318 3,017 3,138 3,318	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 – – – 2,288 2,356 2,508 585 632 652 144 150 158 3,017 3,138 3,318 3,017 3,138 3,318
		3,318
		3,318

(a) Independent non-executive directors

No independent non-executive directors were appointed and there were no fees and other emoluments payable to the independent non-executive directors during the Relevant Periods.

(b) Directors

Year ended 31 March 2017 Directors Mr. Ng Wee Keat Ms. Sio Ion Kuan Ms. Ng Siew Lang, Linda Ms. Lilian Ng Mr. Wilson Ng Ms. Chen Ka Chee Mr. Yu Wai Man Mr. Shiu Kim Wing	Fees HK$’000 – – – – – – – – –	Salaries, allowances and benefits in kind HK$’000 314 370 238 132 132 144 672 286 2,288	Performance- related bonuses HK$’000 72 92 59 33 31 39 182 77 585	Pension scheme contributions HK$’000 20 23 15 8 8 9 43 18 144	Total HK$’000 406 485 312 173 171 192 897 381
					3,017

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

7. DIRECTORS’ REMUNERATION (continued)

(b) Directors (continued)

Year ended 31 March 2018 Directors Mr. Ng Wee Keat Ms. Sio Ion Kuan Ms. Ng Siew Lang, Linda Ms. Lilian Ng Mr. Wilson Ng Ms. Chen Ka Chee Mr. Yu Wai Man Mr. Shiu Kim Wing Year ended 31 March 2019 Directors Mr. Ng Wee Keat Ms. Sio Ion Kuan Ms. Ng Siew Lang, Linda Ms. Lilian Ng Mr. Wilson Ng Ms. Chen Ka Chee Mr. Yu Wai Man Mr. Shiu Kim Wing	Fees HK$’000 – – – – – – – – – – – – – – – – – –	Salaries, allowances and benefits in kind HK$’000 314 370 238 132 132 180 690 300 2,356 338 373 253 144 132 207 727 334 2,508	Performance- related bonuses HK$’000 85 100 64 36 30 49 187 81 632 77 100 68 36 30 55 196 90 652	Pension scheme contributions HK$’000 21 23 15 8 9 11 44 19 150 21 24 16 9 8 13 46 21 158	Total HK$’000 420 493 317 176 171 240 921 400
					3,138

					436 497 337 189 170 275 969 445
					3,318

There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Periods.

During the Relevant Periods, no remuneration was paid by the Target to the directors as an inducement to join or upon joining the Target or as compensation for loss of office.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

8. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the years ended 31 March 2017, 2018 and 2019 included three, three and four directors, respectively, details of whose remuneration are set out in note 7 above. Details of the remuneration of the remaining two, two and one non-director, highest paid employees during the years ended 31 March 2017, 2018 and 2019 are as follows:

Salaries, allowances and benefits in kind Performance-related bonuses Pension scheme contributions	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 928 1,037 349 211 226 66 57 63 20 1,196 1,326 435	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 928 1,037 349 211 226 66 57 63 20 1,196 1,326 435
		435

The number of the non-director, highest paid employees whose remuneration fell within the following band is as follows:

		Number of employees
		Year ended 31 March
	2017	2018	2019
	HK$’000	HK$’000	HK$’000
Nil to HK$1,000,000	2	2	1

During the Relevant Periods, no emoluments were paid by the Target to any of the non-director, highest paid employees as an inducement to join or upon joining the Target or as compensation for loss of office.

9. INCOME TAX

Hong Kong profits tax has been provided at the rate of 16.5% on the estimated assessable profits arising in Hong Kong for each of the Relevant Periods.

Provision for the year Deferred tax_(note 18)_ Total tax charge for the year	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 8,536 9,023 9,211 (165) (183) 149 8,371 8,840 9,360	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 8,536 9,023 9,211 (165) (183) 149 8,371 8,840 9,360
		9,360

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

9. INCOME TAX (continued)

A reconciliation of the tax expense applicable to profit before tax at the statutory rate for the tax expense at the effective tax rate is as follows:

Profit before tax Tax at the statutory tax rate of 16.5% Income not subject to tax Expenses not deductible for tax Others Tax charge at the Target’s effective tax rate (2017: 16.5%; 2018: 16.6%; 2019: 16.4%)	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 50,606 53,283 57,032 8,350 8,792 9,410 (51) (12) (142) 92 91 92 (20) (31) – 8,371 8,840 9,360	Year ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 50,606 53,283 57,032 8,350 8,792 9,410 (51) (12) (142) 92 91 92 (20) (31) – 8,371 8,840 9,360

		9,410 (142) 92 –
		9,360

10. DIVIDEND

The dividend declared by the Target to the then shareholders during the Relevant Periods were as follows:

		Year ended 31 March
	2017	2018	2019
	HK$’000	HK$’000	HK$’000
Interim dividend	–	–	200,000

11. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE TARGET

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful since the Target was a limited liability enterprise during the Relevant Periods.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

12. PROPERTY, PLANT AND EQUIPMENT

31 March 2017 At 31 March 2016 and 1 April 2016: Cost Accumulate depreciation Net carrying amount At 1 April 2016, net of accumulated depreciation Addition Depreciation_(note 6) At 31 March 2017, net of accumulated depreciation At 31 March 2017: Cost Accumulated depreciation Net carrying amount 31 March 2018 At 31 March 2017 and 1 April 2017: Cost Accumulated depreciation Net carrying amount At 1 April 2017, net of accumulated depreciation Addition Depreciation(note 6)_ At 31 March 2018, net of accumulated depreciation At 31 March 2018: Cost Accumulated depreciation Net carrying amount	Leasehold land and building HK$’000 26,549 (2,127) 24,422 24,422 – (1,021) 23,401 26,549 (3,148) 23,401 26,549 (3,148) 23,401 23,401 – (1,021) 22,380 26,549 (4,169) 22,380	Office equipment HK$’000 439 (283) 156 156 42 (102) 96 481 (385) 96 481 (385) 96 96 62 (67) 91 543 (452) 91	Furniture and fixtures HK$’000 299 (32) 267 267 2 (98) 171 301 (130) 171 301 (130) 171 171 – (98) 73 301 (228) 73	Leasehold improvements HK$’000 1,114 (93) 1,021 1,021 – (371) 650 1,114 (464) 650 1,114 (464) 650 650 – (371) 279 1,114 (835) 279	Total HK$’000 28,401 (2,535)
					25,866

					25,866 44 (1,592)
					24,318

					28,445 (4,127)
					24,318

					28,445 (4,127)
					24,318

					24,318 62 (1,557)
					22,823

					28,507 (5,684)
					22,823

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

12. PROPERTY, PLANT AND EQUIPMENT (continued)

31 March 2019 At 31 March 2018 and 1 April 2018: Cost Accumulated depreciation Net carrying amount At 1 April 2018, net of accumulated depreciation Addition Depreciation_(note 6)_ At 31 March 2019, net of accumulated depreciation At 31 March 2019: Cost Accumulated depreciation Net carrying amount	Leasehold land and building HK$’000 26,549 (4,169) 22,380 22,380 – (1,022) 21,358 26,549 (5,191) 21,358	Office equipment HK$’000 543 (452) 91 91 386 (125) 352 929 (577) 352	Furniture and fixtures HK$’000 301 (228) 73 73 – (73) – 301 (301) –	Leasehold improvements HK$’000 1,114 (835) 279 279 – (279) – 1,114 (1,114) –	Total HK$’000 28,507 (5,684) 22,823 22,823 386 (1,499) 21,710 28,893 (7,183) 21,710

13. LOAN AND INTEREST RECEIVABLES

Loan and interest receivables Less: Provision for impairment assessment of loan and interest receivables Loan and interest receivables, net of provision Less: non-current portion Current portion	2017 HK$’000 689,674 (1,869) 687,805 (201,688) 486,117	As at 31 March 2018 HK$’000 788,966 (2,586) 786,380 (192,514) 593,866	2019 HK$’000 824,835 (1,680) 823,155 (270,369) 552,786

The Target’s loan and interest receivables, which arise from the money lending business of providing mortgage loans and personal loans in Hong Kong, are denominated in Hong Kong dollars.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

13. LOAN AND INTEREST RECEIVABLES (continued)

Except for loan and interest receivables of HK$30,683,000, HK$34,757,000 and HK$33,905,000 as at 31 March 2017, 2018 and 2019, respectively, which are unsecured, bear interest and are repayable with fixed terms agreed with customers, all loan and interest receivables are secured by collateral provided by customers, bear interest and are repayable with fixed terms agreed with the customers. The maximum exposure to credit risk at each of the reporting dates is the carrying value of the loan and interest receivables mentioned above.

The movements in the loss allowance for impairment of loan and interest receivables are as follows:

At beginning of the year Provision for/(reversal of) impairment losses on loan and interest receivables_(note 6)_ At end of the year	Years ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 1,313 1,869 2,586 556 717 (906) 1,869 2,586 1,680	Years ended 31 March 2017 2018 2019 HK$’000 HK$’000 HK$’000 1,313 1,869 2,586 556 717 (906) 1,869 2,586 1,680
		1,680

Impairment under HKAS 39 for the years ended 31 March 2017 and 2018

Included in the above provision for impairment of loan and interest receivables, which was measured based on incurred credit losses under HKAS 39, as at 31 March 2017 and 2018 were provisions for individually impaired loan and interest receivables of HK$197,000 and HK$187,000, respectively, with carrying amounts before provision of HK$798,000 and HK$571,000, respectively.

The individually impaired loan and interest receivables as at 31 March 2017 and 2018 related to customers that were in financial difficulties or were in default in interest and/or principal payments and only a portion of the receivables is expected to be recovered.

As at 31 March 2017 and 2018, the Target performed collective assessment of loan and interest receivables by grouping all its loan receivables with similar credit risk characteristics and by applying a historical impairment rate, taking the average of the most recent years of the percentage of impairment loss recognised in profit or loss, to the total loan and interest receivables as at the respective year end date. As at 31 March 2017 and 2018, provisions for collectively impaired loan and interest receivables were HK$1,672,000 and HK$2,399,000, respectively, with carrying amounts before provision of HK$29,885,000 and HK$34,186,000, respectively.

The ageing analysis of the loan and interest receivables as at 31 March 2017 and 2018 that were not individually nor collectively considered to be impaired under HKAS 39 is as follows:

Neither past due nor impaired Less than 1 month past due 1 to 3 months past due Over 3 months past due	As at 31 2017 HK$’000 649,091 5,233 2,031 2,636 658,991	March 2018 HK$’000 745,824 5,161 2,206 1,018
		754,209

Loan and interest receivables that were neither past due nor impaired related to a large number of diversified customers for whom there was no recent history of default.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

13. LOAN AND INTEREST RECEIVABLES (continued)

Impairment under HKAS 39 for the years ended 31 March 2017 and 2018 (continued)

Receivables that were past due but not impaired were property mortgage loans, which were related to a number of independent customers that had a good track record with the Target. Based on the past experience, the directors of the Target were of the opinion that no provision for impairment under HKAS 39 was necessary in respect of these balances as there had not been a significant change in credit quality and the balances were still considered fully recoverable.

Impairment under HKFRS 9 for the year ended 31 March 2019

As at 31 March 2019, loan and interest receivables of HK$9,507,000 were past due but not credit-impaired. Except for overdue personal loan and interest receivables of HK$1,152,000 with no collateral, the overdue balances were property mortgage loans. These were related to a number of third-party customers and the directors of the Target are of the opinion that these overdue loans were fully secured by the collateral. Accordingly, these balances are still considered to be fully recoverable.

As at 1 April 2018 Loan recovered or repaid during the year Transfer to lifetime expected credit losses not credit-impaired (Stage 2) New loan originated As at 31 March 2019	Stage 1 HK$’000 2,061 (407) (32) – 1,622	Year ended 31 Stage 2 HK$’000 338 (338) 32 26 58	March 2019 Stage 3 HK$’000 187 (187) – – –	Total HK$’000 2,586 (932) – 26
				1,680

In general, loan and interest receivables are considered in default when the loan and interest receivables or its related instalments are overdue by 90 days. As at 31 March 2019, loan and interest receivables with amount of HK$42,719,000 were in default under Stage 3 lifetime ECLs. As all of these loan and interest receivables are secured by collateral, no provision was provided.

For loan and interest receivables that are not credit-impaired without a significant increase in credit risk since initial recognition “Stage 1”, ECL is measured at an amount equal to the portion of the lifetime ECL that results from default events possible within the next 12 months. If a significant increase in credit risk since initial recognition is identified (“Stage 2”) but not yet deemed to be credit-impaired, the ECL is measured based on lifetime ECL. In general, when loan receivables or their related instalments are overdue by 30 days, there is a significant increase in credit risk. As at 31 March 2019, a total provision of HK$1,680,000 was provided under Stage 1 and Stage 2 based on assessment from the ECL model.

A maturity profile of the loan and interest receivables as at the end of each reporting period, based on the maturity date, net of provision, is as follows:

Current Over 1 year and within 5 years Over 5 years	2017 HK$’000 486,117 143,769 57,919 687,805	As at 31 March 2018 HK$’000 593,866 129,242 63,272 786,380	2019 HK$’000 552,786 203,705 66,664
			823,155

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

14. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Prepayments Deposits and other receivables Less: Non-current portion Current portion	2017 HK$’000 36 1,788 1,824 (569) 1,255	As at 31 March 2018 HK$’000 214 2,435 2,649 (587) 2,062	2019 HK$’000 10 2,751
			2,761 (516)
			2,245

None of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.

Deposits and other receivables mainly represented rental and management fee deposits with landlords and professional fees paid on behalf of customers. Where applicable, an impairment analysis is performed at each reporting date by applying a loss rate approach with reference to the historical loss record of the Target. The loss rate is adjusted to reflect the current conditions and forecasts of future economic conditions, as appropriate. The expected credit losses for the Target’s deposits and other receivables are minimal.

15. REPOSSESSED ASSETS

During the Relevant Periods, the Target obtained an asset by taking possession of collateral held as security. The nature and carrying value of this asset held as at 31 March are summarised as follows:

		31 March
	2017	2018	2019
	HK$’000	HK$’000	HK$’000
Repossessed property – commercial property	14,132	14,132	14,132

The estimated market value of the repossessed asset held by the Target as at 31 March 2017, 2018 and 2019 were HK$17,000,000, HK$17,000,000 and HK$17,000,000, respectively. It is a property in respect of which the Target has acquired access or control through court proceedings for release in full or in part of the obligation of a borrower.

When the repossessed asset is not readily convertible into cash, the Target may consider adjusting the selling prices.

16. CASH AND CASH EQUIVALENTS

Time deposits Cash and bank balances	2017 HK$’000 40,001 144,227 184,228	As at 31 March 2018 HK$’000 30,000 98,654 128,654	2019 HK$’000 60,522 80,562
			141,084

Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default. The carrying amounts of the cash and cash equivalents approximate to their fair values.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

17. OTHER PAYABLES AND ACCRUALS

Other payables Accruals	2017 HK$’000 1,127 896 2,023	As at 31 March 2018 HK$’000 1,126 543 1,669	2019 HK$’000 1,335 712
			2,047

Other payables are non-interest-bearing and have an average term of 14 days to one year.

18. DEFERRED TAX

The movements in deferred tax assets during the Relevant Periods are as follows:

At 1 April 2016 Deferred tax credited to profit or loss during the year_(note 9) At 31 March 2017 and 1 April 2017 Deferred tax credited to profit or loss during the year(note 9) At 31 March 2018 and 1 April 2018 Deferred tax credited/(charged) to profit or loss during the year(note 9)_ At 31 March 2019 19. ISSUED CAPITAL Issued and fully paid: 700,000,000 ordinary shares	Difference between depreciation allowance and related depreciation HK$’000 (109) 73 (36) 64 28 1 29 2017 HK$’000 700,000	Provision for impairment of loan and interest receivables HK$’000 216 92 308 119 427 (150) 277 As at 31 March 2018 HK$’000 700,000	Total HK$’000 107 165
			272 183
			455 (149)
			306

			2019 HK$’000 700,000

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

20. MAJOR NON-CASH TRANSACTION

On 31 March 2019, an interim dividend of HK$200,000,000 were declared and payable to shareholders.

21. LITIGATION

In July 2016, an independent third party (the “Plaintiff”) filed a claim in the Court of First Instance of the High Court of Hong Kong against the Target (the “Defendant”) for failure to account for and provide information and particulars about the exact amount of costs and expenses which the Defendant allegedly incurred for recovering possession and effecting the sale of a repossessed property. The directors of the Target denied the liability in respect of the claim and considered that the risk of the claim was reasonably low. No provision had therefore been made in respect of this claim as at 31 March 2017, 2018 and 2019.

Subsequent to the year ended 31 March 2019, the court was granted the order by consent that the Defendant has no liability against the Plaintiff.

22. OPERATING LEASE ARRANGEMENTS

The Target leases its office premise under an operating lease arrangement. The lease for office premise is negotiated for a term of one year.

As at 31 March 2017, 2018 and 2019, the Target had total future minimum lease payments under non-cancellable operating leases falling due as follows:

		31 March
	2017	2018	2019
	HK$’000	HK$’000	HK$’000
Within one year	346	346	–

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

23. RELATED PARTY TRANSACTIONS

(a) In addition to the transactions detailed elsewhere in the Historical Financial Information, the Target had the following transactions with related parties during the Relevant Periods:

		Year	ended 31 March
		2017	2018	2019
	Notes	HK$’000	HK$’000	HK$’000
Interest income received from
the immediate holding company	(i)	539	–	–
Rental expense paid to
a fellow subsidiary	(ii)	346	346	346

The transactions were conducted at terms and conditions mutually agreed between the relevant parties. The directors are of the opinion that those related party transactions as detailed in (i) and (ii) were conducted in the ordinary course of business of the Target.

Notes:

(i) The interest income was charged at 6% per annum on a loan to the immediate holding company.
(ii) The rental expense was paid based on a tenancy agreement entered into between the Target and a fellow subsidiary at a monthly rate of HK$28,800.

(b) Commitment with a related party

On 31 March 2017 and 2018, the Target entered into a one-year lease agreement ended 31 March 2018 and 2019, respectively, with Senic Investment Limited (“Senic”), a fellow subsidiary of the Target, to lease an office premise. The rental expense paid to Senic during the Relevant Periods are disclosed in note 23(a) to the Historical Financial Information. As at 31 March 2017 and 2018, the Target had a total future minimum lease payable to Senic amounting to HK$346,000 and HK$346,000, respectively.

(c) Compensation of key management personnel of the Target

The compensation of key management personnel of the Target for each reporting period during the Relevant Periods has been disclosed in note 7 to the Historical Financial Information.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

24. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of the Target’s financial instruments as at 31 March 2017, 2018 and 2019 are as follows:

Financial assets

As at 31 December 2017 Loan and interest receivables Financial assets included in prepayments, deposits and other receivables_(note 14) Cash and cash equivalents As at 31 December 2018 Loan and interest receivables Financial assets included in prepayments, deposits and other receivables(note 14) Cash and cash equivalents As at 31 December 2019 Loan and interest receivables Financial assets included in prepayments, deposits and other receivables(note 14)_ Cash and cash equivalents	Loans and receivables HK$’000 687,805 1,788 184,228
	873,821

	Loans and receivables HK$’000 786,380 2,435 128,654
	917,469

	Financial assets at amortised cost HK$’000 823,155 2,751 141,084
	966,990

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

24. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

Financial liabilities

Financial liabilities included in other payables and accruals Dividend payable	Financial 2017 HK$’000 1,953 – 1,953	liabilities at amortised cost As at 31 March 2018 2019 HK$’000 HK$’000 1,572 1,933 – 200,000 1,572 201,933	liabilities at amortised cost As at 31 March 2018 2019 HK$’000 HK$’000 1,572 1,933 – 200,000 1,572 201,933
			201,933

25. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

Management has assessed that the fair values of cash and cash equivalents, loan and interest receivables, financial assets included in prepayments, deposits and other receivables, financial liabilities included in other payables and accruals and dividend payable approximate to their carrying amounts largely due to the short term maturities of these instruments.

The fair values of non-current other receivables have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities, and were assessed to approximate to their carrying amounts.

The Target’s management is responsible for determining the policies and procedures for the fair value measurement of financial instruments. At each reporting date, the Target’s management analyses the movements in the values of financial instruments and determines the major inputs applied in the valuation. The valuation is reviewed and approved by the directors.

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Target’s principal financial instruments comprise cash and cash equivalents, and loan and interest receivables. The main purpose of these financial instruments is to raise finance for the Target’s operations. The Target has various other financial assets and liabilities such as other receivables, dividend payable and other payables, which arise directly from the Target’s operations.

The main risks arising from the Target’s financial instruments are credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Credit risk

The Target’s main income generating activity is lending money to customers, and therefore, credit risk is a principal risk. It is the Target’s policy that all new loans are subject to stringent credit check procedures. In addition, receivable balances are monitored on an ongoing basis.

The Target manages and analyses the credit risk for each of its customers before the loan applications are accepted or rejected. If there is no independent rating, risk control assesses the credit quality of the customer by taking into account the financial position, past experience and other factors of the customer. The Target holds collateral against certain loan and interest receivables in the form of first legal mortgages over individual properties located in Hong Kong which mainly comprised of residential properties, commercial properties and industrial properties. The Target approves and grants loan to its customers pursuant to its pre-approved credit policy with tightened management measures whenever the adverse condition in property market occurs. The Target has loan committees of different levels comprising of directors and senior management to approve and grant different loan products with various loan-to-value ratio and loan amount requirements. The directors and senior management of the Target consider that the credit risk arising from the loan and interest receivables is significantly mitigated by the property held as collateral, with reference to the market value of the property which was valued by independent third party valuers as at the end of each reporting period.

Maximum exposure as at 31 March 2017 and 2018

With respect to credit risk arising from the other financial assets of the Target which comprise cash and cash equivalents and other receivables, the Target’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

Concentrations of credit risk are managed by customer/counterparty. There are no significant concentrations of credit risk within the Target as the customer bases of the Target’s loan and interest receivables are widely dispersed.

Further quantitative data in respect of the Target’s exposure to credit risk arising from loan and interest receivables are disclosed in note 13 to the Historical Financial Information.

Maximum exposure and year-end staging as at 31 March 2019

The table below shows the credit quality and the maximum exposure to credit risk based on the Target’s credit policy, which is mainly based on past due information unless other information is available without undue cost or effort, and year-end staging classification as at 31 March 2019.

Loan and interest receivables Financial assets included in prepayments, deposits and other receivables – Normal* Cash and cash equivalents – Not yet pass due	12-month ECLs Stage 1 HK$’000 689,434 2,751 141,084 833,269	Lifetime ECLs Stage 2 Stage 3 HK$’000 HK$’000 91,002 42,719 – – – – 91,002 42,719	Total HK$’000 823,155 2,751 141,084
			966,990

The credit quality of the financial assets included in prepayments, deposits and other receivables is considered to be “normal” when they are not past due and there is no information indicating that the financial assets had a significant increase in credit risk since initial recognition. Otherwise, the credit quality of the financial assets is considered to be “doubtful”.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Liquidity risk

The Target monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets and projected cash flows from operations.

The maturity profile of the Target’s financial liabilities as at the end of each of the Relevant Periods, based on the contractual and undiscounted payments, is as follows:

As at 31 March 2017 Financial liabilities included in other payables and accruals As at 31 March 2018 Financial liabilities included in other payables and accruals As at 31 March 2019 Financial liabilities included in other payables and accruals Dividend payable	On demand HK$’000 777 On demand HK$’000 433 On demand HK$’000 556 200,000 200,556	Within 1 year HK$’000 1,176 Within 1 year HK$’000 1,139 Within 1 year HK$’000 1,377 – 1,377	Total HK$’000 1,953

			Total HK$’000 1,572

			Total HK$’000 1,933 200,000
			201,933

Capital management

The primary objectives of the Target’s capital management are to safeguard the Target’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital.

The Target manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Target may adjust the dividend payment to shareholders and return capital to shareholders. No changes were made in the objectives, policies or processes for managing capital during the Relevant Periods.

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION (continued)

26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Capital management (continued)

The Target monitors capital using a gearing ratio which is total indebtedness divided by equity. The Target’s policy is to maintain the gearing ratio below 50%. Total indebtedness represents the Target’s borrowings. The gearing ratios as at 31 March 2017, 2018 and 2019 were all zero.

27. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target in respect of any period subsequent to 31 March 2019.

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET

MANAGEMENT DISCUSSION AND ANALYSIS

The Target’s financial year begins from 1 April and ends on 31 March. All references to “FY2017”, “FY2018” and “FY2019” mean the financial years ended 31 March 2017, 2018 and 2019, respectively. Set out below is the management discussion and analysis of the Target for each of FY2017, FY2018 and FY2019.

BUSINESS REVIEW

The Target is a company incorporated in Hong Kong with limited liability in March 2006. As at the Latest Practicable Date, it is owned as to 70% by Vendor A, 20% by Vendor B and 10% by Vendor C. The Target is a licensed money lender under the Money Lenders Ordinance in Hong Kong and first commenced its lending business in June 2006. It is principally engaged in provision of finance under a Money Lenders Licence.

The Target focuses primarily on the provision of mortgage loans which are secured by first mortgages on real estates located in Hong Kong, including residential, commercial, industrial properties and car parking spaces. The Target also provides a small portion of unsecured personal loans in the overall loan portfolio. Its loan team will perform credit search before granting any loans. The interest rate varies depending on the creditworthiness of the customers and the terms of the loans.

In light of the rising housing prices in Hong Kong in the recent years, the demand for more flexible property mortgage loans provided by the Target as a licensed money lender continuously remains high since a licensed money lender in Hong Kong is not subject to various rounds of prudential measures and regulations governed by The Hong Kong Monetary Authority. The Target has offered competitive interest rates to customers with better credit quality and devoted resources in marketing campaigns in order to develop and expand its loan portfolio. Benefiting from the continuously increasing demand and successful marketing strategy, the total loan and interest receivables increased by approximately 14.3% from HK$687,805,000 as at 31 March 2017 to HK$786,380,000 as at 31 March 2018 and further increased by approximately 4.7% to HK$823,155,000 as at 31 March 2019.

As at 31 March 2019, the Target had a secured mortgage loan portfolio with a total outstanding amount of approximately HK$790,930,000 (2018: HK$754,209,000; 2017: HK$658,991,000) and a unsecured personal loan portfolio with a total outstanding amount of approximately HK$32,225,000 (2018: HK$32,171,000; 2017: HK$28,814,000), representing approximately 96.1% (2018: 95.9%; 2017: 95.8%) and 3.9% (2018: 4.1%; 2017: 4.2%) of the total loan portfolio respectively.

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET

FINANCIAL REVIEW

Revenue

The Target’s revenue was HK$68,235,000, HK$72,997,000 and HK$73,598,000 for FY2017, FY2018 and FY2019, respectively. The revenue consisted of interest income from secured mortgage loans (FY2017: HK$61,686,000; FY2018: HK$66,962,000; FY2019: HK$66,988,000) and unsecured personal loans (FY2017: HK$6,010,000; FY2018: HK$6,035,000; FY2019: HK$6,610,000). For FY2017, the revenue also included interest income of HK$539,000 (FY2018 and FY2019: Nil) generated from the loan in principal sum of HK$10,000,000 advanced to Vendor A in September 2015 which was fully repaid in February 2017. The interest income from secured mortgage loans increased from HK$61,686,000 in FY2017 to HK$66,962,000 in FY2018 and further increased to HK$66,988,000 in FY2019, which was in line with the increase in secured mortgage loan balances (31 March 2017: HK$658,991,000; 31 March 2018: HK$754,209,000; 31 March 2019: HK$790,930,000). As for unsecured personal loans, the interest income from unsecured personal loans increased from HK$6,010,000 in FY2017 to HK$6,035,000 in FY2018 and further increased to HK$6,610,000 in FY2019, which was primarily due to continued increase in personal loan balances (31 March 2017: HK$28,814,000; 31 March 2018: HK$32,171,000; 31 March 2019: HK$32,225,000).

Other income

The other income was HK$463,000, HK$350,000 and HK$1,084,000 for FY2017, FY2018 and FY2019 respectively, which mainly represented interest income earned from time deposits and savings accounts as well as the overdue interest income from borrowers due to delay in repayment.

Reversal of/(provision for) impairment losses on loan and interest receivables

No provision for impairment losses of mortgage loan and interest receivables was made in FY2017, FY2018 and FY2019 since they were secured by collateral provided by customers, and the fair value of the collateral are substantially higher than the loan and interest receivables, and therefore the exposure to the credit risk is minimal.

Since the Target’s personal loan and interest receivables (31 March 2017: HK$28,814,000; 31 March 2018: HK$32,171,000; 31 March 2019: HK$32,225,000) were unsecured, there is credit risk that receivables are not fully recoverable. As such, provision for impairment losses was made for personal loan and interest receivables. During FY2017 and FY2018, the provision for impairment losses of HK$556,000 and HK$717,000 were charged respectively to profit or loss. The reversal of impairment losses of HK$906,000 was credited to profit or loss for FY2019.

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET

Administrative and other operating expenses

Administrative and other operating expenses mainly represented advertising and promotion expenses, employee costs and agency promotion fees.

Administrative and other operating expenses increased approximately 10.3% from HK$17,536,000 in FY2017 to HK$19,347,000 in FY2018. The increase was attributable to (i) a slight increase of approximately 1.3% in advertising and promotion expenses from HK$5,835,000 in FY2017 to HK$5,909,000 in FY2018; (ii) an increase of approximately 8.2% in employee costs, representing salary and staff welfare including mandatory provident fund and bonus for directors and staff from HK$7,207,000 in FY2017 to HK$7,795,000 in FY2018 due to an increase in salary and bonus; and (iii) an increase of approximately 112.5% in agency promotion expenses from HK$974,000 in FY2017 to HK$2,070,000 in FY2018 which was in line with the increase in mortgage loan balance.

In FY2019, the administrative and other operating expenses decreased approximately 4.1% from HK$19,347,000 in FY2018 to HK$18,556,000 in FY2019. The decrease was attributable to (i) a decrease of approximately 10.7% in advertising and promotion expenses from FY2018 due to changes in promotion strategies; (ii) a slight decrease of approximately 0.3% in employment costs due to decrease in headcount which was partially offset by salary increment during FY2019; and (iii) a slight increase of approximately 0.4% in agency promotion fees.

Profit and total comprehensive income

As a result of the aforesaid factors, the profit and total comprehensive income increased by approximately 5.2% from HK$42,235,000 in FY2017 to HK$44,443,000 in FY2018 and further increased by approximately 7.3% to HK$47,672,000 in FY2019.

CAPITAL STRUCTURE, LIQUIDITY AND FINANCIAL RESOURCES

There were no changes in the capital structure of the Target during FY2017, FY2018 and FY2019. The Target generally finances its operations with internally generated cash flows.

The Target had cash and cash equivalents of HK$184,228,000, HK$128,654,000 and HK$141,084,000 as at 31 March 2017, 31 March 2018 and 31 March 2019 respectively, which were held predominately in Hong Kong dollars.

The Target had net current assets of HK$681,185,000, HK$736,096,000 and HK$507,246,000 and net assets value of HK$908,032,000, HK$952,475,000 and HK$800,147,000 as at 31 March 2017, 31 March 2018 and 31 March 2019 respectively.

GEARING RATIO

The Target did not have any borrowings as at 31 March 2017, 2018 and 2019, therefore the gearing ratio (calculated by total indebtedness divided by total equity) was zero as at 31 March 2017, 2018 and 2019.

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET

SIGNIFICANT INVESTMENT

During FY2017, FY2018 and FY2019, the Target did not hold any significant investments.

MATERIAL ACQUISITION AND DISPOSAL

During FY2017, FY2018 and FY2019, the Target did not make any material acquisition or disposal of subsidiary or associated company.

CHARGE ON ASSETS

As at 31 March 2017, 2018 and 2019, the Target did not have any charges on assets.

EMPLOYEES AND REMUNERATION

As at 31 March 2017, 2018 and 2019, the Target had a total of 21, 21 and 19 employees respectively. Remuneration packages for employees and directors are structured according to market standards as well as individual performance and experience. Benefits plans maintained by the Target include a mandatory provident fund scheme, medical insurance, cash incentives and discretionary bonuses. During FY2017, FY2018 and FY2019, the employee costs amounted to HK$7,207,000, HK$7,795,000 and HK$7,774,000 respectively.

FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

As at 31 March 2017, 2018 and 2019, the Target did not have any future plans for material investments or capital assets.

CONTINGENT LIABILITIES

As at 31 March 2017, 2018 and 2019, the Target had no material contingent liabilities.

FOREIGN EXCHANGE EXPOSURE

During FY2017, FY2018 and FY2019, the Target was not exposed to any material foreign currency risk as most of its business transactions, assets and liabilities were denominated in Hong Kong dollars. No financial instruments, currency borrowings or other hedging instruments were used by the Target for hedging purposes during FY2017, FY2018 and FY2019.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of New Century Group Hong Kong Limited (the “Company”) and its subsidiaries (hereafter collectively referred to as the “Group”), and ETC Finance Limited (the “Target”) (the Group and the Target are hereafter collectively referred to as the “Enlarged Group”), comprising the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group as at 31 March 2019, has been prepared by the directors of the Company (the “Directors”) in accordance with Rule 4.29 of the Listing Rules and is solely prepared for the purpose to illustrate the effect of the proposed acquisition of the Target (the “Acquisition”) to the Group as if the Acquisition has been completed on 31 March 2019.

The Unaudited Pro Forma Financial Information is prepared based on (i) the audited consolidated statement of financial position of the Group as at 31 March 2019 which has been extracted from the annual report of the Group for the year ended 31 March 2019; and (ii) the audited statement of financial position of the Target as at 31 March 2019 which have been extracted from the financial information of the Target thereon set out in Appendix II to the circular dated 23 August 2019 (“Circular”), after making certain pro forma adjustments that are (i) directly attributable to the Acquisition; and (ii) factually supportable, as further described in the accompanying notes.

The Unaudited Pro Forma Financial Information is prepared based on a number of assumptions, estimates, uncertainties and currently available information, and is provided for illustrative purposes only. As a result of the hypothetical nature of the Unaudited Forma Financial Information, it may not give a true picture of the actual financial position of the Group that would have been attained had the proposed Acquisition been completed on 31 March 2019. Furthermore, the Unaudited Pro Forma Financial Information does not purport to predict the Enlarged Group’s future financial position. The Unaudited Pro Forma Financial Information should be read in conjunction with the financial information of the Group, as incorporated by reference in Appendix I to this Circular, and that of the Target, as set out in Appendix II to this Circular, and other financial information included elsewhere in this Circular.

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP (continued)

The Unaudited Pro Forma Financial Information

Non-current assets Property, plant and equipment Investment properties Equity investment designated at fair value through other comprehensive income Prepayments and other receivables Loan receivables Deferred tax assets Current assets Trade receivables Loan and interest receivables Prepayments, deposits and other receivables Repossessed asset Equity investments at fair value through profit or loss Tax recoverable Cash and cash equivalents Current liabilities Other payables and accruals Due to the immediate holding company Due to the intermediate holding company Dividend payable Due to related companies Tax payable Loan advanced from a non-controlling shareholder of the Group’s subsidiary Net current assets Total assets less current liabilities	The Group as at 31 March 2019 HK$’000 (note 1) 372,440 555,760 1,552 3,510 – – 933,262 58,290 – 3,035 – 27,984 70 855,173 944,552 19,083 – – – 4 77 131,823 150,987 793,565 1,726,827	The Target as at 31 March 2019 HK$’000 (note 2) 21,710 – – 516 270,369 306 292,901 – 552,786 2,245 14,132 – – 141,084 710,247 2,047 – – 200,000 – 954 – 203,001 507,246 800,147	Pro forma adjustments HK$’000 Notes – – – – – – – – – (86) 5 – – – (480,088) 4 (480,174) (86) 5 40,000 6 140,000 6 (200,000) 6 20,000 6 – – (86) (480,088) (480,088)	Unaudited pro forma Enlarged Group HK$’000 394,150 555,760 1,552 4,026 270,369 306
				1,226,163
				58,290 552,786 5,194 14,132 27,984 70 516,169
				1,174,625
				21,044 40,000 140,000 – 20,004 1,031 131,823
				353,902
				820,723
				2,046,886

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP (continued)

The Unaudited Pro Forma Financial Information (continued)

Non-current liabilities Deposits received Deferred tax liabilities Net assets Equity Equity attributable to owners of the Company Share capital Reserves Non-controlling shareholders	The Group as at 31 March 2019 HK$’000 (note 1) 3,338 19,519 22,857 1,703,970 14,451 1,638,648 1,653,099 50,871 1,703,970	The Target as at 31 March 2019 HK$’000 (note 2) – – – 800,147 700,000 100,147 800,147 – 800,147	Pro forma adjustments HK$’000 Note – – – (480,088) (700,000) 4 (100,147) 4 (800,147) 320,059 (480,088)	Unaudited pro forma Enlarged Group HK$’000 3,338 19,519
				22,857
				2,024,029

				14,451 1,638,648
				1,653,099 370,930
				2,024,029

Notes:

The figures are extracted from the audited consolidated statement of financial position of the Group as set out in the published annual report of the Company for the year ended 31 March 2019.
The adjustment represents the inclusion of the assets and liabilities of the Target, as extracted from the audited statement of financial position of the Target as at 31 March 2019, as set out in Appendix II to this Circular.
As the Company and the Target are ultimately controlled by a substantial shareholder of the Company, the Acquisition is a business combination under common control. Being consistent with the Group’s accounting policy for common control combination, the Acquisition is accounted for based on the principles of merger accounting in accordance with merger accounting as if the Acquisition had occurred on the date when the combining entities first came under the control of the substantial shareholder. Accordingly, the assets and liabilities acquired in the Acquisition are stated at their carrying amounts as if such assets and liabilities had been held or incurred by the Group from the later of the date of the relevant transactions giving rise to such assets or liabilities and the date on which the combining entities first came under the control of the substantial shareholder.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP (continued)

The Unaudited Pro Forma Financial Information (continued)

Notes: (continued)

The adjustment represented the payment of the consideration of HK$480,088,000, elimination of the Target’ share capital of HK$700,000,000, recognition of merger reserve of HK$100,147,000 and minority interest of HK$320,059,000 on acquisition of the Target.

In accordance with the Agreement (as defined in the Circular), the Company conditionally agreed to acquire a 60% equity interest of the Target at a consideration equal to 60% of net asset value of the Target on the Completion Date (as defined in the Circular), with a fair value adjustment of a commercial property owned by the Target on Completion Date. The total consideration shall not exceed HK$497,640,000. For the purpose of this Unaudited Pro Forma Financial Information, the Directors adopted the consideration as HK$480,088,000, which is based on the 60% of the net asset value of the Target as at 31 March 2019.

The actual consideration and the amount of merger reserve will depend on the net asset value of the Target on the Completion Date adjusted with the fair value of the commercial property owned by the Target on Completion Date and shall be different to the amount calculated above.

For the purpose of preparation of the Unaudited Pro Forma Financial Information of the Enlarged Group, the rental deposits paid by the Target to a subsidiary of the Company with an amount of approximately HK$86,000 were eliminated.
For the purpose of preparation of the Unaudited Pro Forma Financial Information of the Enlarged Group, the dividend payable of the Target with an amount of HK$200,000,000 were reclassified to amounts due to the immediate holding company, the intermediate holding company and a related company with amount of HK$40,000,000, HK$140,000,000 and HK$20,000,000, respectively.
No adjustment has been made to the Unaudited Pro Forma Financial Information for acquisition-related costs (including fees to legal advisers, reporting accountants, valuer, and other expenses) and the directors determined that such costs are insignificant.
No adjustments have been made to adjust any trading results or other transactions of the Enlarged Group subsequent to 31 March 2019.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

B. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report received from the Company’s reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, prepared for the purpose of incorporation in this circular, in respect of the unaudited pro forma financial information of the Enlarged Group.

==> picture [93 x 71] intentionally omitted <==

22/F, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong

23 August 2019

The Directors

New Century Group Hong Kong Limited

We have completed our assurance engagement to report on the compilation of pro forma financial information of New Century Group Hong Kong Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), and ETC Finance Limited (hereinafter referred to as the “Target”) (the Group together with the Target are collectively referred to as the “Enlarged Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of assets and liabilities as at 31 March 2019, and related notes as set out in Appendix IV to the circular dated 23 August 2019 (the “Circular”) issued by the Company (the “Unaudited Pro Forma Financial Information”) in connection with the acquisition (the “Acquisition”) of a 60% equity interest of the Target by the Company. The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are described in Section A of Appendix IV to the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the Acquisition on the Group’s financial position as at 31 March 2019 as if the Acquisition had taken place at 31 March 2019. As part of this process, the information about the Group’s financial position as at 31 March 2019 has been extracted by the Directors from the annual report of the Company for the year ended 31 March 2019 and the information about the Target’s financial position as at 31 March 2019 has been extracted by the Directors from the financial information of the Target as set out in Appendix II to the Circular.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

B. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION (continued)

Directors’ responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with Rule 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline (“AG”) 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

Our independence and quality control

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Our firm applies Hong Kong Standard on Quality Control 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements , and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting accountants’ responsibilities

Our responsibility is to express an opinion, as required by Rule 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Financial Information in accordance with Rule 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

B. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION (continued)

Reporting accountants’ responsibilities (continued)

The purpose of the Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the transaction had taken place at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the transaction would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the transaction, and to obtain sufficient appropriate evidence about whether:

the related pro forma adjustments give appropriate effect to those criteria; and
the Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgement, having regard to the reporting accountants’ understanding of the nature of the Group, the transaction in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

B. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION (continued)

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

VALUATION OF THE PROPERTY

APPENDIX V

The following is the text of a valuation report prepared for the purpose of incorporation in this circular received from Knight Frank Petty Limited, an independent valuer, in connection with its valuation as at 30 June 2019 of the property interest.

==> picture [171 x 43] intentionally omitted <==

Knight Frank Petty Limited

4th Floor

Shui On Centre Nos. 6-8 Harbour Road Wan Chai, Hong Kong

Our Ref: GV/TL/CHC/TRW/ck/06-1168/10501(18)

The Directors

New Century Group Hong Kong Limited (the “Company”) Unit 3808 on 38th Floor of West Tower Shun Tak Centre Nos 168-200 Connaught Road Central Hong Kong

23 August 2019

Dear Sirs

Valuation of 15th Floor, Katherine House, Nos 53-55 Chatham Road South, Tsim Sha Tsui, Kowloon, Hong Kong (known as the “property interest”)

Instructions

In accordance with the instructions for us as an independent valuer to value the property interest that held by ETC Finance Limited (“ETC”) in Hong Kong, we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the property interest as at 30 June 2019 (“Valuation Date”) for the purpose of public disclosure in a connected transaction.

VALUATION OF THE PROPERTY

APPENDIX V

Basis of Valuation

In arriving at our opinion of market value, we followed “The HKIS Valuation Standards 2017” issued by The Hong Kong Institute of Surveyors (“HKIS”). Under the said standards, market value is defined as:

“the estimated amount for which an asset or liability should exchange on the Valuation Date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

The market value is understood as the value of an asset or liability estimated without regard to costs of sale or purchase (or transaction), and without offset for any associated taxes or potential taxes.

Market value is also the best price reasonably obtainable in the market on the Valuation Date by the seller and the most advantageous price reasonably obtainable in the market on the Valuation Date by the buyer. This estimate specially excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of value available only to a specific owner or purchaser.

Our valuation complies with the requirements set out in “The HKIS Valuation Standards 2017” issued by HKIS, the provisions of Chapter 5 of the Rules Governing the Listing of Securities issued by the stock exchange of Hong Kong.

Valuation Methodology

We have valued the property interest by “Market Approach” by making reference to sales evidence as available on the market. The property was previously occupied by ETC for office uses but was vacant as at the Valuation Date as advised by the Company.

Valuation Assumptions and Conditions

Our valuation is subject to the following assumptions and conditions.

Title Documents and Encumbrances

We have taken reasonable care to investigate the title of the property interest by obtaining land search record from the Land Registry. We have not, however, search the original documents to verify ownership or to ascertain the existence of any amendment which does not appear on the copies handed to us. We however do not accept a liability for any interpretation which we have placed on such information that is more properly the sphere of the Company’s legal advisers. We have also assumed in our valuation that the property interest was free from encumbrances, restrictions, title defects and outgoings of an onerous nature that could affect its value, unless stated otherwise as at the Valuation Date.

VALUATION OF THE PROPERTY

APPENDIX V

Disposal Costs and Liabilities

No allowance has been made in our report for any charges, mortgages or amounts owing on the property interest nor for any expenses or taxations which may be incurred in effecting a sale.

Source of Information

We have relied to a very considerable extent on information given by the Company and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, occupancies, lettings, incomes, expenditures, floor area and all other relevant matters. We have not verified the correctness of any information, including their translation supplied to us concerning the property interest, whether in writing or verbally by the Company, the Company’s representatives or by the Company’s legal or professional advisers or by any (or any apparent) occupier of the property interest or contained on the register of title. We assume that this information is complete and correct. We were also advised by the Company that no material facts have been omitted from the information provided. We take no responsibility for the accuracy of the data provided to us and subsequent conclusions derived from such data.

Inspection

As the internal inspection is not available to us, we have conducted an external inspection of the property interest on 8 July 2019. The inspection was carried out by Ms. Tracy Wong, MHKIS, Senior Valuer, Valuation & Advisory under the supervision of Ms. Catherine Cheung, MRICS, MHKIS RPS(GP) RICS Registered Valuer, Director, Valuation & Advisory. Both of them are qualified valuers in Hong Kong. As such, we are unable to comment the interior condition of the property interest. We have assumed in our valuation that the property interest was in satisfactory exterior and interior decorative order without any unauthorised extension or structural alterations as at the Valuation Date, unless otherwise stated.

Identity of Property Interest to be valued

We have exercised reasonable care and skill (but will not have an absolute obligation to you) to ensure that the property interest, identified by the property address in your instructions, is the property interest inspected by us and contained within our valuation report. If there is ambiguity as to the property address, or the extent of the property interest to be valued, this should be drawn to our attention in your instructions or immediately upon receipt of our report.

Property Insurance

We have valued the property interest on the assumption that, in all respects, it is insurable against all usual risks including terrorism, flooding and rising water table at normal, commercially acceptable premiums.

VALUATION OF THE PROPERTY

APPENDIX V

Areas and Age

As instructed, we have relied upon the measurement on the registered floor plan for the saleable area of the property interest. For the age of the building where the property interest situates, we have relied upon the occupation permit of the building.

Structural and Services Condition

We were not instructed to undertake any structural surveys, test the services or arrange for any investigations to be carried out to determine whether any deleterious materials have been used in the construction of the property interest. Our valuation has therefore been undertaken on the assumption that the property interest was in satisfactory repair and condition and contains no deleterious materials and that services function satisfactorily.

Ground Condition

We have assumed there to be no unidentified adverse ground or soil conditions and that the load bearing qualities of the site of the property interest are sufficient to support the building constructed or to be constructed thereon; and that the services are suitable for any existing or future development. Our valuation is therefore prepared on the basis that no extraordinary expenses or delays will be incurred in this respect.

Environmental Issues

We are not environmental specialists and therefore we have not carried out any scientific investigations of sites or buildings to establish the existence or otherwise of any environmental contamination, nor have we undertaken searches of public archives to seek evidence of past activities that might identify potential for contamination. In the absence of appropriate investigations and where there is no apparent reason to suspect potential for contamination, our valuation is prepared on the assumption that the property interest is unaffected. Where contamination is suspected or confirmed, but adequate investigation has not been carried out and made available to us, then the valuation will be qualified.

Compliance with Relevant Ordinances and Regulations

We have assumed that the property interest valued had been constructed, occupied and used in full compliance with, and without contravention of any Ordinances, statutory requirement and notices except only where otherwise stated. We have further assumed that, for any use of the property interest upon which this report is based, any and all required licences, permits, certificates, consents, approvals and authorization have been obtained, except only where otherwise stated.

VALUATION OF THE PROPERTY

APPENDIX V

Remarks

In our valuations, Knight Frank has prepared the valuation based on information and data available to us as at the Valuation Date. While current market is influenced by various policies and regulations, increased complexity in social movements and international trade tensions geopolitics, has also resulted in more fluctuations in real estate market. It must be recognised changes in policy direction, mortgage requirements, social and international tensions could be immediate and have sweeping impact on the real estate market apart from typical market variations. It should therefore be noted that any market violation, policy, geopolitical and social changes or other unexpected incidents after the Valuation Date may affect the value of the property interest.

Currency

Unless otherwise stated, all monetary amounts stated in our valuation report are in Hong Kong dollars (HK$).

Our valuation report is herein attached.

Yours faithfully	Yours faithfully
For and on behalf of	For and on behalf of
Knight Frank Petty Limited	Knight Frank Petty Limited
Thomas Lam	Catherine Cheung
FRICS FHKIS RPS(GP) RICS Registered Valuer	MRICS MHKIS RPS(GP) RICS Registered Valuer
Executive Director, Head of Valuation & Advisory	Director, Valuation & Advisory

Notes: Thomas Lam is a qualified valuer who has 19 years of extensive experiences in market research, valuation and advisory in the People’s Republic of China, Hong Kong, Macau and Asia Pacific region.

Catherine Cheung is a qualified valuer who has over 20 years of extensive valuation experiences in Hong Kong, China, Macau and Asia Pacific region.

VALUATION OF THE PROPERTY

APPENDIX V

Valuation

Property

15th Floor, Katherine House, Nos 53-55 Chatham Road South, Tsim Sha Tsui, Kowloon, Hong Kong

157/3,300th shares of and in the Remaining Portion of Kowloon Inland Lot No 8118 and the Remaining Portion of Kowloon Inland Lot No 8449

Description and tenure

The property is an office unit within a 19-storey composite commercial/office development namely Katherine House (the “Development”) completed in 1989.

The Development is situated on the western side of Chatham Road South, between Cameron Road and Prat Avenue in Tsim Sha Tsui of Kowloon, Hong Kong.

The immediate locality is mainly dominated by commercial developments with some residential buildings as well as ancillary recreational facilities. Tsim Sha Tsui is one of the main shopping districts in Hong Kong, with large-scale shopping malls including K11, Harbour City, The One. The area is also flourished with restaurants, bars and nightclubs. The surrounding residential blocks are mostly aged though a few new residential developments are also be found scattered in the locality.

Particulars of occupancy

As advised by you, the property was previously occupied by ETC Finance Limited for office uses but was vacant as at the Valuation Date.

Market value in existing state as at 30 June 2019

HK$29,200,000 (Hong Kong Dollars Twenty Nine Million and Two Hundred Thousand)

Accessibility of the property is considered to be good with both MTR Tsim Sha Tsui station and MTR East Tsim Sha Tsui Station are within 10-minute walking distance from the Development.

According to the measurement on the registered floor plan, saleable area of the property is approximately 1,847 sq ft (171.59 sq m).

Kowloon Inland Lot No 8118 and Kowloon Inland Lot No 8449 are respectively held under Conditions of Re-Grant No UB6849 and UB7478 each for a term of 150 years commencing from 24 June 1889.

The total Government rent payable for the subject whole lots is HK$448 per annum.

VALUATION OF THE PROPERTY

APPENDIX V

Notes:

(1) According to the record obtained from the Land Registry, the registered owner of the property was ETC Finance Limited as at the Valuation Date.
(2) At the time of our recent land search, the following encumbrances were registered against the property:
(i) Occupation Permit No K21/89 vide memorial no UB4152541 dated 14 June 1989.
(ii) Memorandum of Designation vide memorial no UB7505658 dated 1 June 1998.
(iii) Memorandum of change of name of building vide memorial no 05120301180015 dated 8 October 2005.
(iv) Deed of Mutual Covenant incorporating Management Agreement with plans vide memorial no 13072602430096 in favour of Jones Lang Lasalle Management Services Limited (Manager) dated 28 June 2013.
(3) The property was situated within an area zoned as “Commercial (6)” uses under the Approved Tsim Sha Tsui Outline Zoning Plan No S/K1/28 dated 3 December 2013 as at the Valuation Date.

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Interest of Directors and chief executive

As at the Latest Practicable Date, the interests and short positions of each Director and chief executive of the Company in the Shares, underlying Shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which require notification to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he was deemed or taken to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be notified to the Company and the Stock Exchange were as follows:

(i) Long position in Shares

			Approximate
			percentage of
			interests to the
	Capacity and	Number of	existing issued
Directors	nature of interest	Shares held	share capital
			%
Mr. Ng Wee Keat	Discretionary	3,556,133,691	61.52
	beneficiary of a trust
	(Note 2)
	Through controlled	308,992,000	5.35
	corporation
	(Note 3)

GENERAL INFORMATION

APPENDIX VI

2. DISCLOSURE OF INTERESTS (continued)

(a) Interest of Directors and chief executive (continued)

(i) Long position in Shares (continued)

			Approximate
			percentage of
			interests to the
	Capacity and	Number of	existing issued
Directors	nature of interest	Shares held	share capital
			%
Ms. Sio Ion Kuan	Directly beneficially	52,000,000	0.90
	owned
	Discretionary	3,556,133,691	61.52
	beneficiary of a trust
	(Note 2)
	Through controlled	308,992,000	5.35
	corporation
	(Note 3)
Ms. Ng Siew Lang,	Discretionary	3,556,133,691	61.52
Linda	beneficiary of a trust
	(Note 2)
	Through controlled	308,992,000	5.35
	corporation
	(Note 3)
Ms. Lilian Ng	Discretionary	3,556,133,691	61.52
	beneficiary of a trust
	(Note 2)
	Through controlled	308,992,000	5.35
	corporation
	(Note 3)
Ms. Chen Ka Chee	Directly beneficially	8,400,000	0.15
	owned
Mr. Yu Wai Man	Directly beneficially	3,360,000	0.06
	owned

GENERAL INFORMATION

APPENDIX VI

2. DISCLOSURE OF INTERESTS (continued)

(a) Interest of Directors and chief executive (continued)
(i) Long position in Shares (continued)

Notes:

As at the Latest Practicable Date, the total number of issued shares of the Company was 5,780,368,705.
3,556,133,691 Shares were held by New Century Investment Pacific Limited which is ultimately owned by Huang Group (BVI) Limited under a discretionary trust of which Mr. Ng Wee Keat, Ms. Sio Ion Kuan, Ms. Ng Siew Lang, Linda and Ms. Lilian Ng are the discretionary beneficiaries.
308,992,000 Shares were held by New Century (Huang’s) Foundation Limited, a company limited by guarantee being a charitable institution of public character of which Mr. Ng Wee Keat, Ms. Sio Ion Kuan, Ms. Ng Siew Lang, Linda and Ms. Lilian Ng are members and members of its council of management.

(ii) Interests in share options

Share options granted to Directors and other employees which remain outstanding as at the Latest Practicable Date were as follows:

	Number of	Date of	Exercise	Exercise
	share options	grant of	period of	prices of
Name or category	as at the Latest	share	share	share
of participant	Practicable Date	options	options	options*
				HK$ per Share
Directors
Mr. Ng Wee Keat	45,000,000	21-01-2011	21-01-2011 to	0.2100
			20-01-2021
	21,000,000	03-09-2013	03-09-2013 to	0.1532
			02-09-2023
Ms. Sio Ion Kuan	45,000,000	21-01-2011	21-01-2011 to	0.2100
			20-01-2021
	11,000,000	03-09-2013	03-09-2013 to	0.1532
			02-09-2023
Ms. Ng Siew Lang,	35,000,000	21-01-2011	21-01-2011 to	0.2100
Linda			20-01-2021
	18,000,000	03-09-2013	03-09-2013 to	0.1532
			02-09-2023

GENERAL INFORMATION

APPENDIX VI

2. DISCLOSURE OF INTERESTS (continued)

(a) Interest of Directors and chief executive (continued)
- (ii) Interests in share options (continued)

	Number of	Date of	Exercise	Exercise
	share options	grant of	period of	prices of
Name or category	as at the Latest	share	share	share
of participant	Practicable Date	options	options	options*
				HK$ per Share
Ms. Lilian Ng	35,000,000	21-01-2011	21-01-2011 to	0.2100
			20-01-2021
	18,000,000	03-09-2013	03-09-2013 to	0.1532
			02-09-2023
Ms. Chen Ka Chee	25,000,000	21-01-2011	21-01-2011 to	0.2100
			20-01-2021
	16,000,000	03-09-2013	03-09-2013 to	0.1532
			02-09-2023
Mr. Yu Wai Man	28,000,000	21-01-2011	21-01-2011 to	0.2100
			20-01-2021
	16,000,000	03-09-2013	03-09-2013 to	0.1532
			02-09-2023
	313,000,000
Other employees
In aggregate	39,040,000	21-01-2011	21-01-2011 to	0.2100
			20-01-2021
	34,600,000	03-09-2013	03-09-2013 to	0.1532
			02-09-2023
Total	386,640,000

The exercise prices of the share options are subject to adjustment in the case of rights or bonus issues, or other similar changes in the Company’s share capital.

GENERAL INFORMATION

APPENDIX VI

2. DISCLOSURE OF INTERESTS (continued)

(a) Interest of Directors and chief executive (continued)
- (iii) Directorships and employment of the Directors with companies having discloseable interests

As at the Latest Practicable Date, so far as was known to the Directors, the Directors who were directors or employees of companies which had interests or short positions in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO were as follows:

(a) Mr. Ng Wee Keat, Ms. Sio Ion Kuan and Ms. Lilian Ng serve as directors of New Century Investment Pacific Limited;
(b) Mr. Ng Wee Keat and Ms. Sio Ion Kuan serve as directors of Huang Worldwide Holding Limited; and
(c) Mr. Ng Wee Keat, Ms. Sio Ion Kuan, Ms. Ng Siew Lang, Linda and Ms. Lilian Ng serve as members of the council of management of New Century (Huang’s) Foundation Limited.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in the Shares, underlying Shares and debentures of the Company or any of its associated corporations which require notification 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 he was deemed or taken to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be notified to the Company and the Stock Exchange; and none of the Directors was a director or employee of a company which 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 Divisions 2 and 3 of Part XV of the SFO.

GENERAL INFORMATION

APPENDIX VI

2. DISCLOSURE OF INTERESTS (continued)

(b) Interest of substantial Shareholders

As at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, the following persons, other than the Directors or chief executive of the Company as disclosed above, had interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group and the amount of each such person’s interest in such securities, together with particulars of any options in respect of such capital:

(i) Interests in the Company

		Approximate
		percentage of
		interests to the
	Number of	existing issued
Shareholders	Shares held	share capital	Notes
		%
New Century Investment Pacific
Limited	3,556,133,691	61.52	2, 4
Huang Worldwide Holding Limited	3,556,133,691	61.52	2
Huang Group (BVI) Limited	3,556,133,691	61.52	2, 3
Mr. Ng (Huang) Cheow Leng	4,252,185,691	73.56	3, 4
New Century (Huang’s) Foundation
Limited	308,992,000	5.35	4

Notes:

As at the Latest Practicable Date, the total number of issued shares of the Company was 5,780,368,705.
Huang Group (BVI) Limited is the ultimate holding company of New Century Investment Pacific Limited. Huang Worldwide Holding Limited is the immediate holding company of New Century Investment Pacific Limited. Accordingly, Huang Group (BVI) Limited and Huang Worldwide Holding Limited were deemed to be interested in a total of 3,556,133,691 Shares.
Huang Group (BVI) Limited is held by Mr. Ng (Huang) Cheow Leng in his capacity as the settlor and the trustee of a discretionary trust.
3,556,133,691 Shares were held by New Century Investment Pacific Limited. 308,992,000 Shares were held by New Century (Huang’s) Foundation Limited, while 387,060,000 Shares were held by Mr. Ng (Huang) Cheow Leng. Mr. Ng (Huang) Cheow Leng is one of the members of New Century (Huang’s) Foundation Limited. Accordingly, Mr. Ng (Huang) Cheow Leng was deemed to be interested in a total of 4,252,185,691 Shares. New Century (Huang’s) Foundation Limited is a company limited by guarantee being a charitable institution of public character.

GENERAL INFORMATION

APPENDIX VI

2. DISCLOSURE OF INTERESTS (continued)

(b) Interest of substantial Shareholders (continued)
(ii) Interests in other members of the Group

As at the Latest Practicable Date, so far as is known to any director or chief executive of the Company, the following persons (other than the Company, a director or the chief executive of the Company) were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of other members of the Group:

		Percentage of
		the existing issued
Shareholder	Member of the Group	share capital
		%
New Century Cruise Line	New Century Maritime Limited	40
International Limited

Save as disclosed above, no other person as at the Latest Practicable Date had interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group, or in any options in respect of such capital.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or been proposed to enter, into any service contract with the Company or any other member of the Enlarged Group which is not expiring or may not be determinable by the Enlarged Group within one year without payment of compensation (other than statutory compensation).

4. LITIGATION

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

GENERAL INFORMATION

APPENDIX VI

5. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) were entered into by members of the Enlarged Group within two years immediately preceding the Latest Practicable Date which are or may be material:

(a) a banking facility letter dated 21 June 2018 entered into between Hang Seng Bank Limited (“HSB”), Gaintech Investment Limited (“Gaintech”) and the Company in relation to the provision of loan facilities of up to HK$100,000,000 by HSB to Gaintech;
(b) the sale and purchase agreement dated 31 August 2018 entered into between Mr. Phee Peng Ghee and New Century Maritime Limited (“NCML”) in respect of the disposal by NCML of the entire issued shares in Jackston Maritime Limited and a shareholder’s loan of S$1,938,060.47 to Mr. Phee Peng Ghee at a consideration of US$2,200,000 or its HK$ equivalent calculated using the exchange rate of US$1.00 = HK$7.80; and
(c) the Agreement.

6. COMPETING INTEREST OF DIRECTORS AND CLOSE ASSOCIATES

As at the Latest Practicable Date, none of the Directors and their respective close associates was considered to have an interest in any business which competes or is likely to compete or have any other conflict of interest, either directly or indirectly, with the business of the Enlarged Group.

7. INTEREST OF DIRECTOR IN ASSETS ACQUIRED OR DISPOSED OF BY OR LEASED TO ANY MEMBERS OF THE ENLARGED GROUP

As at the Latest Practicable Date, save for Mr. Ng Wee Keat, Ms. Sio Ion Kuan, Ms. Ng Siew Lang, Linda and Ms. Lilian Ng, who are interested in the Agreement as disclosed in this circular, none of the Directors has or had any direct or indirect interest in any assets which had been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, any members of the Enlarged Group since 31 March 2019 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

8. CONTRACTS OR ARRANGEMENTS WHICH DIRECTORS ARE MATERIALLY INTERESTED AND ARE SIGNIFICANT IN RELATION TO THE BUSINESS OF THE ENLARGED GROUP

As at the Latest Practicable Date, save for Mr. Ng Wee Keat, Ms. Sio Ion Kuan, Ms. Ng Siew Lang, Linda and Ms. Lilian Ng, who are interested in the Agreement as disclosed in this circular, none of the Directors was materially interested, directly or indirectly, in any subsisting contract or arrangement which was significant in relation to the business of the Enlarged Group.

GENERAL INFORMATION

APPENDIX VI

9. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have been named in this circular or have given opinions or letters contained in this circular:

Name

Qualification

Able Capital Ernst & Young Certified Public Accountants Knight Frank Independent property valuers

Able Capital Partners Limited, a licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

As at the Latest Practicable Date, each of the above experts had given and had not withdrawn its written consent to the issue of this circular with the inclusion therein of its letter or report and references to its name, in the form and context in which it appears.

As at the Latest Practicable Date, to the best of the knowledge, information and belief of the Directors, each of the above experts was not beneficially interested in the share capital of any member of the Enlarged Group nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of the Enlarged Group nor did it have any interest, either direct or indirect, in any assets which have been, since the date to which the latest published audited financial statements of the Company were made up (i.e. 31 March 2019), 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 Enlarged Group.

10. MISCELLANEOUS

(i) The company secretary of the Company is Ms. Ng Suet Yi (“Ms. Ng”). Ms. Ng is an associate member of both of the Hong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries and Administrators. Ms. Ng has over 26 years of experience in company secretarial work;
(ii) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda;
(iii) The head office and principal place of business of the Company in Hong Kong is situated at Unit 3808, 38th Floor, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong;
(iv) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited, which is situated at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong; and
(v) In the event of inconsistency, the English text of this circular and the accompanying proxy form shall prevail over the Chinese text.

100

GENERAL INFORMATION

APPENDIX VI

11. DOCUMENTS FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company in Hong Kong at Unit 3808, 38th Floor, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong during normal business hours from the date of this circular up to and including the date of the SGM:

(a) the memorandum of association and bye-laws of the Company;
(b) the annual reports of the Company for the years ended 31 March 2017, 31 March 2018 and 31 March 2019;
(c) the accountants’ report on the financial information of the Target as set out in Appendix II to this circular;
(d) the report on unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV to this circular;
(e) the letter from the Independent Board Committee, the text of which is set out on page 16 of this circular;
(f) the letter from Able Capital, the text of which is set out on pages 17 to 34 of this circular;
(g) the valuation of the Property, the text of which is set out on pages 85 to 91 of this circular;
(h) the material contracts referred to in the section headed “Material contracts” in this appendix;
(i) the written consents referred to in the section headed “Experts and consents” in this appendix;
(j) this circular; and
(k) the Agreement.

101

NOTICE OF SGM

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(Incorporated in Bermuda with limited liability) (Stock Code: 234)

NOTICE IS HEREBY GIVEN that a special general meeting (the “Special General Meeting”) of New Century Group Hong Kong Limited (the “Company”) will be held at Plaza 1 & 2, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong on Tuesday, 24 September 2019 at 10:30 a.m. or immediately after the conclusion of the annual general meeting of the Company to be held on the same day at 10:00 a.m., for the purpose of considering and, if thought fit, passing the following resolution, with or without amendments, as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT :

(a) the sale and purchase agreement dated 18 June 2019 entered into among Huang Worldwide Holding Limited, New Century Investment Pacific Limited, A&C Amusement Limited and Able Sincere Limited in relation to the sale and purchase of 420,000,000 shares in ETC Finance Limited (the “Sale and Purchase Agreement”), a copy of which has been produced to this meeting marked “A” and signed by the chairman of the meeting for the purpose of identification, and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified; and
(b) the directors of the Company be and are hereby authorised to do all things and acts and sign all documents which they may consider necessary, desirable or expedient to implement and/or give effect to any matters relating to or in connection with the Sale and Purchase Agreement.”

By order of the Board Ng Suet Yi Company Secretary

Hong Kong, 23 August 2019

Head Office and Principal Place of Business in Hong Kong: Unit 3808, 38th Floor West Tower, Shun Tak Centre 168-200 Connaught Road Central Hong Kong

For identification purpose only

102

NOTICE OF SGM

Notes:

For determining the entitlement to attend and vote at the Special General Meeting, the register of members of the Company will be closed from Thursday, 19 September 2019 to Tuesday, 24 September 2019, both days inclusive, during which period, no transfer of shares will be effected. In order to be eligible to attend and vote at the Special General Meeting, all transfers of shares, accompanied by the relevant share certificates, must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, for registration not later than 4:30 p.m. on Wednesday, 18 September 2019.
Any member of the Company entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person as his proxy to attend and vote instead of him. A member of the Company who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company. In addition, a proxy or proxies representing either a member of the Company who is an individual or a member of the Company which is a corporation shall be entitled to exercise the same powers on behalf of the member of the Company which he or they represent as such member of the Company could exercise.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was duly authorised to sign such instrument of proxy on behalf of the corporation without further evidence of the fact.
The instrument appointing a proxy and (if required by the board of directors of the Company (the “Board”)) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to the Company’s principal place of business in Hong Kong at Unit 3808, 38th Floor, West Tower, Shun Tak Centre, 168–200 Connaught Road Central, Hong Kong not later than forty-eight (48) hours before the time appointed for holding the meeting (i.e. not later than 10:30 a.m. on Sunday, 22 September 2019 (Hong Kong time)) at which the person named in the instrument proposes to vote.
Delivery of an instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.
Where there are joint holders of any share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

As at the date of this notice, the Board comprises Mr. Ng Wee Keat (Chairman), Ms. Sio Ion Kuan (Deputy Chairman), Ms. Ng Siew Lang, Linda (Chief Operating Officer), Ms. Lilian Ng, Ms. Chen Ka Chee and Mr. Yu Wai Man as executive directors and Mr. Cheung Chun Kwok, Mr. Kwan Kai Kin, Kenneth and Mr. Ho Yau Ming as independent non-executive directors.

103

AI assistant

Founder Holdings Limited — Proxy Solicitation & Information Statement 2019

49203_rns_2019-08-23_3493e1a8-41d2-4e43-973d-453abff9156f.pdf

MAJOR AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF 60% EQUITY INTEREST IN ETC FINANCE LIMITED

Financial adviser to the Company

Optima Capital Limited

Able Capital Partners Limited

CONTENTS

DEFINITIONS

DEFINITIONS

[*]

MAJOR AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF 60% EQUITY INTEREST IN ETC FINANCE LIMITED

INTRODUCTION

THE AGREEMENT

Subject matter

Consideration

Adjustment to the Consideration

Conditions precedent

Completion

The Shareholders’ Agreement

Board composition and board resolutions

Restriction on transfer

Pre-emption on issue of shares

INFORMATION OF THE TARGET

Loan products

Credit policy

Loan application and credit assessment

LETTER FROM THE BOARD

Loan approval

Loan documentation and drawdown

Loan repayment

Delinquent account

Financial information

FINANCIAL EFFECT OF THE ACQUISITION

Effect on earnings

Effects on asset and liabilities

REASONS FOR AND BENEFITS OF THE ACQUISITION

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

GENERAL

CLOSURE OF REGISTER OF MEMBERS

RECOMMENDATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

MAJOR AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF 60% EQUITY INTEREST IN ETC FINANCE LIMITED

ABLE CAPITAL PARTNERS LIMITED

MAJOR AND CONNECTED TRANSACTION RELATING TO THE ACQUISITION OF 60% EQUITY INTEREST IN ETC FINANCE LIMITED

I. INTRODUCTION

LETTER FROM ABLE CAPITAL

II. BASIS OF OUR OPINION

III. PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information on the Group

2. Information on the Target

(a) Background of the Target

(b) Financial information of the Target

3. Industry overview

4. Reasons for and benefits of the Acquisition

5. Principal terms of the Agreement

LETTER FROM ABLE CAPITAL

6. Our assessment of the Consideration

LETTER FROM ABLE CAPITAL

Table A

LETTER FROM ABLE CAPITAL

Table B

Table C

Table D

7. Possible financial effects of the Acquisition on the Group

(a) Working capital

(b) Earnings

(c) NAV

IV. RECOMMENDATION

Ambrose Lam Director

1. FINANCIAL INFORMATION OF THE GROUP

2. INDEBTEDNESS STATEMENT

3. WORKING CAPITAL

4. MATERIAL ADVERSE CHANGE

5. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

DIRECTORS’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

REPORTING ACCOUNTANTS’ RESPONSIBILITY

OPINION

Founder Holdings Limited Proxy Solicitation & Information Statement 2019

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