Grand Baoxin Auto Group Limited - Proxy Solicitation & Information Statement 2017

THE 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 stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Grand Baoxin Auto Group Limited, you should at once hand this circular, together with the accompanying form of proxy, to the purchaser or to the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the 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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GRAND BAOXIN AUTO GROUP LIMITED 廣匯寶信汽車集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1293)

MAJOR AND CONNECTED TRANSACTIONS

DISPOSALS OF THE ENTIRE EQUITY INTEREST OF THE DISPOSAL COMPANIES

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

SOMERLEY CAPITAL LIMITED

A letter from the Board is set out on pages 5 to 17 of this circular. A letter from the Independent Board Committee is set out on page 18 of this circular. A letter from the Independent Financial Adviser is set out on pages 19 to 35 of this circular.

A notice convening the EGM to be held at No. 3998 Hongxin Road, Minhang District, Shanghai, the PRC at 10:30 a.m. on 29 June 2017 is set out on pages EGM-1 to EGM-2 of this circular.

Whether or not you are able to attend the EGM, please complete and return the enclosed proxy form in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time scheduled for holding the EGM (or any adjourned meeting thereof). Completion and delivery of the proxy form shall not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

12 June 2017

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Letter from	the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Appendix I	— Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	36
Appendix II	— General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Notice of the Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		46

– i –

DEFINITIONS

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

‘‘Articles’’
the articles of association of the Company, as amended, modified or supplemented from time to time
‘‘associate(s)’’
has the meaning ascribed thereto under the Listing Rules
‘‘Baoxin Finance’’
Baoxin Auto Finance I Limited, a company incorporated in British Virgin Islands with limited liability and a direct wholly-owned subsidiary of the Company
‘‘Baoxin Finance Disposal’’ the sale of the entire equity interest of Baoxin Finance in accordance with the terms of the Baoxin Finance Disposal Agreement
‘‘Baoxin Finance Disposal the sale and purchase agreement dated 24 May 2017 Agreement’’ between the Company and CGA HK in relation to the Baoxin Finance Disposal
‘‘Board’’ the board of directors of the Company
‘‘CGA’’ China Grand Automotive Services, Co., Ltd (廣匯汽車服務股份公司), a company established under the laws of the PRC, the shares of which are listed on the Shanghai Stock Exchange (SSE Stock Code: 600297)
‘‘CGA HK’’
China Grand Automotive Services (Hong Kong) Limited (廣匯汽車服務(香港)有限公司), a company incorporated in Hong Kong with limited liability, an indirect wholly-owned subsidiary of CGA and a connected person of the Company
‘‘CGA Limited’’
China Grand Automotive Services Co., Ltd. (廣匯汽車服務有限責任公司), a company established under the laws of the PRC and a wholly-owned subsidiary of CGA
‘‘Company’’ Grand Baoxin Auto Group Limited (廣匯寶信汽車集團有限公司), a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 1293)
‘‘connected person(s)’’
has the meaning ascribed thereto under the Listing Rules
‘‘connected transaction(s)’’
has the meaning ascribed thereto under the Listing Rules
‘‘controlling shareholder’’
has the meaning ascribed thereto under the Listing Rules

– 1 –

DEFINITIONS

‘‘Dalian Huiyu’’
Dalian Baoxin Huiyu Automobile Investments Management Co., Ltd.* (大連寶信匯譽汽車投資管理有限公司), a company established under the laws of the PRC and an indirect wholly-owned subsidiary of the Company
‘‘Dalian Huiyu Disposal’’ the Dalian Huiyu Disposal I and the Dalian Huiyu Disposal II
‘‘Dalian Huiyu Disposal I’’
the sale of the 25.55% equity interest of Dalian Huiyu in accordance with the terms of the Dalian Huiyu Disposal Agreement I
‘‘Dalian Huiyu Disposal II’’
the sale of the 74.45% equity interest of Dalian Huiyu in accordance with the terms of the Dalian Huiyu Disposal Agreement II
‘‘Dalian Huiyu Disposal Agreement I’’
the sale and purchase agreement dated 24 May 2017 between the Company and CGA HK in relation to the Dalian Huiyu Disposal I
‘‘Dalian Huiyu Disposal Agreement II’’
the sale and purchase agreement dated 24 May 2017 between the Shanghai Jida and Shanghai Huiyong in relation to the Dalian Huiyu Disposal II
‘‘Dalian Huiyu Disposal Agreements’’
the Dalian Huiyu Disposal Agreement I and the Dalian Huiyu Agreement Disposal II
‘‘Director(s)’’
the director(s) of the Company
‘‘Disposal Agreements’’ the Baoxin Finance Disposal Agreement and the Dalian Huiyu Disposal Agreements
‘‘Disposal Companies’’
Baoxin Finance and Dalian Huiyu
‘‘Disposals’’
the Baoxin Finance Disposal, the Dalian Huiyu Disposal I and the Dalian Huiyu Disposal II
‘‘EGM’’
the extraordinary general meeting of the Company to be convened and held on 29 June 2017 for the Independent Shareholders to consider and, if thought fit, to approve the Disposal Agreements as notifiable transactions under Chapter 14 of the Listing Rules and connected transactions under Chapter 14A of the Listing Rules
‘‘Group’’ the Company and its subsidiaries
‘‘HK$’’
Hong Kong dollars, the lawful currency of Hong Kong

– 2 –

DEFINITIONS

‘‘Hong Kong’’
‘‘Independent Board Committee’’
‘‘Independent Financial Adviser’’ or ‘‘Somerley’’
‘‘Independent Shareholder(s)’’
‘‘Latest Practicable Date’’
‘‘Listing Rules’’
‘‘Longstop Date’’
‘‘PBOC’’
‘‘PRC’’ or ‘‘China’’
‘‘RMB’’
‘‘Senior Perpetual Securities’’
‘‘SFO’’
the Hong Kong Special Administrative Region of the PRC
a committee under the Board which is established for the purpose of advising the Independent Shareholders on the Disposal Agreements, including independent non-executive Directors Mr. Diao Jianshen, Mr. Wang Keyi and Mr. Chan Wan Tsun Adrian Alan
Somerley Capital Limited, a corporation licensed under the SFO to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Disposal Agreements
the Shareholders other than those who have a material interest (within the meaning of the Listing Rules) in the Disposal Agreements or who are otherwise required to abstain from voting at the EGM under the Listing Rules
9 June 2017, being the latest practicable date for ascertaining certain information before the printing of this circular
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended, supplemented or otherwise modified from time to time
31 August 2017 or such other date as the parties to the Disposal Agreements may agree in writing
the Peoples’ Bank of China
the People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, Macau Special Administration Region of the PRC and Taiwan

the lawful currency of the PRC

US$300,000,000 and US$100,000,000 8.75% senior perpetual securities issued by Baoxin Finance on 16 December 2016 and 27 December 2016, respectively, which were guaranteed by CGA and its direct wholly-owned subsidiary, CGA HK
the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

– 3 –

DEFINITIONS

‘‘Shanghai Huiyong’’
Shanghai Huiyong Automotive Distribution Co., Ltd.* (上海匯湧汽車銷售有限公司), a company established under the laws of the PRC and a connected person of the Company
‘‘Shanghai Jida’’ Shanghai Jida Investments Management Co., Ltd.* (上海集達投資管理有限公司), a company established under the laws of the PRC and an indirect wholly-owned subsidiary of the Company
‘‘Share(s)’’
share(s) in the share capital of the Company, with a nominal value of HK$0.01 each
‘‘Shareholder(s)’’ holder(s) of the Shares
‘‘Shareholder’s Loan’’ Shareholder’s loan in the amount of approximately RMB5,249 million (equivalent to approximately HK$5,898 million) advanced by Dalian Huiyu to Shanghai Jida
‘‘subsidiary’’ or ‘‘subsidiaries’’
has the meaning ascribed thereto in section 15 of the Companies Ordinance (Chapter 622 of the laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
‘‘substantial shareholder(s)’’ has the meaning ascribed thereto in the Listing Rules
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘United States’’
the United States of America, it’s territories and possessions, any State of the United States and the District of Columbia
‘‘US$’’ the lawful currency of the United States of America ‘‘%’’ percentage ratio

Unless the context requires otherwise, for the purpose of illustration only, amounts denominated in RMB have been converted into HK$ at an exchange rate of RMB0.89 = HK$1 and amounts denominated in US$ have been converted into HK$ at an exchange rate of US$0.13 = HK$1. Such exchange rates are for the purpose of illustration only and do not constitute a representation that any amount has been, could have been or may be converted at the above rate and any other rates or at all.

For identification purposes only

– 4 –

LETTER FROM THE BOARD

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GRAND BAOXIN AUTO GROUP LIMITED 廣匯寶信汽車集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1293)

Executive Directors:

Mr. Li Jianping (Chairman) Mr. Wang Xinming (President) Mr. Lu Ao Mr. Qi Junjie

Non-executive Directors: Mr. Zhou Yu Mr. Lu Linkui

Independent non-executive Directors: Mr. Diao Jianshen Mr. Wang Keyi Mr. Chan Wan Tsun Adrian Alan

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTIONS

DISPOSALS OF THE ENTIRE EQUITY INTEREST OF THE DISPOSAL COMPANIES

I INTRODUCTION

The main purposes of this circular are:

(a) to provide you with further information relating to the Disposal Agreements, which constitute major transactions and connected transactions of the Company;
(b) to set out the letter of advice from Somerley to the Independent Board Committee and the Independent Shareholders as well as the recommendation and opinion of the Independent Board Committee as advised by Somerley in relation to the Disposal Agreements; and

– 5 –

LETTER FROM THE BOARD

II THE DISPOSAL AGREEMENTS

1. Introduction

The Board is pleased to announce that on 24 May 2017 (after trading hours), the Company and Shanghai Jida, a wholly-owned subsidiary of the Company, entered into the following agreements for the proposed disposal of the entire equity interests of the Disposal Companies:

the Company entered into the Baoxin Finance Disposal Agreement with CGA HK, pursuant to which the Company has conditionally agreed to sell, and CGA HK has conditionally agreed to purchase, the entire equity interest of Baoxin Finance;
the Company entered into the Dalian Huiyu Disposal Agreement I with CGA HK, pursuant to which the Company has conditionally agreed to sell, and CGA HK has conditionally agreed to purchase, 25.55% of the equity interest of Dalian Huiyu; and
Shanghai Jida entered into the Dalian Huiyu Disposal Agreement II with Shanghai Huiyong, pursuant to which Shanghai Jida has conditionally agreed to sell, and Shanghai Huiyong has conditionally agreed to purchase, 74.45% of the equity interest of Dalian Huiyu.

The aggregate consideration under the Disposal Agreements is approximately RMB5,250 million (equivalent to approximately HK$5,899 million).

Completion of the Baoxin Financial Disposal, the Dalian Huiyu Disposal I and the Dalian Huiyu Disposal II are inter-conditional to each other as to approval by the Independent Shareholders at the EGM. Upon completion of the Disposals, Baoxin Finance and Dalian Huiyu shall cease to be subsidiaries of the Company.

2. Key Terms of the Baoxin Finance Disposal Agreement

The key terms of the Baoxin Finance Disposal Agreement are as follows:

(a) Date

24 May 2017

(b) Parties

Vendor: (1) the Company Purchaser: (2) CGA HK

– 6 –

LETTER FROM THE BOARD

(c) Assets to be disposed of

The entire equity interest of Baoxin Finance, which was incorporated by the Company as the issuer of the senior perpetual securities.

(d) Disposal Consideration

The consideration for the Baoxin Finance Disposal is a nominal amount of US$1 (equivalent to approximately HK$8) in cash, which has been determined after arm’s length negotiations among the parties with reference to the management accounts of Baoxin Finance as at 31 December 2016 and the negative net asset value of Baoxin Finance of approximately RMB10 million (equivalent to approximately HK$11 million) as at 31 December 2016.

As a result of the Baoxin Finance Disposal, the Company expects to record a total gain of approximately RMB10 million (equivalent to approximately HK$11 million). Such estimated gain on disposal is calculated by reference to the consideration for the Baoxin Finance Disposal of US$1 (equivalent to approximately HK$8), and the negative net asset value of Baoxin Finance as at 31 December 2016. This estimated gain is for illustration purpose only and is subject to the review by the Company’s independent auditors and will be reflected in the annual report of the financial year in which the completion of the Baoxin Finance Disposal takes place.

(e) Disposal Condition

Completion of the Baoxin Finance Disposal is conditional upon the approval by the Independent Shareholders at the EGM in relation to the Baoxin Finance Disposal Agreement and the Dalian Huiyu Disposal Agreements having been obtained on or before the Longstop Date. The condition of the Baoxin Finance Disposal cannot be waived by any party.

If the condition of the Baoxin Finance Disposal remains not satisfied by the Longstop Date, the Baoxin Finance Disposal Agreement shall automatically terminate and the parties’ rights and obligations under the Baoxin Finance Disposal Agreement shall cease immediately and no party shall have any rights to claim against any other party, save that the provisions relating to confidentiality shall survive.

(f) Completion

Pursuant to the Baoxin Finance Disposal Agreement, the completion of the Baoxin Finance Disposal shall take place on the first business day following the satisfaction of the condition of the Baoxin Finance Disposal or such other date as the parties may agree.

– 7 –

LETTER FROM THE BOARD

3. Key Terms of the Dalian Huiyu Disposal Agreement I

The key terms of the Dalian Huiyu Disposal Agreement I are as follows:

(a) Date

24 May 2017

(b) Parties

Vendor: (1) the Company Purchaser: (2) CGA HK

(c) Assets to be disposed of
25.55% of the equity interest of Dalian Huiyu.

(d) Disposal Consideration

The consideration for the Dalian Huiyu Disposal I is a nominal amount of RMB1 (equivalent to approximately HK$1) in cash. Following the completion of the Dalian Huiyu Disposal, CGA HK shall be liable to Dalian Huiyu for shareholder’s capital contribution obligations in respect of the 25.55% equity interest of Dalian Huiyu (which capital contribution has not been made by the Company as at the date of this circular). Pursuant to the articles of association of Dalian Huiyu, the capital contribution in respect of the Company’s 25.55% equity interest of Dalian Huiyu is required to be contributed by the Company on or before 31 December 2017, which has not been made by the Company as at the date of this circular.

The consideration for the Dalian Huiyu Disposal I has been determined after arm’s length negotiations among the parties with reference to that the Company has not made shareholder’s capital contribution to Dalian Huiyu as at the date of this circular.

(e) Disposal Condition

Completion of the Dalian Huiyu Disposal I is conditional upon the approval by the Independent Shareholders at the EGM in relation to the Baoxin Finance Disposal Agreement and the Dalian Huiyu Disposal Agreements having been obtained on or before the Longstop Date. The condition of the Dalian Huiyu Disposal I cannot be waived by any party.

If the condition of the Dalian Huiyu Disposal I remains not satisfied by the Longstop Date, the Dalian Huiyu Disposal Agreement I shall automatically terminate and the parties’ rights and obligations under the Dalian Huiyu Disposal Agreement I shall cease immediately and no party shall have any rights to claim against any other party, save that the provisions relating to confidentiality shall survive.

– 8 –

LETTER FROM THE BOARD

(f) Completion

Pursuant to the Dalian Huiyu Disposal Agreement I, the completion of the Dalian Huiyu Disposal I shall take place on the first business day following the satisfaction of the condition of the Dalian Huiyu Disposal I or such other date as the parties may agree.

4. Key Terms of the Dalian Huiyu Disposal Agreement II

The key terms of the Dalian Huiyu Disposal Agreement II are as follows:

(a) Date

24 May 2017

(b) Parties

Vendor: (1) Shanghai Jida Purchaser: (2) Shanghai Huiyong

(c) Assets to be disposed of

74.45% of the equity interest of Dalian Huiyu.

(d) Disposal Consideration

The consideration for the Dalian Huiyu Disposal II is RMB5,250 million (equivalent to approximately HK$5,899 million), which shall be satisfied by (i) Shanghai Huiyong paying RMB1 million (approximately HK$1 million) to Shanghai Jida in cash and (ii) Shanghai Jida transferring all of its rights and obligations under the Shareholder’s Loan to Shanghai Huiyong. The amount of the Shareholder’s Loan of approximately RMB5,249 million (equivalent to approximately HK$5,898 million) was originally advanced by Dalian Huiyu to Shanghai Dingxin Financial Leasing Co., Ltd (上海鼎信融資租賃有限公司) (‘‘Dingxin Leasing’’), a wholly-owned subsidiary of the Company and principally engaged in the finance leasing business which is capital intensive (the ‘‘Dingxin Leasing Loan’’). The Dingxin Leasing Loan was subsequently restructured among Dalian Huiyu, Shanghai Jida and Dingxin Leasing, such that Shanghai Jida (which holds 74.45% of the equity interest of Dalian Huiyu as at the Latest Practicable Date) owes the amount of the Shareholder’s Loan to Dalian Huiyu. As part of the consideration for the Dalian Huiyu Disposal II, Shanghai Jida shall transfer all of its rights and obligations under the Shareholder’s Loan to Shanghai Huiyong. Therefore, upon the completion of the Disposals, the Shareholders’ Loan will be owed by Shanghai Huiyong to Dalian Huiyu, both of which entities are outside the scope of the Group.

– 9 –

LETTER FROM THE BOARD

As a result of the Dalian Huiyu Disposal, the Company expects to record a total gain of approximately RMB3 million (equivalent to approximately HK$3 million). Such estimated gain on disposal is calculated by reference to the aggregate consideration for the Dalian Huiyu Disposal I and the Dalian Huiyu Disposal II of approximately RMB5,250 million (equivalent to approximately HK$5,899 million), and the net asset value of Dalian Huiyu as at 31 December 2016. This estimated gain is for illustration purpose only and is subject to the review by the Company’s independent auditors and will be reflected in the annual report of the financial year in which the completion of the Dalian Huiyu Disposal takes place.

(e) Disposal Condition

Completion of the Dalian Huiyu Disposal II is conditional upon the approval by the Independent Shareholders at the EGM in relation to the Baoxin Finance Disposal Agreement and the Dalian Huiyu Disposal Agreements having been obtained on or before the Longstop Date. The condition of the Dalian Huiyu Disposal II cannot be waived by any party.

If the condition of the Dalian Huiyu Disposal II remains not satisfied by the Longstop Date, the Dalian Huiyu Disposal Agreement II shall automatically terminate and the parties’ rights and obligations under the Dalian Huiyu Disposal Agreement II shall cease immediately and no party shall have any rights to claim against any other party, save that the provisions relating to confidentiality shall survive.

(f) Completion

Pursuant to the Dalian Huiyu Disposal Agreement II, the completion of the Dalian Huiyu Disposal II shall take place on the first business day following the satisfaction of the condition of the Dalian Huiyu Disposal II or such other date as the parties may agree.

5. Reasons for and Benefits of the Disposals

Baoxin Finance was incorporated by the Company as the issuer of the Senior Perpetual Securities. The proceeds from the issuance of the Senior Perpetual Securities have been on-lent by Baoxin Finance to Dalian Huiyu (a company incorporated in the PRC) in order for Dalian Huiyu to further on-lend such proceeds to 4S stores of the Group in the PRC via entrustment loans at nil interest rate (the ‘‘4S Store Loans’’) to fund the Group’s principal business of operating 4S dealership stores in the PRC. As disclosed in the announcements of the Company dated 9 December 2016 and 19 December 2016, the Senior Perpetual Securities were guaranteed by CGA and CGA HK.

– 10 –

LETTER FROM THE BOARD

Subject to the completion of the Disposals, the 4S Store Loans will be amended to document the on-lending of the proceeds from the issuance of the Senior Perpetual Securities from Dalian Huiyu to such 4S stores of the Group, with the interest rate applicable to such loans being set with reference to the benchmark interest rate prescribed by the PBOC from time to time for the same type of loans, and which shall not be higher than the interest rates applicable to the same type of loans obtained by the Group from other domestic commercial banks in the PRC in the same period (the ‘‘Amended 4S Store Loans’’). No security over the assets of the Group will be required for such loans. As such loans will be on normal commercial terms and not to be secured by the assets of the Group, such transactions will be fully exempt from the reporting, annual review, announcement and independent shareholders’ approval requirements for continuing connected transactions under Rule 14A.90 of the Listing Rules. Such on-lending arrangement is for the purpose of centralizing the management of the lending of the proceeds from the issuance of the Senior Perpetual Securities.

The Senior Perpetual Securities were classified as a non-current liability item in the Group’s consolidated statement of financial position as at 31 December 2016. After reviewing the financial position of the Group, the Directors consider that the Disposals will enable the Group to reduce the interest expenses payable by the Group in respect of the indebtedness of the Group following the completion of the Disposals while still being able to use the proceeds from the issuance of the Senior Perpetual Securities, as the interest rate under the Amended 4S Store Loans is expected to be lower than the interest rate of the Senior Perpetual Securities (which is currently 8.75% per annum).

– 11 –

LETTER FROM THE BOARD

Immediately before completion of the Disposals

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

CGA
100%
CGA Limited
49.37% 50.63%
Shanghai Huiyong
100%
CGA HK
75%
Company
100% (through
intermediate
holding entities)
Shanghai Jida
100%
74.45% 25.55%
4S stores of Dalian Huiyu Baoxin Finance
the Group Proceeds of Senior Proceeds of Senior Perpetual Securities)(Issuer of Senior
Perpetual Perpetual
Securities Securities
----- End of picture text -----

– 12 –

LETTER FROM THE BOARD

Immediately after completion of the Disposals

==> picture [427 x 359] intentionally omitted <==

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

CGA
100%
CGA Limited
49.37% 50.63%
Shanghai Huiyong
100%
CGA HK
75% 100% 25.55% 74.45%
Company Baoxin Finance Dalian Huiyu
(Issuer of Sen i or Proceeds of
100% (through 100% Perpetual Securities) Senior
intermediate Perpetual
holding entities) Securities
Shanghai Jida
4S stores of
the Group Proceeds of Senior Perpetual Securities
----- End of picture text -----

Use of Proceeds

The cash proceeds arising from the Disposals of approximately RMB1 million (approximately HK$1 million) will be used as general working capital of the Group.

7. Listing Rules Implications of the Disposal Agreements

As certain applicable percentage ratios for the Disposal Agreements are more than 25% but less than 75%, the Disposals constitute major transactions for the Company and are subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

In addition, as at the date of this circular, CGA HK holds 1,917,983,571 Shares, representing approximately 75% of the shares in the Company, and it is therefore a controlling shareholder of the Company. Shanghai Huiyong holds 100% of the shares of CGA HK, and it is therefore a connected person of the Company under the Listing Rules. Accordingly, the Disposals constitute connected transactions for the Company and are subject to the reporting, announcement and the independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

– 13 –

LETTER FROM THE BOARD

8. Effects on Earnings, Assets and Liabilities of the Group

The Senior Perpetual Securities were classified as a non-current liability item in the Group’s consolidated statement of financial position as at 31 December 2016. After reviewing the financial position of the Group, the Directors consider that the Disposals will enable the Group to reduce the interests expenses payable by the Group in respect of the indebtedness of the Group following the completion of the Disposals while still being able to use the proceeds from the issuance of the Senior Perpetual Securities, as the interest rate under the Amended 4S Store Loans is expected to be lower than the interest rate of the Senior Perpetual Securities (which is currently 8.75% per annum), and therefore, the Group’s earnings are expected to increase by the amount of such reduction in interest payment. The Disposals will not reduce the non-current liabilities of the Group as the Amended 4S Store Loans will still be classified as non-current liabilities of the Group.

With respect to the effect on the assets of the Group, please refer to the paragraphs headed ‘‘(d) Disposal Consideration’’ in the summary of the key terms of each of the Disposal Agreements.

9. Approval of the Disposal Agreements by Directors and Independent Shareholders

Mr. Li Jianping (chairman of the board of CGA), Mr. Wang Xinming (a director and the president of CGA), Mr. Lu Ao (a vice president and chief financial officer of CGA), Mr. Qi Junjie (the secretary of the party committee of CGA) and Mr. Zhou Yu (a vice president of CGA) all serve at CGA. They have abstained from voting on the Board resolution for considering and approving the Disposal Agreements. Save as disclosed above, there are no other Directors who have any material interest in the Disposal Agreements and no other Directors needed to abstain from voting on the Board resolution for considering and approving the Disposal Agreements.

According to the Listing Rules, the Independent Board Committee has been formed. After considering the advice from the Independent Financial Adviser, the Independent Board Committee will advise the Independent Shareholders on the fairness and reasonableness of the Disposal Agreements, whether they are in the interests of the Company and the Shareholders as a whole, and how to vote. To the best of the Directors’ knowledge, information and belief after making all due enquiry, no member of the Independent Board Committee has any material rights or interests in the Disposal Agreements.

Somerley Capital Limited has been appointed as the Independent Financial Adviser and will advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the Disposal Agreements and whether they are in the interests of the Company and the Shareholders as a whole. It will also advise the Independent Shareholders on how to vote and other relevant issues.

– 14 –

LETTER FROM THE BOARD

The Company will convene the EGM to seek the Independent Shareholders’ approval on the Disposal Agreements. CGA HK (which holds 1,917,983,571 Shares, representing approximately 75% of the Shares as at the Latest Practicable Date) will abstain from voting at the EGM in respect of the ordinary resolution of the above issue. CGA HK controls the voting rights of its Shares.

10. General Information

The Group and Shanghai Jida

The Group is a leading luxury 4S dealership group in the PRC and is principally engaged in the sale and service of motor vehicles. Shanghai Jida is an investment holding company established under the laws of the PRC and an indirect wholly-owned subsidiary of the Company as at the date of this circular.

CGA HK and Shanghai Huiyong

CGA HK is an investment holding company incorporated in Hong Kong with limited liability and is wholly owned by Shanghai Huiyong. Shanghai Huiyong was established under the laws of the PRC and is an investment holding company as at the date of this circular. Both CGA HK and Shanghai Huiyong are indirect whollyowned subsidiaries of CGA. CGA is a leading passenger vehicle dealership and automobile service group and a leading passenger vehicle finance leasing provider in the PRC.

The Disposal Companies

Information on Baoxin Finance

Baoxin Finance is a company incorporated in British Virgin Islands with limited liability on 27 October 2016 and is a direct wholly-owned subsidiary of the Company as at the date of this circular. Baoxin Finance was established for the purposes of issuing the Senior Perpetual Securities and on-lending and investing the proceeds from the issuance of the Senior Perpetual Securities to the Group. Since its incorporation, Baoxin Finance has not engaged in any activities other than those relating to such purposes up to the Latest Practicable Date.

Based on the management accounts of Baoxin Finance as at 31 December 2016, the negative net asset value of Baoxin Finance was approximately RMB10 million (equivalent to approximately HK$11 million).

– 15 –

LETTER FROM THE BOARD

Set out below is the financial information of Baoxin Finance for the period from 27 October 2016 (being the date of incorporation of Baoxin Finance) to 31 December 2016 as extracted from its management accounts prepared in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (‘‘HKASs’’) and Interpretations):

			For the period
			from 27 October
			2016
			to 31 December
			2016
			RMB’000
Net	loss	before taxation and extraordinary items	(10,352)
Net	loss	after taxation and extraordinary items	(10,352)

The net loss of Baoxin Finance for the period from 21 November 2016 (being the date of incorporation of Dalian Huiyu) to 31 December 2016 was mainly attributable to expenses incurred in connection with the issuance of the Senior Perpetual Securities and the interest payable under the Senior Perpetual Securities prior to the proceeds of the Senior Perpetual Securities being on-lent to Dalian Huiyu.

Pursuant to the terms of the Senior Perpetual Securities, Baoxin Finance is expected to make an interest payment under the Senior Perpetual Securities on or around 15 June 2017 (‘‘2017 Interim Interest Payment’’). The Company will make the 2017 Interim Interest Payment on behalf of Baoxin Finance, on the basis that the proceeds of the Senior Perpetual Securities have been used by the Group.

Information on Dalian Huiyu

Dalian Huiyu is a company established under the laws of the PRC on 21 November 2016 and is an indirect wholly-owned subsidiary of the Company as at the date of this circular. The proceeds from the issuance of the Senior Perpetual Securities have been on-lent by Baoxin Finance to Dalian Huiyu. Dalian Huiyu has conducted no business operation since its incorporation and up to the Latest Practicable Date.

Based on the management accounts of Dalian Huiyu as at 31 December 2016, the net asset value of Dalian Huiyu was approximately RMB5,247 million (equivalent to approximately HK$5,896 million).

– 16 –

LETTER FROM THE BOARD

Set out below is the financial information of Dalian Huiyu for the period from 21 November 2016 (being the date of incorporation of Dalian Huiyu) to 31 December 2016 as extracted from its management accounts prepared in accordance with HKFRSs (which include all Hong Kong Financial Reporting Standards, HKASs and Interpretations):

For the period from 21 November 2016 to 31 December 2016 RMB’000 Net loss before taxation and extraordinary items (2,661) Net loss after taxation and extraordinary items (2,661)

III RECOMMENDATION

The Directors (including all independent non-executive Directors) considered that the terms of the Disposal Agreements are (i) on normal commercial terms and (ii) fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Therefore, the Board recommends the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM. As mentioned above, Somerley Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders.

Your attention is drawn to the letter from the Independent Board Committee and the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders which are set out on page 18 and pages 19 to 35 of this circular, respectively. The Independent Board Committee, having taken into account the advice of Somerley Capital Limited, considers that the terms of the Disposal Agreements are (i) on normal commercial terms and (ii) fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Therefore, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM.

IV ADDITIONAL INFORMATION

Your attention is drawn to the financial and general information set out in the Appendix I and Appendix II to this circular.

By order of the Board Grand Baoxin Auto Group Limited Mr. Li Jianping Chairman

The PRC 12 June 2017

– 17 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [75 x 75] intentionally omitted <==

GRAND BAOXIN AUTO GROUP LIMITED 廣匯寶信汽車集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1293)

12 June 2017

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTIONS

DISPOSALS OF THE ENTIRE EQUITY INTEREST OF THE DISPOSAL COMPANIES

We refer to the circular of the Company dated 12 June 2017 (the ‘‘Circular’’) despatched to the Shareholders of which this letter forms part. Unless the context requires otherwise, terms and expressions in this letter shall have the same meanings as those defined in the Circular.

We have been appointed to advise the Independent Shareholders on whether the Disposal Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Somerley Capital Limited has been appointed to advise the Independent Board Committee and the Independent Shareholders on the Disposal Agreements.

We wish to draw your attention to the letter from the Board as set out on pages 5 to 17 of the Circular and the letter from the Independent Financial Adviser as set out on pages 19 to 35 of the Circular.

Having considered the advice given by the Independent Financial Adviser, we are of the opinion that the terms of the Disposal Agreements are (i) on normal commercial terms and (ii) fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Therefore, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the EGM.

Yours faithfully,

For and on behalf of the Independent Board Committee Diao Jianshen Wang Keyi Chan Wan Tsun Adrian Alan

Independent Non-Executive Directors

– 18 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from Somerley Capital Limited to the Independent Board Committee and the Independent Shareholders in relation to the Disposals, which has been prepared for the purpose of inclusion in this circular.

SOMERLEY CAPITAL LIMITED

20th Floor China Building 29 Queen’s Road Central Hong Kong

12 June 2017

To: The Independent Board Committee and the Independent Shareholders

Dear Sirs,

MAJOR AND CONNECTED TRANSACTIONS DISPOSALS OF THE ENTIRE EQUITY INTERESTS OF THE DISPOSAL COMPANIES

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in connection with the Disposal Agreements and the transactions contemplated therein. Details of the Disposal Agreements are set out in the letter from the Board contained in the circular of the Company (the ‘‘Circular’’) to its shareholders dated 12 June 2017, of which this letter forms part. Unless otherwise defined, terms used in this letter shall have the same meanings as those defined in the Circular.

As stated in the letter from the Board in the Circular, on 24 May 2017 (after trading hours), the Company and Shanghai Jida, a wholly-owned subsidiary of the Company, entered into the following agreements for the proposed disposal of the entire equity interests of the Disposal Companies:

the Company entered into the Baoxin Finance Disposal Agreement with CGA HK, pursuant to which the Company has conditionally agreed to sell, and CGA HK has conditionally agreed to purchase, the entire equity interest of Baoxin Finance, which was incorporated by the Company as the issuer of the senior perpetual securities;
the Company entered into the Dalian Huiyu Disposal Agreement I with CGA HK, pursuant to which the Company has conditionally agreed to sell, and CGA HK has conditionally agreed to purchase, 25.55% of the equity interest of Dalian Huiyu; and
Shanghai Jida entered into the Dalian Huiyu Disposal Agreement II with Shanghai Huiyong, pursuant to which Shanghai Jida has conditionally agreed to sell, and Shanghai Huiyong has conditionally agreed to purchase, 74.45% of the equity interest of Dalian Huiyu.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The aggregate consideration under the Disposal Agreements is approximately RMB5,250 million (equivalent to approximately HK$5,899 million).

In addition, as at the Latest Practicable Date, CGA HK holds approximately 75% of the shares in the Company, and it is therefore a controlling shareholder of the Company. Shanghai Huiyong holds 100% of the shares of CGA HK, and it is therefore a connected person of the Company under the Listing Rules. Accordingly, the Disposals constitute connected transactions for the Company and are subject to the reporting, announcement and the independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Diao Jianshen, Mr. Wang Keyi and Mr. Chan Wan Tsun Adrian Alan, has been established to make a recommendation to the Independent Shareholders as to whether the terms of the Disposal Agreements and the transactions contemplated thereunder are on normal commercial terms, in the ordinary and usual course of business of the Company and are fair and reasonable and in the interests of the Company and its shareholders as a whole. Somerley Capital Limited has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in the same regard.

We are not associated or connected with the Company, Shanghai Jida, CGA HK, Shanghai Huiyong or their respective core connected persons or associates and, accordingly, are considered eligible to give independent advice on the Disposal Agreements. In the last two years, except for independent financial adviser engagements in relation to (i) the voluntary conditional cash partial offer and option offer by CMB International Capital Limited on behalf of China Grand Automotive Services (Hong Kong) Limited (the ‘‘Offeror’’) to acquire a maximum of 75 per cent of the issued share capital of the Company from qualifying shareholders and to cancel a maximum of 75 per cent of the outstanding share options of the Company (details of which were set out in the composite offer and response document jointly issued by the Offeror, the Company and CGA dated 31 May 2016; (ii) the disposal of a 70% equity interest in Wuxi Kailong Real Estate Co., Ltd.* (無錫開隆置業有限公司) by the Group to a connected person of the Company (details of such transaction were set out in the Company’s announcement dated 28 December 2016); and (iii) the sale and leaseback framework agreement dated 24 January 2017 (as amended by the supplemental agreement and from time to time) entered into between All Trust Leasing Company Limited (匯通信誠租賃有限公司, a wholly-owned subsidiary of CGA) and Shanghai Dingxin Financial Leasing Co., Ltd (上海鼎信融資租賃有限公司, a wholly-owned subsidiary of the Company) (details of which were set out in the Company’s circular dated 24 February 2017), there has been no other engagement between the Group and Somerley Capital Limited. We do not consider that the past and existing engagements as independent financial adviser give rise to any conflict for Somerley Capital Limited acting as the independent financial adviser in respect of the Disposals. Apart from normal professional fees payable to us in connection with this

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

appointment, no arrangement exists whereby we will receive any fees or benefits from the Company, Shanghai Jida, CGA HK, Shanghai Huiyong or their respective core connected persons or associates.

In formulating our advice and recommendation, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Group (the ‘‘Management’’), which we have assumed to be true, accurate and complete in all material aspects. We have reviewed the information on the Group, including but not limited to, (i) the Disposal Agreements, (ii) annual reports of the Company for the years ended 31 December 2015 (the ‘‘2015 Annual Report’’) and 31 December 2016 (the ‘‘2016 Annual Report’’) and (iii) other information contained in the Circular.

In addition, we have relied on the information and facts supplied, and the opinions expressed, by the Group and have assumed to be true, accurate and complete in all material aspects and will remain to be true, accurate and complete in all material aspects up to the date of the EGM. We have also sought and received confirmation from the Group that no material facts have been omitted from the information supplied by them and that their opinions expressed to us are not misleading in any material respect. We consider that the information we have received is sufficient for us to formulate our opinion and recommendation as set out in this letter and have no reason to believe that any material information has been omitted or withheld, nor to doubt the truth or accuracy of the information provided to us. We have not, however, conducted any independent investigation into the business and affairs of the Group, nor have we carried out any independent verification of the information supplied.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation with regard to the Disposal Agreements, we have taken into account the following principal factors and reasons:

1. Information on the Group

The Company is incorporated in the Cayman Islands with limited liability, the Shares of which have been listed on the Main Board of the Hong Kong Stock Exchange since 14 December 2011. The Group is a leading luxury 4S dealership group in the PRC and is principally engaged in the sale and service of motor vehicles.

Shanghai Jida is an investment holding company established under the laws of the PRC and an indirect wholly-owned subsidiary of the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(a) Historical financial performance of the Group

Set out below are the consolidated statements of profit or loss for the three years ended 31 December 2016, details of which are set out in the 2015 Annual Report and the 2016 Annual Report:

Revenue
— Sale of motor vehicles
— Finance leasing services
— After-sales services
Cost of sales and services provided
Gross profit
Other income and gains, net
Selling and distribution expenses
Administrative expenses
Profit from operations
Finance costs
Share of profit of a joint venture
Share of (loss)/profit of an associate
Profit before tax
Income tax expense
Profit for the year
Attributable to
— owners of the Company
— non-controlling interests

For the financial year ended
31 December
2016
2015
2014
RMB’000
RMB’000
RMB’000
(audited)
(audited)
(audited)
22,862,434
20,758,358
27,662,990
4,366
6,181
908
2,836,887
3,011,922
3,059,534
25,703,687
23,776,461
30,723,432
(23,668,945) (21,587,955) (27,935,772)
2,034,742
2,188,506
2,787,660
523,990
357,311
454,574
(877,890)
(977,024)
(983,221)
(607,515)
(643,434)
(608,813)
1,073,327
925,359
1,650,200
(486,540)
(540,111)
(617,234)
5,795
5,830
6,783
(137)
(16,151)
—
592,445
374,927
1,039,749
(172,583)
(150,656)
(326,115)
419,862
224,271
713,634
417,189
220,094
706,644
2,673
4,177
6,990

As shown above, during the three years ended 31 December 2016, automobile sales accounted for a substantial portion of the Group’s revenue.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As mentioned in the 2015 Annual Report, in view of the slowing trends in China’s macro economy and automobile industry, the Group adopted a more prudent and practical strategy in operation and development in 2015 by adjusting the Group’s orders from manufacturers based on the market demand and specific business strategy in respect of each brand in a timely manner, so as to strictly control the inventory level and actively improve the Group’s cash flow position to achieve lower indebtedness level. Under such backdrop, the Group’s total revenue decline by around 22.6% from approximately RMB30,723.4 million for the financial year ended 31 December 2014 (‘‘FY2014’’) to approximately RMB23,776.5 million for the year ended 31 December 2015 (‘‘FY2015’’). Revenue generated from automobile sales decreased by around 25.0% as a result of significant drop in sales volume of certain brands of luxury cars and gradual decrease in average selling price of automobile during FY2015, while revenue from after-sales business recorded a slight decrease of around 1.6% as compared to that for FY2014. Gross profit for FY2015 was approximately RMB2,188.5 million, representing a decrease of around RMB599.2 million, or around 21.5%, from FY2014 due to drop in sales price of new cars during FY2015. Net profit attributable to owners of the Company decreased by around 68.9% from approximately RMB706.6 million for FY2014 to approximately RMB220.1 million for FY2015, which was mainly attributable to the decrease in revenue generated from automobile sales and the drop of gross profit margin of automobile sales and after-sales services during FY2015.

The Group’s total revenue rebounded by around 8.1% from approximately RMB23,776.5 million for FY2015 to approximately RMB25,703.7 million for the year ended 31 December 2016 (‘‘FY2016’’). Revenue from the sales of automobiles increased by around 10.1% due to the substantial increase in automobile sales volume of Jaguar & Land Rover and Maserati, in addition to a slight increase in BMW as compared to FY2015. Infiniti, the newly introduced brand, also contributed to certain sales. Revenue from the after-sales business decreased by around 5.8% from approximately RMB3,011.9 million for FY2015 to approximately RMB2,836.9 million for FY2016. Despite the aforesaid substantial increase in automobile sales volume, gross profit for FY2016 decreased by around 7.0% from FY2015 mainly due to the decrease in gross profit margin from automobile sales led by the decline in selling price resulting from decreased number of new models of major brands distributed by the Company in FY2016. Net profit attributable to owners of the Company increased by around 89.6% from approximately RMB220.1 million for FY2015 to approximately RMB417.2 million for FY2016, which was mainly attributable to the increase in other income and gains as the Company made preferential support to its insurance, financing and pre-owned automobile business and developed corresponding incentive measures to improve such businesses and achieved certain positive results in the second half of FY2016, together with the decrease in finance costs during FY2016.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Financial position

Set out below is a summary of the consolidated statement of financial position of the Group as at 31 December 2015 and 31 December 2016 as extracted from the 2016 Annual Report:

Non-current assets Property, plant and equipment Prepaid land lease payment Intangible assets Other non-current assets Current assets Inventories Trade receivables Prepayments, deposits and other receivables Pledged bank deposits Cash in transit Cash and cash equivalents Other current assets Current liabilities Interest-bearing bank loans and other borrowings Trade and bills payables Other payables and accruals Income tax payable Net current assets Total assets less current liabilities	As at 31 December 2016 2015 RMB’000 RMB’000 (audited) (audited) 3,740,983 3,697,075 498,706 646,610 989,736 882,855 724,189 530,472 5,953,614 5,757,012 2,935,521 2,454,946 650,830 358,159 6,118,226 5,449,306 2,142,842 2,332,021 108,602 78,224 3,721,285 2,160,980 159,028 220,778 15,836,334 13,054,414 4,800,609 8,280,936 4,624,595 3,945,184 1,202,460 646,283 277,260 168,795 10,904,924 13,041,198 4,931,410 13,216 10,885,024 5,770,228	As at 31 December 2016 2015 RMB’000 RMB’000 (audited) (audited) 3,740,983 3,697,075 498,706 646,610 989,736 882,855 724,189 530,472 5,953,614 5,757,012 2,935,521 2,454,946 650,830 358,159 6,118,226 5,449,306 2,142,842 2,332,021 108,602 78,224 3,721,285 2,160,980 159,028 220,778 15,836,334 13,054,414 4,800,609 8,280,936 4,624,595 3,945,184 1,202,460 646,283 277,260 168,795 10,904,924 13,041,198 4,931,410 13,216 10,885,024 5,770,228
		5,757,012 2,454,946 358,159 5,449,306 2,332,021 78,224 2,160,980 220,778
		13,054,414 8,280,936 3,945,184 646,283 168,795
		13,041,198 13,216 5,770,228

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Non-current liabilities Interest-bearing bank loans and other borrowings Bonds Senior perpetual capital securities Other payable Deferred tax liabilities Equity Share capital Reserves Equity attributable to owners of the parent Non-controlling interests Total Equity	As at 31 December 2016 2015 RMB’000 RMB’000 (audited) (audited) 2,751,757 — — 441,683 2,708,415 — 25,510 30,472 357,871 325,617 5,843,553 797,772 20,836 20,836 4,980,904 4,914,094 5,001,740 4,934,930 39,731 37,526 5,041,471 4,972,456	As at 31 December 2016 2015 RMB’000 RMB’000 (audited) (audited) 2,751,757 — — 441,683 2,708,415 — 25,510 30,472 357,871 325,617 5,843,553 797,772 20,836 20,836 4,980,904 4,914,094 5,001,740 4,934,930 39,731 37,526 5,041,471 4,972,456
		797,772 20,836 4,914,094
		4,934,930 37,526
		4,972,456

As at 31 December 2016, the Group’s total assets amounted to approximately RMB21,789.9 million which represented an increase of around 15.8% when compared to the corresponding balance as at 31 December 2015.

Non-current assets of the Group as at 31 December 2016 amounted to approximately RMB5,953.6 million and was comparable to that of approximately RMB5,757.0 million as at 31 December 2015. Due to, among other things, the increase in cash and cash equivalents, trade receivables, prepayments, deposits and other receivables, the Group’s current assets increased from approximately RMB13,054.4 million as at 31 December 2015 to approximately RMB15,836.3 million as at 31 December 2016.

Total liabilities of the Group increased from approximately RMB13,839.0 million as at 31 December 2015 to approximately RMB16,748.5 million as at 31 December 2016, which was mainly attributable to the issuance of the Senior Perpetual Securities during FY2016 which has been accounted for as non-current liabilities.

Among the current liabilities, there was a decrease in interest-bearing bank loans and other borrowings of the Group from RMB8,280.9 million as at 31 December 2015 to approximately RMB4,800.6 million as at 31 December 2016, due

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

to that the Company adopting relatively stringent fund management policies which improved the fund utilisation efficiency and resulted in the significant decrease in short-term bank borrowings.

As at 31 December 2016, total equity attributable to owners of the Company of approximately RMB5,001.7 million represented a slight increase from that of approximately RMB4,934.9 million as at 31 December 2015, mainly due to the growth in profitability of the Group during FY2016 partly offset by the exchange loss on translation of foreign operations.

On 6 June 2017 (before trading hours), the Company, Morgan Stanley & Co. International plc and UBS AG Hong Kong Branch (together with Morgan Stanley & Co. International plc, the ‘‘Placing Agents’’) entered into legally binding placing arrangements, pursuant to which the Company has conditionally agreed to appoint the Placing Agents as agents, and each of the Placing Agents has conditionally agreed to act as agent for the Company, to procure the placees who are independent professional, institutional or other investors to subscribe for, and failing which, to subscribe for itself, the up to 280,000,000 new Shares at the placing price of HK$3.50 each (the ‘‘Placing’’). Such placing shares of the Company will be allotted and issued under the general mandate granted to the Directors by the Shareholders at the annual general meeting of the Company held on 16 June 2016. Please refer to the Company’s announcement dated 6 June 2017 for further details of the Placing.

2. Information on the Disposal Companies

Information on Baoxin Finance

Baoxin Finance is a company incorporated in British Virgin Islands with limited liability on 27 October 2016 and is a direct wholly-owned subsidiary of the Company as at the date of the Circular. Baoxin Finance was established for the purposes of issuing the Senior Perpetual Securities and on-lending and investing the proceeds from the issuance of the Senior Perpetual Securities to the Group. Since its incorporation, Baoxin Finance has not engaged in any activities other than those relating to such purposes up to the Latest Practicable Date.

Based on the management accounts of Baoxin Finance as at 31 December 2016, the negative net asset value of Baoxin Finance was approximately RMB10 million (equivalent to approximately HK$11 million).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			For the period
			from
			27 October
			2016 to
			31 December
			2016
			RMB’000
Net	loss	before taxation and extraordinary items	(10,352)
Net	loss	after taxation and extraordinary items	(10,352)

It was stated in the letter from the Board in the Circular that the net loss of Baoxin Finance for the period from 27 October 2016 (being the date of incorporation of Baoxin Finance) to 31 December 2016 was mainly attributable to expenses incurred in connection with the issuance of the Senior Perpetual Securities and the interest payable under the Senior Perpetual Securities prior to the proceeds of the Senior Perpetual Securities being on-lent to Dalian Huiyu.

Information on Dalian Huiyu

Dalian Huiyu is a company established under the laws of the PRC on 21 November 2016 and is an indirect wholly-owned subsidiary of the Company. As at the Latest Practicable Date, Dalian Huiyu is held as to 25.55% equity interest by the Company and as to 74.45% equity interest by Shanghai Jida, an indirect whollyowned subsidiary of the Company. It is advised by the Management that Shanghai Jida fulfilled its capital contribution of RMB5,250 million as regards its 74.45% equity interests to Dalian Huiyu, while the Company has not made its capital contribution as regards its 25.55% equity interests to Dalian Huiyu as at the Latest Practicable Date.

Dalian Huiyu has conducted no business operation since its incorporation and up to the Latest Practicable Date. We are advised by the Management that the principal assets of Dalian Huiyu are mainly the proceeds from the issuance of the Senior Perpetual Securities on-lent by Baoxin Finance to Dalian Huiyu and various receivables from fellow subsidiaries. As at the Latest Practicable Date, there was a loan in the amount of approximately RMB5,249 million (equivalent to approximately HK$5,898 million) advanced by Dalian Huiyu to Shanghai Jida.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the management accounts of Dalian Huiyu as at 31 December 2016, the net asset value of Dalian Huiyu was approximately RMB5,247 million (equivalent to approximately HK$5,896 million).

For the period from 21 November 2016 to 31 December 2016 RMB’000 Net loss before taxation and extraordinary items (2,661) Net loss after taxation and extraordinary items (2,661)

3. Background of and reasons for the Disposals and use of proceeds

As disclosed in letter from the Board in the Circular, the Disposal Companies were incorporated for the purpose of the issuance of the Senior Perpetual Securities with a distribution rate of 8.75% per annum which were guaranteed by CGA and CGA HK. The proceeds from the issuance of the Senior Perpetual Securities have been on-lent by Baoxin Finance to Dalian Huiyu (a PRC incorporated company) in order for Dalian Huiyu to further on-lent such proceeds to 4S stores of the Group in the PRC via entrustment loans at nil interest rate (‘‘4S Store Loans’’) to fund the Group’s principal business of operating 4S dealership stores in the PRC. Further details relating to the terms of the Senior Perpetual Securities are set out in the Company’s announcements dated 9 December 2016 and 19 December 2016.

As further disclosed in the letter from the Board in the Circular, subject to the completion of the Disposals, the 4S Store Loans will be amended to document the onlending of the proceeds from the issuance of the Senior Perpetual Securities from Dalian Huiyu to such 4S stores of the Group, with the interest rates applicable to such loans being set with reference to the benchmark interest rate prescribed by the PBOC from time to time for the same type of loans, and which shall not be higher than the interest rates applicable to the same type of loans obtained by the Group from other domestic commercial banks in the PRC in the same period (‘‘Amended 4S Store Loans’’). No security over the assets of the Group will be required for such loans. Such on-lending arrangement is for the purpose of centralizing the management of the lending of the proceeds from the issuance of the Senior Perpetual Securities. The Senior Perpetual Securities were classified as a non-current liability item in the Group’s consolidated statement of financial position as at 31 December 2016. After reviewing the financial

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

position of the Group, the Directors consider that the Disposals will enable the Group to reduce the interest expenses payable by the Group in respect of the indebtedness of the Group following the completion of the Disposals while still being able to use the proceeds from the issuance of the Senior Perpetual Securities, as the interest rate under the Amended 4S Store Loans is expected to be lower than the interest rate of the Senior Perpetual Securities (which is 8.75% per annum).

As mentioned in the letter from the Board in the Circular, the cash proceeds arising from the Disposal of approximately RMB1 million (equivalent to approximately HK$1 million) will be used as general working capital of the Group.

Given that (i) the Disposals will enable the Group to reduce the interest expenses payable by the Group in respect of the overall indebtedness of the Group following the completion of the Disposals; (ii) upon completion of the Disposals, certain 4S stores of the Group could still be able to use the proceeds from the issuance of the Senior Perpetual Securities through the loans from Dalian Huiyu on normal commercial terms or better and not to be secured by the assets of the Group; (iii) terms of the Disposals (including the considerations) are considered fair and reasonable as further discussed in the sections headed ‘‘4.1 Baoxin Finance Disposal Agreement’’ and ‘‘4.2 Dalian Huiyu Disposal Agreements’’ respectively below; and (iv) it is expected that there would be no material adverse financial effects on the Group as a result of the Disposals as discussed in details under the section headed ‘‘5. Financial effects of the Disposals’’ below, we concur with the Directors that the entering into of the Disposals are in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Principal terms of the Disposal Agreements

4.1 Baoxin Finance Disposal Agreement

Assets to be disposed of

The entire equity interest of Baoxin Finance which was incorporated by the Company as the issuer of the Senior Perpetual Securities.

Disposal Consideration

The consideration for the Baoxin Finance Disposal of a nominal amount of US$1 (equivalent to approximately HK$8) in cash has been determined after arm’s length negotiations among the parties with reference to the management accounts of Baoxin Finance as at 31 December 2016 and the negative net asset value of Baoxin Finance of approximately RMB10 million (equivalent to approximately HK$11 million) as at 31 December 2016. As Baoxin Finance (i) was established for the purposes of issuing the Senior Perpetual Securities and on-lending and investing the proceeds from the issuance of the Senior Perpetual Securities to the Group, and has not been engaged in any other activities since its incorporation and up to the Latest Practicable Date, and (ii) has been lossmaking since its incorporation, we consider that the basis of the consideration for the Baoxin Finance Disposal which made reference to the net asset value of Baoxin Finance as at 31 December 2016, is fair and reasonable.

Disposal Condition

Having considered that (i) Baoxin Finance was incorporated by the Company solely for the purpose as the issuer of the Senior Perpetual Securities and has been loss-making since its incorporation and recorded net liabilities as at 31 December 2016; (ii) given the consideration for the Baoxin Finance Disposal of US$1 (equivalent to approximately HK$8) is considered reasonable; (iii) the benefits of the Disposals to the Group as discussed in the section headed ‘‘3. Background of and reasons for the Disposals’’ above; and (iv) as discussed under the section headed ‘‘5. Financial effects of the Disposals’’ below, it is expected that there would be no material adverse financial effects on the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Group as a result of the Baoxin Finance Disposal, we consider that the terms of the Baoxin Finance Disposal Agreement are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

4.2 Dalian Huiyu Disposal Agreements

4.2.1 Dalian Huiyu Disposal Agreement I

Assets to be disposed of

25.55% of the equity interest of Dalian Huiyu.

Disposal Consideration

The consideration for the Dalian Huiyu Disposal I is a nominal amount of RMB1 (equivalent to approximately HK$1) in cash.

Following the completion of the Dalian Huiyu Disposal I, CGA HK shall be liable to Dalian Huiyu for shareholder’s capital contribution obligations in respect of the 25.55% equity interest of Dalian Huiyu. Pursuant to the articles of association of Dalian Huiyu, the capital contribution in respect of the Company’s 25.55% equity interest of Dalian Huiyu is required to be contributed by the Company on or before 31 December 2017, which has not been made by the Company as at the date of the Circular.

Disposal Condition

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.2.2 Dalian Huiyu Disposal Agreement II

Assets to be disposed of

74.45% of the equity interest of Dalian Huiyu.

Disposal Consideration

The consideration for the Dalian Huiyu Disposal II has been determined after arm’s length negotiations among the parties with reference to the management accounts of Dalian Huiyu as at 31 December 2016 and the net asset value of Dalian Huiyu of approximatel RMB5,247 million (equivalent to approximately HK$5,896 million) as at 31 December 2016. As (i) Dalian Huiyu has conducted no business operation since its incorporation and up to the Latest Practicable Date, and the principal assets of Dalian Huiyu are mainly the proceeds from the issuance of the Senior Perpetual Securities on-lent by Baoxin Finance to Dalian Huiyu and various receivables from fellow subsidiaries; and (ii) Dalian Huiyu has been loss making since its incorporation, we consider that the basis of the consideration for the Dalian Huiyu Disposal II which made reference to the net asset value of Dalian Huiyu as at 31 December 2016, is fair and reasonable.

Disposal Condition

Completion of the Dalian Huiyu Disposal II is conditional upon the approval by the Independent Shareholders at the EGM in relation to the Baoxin Finance Disposal Agreement and the Dalian Huiyu Disposal Agreement having been obtained on or before the Longstop Date. The condition of the Dalian Huiyu Disposal II cannot be waived by any party.

Having considered that (i) Dalian Huiyu has been loss-making since its incorporation; (ii) the Company has not made shareholder’s capital contribution to Dalian Huiyu as at the Latest Practicable Date and therefore, the consideration for Dalian Huiyu

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Disposal I of RMB1 (equivalent to approximately HK$1) represents a nominal amount payable to transfer the shareholder’s capital contribution obligations in respect of the 25.55% equity interest of Dalian Huiyu; (iii) the consideration for the Dalian Huiyu Disposal II of approximately RMB5,250 million (equivalent to approximately HK$5,899 million) represents a premium of around RMB3 million (equivalent to approximately HK$3 million) over the net asset value of Dalian Huiyu of approximately RMB5,247 million (equivalent to approximately HK$5,896 million) as at 31 December 2016; (iv) the benefits of the Disposals to the Group as discussed in the section headed ‘‘3. Background of and reasons for the Disposals’’ above; (v) the settlement of consideration for the Dalian Huiyu Disposal II by way of the Loan Assignment is mainly for the purposes of simplifying the cash inflow to/outflow from the Company in view of on one hand, the repayment of the Shareholders’ Loan and on the other hand, the consideration settlement of the Dalian Huiyu Disposal which, according to the Management, will not have any material adverse financial effect on the Group as a result of Loan Assignment; and (v) as discussed under the section headed ‘‘5. Financial effects of the Disposals’’ below, it is expected that there would be no material adverse financial effects on the Group as a result of the Dalian Huiyu Disposals, we consider that the terms of the Dalian Huiyu Disposal Agreements are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Shareholders are also reminded that Completion of the Baoxin Financial Disposal Dalian Huiyu Disposal I and the Dalian Huiyu Disposal II are inter-conditional to each other as to approval by the Independent Shareholders at the EGM.

5. Financial effect of the Disposals

Earnings

Following completion of the Disposals, each of Baoxin Finance and Dalian Huiyu will cease to be a subsidiary of the Company and its financial results will no longer be consolidated into the Group’s financial statements upon completion of the Disposals.

As disclosed in the letter from the Board of the Circular, as a result of the Disposals and based on the financial position of Baoxin Finance and Dalian Huiyu respectively as at 31 December 2016, the Company expects to record: (a) a gain of approximately RMB10 million (equivalent to approximately HK$12 million) as a result of completion of the Baoxin Finance Disposal; and (b) a gain of approximately RMB3 million (equivalent to approximately HK$3 million) as a result of completion of the Dalian Huiyu Disposal. However, Shareholders are reminded that the aforesaid estimated gains are subject to the review by the Company’s independent auditors and the exact amount of them can only be determined at completion of the Disposals.

As at the Latest Practicable Date, the benchmark interest rate prescribed by the PBOC, which will be the interest rate under the Amended 4S Store Loans, is 4.35% per annum and is significantly lower than the interest rate of the Senior Perpetual Securities of 8.75% per annum. Accordingly, we concur with the Board that it is expected that the Disposals will enable the Group to reduce the interest expenses

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

payable by the Group in respect of the indebtedness of the Group immediately following completion of the Disposals while still being able to use the proceeds from the issuance of the Senior Perpetual Securities.

Net asset value

Given that the consideration for each of the Baoxin Finance Disposal and the Dalian Huiyu Disposal represents a premium over the unaudited net liabilities of Baoxin Finance and unaudited net assets of Dalian Huiyu respectively as at 31 December 2016 and will be satisfied in full in cash and/or the Loan Assignment, it is expected that the Disposals would have enhancement on the net asset value of the Group upon completion of the Disposals.

Working capital

Given that the consideration (i) for the Baoxin Finance Disposal and Dalian Huiyu Disposal I will be settled in cash in its entirety; (ii) for the Dalian Huiyu Disposal II will be satisfied by the Loan Assignment, it is expected that the Group’s working capital position will be enhanced by the amount of the net cash proceeds from the Disposals of approximately RMB1 million (equivalent to approximately HK$1 million) following completion of the Disposals.

Based on the above, we are of the view that the Disposal will not have material adverse effect on the Group’s earnings, net assets value and working capital immediately upon completion of the Disposals.

OPINION AND RECOMMENDATION

Since the the Company, through its subsidiaries, is principally engaged in the sale and service of motor vehicles, the Disposals do not form part of the ordinary and usual course of business of the Company. Having taken into account the principal factors and reasons set out above, we are of the view that the terms of the Disposal Agreements and the transactions contemplated thereunder are, although not in the ordinary and usual course of business of the Company, on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole. We therefore advise the Independent Board Committee to recommend, and ourselves recommend, the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Disposal Agreements.

Yours faithfully, for and on behalf of

SOMERLEY CAPITAL LIMITED Lyan Tam Director

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Ms. Lyan Tam is a licensed person registered with the Securities and Futures Commission and as a responsible officer of Somerley Capital Limited to carry out Type 6 (advising on corporate finance) regulated activities under the SFO and has over 12 years of experience in corporate finance industry.

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The financial information of the Group (i) for the year ended 31 December 2014 is disclosed on pages 47 to 143 of the annual report of the Company for the year ended 31 December 2014 published on 23 April 2015; (ii) for the year ended 31 December 2015 is disclosed on pages 48 to 131 of the annual report of the Company for the year ended 31 December 2015 published on 28 April 2016; and (iii) for the year ended 31 December 2016 is disclosed on pages 47 to 139 of the annual report of the Company for the year ended 31 December 2016 published on 28 April 2017. The above have been published on the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (www.klbaoxin.com).

2. INDEBTEDNESS STATEMENT

Borrowings

As at the close of business on 30 April 2017, being the latest practicable date for inclusion of information in this paragraph headed ‘‘Borrowings’’ prior to the publication of this circular, the Group had outstanding borrowings of approximately RMB11,284,779,000 as follows:

Current bank borrowings Current other borrowings Current portion of long term bank borrowings Non-current bank borrowings Subtotal Senior perpetual capital securities Total The borrowings represent: — secured — guaranteed — unsecured — secured and guaranteed** Total	As at 30 April 2017 RMB’000 2,603,165 654,809 2,631,811 2,616,098
	8,505,883
	2,778,896
	11,284,779
	As at 30 April 2017 RMB’000 6,332,838 3,029,282 1,917,659 5,000
	11,284,779

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s certain bank borrowings and other borrowings are secured by:
(i) mortgages over the vehicle certificates of the Group’s inventories, which had an aggregate carrying value of approximately RMB817,082,000 as at 30 April 2017, and
(ii) the pledge of certain of the Group’s time deposits amounting to RMB344,518,000 as at 30 April 2017; and
(iii) the Group’s certain bank borrowings amounted to RMB5,421,053,000 were secured by the entire shares of YanJun (China) Investment Co., Ltd, ;and
(iv) the Group’s certain bank borrowings amounted to RMB209,593,000 were secured by the letters of credit, issued by banks in Mainland China with a total amount of approximately RMB223,000,000; and
(v) the Group’s certain bank borrowings amounted to RMB36,449,000 were secured by property, plant and equipment amounted to RMB100,340,000 as at 30 April 2017.
** The Group’s certain bank borrowings and other borrowings are guaranteed by:
(i) the Group’s certain bank borrowings and other borrowings amounted to RMB118,894,000 were guaranteed by China Grand Automotive Services Co., Ltd. (‘‘CGA’’), the ultimate holding Company of the Group;
(ii) Certain of the Group’s bank borrowings and other borrowings which amounted to RMB155,365,000 were secured by the bank deposits amounted to RMB14,036,000 and guaranteed by certain third parties as at 31 December 2016.
(iii) the Group’s certain senior perpetual capital securities amounted to RMB2,778,896,000 were guaranteed by the parent guarantor CGA and the subsidiary guarantor China Grand Automotive Services (Hong Kong) Limited (‘‘CGA HK’’), a company controlled by the ultimate holding Company of the Group.
*** Certain of the Group’s bank borrowings which amounted to RMB5,000,000 were secured by the bank deposits amounted to RMB2,000,000 and guaranteed by certain third parties as at 30 April 2017.

As at 30 April 2017, the Group had total available bank credit facilities of approximately RMB11,066,014,700 of which approximately RMB5,497,587,000 had been utilised.

Contingent liabilities

At the close of business on 30 April 2017, the Group did not have any debt securities issued and outstanding, and authorized or otherwise created but unissued, or term loans or other borrowings or indebtedness in the nature of borrowing such as bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments, or mortgages, charges, guarantees, or other material contingent liabilities.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. WORKING CAPITAL

Taking into account the internal and other financial resources available to the Group, after diligent and thorough consideration, the Directors are of the opinion that, in the absence of unforeseen circumstances, the Group has sufficient working capital required at present and for at least the next 12 months from the date of this circular.

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Board believes that China’s automobile dealership industry will embrace steady growth in the year 2017. Leveraging the Group’s competitive automobile brand portfolio, the Group will seek to maintain the steady growth of the Group’s business. The Group will continue to strengthen its strategic partnership with automobile manufacturers and seek to explore value in the whole life cycle of customers’ automobile ownership.

The Group expects to benefit from the economy of scale and the synergies created after the completion of the acquisition of the Company by CGA in June 2016. As disclosed in the section headed ‘‘Reasons for and Benefits of the Disposals’’ in the Letter from the Board in this circular, by entering into the Disposal Agreements, the Group will reduce the interest expenses payable by the Group in respect of the indebtedness of the Group following the completion of the Disposals while still being able to use the proceeds from the issuance of the Senior Perpetual Securities.

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and 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

As at the Latest Practicable Date, so far as was known to the Board, none of the Directors and chief executives of the Company had any interest or short positions in any shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, so far as was known to the Board, none of the Directors was a director or employee of a company which has an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under provisions of Divisions 2 and 3 of Part XV of the SFO.

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GENERAL INFORMATION

APPENDIX II

3. DISCLOSURE OF SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at the Latest Practicable Date, save as disclosed below, so far as was known to the Board, no persons (not being a Director or chief executive of the Company) had an interest or short position in the shares or underlying shares and debentures of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at the general meeting of any other member of the Company:

			Approximate
		Number of	percentage (%)
		Shares Held or	in the
	Capacity/Nature of	Deemed to be	Company’s total
Name of shareholders	Interest	Held	share capital
China Grand Automotive Services (Hong	Beneficial owner	1,917,983,571(L)	75.00(L)
Kong) Limited (廣匯汽車服務(香港)有		1,917,983,571(S)	75.00(S)
限公司)(1)(3)
China Grand Automotive Services Co.,	Interests of controlled	1,917,983,571(L)	75.00(L)
Ltd. (廣匯汽車服務有限責任公司)(1)(3)	corporation	1,917,983,571(S)	75.00(S)
Shanghai Huiyong Automotive	Interests of controlled	1,917,983,571(L)	75.00(L)
Distribution Co., Ltd. (上海匯湧汽車銷	corporation	1,917,983,571(S)	75.00(S)
售有限公司)(1)(3)
China Grand Automotive Services Co.,	Interests of controlled	1,917,983,571(L)	75.00(L)
Ltd. (廣匯汽車服務股份公司)(1)(3)	corporation	1,917,983,571(S)	75.00(S)
Xinjiang Guanghui Industry Investment	Interests of controlled	1,917,983,571(L)	75.00(L)
Group Co., Ltd. (新疆廣匯實業投資	corporation	1,917,983,571(S)	75.00(S)
(集團)有限責任公司)(1)(3)
Mr. Sun Guangxin(1)(3)	Interests of controlled	1,917,983,571(L)	75.00(L)
	corporation	1,917,983,571(S)	75.00(S)
China Merchants Bank Co., Ltd.	Peron having a security	1,917,983,571(L)	75.00(L)
(Shanghai Songjiang Branch) (招商銀行	interest in shares
有限公司上海松江支行)(3)
Baoxin Investment Management Ltd.(2)	Beneficial owner	252,754,130(L)	9.88(L)
Mr. Yang Aihua(2)	Interests of controlled	252,754,130(L)	9.88(L)
	corporation

(L) — long position; (S) — short position

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GENERAL INFORMATION

APPENDIX II

Notes:

(1) CGA HK is wholly owned by Shanghai Huiyong (which is in turn owned as to approximately 49.37% by CGA Limited and approximately 50.63% by CGA). CGA Limited is wholly owned by CGA which is owned as to approximately 37.26% by Xinjiang Guanghui Industry Investment Group Co., Ltd. (新疆廣匯實業投資（集團）有限責任公司). Mr. Sun Guangxin holds approximately 71.73% of the shares in Xinjiang Guanghui Industry Investment Group Co., Ltd. (新疆廣匯實業投資（集團）有限責任公司). Each of CGA Limited, Shanghai Huiyong, CGA, Xinjiang Guanghui Industry Investment Group Co., Ltd. (新疆廣匯實業投資（集團）有限責任公司) and Mr. Sun Guangxin are deemed to be interested in the Shares held by CGA HK.
(2) Baoxin Investment Management Ltd. is wholly owned by Mr. Yang Aihua. Mr. Yang Aihua is deemed to be interested in the Shares held by Baoxin Investment Management Ltd.
(3) On 1 September 2016, CGA HK executed a share charge over the 1,917,983,571 Shares held by it (in favour of China Merchants Bank Co., Ltd. (Shanghai Songjiang Branch) (招商銀行有限公司上海松江支行) as the security agent under a syndicated loan facility granted to CGA HK.

4. PARTICULARS OF DIRECTORS’ SERVICE CONTRACTS

Each of the executive Directors has entered into a service contract with the Company for a term of three years with effect from the date of the respective contract, subject to retirement by rotation and re-election in accordance with the Articles. Mr. Lu Linkui, who was appointed as a non-executive Director with effect from 31 March 2014, did not enter into any service contract with the Company and does not have a specific term of appointment. However, Mr. Lu is subject to retirement by rotation and re-election at annual general meeting of the Company in accordance with the Articles. Mr. Zhou Yu, a non-executive Director, is appointed by the Company for a term of one year with effect from 21 June 2016, subject to retirement by rotation and re-election in accordance with the Articles.

Save as disclosed above, none of the Directors has entered or intends to enter into a service contract with any member of the Group (other than contracts expiring or determinable by the relevant employer within one year without the payment of compensation (other than statutory compensation)).

5. COMPETING INTERESTS

As at the Latest Practicable Date, other than certain directorships and/or other senior management positions held by some of the Directors in CGA and/or CGA Limited as disclosed below, so far as the Board was aware, none of the Directors or their respective close associates had any interest in a business which competes or is likely to compete directly or indirectly with the business of the Group:

(a) Mr. Li Jianping is the chairman of the board of directors of CGA and an executive director of CGA Limited;
(b) Mr. Wang Xinming is a director and a president of CGA;
(c) Mr. Lu Ao is the vice president and the chief financial officer of CGA;

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GENERAL INFORMATION

APPENDIX II

(d) Mr. Zhou Yu is a vice president of CGA; and
(e) Mr. Qi Junjie is the secretary of the party committee of CGA.

6. DIRECTORS’ INTERESTS IN ASSETS AND/OR CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date, none of the Directors had any interests, either directly or indirectly, in any assets which had been, since 31 December 2016 (being the date to which the latest published audited financial statements of the Group were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement which was significant in relation to the business of the Group taken as a whole.

7. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Company since 31 December 2016 (being the date to which the latest published audited financial statements of the Group were made up).

8. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and, so far as the Directors were aware, no litigation or claim of material importance was pending or threatened by or against any member of the Group.

9. EXPERT

The following is the qualification of the Independent Financial Adviser which has given its opinion or advice contained in this circular:

Name Qualifications

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

As at the Latest Practicable Date, Somerley Capital Limited had no shareholding in any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

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GENERAL INFORMATION

APPENDIX II

As at the Latest Practicable Date, Somerley Capital Limited had no direct or indirect interest in any assets which had been, since 31 December 2016 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of by, or leased to, any member of the Group, or were proposed to be acquired or disposed of by, or leased to, any member of the Group.

Somerley Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and the reference to its name included herein in the form and context in which it appears.

10. MATERIAL CONTRACTS

Saved as disclosed below, within the two years immediately preceding the issue of this circular, there was no contract (not being contracts entered into in the ordinary course of business) entered into by the members of the Group which was or might be material:

(a) the purchase agreement dated 16 December 2016 between Baoxin Finance (as issuer), CGA (as parent guarantor), CGA HK (as subsidiary guarantor) and China International Capital Cooperation Hong Kong Securities Limited (as initial purchaser), pursuant to which the initial purchaser agreed to purchase US$100,000,000 aggregate principal amount of 8.75% senior perpetual securities issued by Baoxin Finance;
(b) the indenture dated 15 December 2016 between Baoxin Finance (as issuer), CGA (as parent guarantor), CGA HK (as subsidiary guarantor) and The Bank of New York Mellon, London Branch (as trustee) setting out the terms of the US$300,000,000 aggregate principal amount of 8.75% senior perpetual securities issued by Baoxin Finance;
(c) the purchase agreement dated 8 December 2016 between Baoxin Finance (as issuer), CGA (as parent guarantor), CGA HK (as subsidiary guarantor), China International Capital Cooperation Hong Kong Securities Limited and China Securities (International) Corporate Finance Company Limited (as initial purchasers), pursuant to which the initial purchasers agreed to purchase US$300,000,000 aggregate principal amount of 8.75% senior perpetual securities issued by Baoxin Finance;
(d) the sale and purchase agreement dated 28 August 2015 between the Company and Orient Rich Investment Development Limited, a company wholly-owned by Mr. Yang Aihua, pursuant to which the Company agreed to sell and Orient Rich Investment Development Limited agreed to purchase the entire issued share capital in Extensive Prosperous Investments Limited (which holds a 38% equity interest in Autostreets Development Limited) at a consideration of RMB100,000,000; and
(e) the facility agreement in respect of a US$120,000,000 term loan facility dated 22 June 2015 between the Company (as borrower), Xiangsong Auto Company Limited, Kailong Investments Management Limited, NCGA Holdings Limited and Yan Jun Auto Co. Limited (as guarantors) and Standard Chartered Bank (Hong Kong) Limited as the global coordinator.

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GENERAL INFORMATION

APPENDIX II

11. MISCELLANEOUS

(a) The company secretary is Mr. Chen Changdong. Mr. Chen is an accountant recognised by the Ministry of Finance of the PRC. For details of his biographical information, please refer to the annual report of the Company for the year ended 31 December 2016 published on 28 April 2017.
(b) The registered office of the Company is at P.O. Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands. The principal place of business and head office of the Company in the PRC is at No. 3998 Hongxin Road, Minhang District, Shanghai, PRC and the Company’s principal place of business in Hong Kong is at Unit 2205, 22/F, Bank of America Tower, 12 Harbour Road, Hong Kong.
(c) The principal share registrar and transfer office of the Company is Maples Fund Services (Cayman) Limited P.O. Box 1093, Boundary Hall, Cricket Square, Grand Cayman, KY1-1102, Cayman Islands.
(d) The Hong Kong branch share registrar of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(e) In the event of any inconsistency, the English language version of this circular shall prevail over the Chinese language version.

12. ROUNDING

Certain amounts and percentages figures included in this circular have been subject to rounding adjustments, or have been rounded to one or two decimal places. Any discrepancies between totals and sums of amounts listed in any table are due to rounding.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the office of the Company at Units 2205, 22/F, Bank of America Tower, 12 Harcourt Road, Hong Kong from the date of this circular up to and including 26 June 2017:

(a) the Articles;
(b) the service contracts as referred to in the section headed ‘‘4. Particulars of Directors’ Service Contracts’’ in this appendix;
(c) the material contracts as referred to in the section headed ‘‘10. Material Contracts’’ in this appendix;
(d) the Disposal Agreements;
(e) the letter from the Independent Board Committee to the Independent Shareholders dated 12 June 2017, the full text of which is set out on page 18 of this circular;

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GENERAL INFORMATION

APPENDIX II

(f) the letter from Somerley Capital Limited to the Independent Board Committee and the Independent Shareholders dated 12 June 2017, the full text of which is set out on pages 19 to 35 of this circular;
(g) the written consent of Somerley Capital Limited referred to in the paragraph headed ‘‘9. Expert’’ in this Appendix;
(h) the consolidated audited accounts of the Group for each of the two financial years immediately preceding the issue of this circular; and
(i) this circular.

– 45 –

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

==> picture [75 x 75] intentionally omitted <==

GRAND BAOXIN AUTO GROUP LIMITED 廣匯寶信汽車集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1293)

NOTICE OF THE EXTRAORDINARY GENERAL MEETING AND CLOSURE OF REGISTER OF MEMBERS

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the ‘‘EGM’’) of Grand Baoxin Auto Group Limited (the ‘‘Company’’) will be held at No. 3998 Hongxin Road, Minhang District, Shanghai, the PRC at 10:30 a.m. on 29 June 2017. In this notice, unless the context otherwise requires, terms used herein shall have the same meanings as defined in the Company’s circular (the ‘‘Circular’’) dated 12 June 2017.

RESOLUTION TO BE CONSIDERED AND APPROVED AT THE EGM

By way of ordinary resolution:

(1) ‘‘THAT the Disposal Agreements be and are hereby approved and confirmed; and the Directors acting together or by committee, or any Director acting individually, be and is/are hereby authorised to do all such acts and things (including, without limitation, signing, execution (under hand or under seal), perfection and delivery of all documents) on behalf of the Company as he or they may, in his/their absolute discretion, consider necessary, desirable or expedient for the purposes of, or in connection with, the performance and implementation of the Disposal Agreements and any other documents relating thereto or contemplated thereby (in each case amended if necessary) and to make or agree to such alterations, amendments and additions thereto as the Director(s) may, in his/their absolute discretion, consider necessary, desirable or expedient in the interests of the Company.’’

Details of the above resolution proposed at the EGM are contained in the Circular, which is available on the website of Hong Kong Exchanges and Clearing Limited (www.hkex.com.hk) and the website of the Company (http://www.klbaoxin.com).

By order of the Board Grand Baoxin Auto Group Limited Mr. Li Jianping Chairman

The PRC 12 June 2017

– 46 –

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

As at the date of this notice, the executive Directors are Mr. LI Jianping, Mr. WANG Xinming, Mr. LU Ao and Qi Junjie, the non-executive Directors are Mr. Zhou Yu and Mr. Lu Linkui, and the independent non-executive Directors are Mr. Diao Jianshen, Mr. Wang Keyi and Mr. Chan Wan Tsun Adrian Alan.

Notes:

All resolution(s) at the meeting will be taken by poll pursuant to the Listing Rules except where the chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. The results of the poll will be published on the websites of Hong Kong Exchanges and Clearing Limited and the Company in accordance with the Listing Rules.
Any Shareholder entitled to attend and vote at the above meeting is entitled to appoint one or more proxies (who must be individual(s)) to attend and vote instead of him/her/it. A proxy need not be a Shareholder. If more than one proxy is so appointed, the appointment shall specify the number and class of Shares in respect of which each such proxy is so appointed.
Where there are joint registered holders of any Share, any one of such persons may vote at the above meeting, either personally or by proxy, in respect of such Share as if he/she/it were solely entitled thereto; but if more than one of such joint holders are present at the above meeting personally or by proxy, that one of the said persons so present being the most or, as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders that stand on the register of members in respect of the relevant joint holding.
In order to be valid, the form of proxy, together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power or authority, must be completed and lodged at the branch share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude a shareholder from attending and voting in person at the meeting or any adjournment thereof, and in such event, the relevant form of proxy shall be deemed revoked.
For determining the entitlement to attend and vote at the above meeting, the register of members of the Company will be closed from 27 June 2017 to 29 June 2017, both days inclusive, during such period no transfer of Shares will be registered. In order to qualify for attending and voting at the EGM, all duly stamped share transfer documents accompanied by the relevant share certificates must be lodged with the branch share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on 22 June 2017 as the register of members of the Company will be closed from 23 June 2017 to 28 June 2017, both days inclusive, for determining the entitlement to attend and vote at the annual general meeting of the Company to be held on 28 June 2017.
The translation into Chinese language of this notice is for reference only. In case of any inconsistency, the English version shall prevail.

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AI assistant

Grand Baoxin Auto Group Limited — Proxy Solicitation & Information Statement 2017

49831_rns_2017-06-11_b02c9963-be9b-43ba-8cdb-b04093ce3348.pdf

GRAND BAOXIN AUTO GROUP LIMITED 廣 匯 寶 信 汽 車 集 團 有 限 公 司

MAJOR AND CONNECTED TRANSACTIONS

DISPOSALS OF THE ENTIRE EQUITY INTEREST OF THE DISPOSAL COMPANIES

SOMERLEY CAPITAL LIMITED

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

GRAND BAOXIN AUTO GROUP LIMITED 廣 匯 寶 信 汽 車 集 團 有 限 公 司

(Stock code: 1293)

MAJOR AND CONNECTED TRANSACTIONS

DISPOSALS OF THE ENTIRE EQUITY INTEREST OF THE DISPOSAL COMPANIES

I INTRODUCTION

II THE DISPOSAL AGREEMENTS

1. Introduction

2. Key Terms of the Baoxin Finance Disposal Agreement

(a) Date

(c) Assets to be disposed of

(d) Disposal Consideration

(e) Disposal Condition

(f) Completion

3. Key Terms of the Dalian Huiyu Disposal Agreement I

(a) Date

(d) Disposal Consideration

(e) Disposal Condition

(f) Completion

4. Key Terms of the Dalian Huiyu Disposal Agreement II

(a) Date

(b) Parties

(c) Assets to be disposed of

(d) Disposal Consideration

LETTER FROM THE BOARD

(e) Disposal Condition

(f) Completion

5. Reasons for and Benefits of the Disposals

LETTER FROM THE BOARD

Immediately before completion of the Disposals

7. Listing Rules Implications of the Disposal Agreements

8. Effects on Earnings, Assets and Liabilities of the Group

9. Approval of the Disposal Agreements by Directors and Independent Shareholders

10. General Information

The Group and Shanghai Jida

CGA HK and Shanghai Huiyong

The Disposal Companies

Information on Baoxin Finance

LETTER FROM THE BOARD

Information on Dalian Huiyu

LETTER FROM THE BOARD

III RECOMMENDATION

IV ADDITIONAL INFORMATION

GRAND BAOXIN AUTO GROUP LIMITED 廣 匯 寶 信 汽 車 集 團 有 限 公 司

MAJOR AND CONNECTED TRANSACTIONS

DISPOSALS OF THE ENTIRE EQUITY INTEREST OF THE DISPOSAL COMPANIES

SOMERLEY CAPITAL LIMITED

MAJOR AND CONNECTED TRANSACTIONS DISPOSALS OF THE ENTIRE EQUITY INTERESTS OF THE DISPOSAL COMPANIES

INTRODUCTION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information on the Group

(a) Historical financial performance of the Group

(b) Financial position

2. Information on the Disposal Companies

Information on Baoxin Finance

Information on Dalian Huiyu

3. Background of and reasons for the Disposals and use of proceeds

4. Principal terms of the Disposal Agreements

4.1 Baoxin Finance Disposal Agreement

Assets to be disposed of

Disposal Consideration

Disposal Condition

4.2 Dalian Huiyu Disposal Agreements

4.2.1 Dalian Huiyu Disposal Agreement I

Disposal Consideration

Disposal Condition

4.2.2 Dalian Huiyu Disposal Agreement II

74.45% of the equity interest of Dalian Huiyu.

Disposal Consideration

Disposal Condition

Grand Baoxin Auto Group Limited Proxy Solicitation & Information Statement 2017

GRAND BAOXIN AUTO GROUP LIMITED 廣匯寶信汽車集團有限公司

GRAND BAOXIN AUTO GROUP LIMITED 廣匯寶信汽車集團有限公司

GRAND BAOXIN AUTO GROUP LIMITED 廣匯寶信汽車集團有限公司

GRAND BAOXIN AUTO GROUP LIMITED 廣匯寶信汽車集團有限公司