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 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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BAOXIN AUTO GROUP LIMITED

寶信汽車集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1293)

MAJOR TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS — SALE AND LEASEBACK FRAMEWORK AGREEMENT

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 4 to 13 of this circular. A letter from the Independent Board Committee is set out on page 14 of this circular. A letter from the Independent Financial Adviser is set out on pages 15 to 32 of this circular.

A notice convening the first extraordinary general meeting of the Company for the year 2017 (‘‘EGM’’) to be held at No. 3998 Hongxin Road, Minhang District, Shanghai, the PRC at 10:30 a.m. on 15 March 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.

24 February 2017

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from	the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix I	— Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II	— General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Notice of the Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		EGM-1

– i –

DEFINITIONS

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

‘‘Acquired Member’’
Sichuan Ganghong Enterprise Management Co., Ltd. (四川港宏企業管理有限公司), a company which became a wholly-owned subsidiary of the Company by reason of an acquisition as disclosed in the Company’s announcement dated 1 November 2016, which had been completed as at the Latest Practicable Date
‘‘All Trust Leasing’’
All Trust Leasing Company Limited (匯通信誠租賃有限公司), a company established under the laws of the PRC and is an indirect wholly-owned subsidiary of CGA
‘‘Annual Caps’’
the annual maximum finance amount for the transactions underlying the Sale and Leaseback Framework Agreement for each of the three years ending 31 December 2017, 2018 and 2019 as set out in this circular
‘‘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
‘‘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 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
‘‘China Grand Auto’’
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 and is an indirect whollyowned subsidiary of CGA
‘‘Company’’
Baoxin Auto Group Limited, a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the Main Board of the Hong Kong Stock Exchange (Stock Code: 1293)
‘‘connected person(s)’’
has the meaning ascribed thereto under the Listing Rules

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DEFINITIONS

‘‘connected transaction(s)’’ has the meaning ascribed thereto under the Listing Rules
‘‘Dingxin Leasing’’ Shanghai Dingxin Financial Leasing Co., Ltd (上海鼎信融資租賃有限公司), a company established under the laws of the PRC and is a direct wholly-owned subsidiary of the Company
‘‘Director(s)’’ the director(s) of the Company
‘‘EGM’’ the first extraordinary general meeting of the Company for the year 2017 to be convened and held on 15 March 2017
‘‘Group’’ the Company and its subsidiaries
‘‘HK$’’ Hong Kong dollars and cents, respectively, the lawful currency of Hong Kong
‘‘Hong Kong’’

the Hong Kong Special Administrative Region of the PRC

‘‘Hong Kong Stock Exchange’’
The Stock Exchange of Hong Kong Limited
‘‘Implementation Agreement(s)’’
the specific individual implementation agreement(s) to be entered into by Dingxin Leasing and All Trust Leasing in accordance with the Sale and Leaseback Framework Agreement from time to time during the term of the Sale and Leaseback Framework Agreement
‘‘Independent Board Committee’’
a committee under the Board which is established for the purpose of advising the Independent Shareholders on the Sale and Leaseback Framework Agreement, including independent non-executive Directors Mr. Diao Jianshen, Mr. Wang Keyi and Mr. Chan Wan Tsun Adrian Alan
‘‘Independent Financial Adviser’’
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 Sale and Leaseback Framework Agreement
‘‘Independent Shareholder(s)’’ Shareholder(s) other than China Grand Auto and its associates
‘‘Independent Third Party(ies)’’ party(ies) not connected with any of the directors, the chief executives or the substantial shareholders of the Company or any of its subsidiaries or their respective associates

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DEFINITIONS

‘‘Latest Practicable Date’’
‘‘Listing Rules’’
‘‘PRC’’ or ‘‘China’’
‘‘RMB’’
‘‘Sale and Leaseback Framework Agreement’’
‘‘SFO’’
‘‘Share(s)’’
‘‘Shareholder(s)’’
‘‘subsidiary’’ or ‘‘subsidiaries’’
‘‘substantial shareholder(s)’’
‘‘Supplemental Agreement’’
‘‘US$’’
‘‘%’’
22 February 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
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
the sale and leaseback framework agreement dated 24 January 2017 between All Trust Leasing and Dingxin Leasing (as amended by the Supplemental Agreement and from time to time)
the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
share(s) in the share capital of the Company, with a nominal value of HK$0.01 each
holder(s) of the Shares
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
has the meaning ascribed thereto in the Listing Rules
means the supplemental agreement to the Sale and Leaseback Framework Agreement dated 22 February 2017 between All Trust Leasing and Dingxin Leasing
the lawful currency of the United States
percentage ratio

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LETTER FROM THE BOARD

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BAOXIN AUTO GROUP LIMITED 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 TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS — SALE AND LEASEBACK FRAMEWORK AGREEMENT

I INTRODUCTION

The main purposes of this circular are:

(a) to provide you with further information relating to the Sale and Leaseback Framework Agreement, which constitutes a major transaction and continuing connected transactions of the Company;
(b) to set out the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders as well as the recommendation and opinion of the Independent Board Committee as advised by the Independent Financial Adviser in relation to the Sale and Leaseback Framework Agreement (including the Annual Caps); and

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LETTER FROM THE BOARD

(c) to give you notice of the EGM to consider and, if thought fit, to approve the Sale and Leaseback Framework Agreement and the respective Annual Caps.

II MAJOR TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

1. Introduction

The Board is pleased to announce that on 24 January 2017 (after trading hours), Dingxin Leasing, a direct wholly-owned subsidiary of the Company, and All Trust Leasing, an indirect wholly-owned subsidiary of CGA, entered into the Sale and Leaseback Framework Agreement.

Pursuant to the Sale and Leaseback Framework Agreement, All Trust Leasing shall sell to Dingxin Leasing vehicles owned by All Trust Leasing, which shall then be leased back for use by All Trust Leasing. Upon expiry of the lease term, All Trust Leasing shall repurchase the leased assets in accordance with the agreed terms and with a consideration of a nominal amount of RMB100.

2. Key Terms of the Sale and Leaseback Framework Agreement

The key terms of the Sale and Leaseback Framework Agreement are as follows:

(a) Date

24 January 2017

(b) Parties

(1) Dingxin Leasing
(2) All Trust Leasing

(c) Sale and leaseback

All Trust Leasing shall sell to Dingxin Leasing vehicles owned by All Trust Leasing, which shall then be leased back for use by All Trust Leasing.

All Trust Leasing is principally engaged in the automobile finance leasing business in the PRC. All Trust Leasing will enter into automobile finance lease agreements with retail customers, pursuant to which All Trust Leasing will purchase vehicles from various manufacturers or the retail customers in accordance with the retail customers’ instructions and obtain the legal titles to such vehicles, and All Trust Leasing will then lease the purchased vehicles to such retail customers.

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LETTER FROM THE BOARD

Trust Leasing and leased to its retail customers and which will be set out in each Implementation Agreement), the lease term and the lease rate will be determined at the time when the Implementation Agreements are entered into.

Pursuant to the Implementation Agreements, the legal titles of the vehicles subject to such Implementation Agreements will be transferred from All Trust Leasing to Dingxin Leasing; however, Dingxin Leasing will not succeed to or assume any rights or obligations of All Trust Leasing under All Trust Leasing’s relevant finance lease agreements with its retail customers with respect to the same vehicles.

Upon expiry of the relevant lease term, All Trust Leasing shall repurchase the leased assets in accordance with the agreed terms and with a consideration of a nominal amount of RMB100.

The Company considers that a sale and leaseback transaction under the Sale and Leaseback Framework Agreement should be classified as a finance lease, and such sale and leaseback transaction is a means whereby the lessor provides finance to the lessee, with the asset as security. Therefore, the assets held under the sales and leaseback transactions shall be recognised in the Company’s consolidated statement of financial position as a receivable. All Trust Leasing also considers that a sale and leaseback transaction under the Sale and Leaseback Framework Agreement should be classified as a finance lease of All Trust Leasing.

(d) Sale price and lease payments

The lease payments shall be calculated on the basis of the leasing costs and lease interest rates and made on a monthly basis by All Trust Leasing to Dingxin Leasing. All Trust Leasing shall settle the lease payments in cash.

Leasing costs comprise the sale price and handling fees (if any) agreed to be included in such leasing costs. The sale price shall reflect the fair market value of the leased assets to be sold by All Trust Leasing to Dingxin Leasing by reference to the remaining principal amount of the leased assets under the existing lease agreements between All Trust Leasing and its retail customers. The sale price will be funded by Dingxin Leasing’s internal resources and its bank loans. All Trust Leasing shall bear all costs incurred in connection with the transfer of the leased assets, and therefore, the Company will not bear such costs.

Dingxin Leasing shall gather information on the terms and conditions (including interest rates) offered by third parties in the PRC who are independent of the Company and its connected persons in sale and leaseback transactions of a similar scale and nature so that Dingxin Leasing can ensure that the interest rates applicable to transactions between Dingxin Leasing and All Trust Leasing are the same as or more favourable to the Company than those offered by such independent third parties. The parties agree that the lease interest rates shall in any event be at least 110% of, but no more than four times of, the benchmark interest rate for RMB term loans as announced for implementation by the People’s Bank of China.

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LETTER FROM THE BOARD

While terms of the sale and lease back transactions, such as lease term and lease rate, will be agreed by the time when the relevant Implementation Agreement is entered into, the monthly repayment amounts (which comprise partly the principal to be repaid and partly the interest to be repaid in that particular period) could be calculated and ascertained in any particular point of time throughout the term of the Sale and Leaseback Framework Agreement.

The annual maximum finance amount, which shall comprise the sum of the principal amount together with the interest that may accrue in respect of the Implementation Agreement(s) then in effect, shall not exceed the Annual Caps.

(e) Implementation Agreements

Dingxin Leasing and All Trust Leasing will enter into specific individual Implementation Agreements from time to time. Each Implementation Agreement will be entered into in the ordinary and usual course of business of the Group and on normal commercial terms or better. The terms of each Implementation Agreement will be in accordance with the terms of the Sale and Leaseback Framework Agreement. Notwithstanding the foregoing, Dingxin Leasing can decide whether or not to enter into any Implementation Agreements with All Trust Leasing after comparing terms then offered by independent third parties, if any, for sale and leaseback arrangements similar to the transactions contemplated under the Sale and Leaseback Framework Agreement. Dingxin Leasing expects that it will not enter into more than ten Implementation Agreements with All Trust Leasing for each of the three years ending 31 December 2017, 2018 and 2019.

Within five days after the signing of each Implementation Agreement, All Trust Leasing shall pay to Dingxin Leasing a deposit in the amount of 10% of the finance amount under the relevant Implementation Agreement, which shall be used to offset default (if any) of payment obligations by All Trust Leasing under the relevant Implementation Agreement.

During the lease period under each Implementation Agreement, All Trust Leasing or its designees shall keep the leased assets insured with an insured amount of not less than the total amount of the unpaid lease payments and other payments payable, or the maximum amount that can be insured by an insurance company.

(f) Guarantee and pledge of receivables

Dingxin Leasing and All Trust Leasing have agreed to the following arrangements in the Sale and Leaseback Framework Agreement:

(1) All Trust Leasing shall procure CGA Limited to enter into a corporate guarantee in favour of Dingxin Leasing on the date of the relevant Implementation Agreement, pursuant to which CGA Limited shall irrevocably guarantee in favour of Dingxin Leasing with respect to all liabilities and obligations of All Trust Leasing under the relevant Implementation Agreement.

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LETTER FROM THE BOARD

(2) All Trust Leasing shall also enter into a pledge of receivables in favour of Dingxin Leasing on the date of the relevant Implementation Agreement, pursuant to which, in the event of default of payment by All Trust Leasing to Dingxin Leasing pursuant to the relevant Implementation Agreement, Dingxin Leasing shall have the preferential rights to payment on all receivables payable to All Trust Leasing in respect of the underlying leased assets.

Unless otherwise specified in an Implementation Agreement, in the event All Trust Leasing fails to repay to Dingxin Leasing pursuant to the terms of the respective Implementation Agreement, Dingxin Leasing shall have the discretion to exercise its rights in the aforementioned corporate guarantee and/or the pledge of receivables.

(g) Term and termination

The Sale and Leaseback Framework Agreement shall become effective on the date when it is approved by the Independent Shareholders at the EGM and will expire on 31 December 2019. Dingxin Leasing and All Trust Leasing will not enter into any individual Implementation Agreements before the Sale and Leaseback Framework Agreement becomes effective. The term of the individual Implementation Agreements shall not exceed three years and in any event shall not exceed 31 December 2019. In the event that the term of an Implementation Agreement is expected to extend beyond 31 December 2019, the Company will re-comply with the announcement and shareholders’ approval requirements in accordance with Rule 14A.54 of the Listing Rules before such Implementation Agreement is entered into.

If either party to the Sale and Leaseback Framework Agreement commits any material breach, the innocent party may terminate the Sale and Leaseback Framework Agreement by written notice to the party in breach within 15 business days after such material breach is known to the innocent party, provided that the party in breach has not remedied such breach within a reasonable period set out in the notice.

In the event of the termination of the Sale and Leaseback Framework Agreement and the underlying Implementation Agreement(s), All Trust Leasing is required to make a full repayment of the outstanding principal amount together with the accrued and unpaid lease payment (if any) in respect of the transactions under the Implementation Agreement(s) up to and including the date of termination within seven business days upon such termination.

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LETTER FROM THE BOARD

(h) Proposed annual caps

Set out below is a summary of the proposed Annual Caps in respect of the annual maximum finance amount under the Sale and Leaseback Framework Agreement:

	Total
	(RMB)
2017	1,500,000,000
2018	2,500,000,000
2019	3,000,000,000

The annual maximum finance amount set out above refers to the sum of the principal amount and interest that may accrue in respect of the Implementation Agreement(s) then in effect.

For illustration purposes only, below are a few examples of the finance amount incurred and allowed to be incurred under the relevant Annual Caps, assuming the Sale and Leaseback Framework Agreement (including the proposed Annual Caps) is approved by the Independent Shareholders:

			Maximum sum of	Maximum sum of
		Sum of the	the principal	the principal
		principal amount	amount and	amount and
		and interest that	interest that may	interest that may
		may accrue in	accrue in respect	accrue in respect
		respect of the	of the	of the
	When the term of the	Implementation	Implementation	Implementation
	Implementation Agreement(s)	Agreement(s)	Agreement(s) to be	Agreement(s) to be
	entered into in 2017 ends at	entered into	entered into	entered into
Scenarios	the latest	in 2017	in 2018	in 2019(1)
1	On or before 31 December 2017	1,500,000,000	2,500,000,000	3,000,000,000
2	On or before 31 December 2018	1,500,000,000	1,000,000,000	3,000,000,000
3	On or before 31 December 2019	1,500,000,000	1,000,000,000	1,500,000,000

Note:

(1) Assuming no Implementation Agreement that is entered into in 2018 has a term that will extend beyond 31 December 2018

The Annual Caps were determined after taking into account, amongst other things, (i) the business plans of Dingxin Leasing; (ii) the expected accumulated principal amount and interest of the sale and leaseback transactions under the Sale and Leaseback Framework Agreement; (iii) the nature, value and expected useful life of the leased assets; (iv) a buffer for potential adjustments to business plans; and (v) the estimated remaining value of All Trust Leasing’s leased assets for each of the three years ending 31 December 2017, 2018 and 2019.

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LETTER FROM THE BOARD

The Company has been informed by the management of CGA that All Trust Leasing has approximately RMB10,500 million of automobile finance leasing assets available for refinancing for the financial year ended 31 December 2016 and CGA expects the amount of its automobile finance leasing assets available for refinancing to increase steadily for the next three years. If the Sale and Leaseback Framework Agreement (including the proposed Annual Caps) is approved by the Independent Shareholders, the finance amount of the sale and leaseback transactions to be entered into between Dingxin Leasing and All Trust Leasing pursuant to the Sale and Leaseback Framework Agreement is expected to make up less than 30% of the finance amount in All Trust Leasing’s refinancing transactions of its automobile finance leasing assets.

Dingxin Leasing has not conducted any sale and leaseback transactions with All Trust Leasing prior to the date of this circular.

3. Internal Control Measures

The Company has adopted a set of effective internal control measures to supervise the continuing connected transactions of the Group. Prior to entering into individual Implementation Agreements under the Sale and Leaseback Framework Agreement, the finance department of Dingxin Leasing will review and assess the specific terms and conditions of the transactions and to compare the lease interest rates with reference to the market conditions and the prices charged or quoted by at least two independent third parties in sale and leaseback transactions of a similar scale and nature. Such independent third parties shall have the operation scale and financial position at least comparable to those of Dingxin Leasing and/or All Trust Leasing and have a track record of at least one year in conducting similar sale and leaseback transactions. Dingxin Leasing will not enter into any individual Implementation Agreements if the lease interest rates offered by All Trust Leasing are not on normal commercial terms. The finance department of the Company will also monitor the sale and leaseback transactions under the Sale and Leaseback Framework Agreement on a regular basis. As part of the reporting processes implemented by the Group, Dingxin Leasing is required to submit a report to the Company’s finance department each month, setting out the transaction amounts and an indication of whether transaction volumes are expected to remain within the Annual Caps. If any monthly report indicates that an Annual Cap is anticipated to be exceeded, the Company’s finance department will collect further information from Dingxin Leasing including estimated transaction values, and the Company’s finance department will calculate and establish revised caps and obtain approval from the Board for such revised annual caps (subject to the requirements under the then applicable Listing Rules). Given that Dingxin Leasing expects that it will not enter into more than ten Implementation Agreements with All Trust Leasing for each of the three years ending 31 December 2017, 2018 and 2019, the Directors are of the view that such monthly reports from Dingxin Leasing to the Company’s finance department are adequate for the Company to supervise whether transaction volumes are expected to remain within the Annual Caps. In addition, before each and every Implementation Agreement is entered into, the Company’s finance department will review whether transaction volumes will remain within the Annual Caps if such Implementation Agreement is entered into. In the event that the term of an Implementation Agreement is expected to extend beyond 31

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LETTER FROM THE BOARD

December 2019, the Company will re-comply with the announcement and shareholders’ approval requirements in accordance with Rule 14A.54 of the Listing Rules before such Implementation Agreement is entered into.

The independent non-executive Directors shall review the Implementation Agreements to ensure that they have been entered into in accordance with the terms of the Sale and Leaseback Framework Agreement.

4. Reasons for and Benefits of Entering into the Sale and Leaseback Framework Agreement

Dingxin Leasing is currently only engaged in direct automobile finance leasing with retail customers, and it is not engaged in any sale and leaseback finance leasing business (which is of a wholesale nature). Dingxin Leasing is planning to develop its sale and leaseback finance leasing business in the PRC as an ‘‘add-on’’ to its existing automobile finance leasing business. The entering into of the Sale and Lease Framework Agreement is the first step of the Group to tap into the sale and leaseback finance leasing business in the PRC. By entering into the Sale and Leaseback Framework Agreement, the Group will be able to (i) leverage on All Trust Leasing’s existing automobile finance leasing assets and develop its own wholesale sale and leaseback finance leasing business by collaborating with All Trust Leasing; and (ii) achieve a reasonable return in the sale and leaseback transactions with All Trust Leasing so that the Group is able to utilise its financial resources in an efficient manner.

5. Implications under the Listing Rules

As at the Latest Practicable Date, CGA, through its indirect wholly-owned subsidiary China Grand Auto, holds approximately 75% of the shares in the Company, and it is therefore a controlling shareholder of the Company. All Trust Leasing is an indirect wholly-owned subsidiary of CGA, and it is therefore a connected person of the Company under the Listing Rules. Accordingly, the transactions contemplated under the Sale and Leaseback Framework Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As the applicable percentage ratios for the Sale and Leaseback Framework Agreement are more than 5%, the Sale and Leaseback Framework Agreement and the transactions contemplated thereunder are subject to the announcement, reporting, annual review and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

As some of the applicable percentage ratios for the Sale and Leaseback Framework Agreement are more than 25% but less than 100%, the Sale and Leaseback Framework Agreement and the transactions contemplated thereunder also constitute a major transaction of the Company, and are subject to the announcement, reporting and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

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LETTER FROM THE BOARD

6. Effects on Earnings, Assets and Liabilities of the Company

By entering into the Sale and Leaseback Framework Agreement, the Group will be able to (i) leverage on All Trust Leasing’s existing automobile finance leasing assets and develop its wholesale sale and leaseback finance leasing business by collaborating with All Trust Leasing; and (ii) achieve a reasonable return in the sale and leaseback transactions with All Trust Leasing so that the Group is able to utilise its financial resources in an efficient manner.

The Group expects that the lease interest rates under the Sale and Leaseback Framework Agreement will be higher than the Group’s capital costs, and therefore, the entering into of the Sale and Leaseback Framework Agreement would enhance returns to the Shareholders.

7. Approval 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 Sale and Leaseback Framework Agreement. Save as disclosed above, there are no other Directors who have any material interest in the Sale and Leaseback Framework Agreement and no other Directors needed to abstain from voting on the Board resolution for considering and approving the Sale and Leaseback Framework Agreement.

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 Sale and Leaseback Framework Agreement, whether it is 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 Sale and Leaseback Framework Agreement.

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 Sale and Leaseback Framework Agreement and whether it is 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.

The Company will convene the EGM to seek the Independent Shareholders’ approval on the Sale and Leaseback Framework Agreement. China Grand Auto and its close associates will abstain from voting at the EGM in respect of the ordinary resolution of the above issue.

8. General Information

The Group

The Group is a leading luxury 4S dealership group in the PRC and is principally engaged in the sale and service of motor vehicles.

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LETTER FROM THE BOARD

Dingxin Leasing

Dingxin Leasing is a company established under the laws of the PRC and is a direct wholly-owned subsidiary of the Company. Dingxin Leasing is principally engaged in the finance leasing business in the PRC.

All Trust Leasing

All Trust Leasing is a company established under the laws of the PRC and is an indirect wholly-owned subsidiary of CGA. All Trust Leasing is principally engaged in the automobile finance leasing business in the PRC.

IV RECOMMENDATION

The Directors (including all independent non-executive Directors) considered that (i) the terms of the Sale and Leaseback Framework Agreement (including the Annual Caps) are on normal commercial terms in the ordinary and usual course of the Group’s business, and (ii) the terms of the Sale and Leaseback Framework Agreement (including the Annual Caps) are 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 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 14 and pages 15 to 32 of this circular, respectively. The Independent Board Committee, having taken into account the advice of Somerley Capital Limited, considers that (i) the terms of the Sale and Leaseback Framework Agreement (including the Annual Caps) are on normal commercial terms in the ordinary and usual course of the Group’s business, and (ii) the terms of the Sale and Leaseback Framework Agreement (including the Annual Caps) are 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 ordinary resolution to be proposed at the EGM.

V ADDITIONAL INFORMATION

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

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

The PRC 24 February 2017

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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BAOXIN AUTO GROUP LIMITED 寶信汽車集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1293)

24 February 2017

To the Independent Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS — SALE AND LEASEBACK FRAMEWORK AGREEMENT

We refer to the circular of the Company dated 24 February 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 Sale and Leaseback Framework Agreement is 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 Sale and Leaseback Framework Agreement.

We wish to draw your attention to the letter from the Board as set out on pages 4 to 13 of the Circular and the letter from the Independent Financial Adviser as set out on pages 15 to 32 of the Circular.

Having considered the advice given by the Independent Financial Adviser, we are of the opinion that (i) the terms of the Sale and Leaseback Framework Agreement (including the Annual Caps) are on normal commercial terms in the ordinary and usual course of the Group’s business, and (ii) the terms of the Sale and Leaseback Framework Agreement (including the Annual Caps) are 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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice dated 24 February 2017 from Somerley Capital Limited prepared for the purpose of inclusion in this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Sale and Leaseback Framework Agreement.

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SOMERLEY CAPITAL LIMITED

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

24 February 2017

To: The Independent Board Committee and the Independent Shareholders

Dear Sirs,

MAJOR TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in connection with the Sale and Leaseback Framework Agreement and the transactions contemplated thereunder (the ‘‘Transactions’’). Details of the aforesaid transactions are set out in the letter from the Board contained in the circular of the Company (the ‘‘Circular’’) to its shareholders dated 24 February 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.

On 24 January 2017 (after trading hours), Dingxin Leasing, a direct wholly-owned subsidiary of the Company, and All Trust Leasing, an indirect wholly-owned subsidiary of CGA, entered into the Sale and Leaseback Framework Agreement (as amended by the Supplemental Agreement dated 22 February 2017). Pursuant to the Sale and Leaseback Framework Agreement, All Trust Leasing shall sell to Dingxin Leasing vehicles owned by All Trust Leasing, which shall then be leased back for use by All Trust Leasing.

As at the Latest Practicable Date, CGA, through its indirect wholly-owned subsidiary China Grand Auto, holds approximately 75% of the shares in the Company, and it is therefore a controlling shareholder of the Company. All Trust Leasing is an indirect wholly-owned subsidiary of CGA, and it is therefore a connected person of the Company under the Listing Rules. Accordingly, the Transactions constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As the applicable percentage ratios for the Sale and Leaseback Framework Agreement are more than 5%, the Transactions are subject to the requirements of reporting, announcement, annual review and approval by independent shareholders of the Company under Chapter 14A of the Listing Rules.

As some of the applicable percentage ratios for the Sale and Leaseback Framework Agreement are more than 25% but less than 100%, the Transactions also constitute a major transaction of the Company, and are subject to the requirements of reporting, announcement and approval by shareholders of the Company under Chapter 14 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 Sale and Leaseback Framework Agreement and the Transactions 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, Dingxin Leasing, All Trust Leasing or their respective core connected persons or associates and, accordingly, are considered eligible to give independent advice on the Transactions. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees or benefits from the Company, Dingxin Leasing, All Trust Leasing 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 Company (collectively, the ‘‘Management’’), management of CGA, and the respective professional advisers of the Company and CGA, which we have assumed to be true, accurate and complete in all material aspects at the time they are made and will remain true, accurate and complete in all material aspects up to the date of the EGM. We have reviewed information on the Company, including but not limited to, the Sale and Leaseback Framework Agreement, annual report of the Company for the year ended 31 December 2015, interim report of the Company for the six months period ended 30 June 2016 and other information contained in the Circular. 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, however, not conducted any independent investigation into the businesses and affairs of the Group, Dingxin Leasing and All Trust Leasing, nor have we carried out any independent verification of the information supplied.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

Information on the parties to the Sale and Leaseback Framework Agreement

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 (sales, spare parts, service and survey) dealership group in the PRC and is principally engaged in the sale and service of automobiles.

The Group has developed retail finance leasing services business through Dingxin Leasing since 2013 which started to contribute revenue since the financial year ended 31 December 2014. The Group’s existing finance leasing services are mainly consumer financings provided to its retail auto customers. Revenue generated from the existing finance leasing services segment has experienced rapid growth during the years, however, they represented only an insignificant portion of less than 0.03% of the total revenue for each of the financial years ended 31 December 2014 and 2015.

Dingxin Leasing

All Trust Leasing

All Trust Leasing is a company established under the laws of the PRC in 2011 and is an indirect wholly-owned subsidiary of CGA. All Trust Leasing is principally engaged in the automobile finance leasing business in the PRC. As disclosed in the interim report of CGA for the six months period ended 30 June 2016, total assets and net assets of All Trust Leasing amounted to approximately RMB15,648 million and RMB4,688 million respectively as at 30 June 2016. As also disclosed in the annual report of CGA for the financial year ended 31 December 2015, the net profit of All Trust Leasing for the year ended 31 December 2015 amounted to around RMB858 million. As confirmed by All Trust Leasing, there was no material default in payment to its creditors by All Trust Leasing since its establishment.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. The Sale and Leaseback Framework Agreement

2.1 Background of and reasons for the Sale and Leaseback Framework Agreement

As disclosed in the Circular, Dingxin Leasing is planning to develop its sale and leaseback finance leasing business in the PRC as an ‘‘add-on’’ to its existing automobile finance leasing business. The entering into of the Sale and Lease Framework Agreement is the first step of the Group to tap into the sale and leaseback finance leasing business in the PRC. It was stated that by entering into the Sale and Leaseback Framework Agreement, the Group will be able to (i) leverage on All Trust Leasing’s existing automobile finance leasing assets and develop its own wholesale sale and leaseback finance leasing business by collaborating with All Trust Leasing; and (ii) achieve a reasonable return in the sale and leaseback transactions with All Trust Leasing so that the Group is able to utilise its financial resources in an efficient manner.

We understand from the Management that the entering into of the Sale and Leaseback Framework Agreement is the first step of the Group to tap into the wholesale finance leasing business in the PRC which opens up a possible new source of revenue stream to the Group. As discussed with the Management regarding the business plans of Dingxin Leasing, we are given to understand that many banks in the PRC have adopted a tightened loan policy and reduced their lending to enterprises in recent years, given volatile financial and credit risks in the context of increasing uncertainties in the global economy and the economic slowdown of the PRC; however, the Management considers that this might be favourable to the development of the wholesale financing leasing business, which is emerging to fill the gap left by traditional banking services by providing short to medium term financing solutions to enterprises in the PRC.

We also note that the auto financing industry has been growing. According to the statistics released by China Banking Association which is reporting to the China Banking Regulatory Commission, by the end of 2015, auto finance companies in the PRC had total assets, loan balance and net profits of RMB419.0 billion, RMB391.1 billion and RMB7,401 million respectively, represented a year-on-year increase of around 23.12%, 22.00% and 25.89% respectively. In addition, whilst the Group can leverage on its expertise in the business of retail finance leasing which has been commenced since 2013, we are given to understand that certain members of the management team of the Group have had prior experience or involved in the wholesale finance leasing business.

We also discussed with the Management the risk factors of the Sale and Leaseback Arrangement, among other things, (i) Dinxing Leasing is required to hold relevant licenses, permits and approvals issued by relevant authorities allowing Dingxin Leasing to conduct its finance leasing business operations. Any change in regulatory requirements, or any suspension or revocation of these permits and approvals may have a material adverse impact on Dingxin Leasing’s business and operations; and (ii) the creditability of All Trust Leasing. We were further advised by the Management that as at the Latest Practicable Date, they have not been aware of any proposed changes in the regulatory environment which would have material adverse impact on the wholesale auto finance leasing industry. As regards the creditability of All Trust Leasing, given (i) that as

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

confirmed by All Trust Leasing, there was no material default in payment to its creditors by All Trust Leasing since its establishment; (ii) as discussed in details in section headed ‘‘2.2 Terms of the Sale and Leaseback Framework Agreement’’ below, the corporate guarantee to be provided by CGA Limited in favour of Dingxin Leasing pursuant to which CGA Limited shall irrevocably guarantee in favour of Dingxin Leasing with respect to all liabilities and obligations of All Trust Leasing under the Implementation Agreement(s), and the financial position of CGA Limited; and (iii) the pledge of receivables by All Trust Leasing in favour of Dingxin Leasing pursuant to which, in the event of default of payment by All Trust Leasing, Dingxin Leasing shall have the preferential rights to payment on all receivables payable to All Trust Leasing in respect of the underlying leased assets, we consider that there are reasonable protections for the Company against such credit risk.

In view of the above, we concur with the Directors that the entering into of the Sale and Leaseback Framework Agreement is strategic arrangement for the Group to commence its wholesale finance leasing business to capture this opportunity for the demand for financing solution of automobile dealership enterprises with a readily available counterparty. The entering into of the Sale and Leaseback Framework Agreement will not make the Group becoming obliged to enter into any transactions with All Trust Leasing, but will only allow All Trust Leasing to be one of the available partners for the Group’s selection. Dingxin Leasing can decide whether or not to enter into any implementation agreements as regards the Transactions with All Trust Leasing after comparing terms then agreeable with independent third party(ies), if any, for sale and leaseback arrangements similar to the Transactions and according to the then financial position of the Group.

As disclosed in the Circular, the sale price of the leased assets will be funded by Dingxin Leasing’s internal resources and its bank loans. Following, among other things, the issue by the Company of two batches of perpetual securities in December 2016 which raised net proceeds of around US$389.7 million (equivalent to approximately RMB2,681.1 million), as at 31 December 2016, the Group had cash and cash equivalent (excluding cash in transit and pledged bank deposits) of approximately RMB5,793 million and immediately available unutilized bank facilities up to the aggregate amount of RMB10,003 million. As estimated and provided by the Management, after taking into account the necessary working capital requirements for its ordinary core businesses, in 2017 there would be idle cash of not less than RMB3,000 million which, according to the Management, have no current planned use and would be placed as deposits in bank until it could be used for any suitable investments opportunities when arise. Whilst we are given to understand that (i) the existing effective interest rate of the borrowings in RMB of the Group as at 31 December 2016 was approximately 5.0% per annum; (ii) the weighted average cost of capital of the Group as at 31 December 2016 was approximately 5.0%; and (iii) the latest RMB demand deposit rate announced by the People’s Bank of China as at the Latest Practicable Date was 0.35%, we concur with the Directors’ view that the effective interest rate or the internal rate of return (‘‘IRR’’) under the Sale and Leaseback Framework Agreement of not less than (a) approximately 5.83% (calculated based on the expected cash flows from a sale and leaseback transaction under the Sale and Leaseback Framework Agreement after taking into account (i) annual lease interest rate (being the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

benchmark interest rate for RMB term loans as announced for implementation by the People’s Bank of China (the ‘‘PBC Benchmark Rate’’) of 4.35% as at the Latest Practicable Date plus 10% or higher), (ii) and the deposit amount of 10% of the total loan amount; and (iii) assuming the lease term of up to 1 year); and (b) approximately 6.36% (calculated based on the expected cash flows of a sale and leaseback transaction under the Sale and Leaseback Framework Agreement after taking into account (i) annual lease interest rate (being the PBC Benchmark Rate of 4.75% as at the Latest Practicable Date plus 10% or higher), (ii) the deposit amount of 10% of the total loan amount; and (iii) assuming the lease term of 2 to 3 years), both are higher than the Group’s cost of capital, cost of financing and the deposit interest rate and therefore, could contribute a positive return to the Group against its latest cost of financing and cost of capital, and a better return as compared to bank deposits.

Having considered (i) the aforesaid reasons for the Sale and Leaseback Framework Agreement as detailed in paragraphs above; (ii) in particular, the IRR under the Sale and Leaseback Framework Agreement representing a better return as compared to the Group’s latest cost of capital, cost of financing and return from bank deposits; and (iii) the IRR of the Sale and Leaseback Framework Agreement being in line with the IRRs under the Comparable Arrangements (as defined below) as discussed in the section headed ‘‘2.2 Terms of the Sale and Leaseback Framework Agreement’’ below, we consider that the entering into of the Sale and Leaseback Framework Agreement is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

2.2 Terms of the Sale and Leaseback Framework Agreement

Key terms of the Sale and Leaseback Framework Agreement are as follows:

Sale and leaseback:

All Trust Leasing shall sell to Dingxin Leasing vehicles owned by All Trust Leasing, which shall then be leased back for use by All Trust Leasing.

All Trust Leasing is principally engaged in the automobile finance leasing business in the PRC. All Trust Leasing will enter into automobile finance lease agreements with retail customers pursuant to which All Trust Leasing will purchase vehicles from various manufacturers or the retail customers in accordance with the retail customers’ instructions and obtains the legal titles to such vehicles, and All Trust Leasing will then lease the purchased vehicles to such retail customers.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The vehicles to be sold to Dingxin Leasing (and then leased back for use by All Trust Leasing) under the Sale and Leaseback Framework Agreement comprise those owned by All Trust Leasing and leased to its retail customers. The list of the leased assets under the Sale and Leaseback Framework Agreement (being the vehicles owned by All Trust Leasing and leased to its retail customers and which will be set out in each Implementation Agreement), the lease term and the lease rate will be determined at the time when the Implementation Agreements are entered into.

Pursuant to the Implementation Agreements, the legal titles of the vehicles subject to such Implementation Agreements will be transferred from All Trust Leasing to Dingxin Leasing, however, Dingxin Leasing will not succeed to or assume any rights or obligations of All Trust Leasing under All Trust Leasing’s relevant finance lease agreements with its retail customers with respect to the same vehicles. As discussed with the Management, we understand that the aforesaid is in line with common practice in the market for sale and leaseback arrangements of this type.

Upon expiry of the relevant lease term, All Trust Leasing shall repurchase the leased assets in accordance with the agreed terms and with a consideration of a nominal amount of RMB100.

The Company considers that a sale and leaseback transaction under the Sale and Leaseback Framework Agreement should be classified as a finance lease, and such sale and leaseback transaction is a means whereby the lessor provides finance to the lessee, with the asset as security. Therefore, the assets held under the sales and leaseback transactions shall be recognised in the Company’s consolidated statement of financial position as a receivable. We consider that the classification of such transaction as finance lease is a common practice for similar sale and leaseback transactions. All Trust Leasing also considers that a sale and leaseback transaction under the Sale and Leaseback Framework Agreement should be classified as a finance lease of All Trust Leasing.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Sale price and lease payments:

Dingxin Leasing shall gather information on the terms and conditions (including interest rates) offered by other independent third parties in the PRC independent of the Company and its connected persons in sale and leaseback transactions of a similar scale and nature so that Dingxin Leasing can ensure that the interest rates applicable to transactions between Dingxin Leasing and All Trust Leasing are the same as or more favorable to the Company than those offered by such independent third parties. The parties agree that the lease interest rates shall be at least 110% of (the ‘‘Base Interest Rate’’), but no more than four times of, the PBC Benchmark Rate.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Implementation Agreements:

Dingxin Leasing and All Trust Leasing will enter into specific individual Implementation Agreements from time to time. Each Implementation Agreement will be entered into in the ordinary and usual course of business of the Group and on normal commercial terms or better. The terms of each Implementation Agreement will be in line with the terms of the Sale and Leaseback Framework Agreement. Notwithstanding the foregoing, Dingxin Leasing can decide whether or not to enter into any Implementation Agreements with All Trust Leasing after comparing terms then offered by independent third parties, if any, for sale and leaseback arrangements similar to the transactions contemplated under the Sale and Leaseback Framework Agreement. Dingxin Leasing expects that it will not enter into more than ten Implementation Agreements with All Trust Leasing for each of the three years ending 31 December 2017, 2018 and 2019.

Within five days after the signing of each Implementation Agreement, All Trust Leasing shall pay to Dingxin Leasing a deposit in the amount of 10% of the finance amount (the ‘‘Deposit Rate’’) under the relevant Implementation Agreement, which shall be used to offset any default of payment obligations by All Trust Leasing under the relevant Implementation Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Guarantee and pledge of Dingxin Leasing and All Trust Leasing have agreed to receivables: the following arrangements in the Sale and Leaseback Framework Agreement:
(1) All Trust Leasing shall procure CGA Limited to enter into a corporate guarantee in favour of Dingxin Leasing on the date of the relevant Implementation Agreement, pursuant to which CGA Limited shall irrevocably guarantee in favour of Dingxin Leasing with respect to all liabilities and obligations of All Trust Leasing under the relevant Implementation Agreement.
(2) All Trust Leasing shall also enter into a pledge of receivables in favour of Dingxin Leasing on the date of the relevant Implementation Agreement, pursuant to which, in the event of default of payment by All Trust Leasing to Dingxin Leasing pursuant to the relevant Implementation Agreement, Dingxin Leasing shall have the preferential rights to payment on all receivables payable to All Trust Leasing in respect of the underlying leased assets.

Unless otherwise specified in an Implementation Agreement, in the event All Trust Leasing fails to repay to Dingxin Leasing pursuant to the terms of the respective Implementation Agreement, Dingxin Leasing shall have the discretion to exercise its rights in the corporate guarantee and/or the pledge of receivables.

Term and termination:

The Sale and Leaseback Framework Agreement shall become effective on the date when it is approved by the independent shareholders of the Company at the general meeting and will expire on 31 December 2019. Dingxin Leasing and All Trust Leasing will not enter into any individual Implementation Agreements before the Sale and Leaseback Framework Agreement becomes effective. The term of the individual Implementation agreements shall not exceed three years and in any event shall not exceed 31 December 2019. In the event that the term of an Implementation Agreement is expected to extend beyond 31 December 2019, the Company will re-comply with the announcement and shareholders’ approval requirements in accordance with Rule 14A.54 of the Listing Rules before such Implementation Agreement is entered into.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In the event of the termination of the Sale and Leaseback F r a m e w o r k A g r e e m e n t a n d t h e u n d e r l y i n g implementation agreement(s), All Trust Leasing is required to make a full repayment of the outstanding principal amount together with the accrued and unpaid lease payment (if any) in respect of the transactions under the Implementation Agreement(s) up to and including the date of termination within seven (7) business days upon such termination.

As advised by the Management, the Base Interest Rate and the Deposit Rate, which are the two key parameters to determine the IRR of the Transactions, was arrived at after arms-length negotiation between the parties to the Sale and Leaseback Framework Agreement so as to ensure the IRR of the Transactions shall not be less than 6% as at the date of the Sale and Leaseback Framework Agreement.

As discussed above in this letter, the Group has developed finance leasing services business for retail customers through Dingxin Leasing since 2013, and this is the first time for the Group to tap into the wholesale finance leasing business in the PRC and therefore, Dingxin Leasing has not conducted any similar wholesale auto finance leasing arrangement with any parties in the past. However, we are advised by the Company that All Trust Leasing has from time to time entered into similar wholesale refinancing arrangements with independent third parties such as other banks and finance companies (the ‘‘Comparable Arrangements’’). We have requested and reviewed the list of terms of eight Comparable Arrangements entered into by All Trust Leasing in 2016 with samples of the underlying agreements. We note that the Comparable Arrangements are of lease terms of roughly two to three years. The eight Comparable Arrangements below represents an exhaustive list of all the latest similar wholesale refinancing arrangements with independent third parties entered into by All Trust Leasing in 2016 which are considered fair and representative samples to illustrate the market prevailing major features and principal terms of wholesale refinancing arrangements under common market practice. All Trust Leasing has not conducted any Comparable Arrangements in 2017 up

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

to and including the Latest Practicable Date. Set out below are the principal terms of each of the Comparable Arrangements:

									Rate of
			Principal		Lease	Repayment		Deposit	upfront
			amount	IRR	term	schedule	Interest rate	rate	handling fee
			(RMB’million)	(% per	(month)		(per annum)	(% to	(%)
				annum)			(Note)	principal
								amount)
Comparable	Arrangement	A	395	5.16	36	Quarterly	Benchmark	10	n/a
							rate + 5%
Comparable	Arrangement	B	200	5.12	36	Quarterly	Benchmark	10	n/a
							rate + 5%
Comparable	Arrangement	C	151	6.67	22	Monthly	Benchmark	n/a	n/a
							rate + 40%
Comparable	Arrangement	D	500	6.22	36	Monthly	Benchmark	5	3
							rate + 3%
Comparable	Arrangement	E	300	6.93	34	Monthly	Benchmark	n/a	2
							rate
Comparable	Arrangement	F	600	7.05	33	Monthly	Benchmark	5	1.2
							rate + 10%
Comparable	Arrangement	G	110	6.73	22	Monthly	Benchmark	1.5	1.5
							rate
Comparable	Arrangement	H	170	6.00	36	Monthly	Benchmark	3.0	1.8
							rate - 8%

As shown in the table above, we note that the Base Interest Rate and the Deposit Rate under the Sale and Leaseback Framework Agreement are within the respective range of the annual lease rates and deposit rates of the Comparable Arrangements. Due to, among other things, the different duration, different combination of terms such as deposit amount and/or handling fees involved in the Comparable Arrangements, we have considered the IRR (which is the effective interest rate after taking into account the respective key terms including the lease interest rate, deposit amount and handling fees involved in the Comparable Arrangements) of each of the Comparable Arrangements for comparison purposes. We noted that the IRR of the Sale and Leaseback Framework Agreement, after taking into account the Base Interest Rate and the Deposit Rate and assuming a lease term of 2 to 3 years, of around 6.36% is within the range of the IRR of the Comparable Arrangements between around 5.12% and 7.05%, and is higher than the average IRR of the Comparable Arrangements of around 6.24%.

Pursuant to the Sale and Leaseback Framework Agreement, CGA Limited, an indirect wholly owned subsidiary of CGA, will provide guarantee, which is irrevocable, in favour of Dingxin Leasing with respect to all obligations and liabilities of All Trust Leasing under implementation agreement(s) as regards the Transactions pursuant to the Sale and Leaseback Framework Agreement. As disclosed in the interim report of CGA for the six months period ended 30 June 2016, total assets and net assets of CGA Limited

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amounted to approximately RMB76,898 million and RMB23,140 million respectively as at 30 June 2016. As also disclosed in the annual report of CGA for the financial year ended 31 December 2015, the net profit of CGA Limited for the year ended 31 December 2015 amounted to around RMB2,152 million. Based on the aforesaid financial background and scale of the operations of CGA Limited, we consider the guarantee provided by CGA Limited in favour of Dingxin Leasing, together with the pledge of receivables, reasonable protections for the Company against credit risk and therefore, beneficial to the Company.

We have also considered the other terms of the Sale and Leaseback Framework Agreement such as the sale price being the remaining principal amount of the leased assets under the existing lease agreements between All Trust Leasing and its customers, the repurchase option upon the expiry of the lease term, the responsibility for insurance and maintenance expenses, the settlement arrangement and terms in the event of termination. We note that such other terms under the Sale and Leaseback Framework Agreement are customary for sale and leaseback arrangements of this type.

In view of, in particular, (i) the entering into of the Sale and Leaseback Framework Agreement is the first step of the Group to tap into the wholesale finance leasing business in the PRC which opens up a possible new source of revenue stream to the Group; (ii) as aforesaid discussed, terms of the Sale and Leaseback Framework Agreement are generally in line with the market; (iii) the entering into of the Sale and Leaseback Framework Agreement will not make the Group becoming obliged to enter into any transactions with All Trust Leasing, but will only allow All Trust Leasing to be one of the available partners for the Group’s selection; and (iv) the benefits to be brought about pursuant to the Sale and Leaseback Framework Agreement as discussed in the sub-section headed ‘‘2.1 Background of and reasons for the Sale and Leaseback Framework Agreement’’ above, in particular, the utilisation of the Group’s idle cash to generate an IRR (based on the PBC Benchmark Rate as at the Latest Practicable Date) which currently represents a reasonable return as compared to the Group’s latest cost of capital, cost of financing and bank deposit; and (v) terms under the Sale and Leaseback Framework Agreement shall be no less favourable to the Group than to independent third parties, we concur with the view of the Directors that the terms of the Sale and Leaseback Framework Agreement (including the Based Interest Rate and Deposit Rate) is fair and reasonable so far as the Company and its shareholders are concerned.

2.3 Annual Caps for the Transactions

Set out below are details of the Annual Caps for each of the three financial years ending 31 December 2019:

		Total
	RMB	’million
2017		1,500
2018		2,500
2019		3,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in letter from the Board in the Circular, the annual maximum finance amount set out above refers to the sum of principal amount and interest that may accrue in respect of the Implementation Agreement(s) then in effect. Also as disclosed in letter from the Board in the Circular, the Annual Caps were determined after taking into account, among other things, (i) the business plans of Dingxin Leasing which is to tap into the sale and leaseback wholesale finance leasing business in the PRC; (ii) the expected accumulated principal amount and interest of the sale and leaseback transactions under the Sale and Leaseback Framework Agreement; (iii) the nature, value and expected useful life of the leased assets; (iv) a buffer for potential adjustments to business plans; and (v) the estimated remaining value of All Trust Leasing’s leased assets for each of the three years ending 31 December 2017, 2018 and 2019.

We noted that an upward trend is generally expected by the Management for the Annual Caps for the three years ending 31 December 2019. In assessing the fairness and reasonableness of the Annual Caps of RMB1,500 million for 2017, we have considered the factors including that:

(a) as discussed in section headed ‘‘2.1 Background of and reasons for the Sale and Leaseback Framework Agreement’’ above, after taking into account the necessary working capital requirements for its ordinary core businesses, the Group would have idle cash of not less than RMB3,000 million in 2017 which have no current planned use and would be placed as deposits in bank. The Annual Cap for 2017 represents less than 50% of the idle cash resources of the Group in 2017. Moreover, as discussed in the sub-section headed ‘‘2.1 Background of and reasons for the Sale and Leaseback Framework Agreement, the IRR of the Sale and Leaseback Agreement, based on the latest PBC Benchmark Rate as at the Latest Practicable Date, represents a reasonable return as compared to the Group’s latest cost of capital, cost of financing and bank deposit. We, therefore, consider the utilisation of up to RMB1,500 million, being less than 50% of the idle cash resources in 2017, not excessive and reasonable;
(b) we are advised by the Management that All Trust Leasing had refinancing needs for its auto financing operations amounted to RMB8,100 million and RMB10,500 million respectively for the financial year ended 31 December 2015 and 2016, and is expected to have refinancing needs amounted to RMB12,600 million in 2017. The Annual Cap for 2017 represents around 32.2% of the average historical refinancing amount of All Trust Leasing in the previous two financial year and less than 15% of expected refinancing amount of All Trust Leasing for 2017, which is considered commercially acceptable. Whilst the Annual Cap is the maximum annual transaction amount, pursuant to the entering into of the Sale and Leaseback Framework Agreement will not make the Company becoming obliged to enter into any transactions, or enter into transactions up to such amount, with All Trust Leasing; and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(c) as discussed in the sub-section headed ‘‘2.2 Terms of the Sale and Leaseback Framework Agreement’’ above, based on the financial background and scale of operations of CGA Limited, we consider the guarantee provided by CGA Limited in favour of Dingxin Leasing, together with the pledge of receivables, reasonable protections for the Company against credit risk.

The Annual Caps for 2018 and 2019 embedded an estimated annual growth of around 66.7% and 20.0% for 2018 and 2019 respectively. In assessing the fairness and reasonableness of the Annual Caps of RMB2,500 million for 2018 and RMB3,000 million for 2019, we have considered the factors including that:

(a) as discussed above, we are advised by the management of CGA that All Trust Leasing had refinancing needs for its auto financing operations amounted to RMB8,100 million and RMB10,500 million respectively for the financial year ended 31 December 2015 and 2016, represented an annual growth rate of around 29.6% for 2016;
(b) as provided by the Management, the total loan amount to be made by Dingxin Leasing is subject to, amongst other things, the net assets of Dingxin Leasing according to requirements under, among others, ‘‘Measures for the Administration of Foreign Investment in Leasing Industry published by the Ministry of Commerce and State Administration of Taxation of the PRC in December 2005. We are advised by the Management that it is the plan of the Company to further expand the business scale of Dingxin Leasing in 2018 by various possible ways, including but not limited to, increase in capital, by around/not less than 30% in which will allow a corresponding increase in the total loan amount to be made by Dingxin Leasing in 2018. Given the historical annual growth in refinancing needs of All Trust Leasing of around 29.6% and the aforesaid possible increase in business scale of Dingxin Leasing in 2018, it is considered that the 66.7% and 20.0% embedded growth rates in Annual Cap for 2018 and 2019 respectively were not excessive; and
(c) as discussed, the entering into of the Sale and Leaseback Framework Agreement will not make the Group becoming obliged to enter into any transactions with All Trust Leasing, but will only allow All Trust Leasing to be one of the available partners for the Group to conduct its wholesale sale and leaseback business on terms no less favourable than those with independent third parties.

Based on the discussion above, we consider the Annual Caps of 2017 to 2019 are fair and reasonable as far as the Company and Independent Shareholders are concerned.

3. Internal control procedures

The Company has adopted a set of effective internal control measures to supervise the continuing connected transactions of the Group. Prior to entering into individual implementation agreements under the Sale and Leaseback Framework Agreement, the finance department of Dingxin Leasing will review and assess the specific terms and conditions of the transactions and to compare the lease interest rates with reference to the market conditions and

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the prices charged or quoted by at least two independent third parties which have the operation scale and financial position at least comparable to those of Dingxin Leasing and/or All Trust Leasing and have a track record of at least one year in conducting sale and leaseback transactions of a similar scale and nature. Dingxin Leasing will not enter into any individual implementation agreements if the lease interest rates are not on normal commercial terms. The finance department of the Company will also monitor the sale and leaseback transactions under the Sale and Leaseback Framework Agreement on a regular basis. As part of the reporting processes implemented by the Group, Dingxin Leasing is required to submit a report to the Company’s finance department each month, setting out the transaction amounts and an indication of whether transaction volumes are expected to remain within the Annual Caps. If any monthly report indicates that an Annual Cap is anticipated to be exceeded, the Company’s finance department will collect further information from Dingxin Leasing, including estimated transaction values, and the Company’s finance department will calculate and establish revised caps and obtain approval from the Board for such revised annual caps (subject to the requirements under the then applicable Listing Rules). Given that Dingxin Leasing expects that it will not enter into more than ten Implementation Agreements with All Trust Leasing for each of the three years ending 31 December 2017, 2018 and 2019, the Directors are of the view that such monthly reports from Dingxin Leasing to the Company’s finance department are adequate for the Company to supervise whether transaction volumes are expected to remain within the Annual Caps. In addition, before each and every Implementation Agreement is entered into, the Company’s finance department will review whether transaction volumes will remain within the Annual Caps if such Implementation Agreement is entered into. In the event that the term of an Implementation Agreement is expected to extend beyond 31 December 2019, the Company will re-comply with the announcement and shareholders’ approval requirements in accordance with Rule 14A.54 of the Listing Rules before such Implementation Agreement is entered into.

We consider the requirement to obtain at least two independent quotes and the selection basis of independent institutions are reasonable for Dingxin Leasing to assess the then prevailing market terms of sale and leaseback transactions of a similar scale and nature offered by independent third parties with similar operation scale and financial strength as Dingxin Leasing and/or All Trust Leasing. As such, we concur with the view of the Directors that the internal control procedures and policies as regards the Transactions have demonstrated the Group’s practices of getting access to market information and having regular assessment on the terms of the Transactions so as to make sure that terms of the Transactions will be no less favourable (so far as the Group is concerned) than those prevailing in the market for similar sale and leaseback transactions.

Furthermore, we are of the view that the internal procedures, including but not limited to, the submissions of reports by Dingxin Leasing to the Group and the regular calculation of forecasts of the projected transaction values for the remainder of the relevant year by the finance department of the Company following receipt of the monthly report can facilitate a regular communication and reporting to the Company which shall enable the Company to effectively monitor the utilisation of the Annual Caps on timely manner.

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Listing Rules Requirements

Pursuant to Rule 14A.55 of the Listing Rules, the Independent Non-executive Directors will confirm in the annual report of the Company that the Group’s continuing connected transactions have been entered into (1) in the ordinary and usual course of business of the Company; (2) on normal commercial terms or on terms no less favourable to the Group than terms available to independent third parties; (3) in accordance with the relevant agreement; and (4) on terms that are fair and reasonable and in the interests of the Shareholders as a whole.

The auditors of the Company will also perform a review of the Group’s continuing connected transactions and will confirm in the annual report of the Company that such continuing connected transactions were conducted in the manner stated in Rule 14A.56 of the Listing Rules.

For each financial year of the Company during the terms of the Sale and Leaseback Framework Agreement, the subject transactions will be subject to review by the independent non-executive Directors and the Company’s auditors as required by the provisions of the Rules 14A.55 and 14A.56 of the Listing Rules respectively. The independent non-executive Directors must confirm in the annual report of the Company for the year 2017–2019 such transactions have been entered into:

(1) in the ordinary and usual course of business of the Company;
(2) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than terms available to or from (as appropriate) independent third parties; and
(3) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Furthermore, the Listing Rules require that the Company’s auditors must provide a letter to the Board (with a copy provided to the Hong Kong Stock Exchange), confirming that the Transactions:

(1) have received the approval of the Board;
(2) are in accordance with the pricing policies of the Company if the transactions involve provision of goods or services by the Company have been entered into in accordance with the relevant agreement governing the transactions; and
(3) have not exceeded the cap disclosed in its previous announcement.

Given the above, we are of the opinion that there will be sufficient procedures and arrangements in place to ensure that the Transactions will be conducted on terms that are fair and reasonable and on normal commercial terms as far as the Independent Shareholders are concerned.

– 31 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

OPINION AND RECOMMENDATION

Having taken into account the principal factors and reasons set out above, we are of the view that the terms of the Sale and Leaseback Framework Agreement (including the Annual Caps) are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned. We also consider that the entering into of the Sale and Leaseback Framework Agreement is in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Shareholders, and the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Sale and Leaseback Framework Agreement, and the adoption of the Annual Caps.

Yours faithfully, for and on behalf of SOMERLEY CAPITAL LIMITED Lyan Tam Director

Ms. Lyan Tam is a licensed person registered with the Securities and Futures Commission and as a responsible officer of Somerley 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.

– 32 –

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 2013 is disclosed on pages 47 to 135 of the annual report of the Company for the year ended 31 December 2013 published on 30 April 2014; (ii) 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; and (iii) 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. The unaudited financial information of the Group for the six months ended 30 June 2016 is disclosed on pages 23 to 46 of the interim report of the Company for the six months ended 30 June 2016 published on 22 September 2016. The above have been published on the website of the Hong Kong 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 31 December 2016, 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 RMB10,309,872,000 as follows:

Current bank borrowings Current other borrowings Current portion of long term bank borrowings Non-current bank borrowings Subtotal Perpetual capital instruments Total	As at 31 December 2016 RMB’000 2,199,933 230,644 2,366,919 2,754,122 7,551,618
	2,758,254
	10,309,872

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The borrowings represent:

— secured — guaranteed — unsecured — secured and guaranteed** Total	As at 31 December 2016 RMB’000 5,317,172 2,785,877 1,951,458 255,365
	10,309,872

The Group’s certain bank borrowings and other borrowings are secured by:
(i) mortgages over the Group’s inventories, which had an aggregate carrying value of approximately RMB188,393,000 as at 31 December 2016;
(ii) the pledge of certain of the Group’s time deposits amounting to RMB147,233,000 as at 31 December 2016; and
(iii) the Group’s certain bank borrowings amounted to RMB5,121,041,000 were secured by the entire shares of YanJun (China) Investment Co., Ltd.
** The Group’s certain bank borrowings and other borrowings are guaranteed as follows:
(i) the Group’s certain bank borrowings and other borrowings amounted to RMB27,623,000 were guaranteed by CGA; and
(ii) the Group’s certain perpetual capital instruments amounted to RMB2,758,254,000 were guaranteed by the parent guarantor CGA and the subsidiary guarantor China Grand Auto.
*** The Group’s certain bank borrowings and other borrowings are secured and guaranteed as follows:
(i) Certain of the Group’s bank borrowings which amounted to RMB100,000,000 were secured by the prepaid land lease payment amounted to RMB14,492,000, property, plant and equipment amounted to RMB12,187,000 and guaranteed by certain third parties as at 31 December 2016; and
(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.

As at 31 December 2016, the Group had total available bank credit facilities of approximately RMB11,630,640,000 of which approximately RMB5,770,980,000 had been utilised.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities

At the close of business on 31 December 2016, the Group did not have any debt securities issued and outstanding, and authorised 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.

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 Entering into the Sale and Leaseback Framework Agreement’’ in the Letter from the Board in this circular, by entering into the Sale and Leaseback Framework Agreement, the Group will be able to develop its wholesale sale and leaseback finance leasing business by collaborating with All Trust Leasing, which is an indirect wholly-owned subsidiary of CGA, and further enhance returns to the Shareholders.

– I-3 –

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 Hong Kong 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 Hong Kong 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.

– II-1 –

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/	Deemed to be	Company’s total
Name of shareholders	Nature of Interest	Held	share capital
China Grand Automotive Services	Beneficial owner	1,917,983,571(L)	75.00(L)
(Hong Kong) Limited		1,917,983,571(S)	75.00(S)
(廣匯汽車服務(香港)有限公司)(1)(3)
China Grand Automotive Services	Interests of controlled	1,917,983,571(L)	75.00(L)
Co., Ltd.	corporation	1,917,983,571(S)	75.00(S)
(廣匯汽車服務有限責任公司)(1)(3)
Shanghai Huiyong Automotive	Interests of controlled	1,917,983,571(L)	75.00(L)
Distribution Co., Ltd.	corporation	1,917,983,571(S)	75.00(S)
(上海匯湧汽車銷售有限公司)(1)(3)
China Grand Automotive Services	Interests of controlled	1,917,983,571(L)	75.00(L)
Co., Ltd.	corporation	1,917,983,571(S)	75.00(S)
(廣匯汽車服務股份公司)(1)(3)
Xinjiang Guanghui Industry Investment	Interests of controlled	1,917,983,571(L)	75.00(L)
Group Co., Ltd.	corporation	1,917,983,571(S)	75.00(S)
(新疆廣匯實業投資(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)	interest in shares
(招商銀行有限公司上海松江支行)(3)

– II-2 –

GENERAL INFORMATION

APPENDIX II

			Approximate
		Number of	percentage (%)
		Shares Held or	in the
	Capacity/	Deemed to be	Company’s total
Name of shareholders	Nature of Interest	Held	share capital
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

Notes:

(1) China Grand Auto is owned as to approximately 0.004% by CGA Limited and approximately 99.996% by Shanghai Huiyong Automotive Distribution Co., Ltd. (上海匯湧汽車銷售有限公司) (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 Automotive Distribution Co., Ltd. (上海匯湧汽車銷售有限公司), 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 China Grand Auto.
(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, China Grand Auto 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) 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.

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)).

– II-3 –

GENERAL INFORMATION

APPENDIX II

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;
(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 2015 (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 2015 (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.

– II-4 –

GENERAL INFORMATION

APPENDIX II

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.

As at the Latest Practicable Date, Somerley Capital Limited had no direct or indirect interest in any assets which had been, since 31 December 2015 (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 Auto Finance I limited (a wholly-owned subsidiary of the Company) (as issuer), CGA (as parent guarantor), China Grand Auto (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 Auto Finance I limited;
(b) the indenture dated 15 December 2016 between Baoxin Auto Finance I limited (as issuer), CGA (as parent guarantor), China Grand Auto (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 Auto Finance I limited;
(c) the purchase agreement dated 8 December 2016 between Baoxin Auto Finance I limited (as issuer), CGA (as parent guarantor), China Grand Auto (as subsidiary guarantor), China International Capital Cooperation Hong Kong Securities Limited

– II-5 –

GENERAL INFORMATION

APPENDIX II

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 Auto Finance I limited;

(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.

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 2015 published on 28 April 2016.
(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.

– II-6 –

GENERAL INFORMATION

APPENDIX II

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 10 March 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 Sale and Leaseback Framework Agreement;
(e) the letter from the Independent Board Committee to the Independent Shareholders dated 24 February 2017, the full text of which is set out on page 14 of this circular;
(f) the letter from Somerley Capital Limited to the Independent Board Committee and the Independent Shareholders dated 24 February 2017, the full text of which is set out on pages 15 to 32 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.

– II-7 –

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

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

BAOXIN AUTO GROUP LIMITED 寶信汽車集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1293)

NOTICE OF THE FIRST EXTRAORDINARY GENERAL MEETING FOR THE YEAR 2017 AND CLOSURE OF REGISTER OF MEMBERS

NOTICE IS HEREBY GIVEN that the first extraordinary general meeting (the ‘‘EGM’’) for the year 2017 of 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 15 March 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 24 February 2017.

RESOLUTION TO BE CONSIDERED AND APPROVED AT THE EGM

By way of ordinary resolution:

(1) ‘‘THAT
(a) the Sale and Leaseback Framework Agreement and the transactions contemplated thereunder be and hereby approved and confirmed AND the fixing of the respective Annual Caps as disclosed in the Circular be and is hereby approved and confirmed; and
(b) 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 Sale and Leaseback Framework Agreement and any other documents relating thereto or contemplated thereby (in each case amended if necessary) and to make or agree 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.’’

– EGM-1 –

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

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 Baoxin Auto Group Limited Mr. Li Jianping Chairman

The PRC 24 February 2017

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 resolutions 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 13 March 2017 to 15 March 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 10 March 2017.
The translation into Chinese language of this notice is for reference only. In case of any inconsistency, the English version shall prevail.

– EGM-2 –

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

49831_rns_2017-02-23_a5e9e9e4-bd9f-4562-ac39-7ce4449aedd7.pdf

BAOXIN AUTO GROUP LIMITED

寶信汽車集團有限公司

MAJOR TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS — SALE AND LEASEBACK FRAMEWORK AGREEMENT

SOMERLEY CAPITAL LIMITED

DEFINITIONS

BAOXIN AUTO GROUP LIMITED 寶信汽車集團有限公司

(Stock code: 1293)

MAJOR TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS — SALE AND LEASEBACK FRAMEWORK AGREEMENT

I INTRODUCTION

II MAJOR TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

1. Introduction

2. Key Terms of the Sale and Leaseback Framework Agreement

(b) Parties

(c) Sale and leaseback

(d) Sale price and lease payments

LETTER FROM THE BOARD

(e) Implementation Agreements

(f) Guarantee and pledge of receivables

(g) Term and termination

LETTER FROM THE BOARD

(h) Proposed annual caps

3. Internal Control Measures

4. Reasons for and Benefits of Entering into the Sale and Leaseback Framework Agreement

5. Implications under the Listing Rules

6. Effects on Earnings, Assets and Liabilities of the Company

7. Approval by Directors and Independent Shareholders

8. General Information

Dingxin Leasing

All Trust Leasing

IV RECOMMENDATION

V ADDITIONAL INFORMATION

BAOXIN AUTO GROUP LIMITED 寶信汽車集團有限公司

(Stock code: 1293)

MAJOR TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS — SALE AND LEASEBACK FRAMEWORK AGREEMENT

SOMERLEY CAPITAL LIMITED

To: The Independent Board Committee and the Independent Shareholders

MAJOR TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

PRINCIPAL FACTORS AND REASONS CONSIDERED

The Group

Dingxin Leasing

All Trust Leasing

2. The Sale and Leaseback Framework Agreement

2.2 Terms of the Sale and Leaseback Framework Agreement

2.3 Annual Caps for the Transactions

3. Internal control procedures

4. Listing Rules Requirements

OPINION AND RECOMMENDATION

1. FINANCIAL INFORMATION OF THE GROUP

2. INDEBTEDNESS STATEMENT

Borrowings

Contingent liabilities

3. WORKING CAPITAL

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

3. DISCLOSURE OF SUBSTANTIAL SHAREHOLDERS’ INTERESTS

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

4. PARTICULARS OF DIRECTORS’ SERVICE CONTRACTS

5. COMPETING INTERESTS

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

7. MATERIAL ADVERSE CHANGE

8. LITIGATION

9. EXPERT

Name Qualifications

10. MATERIAL CONTRACTS

11. MISCELLANEOUS

12. ROUNDING

13. DOCUMENTS AVAILABLE FOR INSPECTION

BAOXIN AUTO GROUP LIMITED 寶信汽車集團有限公司

NOTICE OF THE FIRST EXTRAORDINARY GENERAL MEETING FOR THE YEAR 2017 AND CLOSURE OF REGISTER OF MEMBERS

RESOLUTION TO BE CONSIDERED AND APPROVED AT THE EGM

Notes:

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Grand Baoxin Auto Group Limited Proxy Solicitation & Information Statement 2017