Hang Lung Group Limited — M&A Activity 1999

Jul 7, 1999

Listed Company Information

CHINA STRATEGIC<0235>,STAR TELECOM<0383>&TRICOM HOLDINGS<1186>-Joint Announcement The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. This announcement is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities. PACIFIC CENTURY GROUP HOLDINGS LIMITED (Incorporated in the British Virgin Islands with limited liability) PACIFIC CENTURY REGIONAL DEVELOPMENTS LIMITED (Incorporated in Singapore with limited liability) CHINA STRATEGIC HOLDINGS LIMITED (Incorporated in Hong Kong with limited liability) (VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION, AND CONNECTED TRANSACTION) STAR TELECOM INTERNATIONAL HOLDING LIMITED (Incorporated in Bermuda with limited liability) (VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION, AND CONNECTED TRANSACTION) TRICOM HOLDINGS LIMITED (Incorporated in Hong Kong with limited liability) (VERY SUBSTANTIAL ACQUISITION CONSIDERED AS AN APPLICATION FOR NEW LISTING AND CONNECTED TRANSACTION, AND MAJOR AND CONNECTED TRANSACTION) ACQUISITION OF INTEREST IN DAILY LINK DEVELOPMENTS LIMITED BY TRICOM HOLDINGS LIMITED, DISPOSAL OF CERTAIN BUSINESSES BY TRICOM HOLDINGS LIMITED TO STAR TELECOM INTERNATIONAL HOLDING LIMITED, APPLICATION FOR A WAIVER FROM THE OBLIGATION ARISING UNDER THE TAKEOVERS CODE TO MAKE A MANDATORY GENERAL OFFER AND A SPECIAL DEAL CONSENT, PROPOSED CHANGE OF NAME BY TRICOM HOLDINGS LIMITED TO PACIFIC CENTURY CYBERWORKS LIMITED , PLACING OF 5,755,280,000 NEW SHARES OF TRICOM HOLDINGS LIMITED AT A PRICE OF HK$0.062 PER SHARE OF TRICOM HOLDINGS LIMITED, PROPOSED CONSOLIDATION OF SHARES OF TRICOM HOLDINGS LIMITED, GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES OF TRICOM HOLDINGS LIMITED, INCREASE IN AUTHORISED SHARE CAPITAL OF TRICOM HOLDINGS LIMITED AND PROPOSED AMENDMENTS TO THE SHARE OPTION SCHEME OF TRICOM HOLDINGS LIMITED SUMMARY -The Acquisition Supplemental Agreement, the Placing Underwriting Supplemental Agreement, the Asset Disposal Supplemental Agreement and the Indebtedness Disposal Supplemental Agreement were signed on 5th July, 1999. -The Listing Document will be dispatched to shareholders of Tricom on 7th July, 1999. -The China Strategic Circular and the Star Circular will be dispatched on 7th July, 1999. -Financial information of Tricom contained in the Listing Document which has not been previously disclosed, extracted from the Listing Document, is set out in this announcement. -Financial information of China Strategic and Star contained in their respective circulars which has not been previously disclosed, extracted from the respective circulars, is set out in this announcement. -It is proposed that every five Shares would be consolidated into one new ordinary share of HK$0.05 each in the capital of Tricom instead of every 20 Shares consolidated into one new ordinary share of HK$0.20 each in the capital of Tricom. -The effective date of the Consolidation is expected to be 3rd August, 1999. Trading arrangements for Consolidated Shares are set out in this announcement. 1. Introduction Reference is made to a joint announcement by PCG, PCRD, China Strategic, Star and Tricom on 3rd May, 1999 in relation to, among other things, the Proposal. Terms and definitions used in that announcement are used herein unless otherwise stated. 2. Acquisition Supplemental Agreement Further to the conditional agreement entered into between PCRD, PCG, Tricom and Star on 30th April, 1999 in respect of the Acquisition, a supplemental agreement was entered into between PCRD, PCG, Tricom and Star on 5th July, 1999 to amend the Acquisition Agreement whereby, among other things: -the proposed consolidation of shares of every 20 Shares into one consolidated share of HK$0.20 each has been amended to a consolidation of every 5 Shares into one consolidated share of HK$0.05 each subject to approval by shareholders of Tricom at the extraordinary general meeting convened to be held on 29th July, 1999; -the periods for PCRD and PCG and Tricom, as the case may be, to conduct due diligence on Tricom Group and Newco Operations were extended from 40 days to 50 days which ended on 19th June, 1999; and -the commencement date in respect of the rental guarantee on Tower A of Pacific Century Place was amended to clarify the intention that the rental guarantee will be effective from the completion date of the Acquisition Agreement and not from the issuance of the completion certificate, as this has already been issued. The Acquisition Supplemental Agreement also contains other immaterial amendments in respect of minor inaccuracies in the Acquisition Agreement which became apparent during preparation of the Listing Document. 3. Placing Underwriting Supplemental Agreement Further to the conditional agreement entered into between Tricom, PCG, PCRD and the Placing Underwriters on 30th April, 1999 in respect of the underwriting of the Placing, a supplemental agreement was entered into between Tricom, PCG, PCRD and the Placing Underwriters on 5th July, 1999 whereby the Placing Underwriting Agreement is amended, among other things: - to include a reference to the Acquisition Supplemental Agreement; - to provide for the consolidation of five Shares into one consolidated share of HK$0.05 each instead of the consolidation of twenty Shares into one consolidated share of HK$0.20 each; and - to provide for consequential changes in connection with the Acquisition Supplemental Agreement. 4. Asset Disposal Supplemental Agreement Further to the conditional agreement entered into between Tricom and Star on 30th April, 1999 in respect of the Asset Disposal, a supplemental agreement was entered into between Tricom and Star on 5th July, 1999 to amend the Asset Disposal Agreement to take into account the disposal by Tricom of all the issued shares in Tricom Hunan Investments Ltd., a wholly-owned subsidiary of Tricom, on 14th May, 1999. Since Star will assume all benefits and burdens arising from such disposal, no adjustment to the aggregate consideration for the Disposals is required. 5. Indebtedness Disposal Supplemental Agreement Further to the conditional agreement entered into between Tricom and Yuenwell on 30th April, 1999 in respect of the Indebtedness Disposal Agreement, a supplemental agreement had been entered into between Tricom and Yuenwell on 5th July, 1999 to amend the Indebtedness Disposal Agreement to take into account the disposal by Tricom of all the issued shares in Tricom Hunan Investments Ltd. on 14th May, 1999. 6. Dispatch of the Listing Document, China Strategic Circular and Star Circular (i) The Listing Document containing, among other things, - information in relation to Tricom's application for new listing; - a letter from the chairman of Tricom; - a letter from PCG and PCRD; - a letter from the independent director of Tricom; - a letter from Anglo Chinese Corporate Finance, Limited, the independent financial adviser to the independent director of Tricom; and - notices convening extraordinary general meetings of Tricom to be held on 29th July, 1999. will be dispatched to shareholders of Tricom on 7th July, 1999. (ii) The China Strategic Circular containing, among other things, - a letter from the board of directors of China Strategic; - a letter from the independent director of China Strategic; - a letter from Yu Ming Investment Management Limited, the independent financial adviser to the independent director of China Strategic; and - a notice convening an extraordinary general meeting of China Strategic to be held on 29th July, 1999, will be dispatched to shareholders of China Strategic on 7th July, 1999. (iii) The Star Circular containing, among other things, - a letter from the board of directors of Star; - a letter from the independent director of Star; - a letter from Amsteel Corporate Finance (H.K.) Limited, the independent financial adviser to the independent director of Star; and - a notice convening a special general meeting of Star to be held on 29th July, 1999, will be despatched to shareholders of Star on 7th July, 1999. 7. Information extracted from the Listing Document The following information, which has not been previously disclosed by Tricom, is extracted from the Listing Document. Terms and definitions used within the quotations below have the same meaning ascribed to them in the Listing Document, in particular, references to `Share(s)' relate to the shares of Tricom. (i) Pro forma statement of adjusted consolidated net tangible assets of the Enlarged Group upon Completion "The following is a statement of the pro forma adjusted consolidated net tangible assets of the Enlarged Group immediately following completion of the Acquisition. It is based on the financial statements of Tricom as at 31st December, 1998 adjusted to reflect the effect of the Proposal and certain adjustments since 31st December, 1998. HK$'000 Consolidated net tangible 113,665 assets of Tricom as at 31st December, 1998 Unaudited pro forma combined 1,884 net profit of the retained CPE business of the Tricom Group in Hong Kong for the three months ended 31st March, 1999 Valuation deficit on the (51,968) properties of the retained CPE business of the Tricom Group in Hong Kong as at 31st March, 1999 (Note 1) Unaudited pro forma combined (11,005) net loss of the Disposed Companies for the three months ended 31st March, 1999 Valuation deficit on the (12,132) properties of the Disposed Companies as at 31st March, 1999 Movement in exchange reserve (771) relating to the Disposed Companies during the three months ended 31st March, 1999 Pro forma adjusted 39,673 consolidated net tangible assets of Tricom before the Proposal Loss on Disposals (23,749) Shortfall in guaranteed net 24,076 assets receivable from Star under the Acquisition (Note 2) Pro forma adjusted 40,000 consolidated net tangible assets of the retained CPE business of the Tricom Group immediately after the Acquisition and Disposals Value of net assets acquired 2,544,345 of the Newco Group per audited pro forma statement of combined net tangible assets as at 31st December, 1998 Discount to the historic book (84,345) value of net assets of the Newco Group on acquisition by Tricom (Note 3) Unaudited pro forma combined 2,549 net profit of the Newco Group for the three months ended 31st March, 1999 Valuation surplus on the 262,754 revaluation of properties under development for investment of the Newco Group as at 31st March, 1999 (Note 4) Valuation surplus on the 93,787 revaluation of properties held for or under development for sale of the Newco Group as at 31st March, 1999 (Note 5) Valuation surplus on Newco's 7,025 interest in the Shanghai underground parking project (Note 6) 2,826,115 Convertible bonds to be (960,000) issued pursuant to the Acquisition Agreement as amended by the Acquisition Supplemental Agreement Estimated expenses relating (15,000) to the Acquisition to be incurred Proceeds from placing of 356,827 Shares (Note 7) Estimated expenses relating (9,500) to the Placing Pro forma unaudited adjusted 2,238,442 consolidated net tangible assets of the Enlarged Group immediately following the completion of the Proposal Pro forma unaudited adjusted HK$0.347 consolidated net tangible asset value per Consolidated Share (Note 8) Notes: 1. The valuation deficit of the retained CPE business of the Enlarged Group will be recorded in the first annual report of the Enlarged Group issued after Completion. 2. This represents the shortfall in guaranteed net assets receivable from Star, details of which are as set out in the section headed `Major warranty' in the `Letter from the Chairman'. 3. The purchase consideration of HK$2,460 million to be paid by Tricom for the Acquisition represents a discount to the historical book value of the net assets of the Newco Group. Accordingly, this amount has been reduced against the net tangible assets of the Newco Group. 4. The amount represents the surplus arising on the revaluation of the Newco Group's properties under development for investment. The surplus of approximately HK$263 million will be incorporated into the accounts of the Enlarged Group for the fiscal year in which the construction of the properties are completed and they are transferred to investment properties, subject to a revaluation at the applicable balance sheet date. No provision for deferred taxation is made on revaluation surpluses of the Newco Group's properties held for investment and properties that are presently intended by the Directors to be held for investment purposes. 5. The amount represents the surplus arising from the revaluation of the Newco Group's properties held for development or under development for sale. In accordance with the Enlarged Group's accounting policy, this revaluation surplus will not be incorporated into the accounts of the Enlarged Group in the future. The Newco Group has not provided for deferred taxation on the revaluation surpluses related to the Newco Group's properties under development for sale as the Newco Group has obtained an indemnity from PCRD and PCG on the potential tax liabilities which may arise on the sale of such properties, subject to the completion of the Acquisition. The amount of the indemnity for deferred taxation on revaluation surpluses of approximately HK$64 million has been calculated based on prevailing rates of PRC business tax, land appreciation tax, deed tax and income tax against the Newco Group's properties held for sale. The provision amount is arrived at based on the intentions expressed by the Directors, the valuation of the Newco's property interests as at 31st March, 1999 as assessed by CB Richard Ellis Limited, whose letter, summary of valuations and valuation certificate have been included as Appendix II. 6. The amount represents surplus arising from the business valuation of Newco Group's interest in its Shanghai underground parking project. The amount has been derived by deducting the book value of the underground parking project from the fair market value of such interests as at 31st March, 1999 as assessed by CB Richard Ellis Limited, whose letter, summary of business valuations and valuation certificate have been included as Appendix II. This surplus will be incorporated into the financial statements of the Newco Group for the year ending 31st December, 1999. 7. Proceeds from placing of shares are estimated based on 1,151,056,000 new Consolidated Shares to be placed to placees at HK$0.31 per Consolidated Share. 8. Pro forma unaudited adjusted consolidated net tangible asset value per Consolidated Share has been calculated on the basis of 6,451,698,000 Consolidated Shares, being the Consolidated Shares in issue at the Latest Practicable Date plus the 4,838,710,000 Consolidated Shares to be issued as consideration on completion of the Acquisition plus the 1,151,056,000 new Consolidated Shares to be placed to independent third parties.' (ii) Pro forma statement of assets and liabilities of the Enlarged Group "The following is a pro forma statement of the assets and liabilities of the Enlarged Group based on the pro forma statement of combined net assets of the retained CPE business as at 31st December, 1998 and the audited pro forma statement of the combined net assets of the Newco Group as at 31st December, 1998 extracted from the accountants' report as set out in Appendix I of this listing document, assuming, inter alia, that completion of the Proposal had taken place on 31st December, 1998, and taking into account the effect of certain adjustments of the Enlarged Group since 31st December, 1998. The The Newco Adjustments Notes The retained Group Enlarged CPE Group business HK$'000 HK$'000 HK$'000 HK$'000 Investment - 269,000 (47,000) 6 222,000 property Properties - 105,720 (14,924) 6 90,796 held for development Deposits - 29,093 29,093 for purchase of a property Properties - 2,253,812 818,934 3 6 3,050,325 under (22,421) development Fixed 108,371 3,288 (51,968) 4 59,691 assets Long-term 467 - 467 investment Current 51,233 397,763 332,327 1 3 5 865,859 assets 57,626 26,910 Total 160,071 3,058,676 4,318,231 assets Current (83,915) (466,233) (876,560) 3 (1,426,708) liabilities Long-term (10,000) (44,990) (960,000) 2 (1,014,990) liabilities Deferred (1,098) - (1,098) taxation Minority - (3,108) (3,108) interests Pro forma 65,058 2,544,345 7 1,872,327 net assets Notes: 1. This represents the estimated placing proceeds net of estimated expenses relating to the Acquisition and the Placing. 2. This represents the Convertible Bonds to be issued pursuant to the Acquisition Agreement as amended by the Acquisition Supplemental Agreement. 3. This represents the estimated costs to completion of Pacific Century Place, Beijing. PCRD has guaranteed the amount to be US$465 million, any excess in total cost over US$465 million of which will be borne by PCRD. 4. This represents the valuation deficit for the fixed assets of the retained CPE business. 5. This represents the total unaudited profit of the retained CPE business for the three months ended 31st March, 1999, HK$950,000 cash and receivables of the Disposed Companies retained in the retained CPE business and the shortfall in guaranteed net assets receivable from Star, details of which are set out in the section headed `Major warranty' in the `Letter from the Chairman'. 6. The purchase consideration of HK$2,460 million to be paid by Tricom for the Acquisition represents a discount to the historical book value of the net assets of the Newco Group. This discount will be reduced against the cost of the properties of the Newco Group through this adjustment. 7. The pro forma net assets as calculated above is before taking into consideration the valuation surplus on the properties held for/under development and the interest in the Shanghai Underground Parkade project of the Newco Group and the unaudited combined net profit of the Newco Group for the three months ended 31st March, 1999." (iii) Pro forma combined results of the Enlarged Group `The following is a summary of the pro forma combined results of the retained CPE business and the Newco Group. For the purpose of presentation, the three years pro forma combined results for each of the retained CPE business Group and the Newco Group immediately prior to the issuance of this listing document are combined without making any adjustments. The results of the retained CPE business are extracted from the pro forma combined financial statements of the retained CPE business for each of the three years ended 31st December, 1998. The results of the Newco Group for each of the three years ended 31st December, 1998 are extracted from the Accountants' Report as set out in Appendix I. For the year ended 31st December, 1998 1997 1996 HK$'000 HK$'000 HK$'000 TURNOVER 431,697 368,848 343,736 PROFIT BEFORE 46,136 77,560 135,503 EXCEPTIONAL ITEM AND TAXATION EXCEPTIONAL (5,022) (64,465) (2,493) LOSS PROFIT BEFORE 41,114 13,095 133,010 TAXATION TAXATION (3,481) (2,982) (23,550) NET PROFIT 37,633 10,113 109,460 EARNINGS PER SHARE Basic 0.58 cents 0.16 cents 1.70 cents Fully diluted 0.39 cents 0.11 cents 1.15 cents The calculation of pro forma earnings per share for each of the three years ending 31st December, 1998 is based on pro forma combined net profit of approximately HK$109,460,000, HK$10,113,000 and HK$37,633,000 respectively and on 6,451,698,000 Consolidated Shares in issue immediately after completion of the Proposal. The pro forma fully diluted earnings per Share for each of the three years ended 31st December, 1998 is based on pro forma combined net profit of approximately HK$109,460,000, HK$10,113,000, and HK$37,633,000 calculated on the total shares in issue after the exercise of the outstanding share options and immediately after completion of the Acquisition and the Placing, plus a maximum of 3,096,773,871 new Consolidated Shares which would fall to be issued on the exercise of the conversion rights under the Convertible Bonds to be issued by Tricom as part of the consideration under the Acquisition and on the assumption that all the options outstanding as at 31st December, 1998 were granted at 1st January, 1996 and exercised on the same date. Dividends declared by Tricom, including both the CPE and non-CPE businesses for the years ended 31st December, 1996, 1997 and 1998 were approximately HK$6,883,000, Nil and Nil respectively. Dividends declared by companies comprising the Newco Group for the years ended 31st December, 1996, 1997 and 1998 were approximately HK$101,931,000, Nil and HK$73,432,000 respectively.' (iv) Pro forma combined results of the CPE Business within the Tricom Group in Hong Kong `A summary of the pro forma combined results of the companies conducting the CPE business within the Tricom Group in Hong Kong for each of the two years ended 31st December, 1998 and for the three months ended 31st March, 1999 is set out below. For the year For the three ended 31st months ended December, 31st March, 1997 1998 1999 HK$'000 HK$'000 HK$'000 Turnover (Note 184,042 117,375 25,200 1) Profit before 2,643 10,768 2,712 taxation (Note 2) Taxation (1,140) (2,228) (828) Net profit 1,503 8,540 1,884 Notes: (1) Such turnover included sales to the Disposed Companies of approximately HK$23,929,000, HK$6,316,000 and HK$386,000 for each of the two years ended 31st December, 1998 and for the three months ended 31st March, 1999 respectively. The aggregate sum of the turnover of the CPE business in Hong Kong of Tricom and the Disposed Companies less the inter-company sales disclosed herein and in note (1) to the trading results of the Disposed Companies below represented the total turnover of the Tricom Group for the relevant year as disclosed in Appendix III to this listing document. (2) The aggregate sum of the profit before taxation of the CPE business in Hong Kong of Tricom and the Disposed Companies represented the total profit before taxation of the Tricom Group for the relevant year as disclosed in Appendix III to this listing document. The pro forma combined net asset value of the CPE business in Hong Kong as at 31st December, 1998 was approximately HK$65.1 million before taking account of inter-company receivables from the Disposed Companies of approximately HK$181 million and after accounting for a shareholder's loan owed to Star of HK$10 million.' (v) Pro forma combined results of the Disposed Companies `A summary of the pro forma combined results of the Disposed Companies for each of the two years ended 31st December, 1998 and for the three months ended 31st March, 1999 is set out below. For the year For the three ended 31st months ended December, 31st March, 1997 1998 1999 HK$'000 HK$'000 HK$'000 Turnover 196,151 177,535 9,367 Turnover (Note 1) Loss before (6,768) (72,225) (11,520) taxation Taxation (254) (175) - Net loss (7,022) (72,400) (11,520) before minority interests Loss 498 1,822 515 attributable to minority interests Net loss Net (6,524) (70,578) (11,005) loss (Note 2) Notes: (1) Such turnover included rental and service income earned from the CPE business of HK$3,685,000, HK$5,019,000 and HK$158,000 for each of the two years ended 31st December, 1998 and for the three months ended 31st March, 1999 respectively. The aggregate sum of the turnover of the CPE business in Hong Kong of Tricom and the Disposed Companies less the inter-company sales disclosed herein and in note (1) to the trading results of the CPE business in Hong Kong above represented the total turnover of the Tricom Group for the relevant year as disclosed in Appendix III to this listing document. (2) The loss for the year ended 31st December, 1998 was the result of a combination of factors. Like many other companies, Tricom suffered from the economic downturn in Hong Kong and saw a significant slow down in demand for telecommunications equipment. Intensified competition in the telecommunications market also led to lower turnover and profit margins. (3) On 14th May, 1999, the Company entered into an agreement with an independent third party to dispose of one of the Disposed Companies, which holds two joint ventures in the PRC (collectively referred to as `Hunan'), for a consideration of HK$7,700,000. The combined net asset value of Hunan as at 31st March, 1999 and 31st December, 1998 was approximately HK$7.3 million and HK$8.4 million respectively. For each of the two years ended 31st December, 1998 and for the three months ended 31st March, 1999, the combined turnover of Hunan was HK$28.3 million, HK$27.2 million and HK$0.9 million respectively and the combined results were profit of HK$59,000, loss of HK$4.9 million and loss of HK$0.8 million respectively. The pro forma combined net asset value of the Disposed Companies as at 31st December, 1998 was approximately HK$114.7 million, before taking into account of inter-company payables to the retained CPE business of approximately HK$181 million and the deduction of a shareholder's loan owed to Star of approximately HK$66.1 million. The pro forma combined net asset value of the Disposed Companies as at 31st March, 1999 was approximately HK$90.4 million, based on the HK$114.7 million mentioned above after taking into account (i) the unaudited net loss for the three months ended 31st March, 1999 of approximately HK$11 million mentioned above; (ii) the deficit arising on valuation of property interests of the Disposed Companies as at 31st March, 1999 of approximately HK$12 million; (iii) increase in shareholder's loan owed to Star of approximately HK$0.6 million; and (iv) movement in exchange reserve relating to the Disposed Companies during the three months ended 31st March, 1999 of approximately HK$771,000.' 8. Information extracted from the China Strategic Circular The following information relating to the China Strategic Group, which has not been previously disclosed by China Strategic, is extracted from the China Strategic Circular. Terms and definitions used within the quotations below have the same meaning ascribed to them in the China Strategic Circular, in particular, references to `Share(s)' relate to the shares of China Strategic. (i) Pro forma statement of adjusted net tangible assets of the China Strategic Group upon Completion `The following is a statement of the pro forma adjusted consolidated net tangible assets of the China Strategic Group immediately following Completion, based on the audited consolidated financial statements of the China Strategic Group as at 31st December, 1998, adjusted to reflect the effects of the Acquisition and the Disposals and certain adjustments since 31st December, 1998. HK$'000 Audited consolidated net 1,861,759 tangible assets of the China Strategic Group as at 31st December, 1998 Unaudited consolidated loss (32,610) of the China Strategic Group for the three months ended 31st March, 1999 Share repurchase (404) Deficit arising on the (4,343) valuation of the property interests of Tricom Group included in the China Strategic Group as at 31st March, 1999 (Note) Increase in net tangible 287,067 assets on placement of 400,000,000 Tricom Shares on 19th May, 1999 at HK$1.23 per share, net of expenses Adjusted consolidated net 2,111,469 tangible assets of the China Strategic Group before Completion Increase in net tangible 24,080 assets from the Acquisition and the Disposals Pro forma adjusted net 2,135,549 tangible assets of the China Strategic Group immediately following Completion Adjusted consolidated net HK$0.47 tangible assets per Share before Completion, based on 4,477,289,420 Shares in issue as at the Latest Practicable Date Pro forma adjusted net HK$0.48 tangible assets per Share immediately following Completion based on 4,477,289,420 Shares in issue as at the Latest Practicable Date Note: The share of the valuation deficit on the properties of the retained CPE business of the Tricom Group as at 31st March, 1999 was not included, as the properties of the retained CPE business of the Tricom Group will not be part of the China Strategic Group upon Completion.' (ii) Pro forma statement of assets and liabilities of the China Strategic Group upon Completion `The following is a pro forma statement of the assets and liabilities of the China Strategic Group upon Completion, based on the audited consolidated financial statements of the China Strategic Group as at 31st December, 1998 extracted from the financial statements as set out in appendix I to this circular, and the pro forma statement of net assets of the Star Group upon Completion as set out in appendix III to the Star circular which is included as appendix IV to this circular, assuming, inter alia, that completion of the Acquisition and the Disposals had taken place on 31st December, 1998, and taking into account the effect of certain adjustments of the China Strategic Group since 31st December, 1998. Adjusted for effect on China Strategic as a results of effect of the Acquisition and the Disposals The China The Star The Star Adjustment Total The China Strategic Group as Group s for Strategic Group as at 31st upon minority Group upon at 31st December, Completion interests Completion December, 1998 in the 1998 Star Group HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 Fixed 2,084,741 (252,099) 131,596 - (120,503) 1,964,238 assets Interest 97,186 (97,186) 97,186 - - 97,186 in subsidiari es not consolidat ed Interest 515,519 (36,321) 36,321 - - 515,519 in associated companies Investment 277,940 (11,085) 102,394 - 91,309 369,249 s Intangible - - - - - - assets Convertibl - - - - - - e notes receivable Receivable 30,000 - - - - 30,000 s - due after one year Current 3,675,824 (526,286) 953,901 - 427,615 4,103,439 assets Total 6,681,210 (922,977) 1,321,398 - 398,421 7,079,631 assets Current (2,711,884 515,376 (455,537) - 59,839 (2,652,045) liabilitie ) s Long-term (147,878) 37,637 (27,637) - 10,000 (137,878) liabilitie s Deferred (1,081) 1,081 17 - 1,098 17 taxation Deferred (109,736) - - - - (109,736) revenue Minority (1,848,872 31,946 (1,666) (188,863) (158,583) (2,007,455) interest Pro forma 1,861,759 (336,937) 836,575 (188,863) 310,775 2,172,534 net assets (iii) Pro forma combined results of the China Strategic Group upon Completion `The following is a summary of the combined results of the China Strategic Group upon Completion, based on the audited results of the China Strategic Group for the two years ended 31st December, 1998 after excluding the pro forma results of the retained CPE business of Tricom being disposed of by Star. For the purpose of presentation, the two years pro forma results of the retained CPE business of Tricom and the two year results of the China Strategic Group are used without making any adjustments. The results of the retained CPE business of Tricom are extracted from the pro forma financial statements of the retained CPE business of Tricom for each of the two years ended 31st December, 1998 as set out in appendix IV to this circular. The results of the China Strategic Group for each of the two years ended 31st December, 1998 are extracted from the financial statements as set out in appendix I to this circular. 1998 1997 HK$'000 HK$'000 Turnover 4,226,791 3,785,283 Operating profit (93,715) 138,484 (loss) before exceptional item Exceptional item (400,746) (58,180) (494,461) 80,304 Share of results of (245,917) (88,327) subsidiaries not consolidated Share of results of (54,982) (27,416) associated companies Profit (Loss) (795,360) (35,439) before taxation Taxation 6,225 30,316 Profit (Loss) after (801,585) (65,755) taxation Minority interests (169,895) (10,014) Profit (Loss) for (631,690) (55,741)' the year (iv) Estimated gain/loss on disposal `It is expected that an estimated net loss on disposal of Tricom of about HK$154 million will be realised by the Star Group upon Completion. As China Strategic had an approximately 62.2% interest in Star as at the Latest Practicable Date, the estimated attributable net loss on disposal of Tricom of about HK$96 million (being an increase in net tangible assets of approximately HK$24 million less goodwill realised of approximately HK$120 million) will be realised by the China Strategic Group upon Completion. On 19th May, 1999, Star placed out 400 million Tricom Shares at a price of HK$1.23 per Tricom Share. The estimated gain on disposal of such Tricom Shares for Star was approximately HK$404 million. China Strategic had an approximately 62.2% interest in Star, and as such, the estimated attributable net gain on disposal of Tricom Shares of about HK$250 million (being an increase in net tangible assets of about HK$287 million less goodwill realised of about HK$37 million) has been realised by the China Strategic Group. The directors of Star are of the view that the increase in share price of Tricom, after the announcement of the Proposal, was attributable to the transactions contemplated under the Proposal. If taking into account the estimated gain on disposal arising from such placing, the Acquisition and such placing taken as a whole would result in an estimated gain on disposal of approximately HK$250 million for the Star Group and the estimated attributable gain on disposal for the China Strategic Group arising from the Acquisition and such placing would amount to approximately HK$154 million.' 9. Information extracted from the Star Circular The following information relating to the Star Group upon Completion, which has not been previously disclosed, is extracted from the Star Circular. Terms and definitions used within the quotations below have the same meaning ascribed to them in the Star Circular in particular, references to Share(s) relate to the shares of Star. (i) Pro forma statement of adjusted net tangible assets of the Star Group upon Completion `The following is a statement of the pro forma adjusted consolidated net tangible assets of the Star Group upon Completion, based on the audited consolidated financial statements of the Star Group as at 31st December, 1998, adjusted to reflect the effects of the Acquisition and the Disposals and certain adjustments since 31st December, 1998. HK$'000 Audited consolidated net 336,937 tangible assets of the Star Group as at 31st December, 1998 Unaudited consolidated loss (26,663) of the Star Group for the three months ended 31st March, 1999 Share repurchase (650) Deficit arising on the (6,982) valuation of the property interests of Tricom Group included in the Star Group as at 31st March, 1999 (Note) Increase in net tangible 461,523 assets on placement of 400,000,000 Tricom Shares on 19th May, 1999 at HK$1.23 per share, net of expenses Adjusted consolidated net 764,165 tangible assets of the Star Group before Completion Increase in net tangible 38,713 assets from the Acquisition and the Disposals Pro forma adjusted net 802,878 tangible assets of the Star Group immediately following Completion Adjusted consolidated net HK$0.84 tangible assets per Share before Completion, based on 909,344,049 Shares in issue as at the Latest Practicable Date Pro forma adjusted net HK$0.88 tangible assets per Share immediately following Completion, based on 909,344,049 Shares in issue as at the Latest Practicable Date Note: The share of the valuation deficit on the properties of the retained CPE business of the Tricom Group as at 31st March, 1999 was not included as the retained CPE business of the Tricom Group will not be part of the Star Group upon Completion.' (ii) Pro forma statement of assets and liabilities of the Star Group upon Completion `The following is a pro forma statement of the assets and liabilities of the Star Group upon completion of the Acquisition and the Disposals, based on the audited consolidated financial statements of the Star Group as at 31st December, 1998 extracted from the financial statements as set out in appendix I to this circular, and the pro forma statement of net assets of the retained CPE business being disposed of by Star as at 31st December, 1998, assuming, inter alia, that completion of the Acquisition had taken place on 31st December, 1998, and taking into account the effect of certain adjustments of the Star Group since 31st December, 1998. The Star Retained Adjustments The Star Group as CPE Group at 31st business (Notes) upon December, as at Completion 1998 31st December, 1998 HK$'000 HK$'000 HK$'000 HK$'000 Fixed 252,099 (108,371) (12,132) 131,596 Assets Interest 97,186 - - 97,186 in subsidiaries not consolidated Interest 36,321 - - 36,321 in associated companies Intangible - - - - assets Interest 3,166 - - 3,166 in telecommun- ications projects in the PRC Other 7,919 (467) 91,776 99,228 long-term investments Current 526,286 (51,233) 478,848 953,901 assets Total 922,977 (160,071) 558,492 1,321,398 assets Current (515,376) 83,915 (24,076) (455,537) liabilities Long-term (37,637) 10,000 - (27,637) liabilities Deferred (1,081) 1,098 - 17 taxation Minority (31,946) - 30,280 (1,666) interest Pro forma 336,937 (65,058) 564,696 836,575 net assets Notes: The adjustments of the Star Group include:- HK$'000 a) an amount which (650) represents the repurchase of Shares for the three months ended 31 March, 1999; b) the deficit arising (6,982) on the valuation of the property interests of the Tricom Group included in the Star Group upon Completion; c) an amount which 461,523 represents the increase in net tangible assets as a result of the placement of 400,000,000 Tricom Shares on 19th May, 1999, net of expenses; d) the 91,776 reclassification of 1,328,880,000 Tricom Shares after Completion to long term investments; e) an amount which 43,105 represents the acquisition of minority interest of Tricom f) an amount which (24,076) represents the accrual for the shortfall in guaranteed net assets of Tricom's CPE business 564,696' (iii) Pro forma combined results of the Star Group upon Completion `The following is a summary of the combined results of the Star Group after excluding the pro forma results of the retained CPE business of Tricom being disposed of by Star for the two years ended 31st December, 1998. For the purpose of presentation, the two years pro forma results for the retained CPE business of Tricom and the two years results of the Star Group are used without making any adjustments. The results of the retained CPE business of Tricom are extracted from the pro forma financial statements of the retained CPE business of Tricom for each of the two years ended 31st December, 1998 as set out in the Tricom listing document which is included in appendix V to this circular. The results of the Star Group for each of the two years ended 31st December, 1998 are extracted from the accountants' report as set out in appendix I to this circular. 1998 1997 HK$'000 HK$'000 Turnover 695,402 602,323 Operating profit (179,714) (41,681) (loss) before exceptional item Exceptional item (194,045) 176,613 (373,759) 134,932 Share of results of (244,257) (197,910) subsidiaries not consolidated Share of results of (3,320) (3,521) associated companies Profit (Loss) (621,336) (66,499) before taxation Taxation (16,127) 3,243 Profit (Loss) after (605,209) (69,742) taxation Minority interests 16,262 44,452 Profit (Loss) for (588,947) (25,290) ' the year (iv) Estimated gain/loss on disposal `It is expected that an estimated net loss on disposal of Tricom of about HK$154 million (being an increase in net tangible assets of approximately HK$39 million less goodwill realised of approximately HK$193 million) will be realised by the Star Group upon Completion. On 19th May, 1999, Star placed out 400 million Tricom Shares at a price of HK$1.23 per Tricom Share. The estimated gain on disposal of such Tricom Shares for Star was approximately HK$404 million (being an increase in net tangible assets of approximately HK$462 million less goodwill realised of approximately HK$58 million). The directors of Star are of the view that the increase in share price of Tricom, after the announcement of the Proposal, was attributable to the transactions contemplated under the Proposal. If taking into account the estimated gain on disposal arising from such placing, the Acquisition and such placing taken as a whole would result in an estimated gain on disposal of approximately HK$250 million for the Star Group.' 10. CONSOLIDATION OF SHARES in Tricom The Consolidation Further to the announcement by Tricom on 16th June, 1999, the Directors propose that, upon the increase in authorised share capital of Tricom taking effect, every five Shares (both issued and unissued) in the capital of Tricom will be consolidated into one new ordinary share of HK$0.05 each in the capital of Tricom. It was originally proposed by the Company that, as stated in the joint announcement dated 3rd May, 1999 made by, inter alia, the Company, every 20 Shares would be consolidated into one new ordinary share of HK$0.20 each in the capital of Tricom. However, as provided in to the Acquisition Supplemental Agreement and the Placing Underwriting Supplemental Agreement, the basis of consolidation of Shares will be five Shares (both issued and unissued) in the capital of Tricom into one new ordinary share of HK$0.05 each in the capital of Tricom. The intention of this is to improve the liquidity of shares in Tricom. The Consolidated Shares will rank pari passu in all respects with each other. The Consolidated Shares will be traded in board lots of 1,000 each. Upon the increase in authorised share capital and the Consolidation taking effect, and on the basis of 2,309,660,000 Shares in issue prior thereto, the authorised share capital of Tricom will be HK$1,600,000,000 divided into 32,000 million Consolidated Shares, of which 461,932,000 Consolidated Shares will be in issue. Upon completion of the Proposal, the increase in authorised share capital and the Consolidation, 6,451,698,000 Consolidated Shares will be in issue (assuming there is no further issue of Shares before then). Any fractional entitlements to Consolidated Shares will be aggregated and sold. The proceeds from the sale will be retained for the benefit of Tricom. The Consolidation is conditional on: (i) shareholders of Tricom passing an ordinary resolution at the Extraordinary General Meeting (or any adjournment thereof) to approve the Consolidation; (ii) completion of the Acquisition; and (iii) the Listing Committee of the Stock Exchange granting, or agreeing to grant, the listing of, and permission to deal in, the Consolidated Shares. Trading arrangements for Consolidated Shares Subject to satisfaction of the conditions of the Consolidation, the arrangements proposed for dealings in the Consolidated Shares are as follows: (i) From 3rd August, 1999, the present counter for trading Shares in board lots of 10,000 shares will be removed temporarily and a temporary counter for trading in Consolidated Shares represented by existing share certificates in board lots of 2,000 Consolidated Shares will be set up. Accordingly, five Shares will be deemed to represent one Consolidated Share. Existing share certificates may only be traded at this counter. (ii) If Shareholders are able to lodge their certificates for Shares with the share registrar of the Company during normal business hours on 3rd August, 1999, new certificates for Consolidated Shares will be available for collection during normal business hours on 6th August, 1999. (iii) With effect from 6th August, 1999, the original counter will be reopened for trading in Consolidated Shares in board lots of 1,000 Consolidated Shares. Only share certificates for Consolidated Shares can be traded at this counter. (iv) During the period from 6th August, 1999 to 27th August, 1999 (both dates inclusive), there will be parallel trading at the above two counters. (v) The temporary counter for trading in Consolidated Shares in board lots of 2,000 Consolidated Shares will be removed after close of trading on 27th August, 1999. Thereafter, trading will only be in Consolidated Shares in board lots of 1,000 Consolidated Shares and existing share certificates will cease to be acceptable for dealing purposes. However, such certificates will continue to be good evidence of legal title to Consolidated Shares on the basis of five Shares for one Consolidated Share and may be exchanged for new certificates for Consolidated Shares at any time. Shareholders are urged to exchange their certificates for Shares for certificates for Consolidated Shares as soon as possible from 3rd August, 1999. This may be done, free of charge, up to and including 30th December, 1999 at the office of Standard Registrars Limited, the share registrar of Tricom (which will by then be renamed as Pacific Century CyberWorks Limited), at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong. Thereafter certificates for Shares will be accepted for exchange only on payment of a fee of HK$2.50 (or such other amount as may from time to time be prescribed by the Stock Exchange) for each certificate for Shares cancelled or for each certificate issued for Consolidated Shares, whichever is greater. It is expected that new share certificates will be available for collection within a period of 10 business days after the date of submission of certificates for Shares to Standard Registrars Limited, for exchange. If Shareholders are able to lodge their certificates for Shares with Standard Registrars Limited during normal business hours on 3rd August, 1999, new certificates for Consolidated Shares will be available for collection during normal business hours on 6th August, 1999. New certificates for Consolidated Shares will be green in colour to distinguish them from the existing certificates (blue in colour) for the Shares. Unless otherwise instructed, new share certificates will be issued in board lots of 1,000 Consolidated Shares. Application has been made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares, the Placing Shares and the Consolidated Shares (including those to be issued upon the exercise of the conversion rights attached to the Convertible Bonds and exercise of subscription rights of options granted under the Share Option Scheme). Subject to the granting, of listing of, and permission to deal in, the Placing Shares, the Consideration Shares and the Consolidated Shares on the Stock Exchange, the Placing Shares, the Consideration Shares and the Consolidated Shares will be accepted as eligible securities by Hongkong Clearing for deposit, clearance and settlement in CCASS with effect from the commencement dates of dealings in the Placing Shares, the Consideration Shares and the Consolidated Shares on the Stock Exchange or such other dates as may be determined by Hongkong Clearing. Settlement of transactions between members of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the general rules of CCASS and CCASS operational procedures in effect from time to time. Expected timetable of Consolidation Extraordinary General Meeting to be held on 10:00 a.m. on Thursday, 29th July Effective date of Consolidation Tuesday, 3rd August Dealings in Consolidated Shares commence 10:00 a.m. on Tuesday, 3rd August Existing counter for trading in existing Shares in board lots of 10,000 existing Shares closes 10:00 a.m. on Tuesday, 3rd August Temporary counter for trading in Consolidated Shares in board lots of 2,000 Consolidated Shares (in the form of existing share certificates) opens 10:00 a.m. on Tuesday, 3rd August First day of free exchange of existing share certificates for new share certificates for Consolidated Shares 10:00 a.m. on Tuesday, 3rd August Existing counter for trading in Consolidated Shares in new board lot size of 1,000 Consolidated Shares (in the form of new share certificates) reopens 10:00 a.m. on Friday, 6th August Parallel trading in Consolidated Shares (in the form of new share certificates and existing share certificates) starts 10:00 a.m. on Friday, 6th August Temporary counter for trading in Consolidated Shares in board lots of 2,000 Consolidated Shares (in the form of existing share certificates) closes 4:00 p.m. on Friday, 27th August Parallel trading in Consolidated Shares (in the form of new share certificates and existing share certificates) ends 4:00 p.m. on Friday, 27th August Free exchange of existing share certificates for new share certificates for Consolidated Shares ends 4:00 p.m. on Thursday, 30th December In this Announcement, the following expressions have the meanings set out below unless the context requires otherwise: `Acquisition Supplemental the supplemental agreement to Agreement' the Acquisition Agreement dated 5th July, 1999 between PCRD, PCG, Tricom and Star which amended, inter alia, the (i) the basis of consolidation of Shares and (ii) warranty given by Tricom on the consolidated net tangible asset value of the CPE business in Hong Kong `Asset Disposal Supplemental the supplemental agreement to Agreement' the Asset Disposal Agreement dated 5th July, 1999 between Tricom and Star in relation to the disposal of one of the Disposed Companies to an independent third party on 14th May, 1999 `CCASS' the Central Clearing and Settlement System established and operated by Hongkong Clearing `China Strategic Circular' the circular to be dispatched to shareholders of China Strategic on 7th July, 1999 `China Strategic Group' China Strategic and its subsidiaries `Enlarged Group' Tricom and its subsidiaries upon Completion `Hongkong Clearing' Hong Kong Securities Clearing Company Limited `Indebtedness Disposal the supplemental agreement to Supplemental Agreement' the Indebtedness Disposal Agreement dated 5th July, 1999 between Tricom and Yuenwell in relation to the disposal of one of the Disposed Companies to an independent third party on 14th May, 1999 `Listing Document' the listing document to be dispatched to shareholders of Tricom on 7th July, 1999 `Placing Underwriting the supplemental agreement to Supplemental Agreement' amend the Placing Underwriting Agreement dated 5th July, 1999 between Tricom, PCG, PCRD, and the Placing Underwriters which amended, inter alia, the basis of consolidation of Shares `Star Circular' the circular to be dispatched to shareholders of Star on 7th July, 1999 By order of the board of Pacific Century Group Holdings Limited Chu Mee Lai, Helen Company Secretary By order of the board of Pacific Century Regional Developments Limited Heng Fook Pyng, Jeslyn Company Secretary By order of the board of China Strategic Holdings Limited Ma Wai Man, Catherine Executive Director By order of the board of Star Telecom International Holding Limited Wong Kam Fu Co-Chairman and Managing Director By order of the board of Tricom Holdings Limited Lau Ka Fai, Joseph Co-Chairman Hong Kong, 6th July, 1999 The information contained in this announcement relating to PCG is supplied by PCG. The directors of PCG jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to PCRD, China Strategic, Star and Tricom) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement the omission of which would make any statement contained herein misleading. The information contained in this announcement relating to PCRD is supplied by PCRD. The directors of PCRD jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to PCG, China Strategic, Star and Tricom) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement the omission of which would make any statement contained herein misleading. The information contained in this announcement relating to Tricom is supplied by Tricom. The directors of Tricom jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to PCG, PCRD, China Strategic and Star) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement the omission of which would make any statement contained herein misleading. The information contained in this announcement relating to China Strategic is supplied by China Strategic. The directors of China Strategic jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to PCG, PCRD, Star and Tricom) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement the omission of which would make any statement contained herein misleading. The information contained in this announcement relating to Star is supplied by Star. The directors of Star jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to PCG, PCRD, China Strategic and Tricom) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement the omission of which would make any statement contained herein misleading.