Hang Seng Bank Limited - Proxy Solicitation & Information Statement 2020

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in China Fortune Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank manager, the licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer 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.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of the Company.

**China Fortune Holdings Limited 中國長遠控股有限公司[*]**

(Incorporated in Bermuda with limited liability, carrying on business in H.K. as CFH Ltd.)

(Stock Code: 110)

(A) PROPOSED CAPITAL REORGANISATION; (B) PROPOSED CHANGE IN BOARD LOT SIZE; (C) PROPOSED RIGHTS ISSUE ON THE BASIS OF ONE (1) RIGHTS SHARE FOR EVERY ONE (1) ADJUSTED SHARE

HELD ON THE RECORD DATE ON A NON-UNDERWRITTEN BASIS; (D) CONNECTED TRANSACTION – REPAYMENT OF SHAREHOLDER INDEBTEDNESS; AND (E) NOTICE OF SPECIAL GENERAL MEETING

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

Capitalised terms used in this cover page shall have the same meanings as those defined in this circular.

To qualify for the Rights Issue, Shareholders must be registered as members of the Company on the Record Date, which is expected to be Monday, 18 January 2021. In order to be registered as a member of the Company on the Record Date, Shareholders must lodge any transfers of Adjusted Shares (together with the relevant share certificate(s)) with the Share Registrar by 4:30 p.m. on Wednesday, 13 January 2021. The last day of dealings in the Adjusted Shares on a cum-rights basis is expected to be Monday, 11 January 2021. The Adjusted Shares will be dealt with on an ex-rights basis from Tuesday, 12 January 2021.

A notice convening the SGM to be held at Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong, on Thursday, 7 January 2021 at 10:00 a.m. is set out on pages SGM-1 to SGM-5 of this circular. A form of proxy for use at the SGM is also enclosed. Whether or not you are able to attend the SGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Share Registrar as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish and, in such event, the form of proxy previously submitted shall be deemed to be revoked by operation of law.

The Rights Issue is on a non-underwritten basis. Pursuant to the Company’s constitutional documents and the Companies Act of Bermuda, there aresectionno requirementsheaded ‘‘Conditionsfor minimumof the levelsRightsofIssuesubscription.’’ of the ‘‘LetterThe Rightsfrom theIssueBoardis conditional’’ in this circular.upon the fulfillment of the conditions as set out in the

Dealings in the Rights Shares in the nil-paid form will take place from Thursday, 21 January 2021 to Thursday, 28 January 2021. Any persons contemplating dealings in the Existing Shares and/or Adjusted Shares prior to the date on which all the conditions of the Rights Issue are fulfilled, and any dealings in the Rights Shares in their nil-paid form between Thursday, 21 January 2021 to Thursday, 28 January 2021 (both days inclusive), bear the risk that the Rights Issue may not become unconditional or may not proceed. Any Shareholders or other persons contemplating any dealings in the Existing Shares, Adjusted Shares or nil-paid Rights Shares are recommended to consult their own professional advisers.

15 December 2020

for identification purpose only

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IFA-1
Appendix I – Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II – Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . .	II-1
Appendix III – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

– i –

DEFINITIONS

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

‘‘Adjusted Share(s)’’

ordinary share(s) of par value HK$0.01 each in the issued and unissued share capital of the Company upon the Capital Reorganisation becoming effective

‘‘Announcement’’

the announcement of the Company dated 10 November 2020 in relation to, among others, (a) the Capital Reorganisation; (b) the Change in Board Lot Size; (c) Rights Issue on the basis of one (1) Rights Share for every one (1) Adjusted Share held on the Record Date on a nonunderwritten basis; and (d) connected transaction regarding the repayment of Shareholder indebtedness

‘‘Board’’ the board of Directors
‘‘Business Day(s)’’

a day (excluding Saturday, Sunday and any day on which a tropical cyclone warning signal no. 8 or above is hoisted or remains hoisted between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon or on which a ‘‘black’’ rainstorm warning is hoisted or remains in effect between 9:00 a.m. and 12:00 noon and is not discontinued at or before 12:00 noon) on which licensed banks in Hong Kong are open for general business

‘‘Bye-laws’’

the bye-laws of the Company, as amended from time to time

‘‘Capital Reduction’’

the proposed reduction of the issued share capital of the Company by (i) cancelling the paid up capital of the Company to the extent of HK$0.99 on each of the then issued Consolidated Shares such that the par value of each issued Consolidated Share will be reduced from HK$1.00 to HK$0.01; and (ii) the cancellation of any fractional Consolidated Share in the issued share capital of the Company arising from the Share Consolidation

‘‘Capital Reorganisation’’

the proposed capital reorganisation of the share capital of the Company involving (i) the Share Consolidation, (ii) the Capital Reduction, (iii) the Share Subdivision and (iv) the transfer of all the credits arising from the Capital Reduction to the Contributed Surplus Account

– 1 –

DEFINITIONS

‘‘CCASS’’
the Central Clearing and Settlement System established and operated by HKSCC
‘‘Chan Deed of Covenants and the deed of covenants and undertakings between the Undertakings’’ Company and Ms. Chan in relation to the proposed Rights Issue
‘‘Change in Board Lot Size’’ the proposed change in board lot size of the Shares for trading on the Stock Exchange from 2,000 Existing Shares to 4,000 Adjusted Shares conditional upon the Capital Reorganisation being effective
‘‘Company’’ China Fortune Holdings Limited, a company incorporated in Bermuda with limited liability and the issued shares of which are listed on the main board of the Stock Exchange
‘‘Companies Act’’
the Companies Act 1981 of Bermuda (as amended)
‘‘Concert Group’’
Mr. Lau, Mr. KY Lau, Ms. Chan, Mr. CY Lau and Mr. HB Lau and parties acting in concert (as defined in the Takeovers Code) with any of them
‘‘Consolidated Share(s)’’
ordinary share(s) of par value HK$1.00 each in the issued share capital of the Company immediately upon the Share Consolidation becoming effective
‘‘Contributed Surplus Account’’
the account designed as the contributed surplus account of the Company within the meaning of the Companies Act
‘‘controlling shareholder(s)’’
has the same meaning ascribed thereto under the Listing Rules
‘‘CY Deed of Covenants and Undertakings’’
the deed of covenants and undertakings between the Company and Mr. CY Lau in relation to the proposed Rights Issue
‘‘Deeds of Covenants and Undertakings’’
the Chan Deed of Covenants and Undertakings, the CY Deed of Covenants and Undertakings, the HB Deed of Covenants and Undertakings, the KY Deed of Covenants and Undertakings and the Lau Deed of Covenants and Undertakings or any of them

– 2 –

DEFINITIONS

‘‘Directors’’

directors of the Company

‘‘EAF(s)’’

the form(s) of application for excess Rights Shares

‘‘Excluded Shareholder(s)’’

the Overseas Shareholder(s) whom the Board, after making enquiries regarding the legal restrictions under the laws of the relevant place and the requirements of the relevant regulatory body or stock exchange, considers it necessary or expedient not to offer the Rights Shares to them

‘‘Executive’’

the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director

‘‘Existing Shares’’

existing ordinary share(s) of par value HK$0.10 each in the share capital of the Company prior to the Share Consolidation becoming effective

‘‘First Loan Agreement’’

the loan agreement dated 31 December 2018 entered into between the Company and Mr. Lau for an interest-free loan of RMB12,000,000.00 due on 31 December 2021 from Mr. Lau to the Company

‘‘Group’’ the Company and its subsidiaries
‘‘HB Deed of Covenants and Undertakings’’

the deed of covenants and undertakings between the Company and Mr. HB Lau in relation to the proposed Rights Issue

‘‘HKSCC’’

Hong Kong Securities Clearing Company Limited

‘‘HK$’’

Hong Kong Dollars, the lawful currency of Hong Kong

‘‘Hong Kong’’

the Hong Kong Special Administrative Region of the PRC

‘‘Independent Board Committee’’

an independent committee of the Board comprising all the independent non-executive Directors, namely Dr. Law Chun Kwan, Mr. Fok Wai Ming, Eddie and Dr. Lo Wai Shun, established for the purpose of advising the Independent Shareholders on the Rights Issue and the Setoff Arrangement

– 3 –

DEFINITIONS

‘‘Independent Financial Adviser’’
‘‘Independent Shareholders’’
‘‘Initial Set-off’’
‘‘KY Deed of Covenants and Undertakings’’
‘‘Latest Practicable Date’’
‘‘Last Trading Day’’
‘‘Latest Time for Acceptance’’
‘‘Lau Deed of Covenants and Undertakings’’
Messis Capital Limited, a licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser appointed by the Company for the purpose of giving recommendations to the Independent Board Committee and the Independent Shareholders in respect of the Rights Issue and the Set-off Arrangement
Shareholder(s), other than (i) the Directors (excluding the independent non-executive Directors), the chief executive of the Company and their respective associate, and (ii) members of the Concert Group and their respective associates and Shareholders who are involved in, or interested in, the Rights issue and/or the Set-off Arrangement
the arrangement to set-off HK$23,759,703.37, being the amount required to be paid by Mr. Lau for the subscription of 44,829,629 Rights Shares provisionally allotted to him pursuant to the Rights Issue, against the Loan Amount of HK$23,759,703.37
the deed of covenants and undertakings between the Company and Mr. KY Lau in relation to the proposed Rights Issue
10 December 2020, being the latest practicable date prior to the date of this circular for the purpose of ascertaining certain information contained in this circular
10 November 2020
4:00 p.m. on Tuesday, 2 February 2021 (or such other time and date as may be determined by the Company), being the latest time for acceptance of and payment for the Rights Shares and application and payment for excess Rights Shares
the deed of covenants and undertakings between the Company and Mr. Lau in relation to the proposed Rights Issue and the Set-off Arrangement

– 4 –

DEFINITIONS

‘‘Listing Rules’’
‘‘Loan Amount’’
‘‘Mr. CY Lau’’
‘‘Mr. HB Lau’’
‘‘Mr. KY Lau’’
‘‘Mr. Lau’’
‘‘Ms. Chan’’
‘‘Overseas Shareholder(s)’’
‘‘PAL(s)’’
the Rules Governing the Listing of Securities on the Stock Exchange

the total loan amount owed by the Company to Mr. Lau of approximately HK$39.6 million, comprising advances of HK$12,171,625.90 and loans of HK$27,412,001.59 under the First Loan Agreement and the Second Loan Agreement, as at 31 August 2020

Mr. Lau Chin Ying, the third brother of Mr. Lau and also the shareholder of 137,987 Existing Shares, representing approximately 0.02% of the issued share capital of the Company as at the date of this circular

Mr. Lau Hung Bing, the second brother of Mr. Lau and also the shareholder of 5,162,000 Existing Shares, representing approximately 0.6% of the issued share capital of the Company as at the date of this circular

Mr. Lau Kin Ying, the youngest brother of Mr. Lau and also the shareholder of 18,516,000 Existing Shares, representing approximately 2.0% of the issued share capital of the Company as at the date of this circular

Mr. Lau Siu Ying, an executive Director and the chairman of the Company and also the controlling Shareholder holding 448,296,298 Existing Shares, representing approximately 48.8% of the issued share capital of the Company as at the date of this circular

Ms. Chan Kit Tsit, the spouse of Mr. KY Lau, sister-in-law of Mr. Lau and also the shareholder of 1,500,000 Existing Shares, representing approximately 0.2% of the issued share capital of the Company as at the date of this circular

the Shareholder(s) whose name(s) appear on the register of members of the Company on the Record Date and whose address(es) as shown on such register is/are outside Hong Kong

the provisional allotment letter(s) to be issued to the Qualifying Shareholders in connection with the Rights Issue

– 5 –

DEFINITIONS

‘‘Posting Date’’

Tuesday, 19 January 2021 (or such other date as may be determined by the Company), being the date of despatch of the Prospectus Documents to the Qualifying Shareholders, and the Prospectus (for information only) to the Excluded Shareholders (as the case may be)

‘‘PRC’’

the People’s Republic of China which for the purpose of this circular shall exclude Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

‘‘Prospectus’’

the prospectus to be despatched to the Qualifying Shareholders (and the Excluded Shareholder(s) for information only) on the Posting Date in connection with the Rights Issue
‘‘Prospectus Documents’’
the Prospectus, the PAL(s) and the EAF(s)
‘‘Qualifying Shareholder(s)’’ the Shareholder(s) whose name(s) appear on the register of members of the Company on the Record Date, other than the Excluded Shareholders
‘‘Record Date’’ the record date to determine the provisional entitlements to the Rights Issue
‘‘Rights Issue’’
the proposed issue by way of rights on the basis of one (1) Rights Share for every one (1) Adjusted Share in issue
‘‘Rights Share(s)’’
91,777,944 Adjusted Shares proposed to be allotted and issued under the Rights Issue
‘‘RMB’’ Renminbi, the lawful currency of the PRC
‘‘Second Loan Agreement’’

the loan agreement dated 10 July 2020 entered into between the Company and Mr. Lau for an interest-free loan of US$2,000,000.00 due on 31 December 2021 from Mr. Lau to the Company

‘‘Second Set-off’’ the arrangement to set-off HK$15,823,924.12 (out of the total amount of HK$22,282,530.83) required to be paid by Mr. Lau for the subscription of, by way of excess application, up to 42,042,511 excess Rights Shares pursuant to the Rights Issue, against the remaining Loan Amount of HK$15,823,924.12 after the Initial Set-off

– 6 –

DEFINITIONS

‘‘Set-off Arrangement’’

the arrangement to set-off the amount required to be paid by Mr. Lau under the Rights Issue against the Loan Amount, comprising the Initial Set-off and the Second Setoff pursuant to the Lau Deed of Covenants and Undertakings

‘‘SFC’’ the Securities and Futures Commission

‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

‘‘SGM’’ a special general meeting of the Company convened to be held at which resolutions will be proposed to consider, and, if thought fit, to approve, among other things, the Capital Reorganisation, the Rights Issue and the Set-off Arrangement ‘‘Share(s)’’ Existing Share(s) and/or Consolidated Share(s) and/or Adjusted Share(s), as the case may be ‘‘Share Consolidation’’ the proposed consolidation of share(s) in the share capital of the Company whereby every ten (10) authorised and issued Existing Shares of HK$0.10 will be consolidated into one (1) Consolidated Share of HK$1.00

‘‘Share Registrar’’ Tricor Abacus Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, the Company’s branch share registrar and transfer office in Hong Kong

‘‘Share Subdivision’’

the proposed subdivision of share(s) in the share capital of the Company whereby every authorised but unissued Existing Shares of HK$0.10 will be sub-divided into ten (10) Adjusted Shares of HK$0.01

‘‘Shareholder(s)’’

holder(s) of the Share(s)

– 7 –

DEFINITIONS

‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited ‘‘Subscription Price’’ the subscription price of HK$0.53 per Rights Share under the Rights Issue ‘‘Takeovers Code’’ the Hong Kong Code on Takeovers and Mergers ‘‘US$’’ United States Dollars, the lawful currency of the United States of America ‘‘%’’ per cent.

For the purpose of this circular, unless the context otherwise requires or expressly specified, conversions of United States dollars into Hong Kong dollars and Renminbi into Hong Kong dollars are based on the approximate exchange rate of US$1.00 to HK$7.80 and RMB1.00 to HK$1.12 respectively. Such exchange rates are for the purpose of illustration only and do not constitute a representation that any amounts in Hong Kong dollars, United States dollars or Renminbi have been, could have been or may be converted at such or any other rate or at all.

– 8 –

EXPECTED TIMETABLE

The expected timetable for the (i) Capital Reorganisation, (ii) Change in Board Lot Size and (iii) Rights Issue set out below is indicative only and may be subject to changes. Further announcement(s) will be made in the event of any changes to the timetable as and when appropriate.

All time and date references contained in this circular shall refer to Hong Kong local time and dates.

	(Hong Kong time)
Latest time for lodging Shares transfer documents to qualify
for attendance and voting at SGM . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . 4:30 p.m. on
	Wednesday, 30 December 2020
Closure of register of members of the Company for
attending the SGM (both days inclusive) . . . . . . . . . .	. . . Thursday, 31 December 2020 to
	Thursday, 7 January 2021
Latest date and time for lodging forms of proxy for
the purpose of the SGM . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . 10:00 a.m. on
	Tuesday, 5 January 2021
Record date for attendance and voting at the SGM . . . . . .	. . . . . . . Thursday, 7 January 2021
Expected date and time of the SGM . . . . . . . . . . . . . .	. . . . . . . . . . . . . . 10:00 a.m. on
	Thursday, 7 January 2021
Release of the SGM results announcement . . . . . . . . . . .	. . . . . . . Thursday, 7 January 2021
Effective date for the Capital Reorganisation and
Change in Board Lot Size . . . . . . . . . . . . . . . . . . . .	. . . . . . .Monday, 11 January 2021
Commencement of dealings in the Adjusted Shares . . . . . .	. . . . . . . . . . . . . . . 9:00 a.m. on
	Monday, 11 January 2021
Original counter for trading in existing share certificates
in board lots of 2,000 Existing Shares temporarily closes	. . . . . . . . . . . . . . . 9:00 a.m. on
	Monday, 11 January 2021
Temporary counter for trading in Adjusted Shares
in board lots of 200 Adjusted Shares
(in the form of existing share certificates) opens . . . . . .	. . . . . . . . . . . . . . . 9:00 a.m. on
	Monday, 11 January 2021

– 9 –

EXPECTED TIMETABLE

(Hong Kong time)

First day for free exchange of existing share certificates for	First day for free exchange of existing share certificates for	First day for free exchange of existing share certificates for	First day for free exchange of existing share certificates for
new share certificates for Adjusted Shares . .		. .	. . . . . . . . . . . . .Monday, 11 January 2021
Last day of dealings in Adjusted Shares
on a cum-rights basis . . . . . . . . . .	. . . .	. .	. . . . . . . . . . . . .Monday, 11 January 2021
First day of dealings in Adjusted Shares
on an ex-rights basis . . . . . . . . . . .	. . . .	. .	. . . . . . . . . . . . Tuesday, 12 January 2021
Latest time for the Shareholders to lodge
Adjusted Shares transfer documents in	order to
qualify for the Rights Issue . . . . . . .	. . . .	. .	. . . . . . . . . . . . . . . . . . . . . 4:30 p.m. on
			Wednesday, 13 January 2021
Closure of register of members of the Company		for
the Rights Issue (both days inclusive)	. . . .	. .	. . . . . . . . . . Thursday, 14 January 2021 to
			Monday, 18 January 2021
Record Date for determining
entitlements to the Rights Issue . . . .	. . . .	. .	. . . . . . . . . . . . .Monday, 18 January 2021
Register of members of the Company re-opens		. .	. . . . . . . . . . . . Tuesday, 19 January 2021
Despatch of Prospectus Documents . .	. . . .	. .	. . . . . . . . . . . Tuesday, 19 January 2021
First day of dealings in nil-paid Rights Shares .		. .	. . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on
			Thursday, 21 January 2021
Designated broker starts to stand in the market
to provide matching services for odd lots
of Adjusted Shares . . . . . . . . . . . .	. . . .	. .	. . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on
			Monday, 25 January 2021
Original counter for trading in Adjusted Shares
in board lots of 4,000 Adjusted Shares
(in the form of new share certificates)	re-opens		. . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on
			Monday, 25 January 2021

– 10 –

EXPECTED TIMETABLE

(Hong Kong time)
Parallel trading in Adjusted Shares
(in the form of both existing share certificates in board lots
of 200 Adjusted Shares and new share certificates
in board lots of 4,000 Adjusted Shares) commences . . . . . . . . . . . . . . . . . . . 9:00 a.m. on
Monday, 25 January 2021
Latest time for splitting of PALs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:30 p.m. on
Monday, 25 January 2021
Last day of dealings in nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on
Thursday, 28 January 2021
Latest time for acceptance of, and payment for,
the Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on
Tuesday, 2 February 2021
Latest time for the Rights Issue to become unconditional . . . . . . . . . . . . . . . . . 4:00 p.m. on
Wednesday, 3 February 2021
Announcement of results of the Rights Issue . . . . . . . . . . . . . . . . Tuesday, 9 February 2021
Despatch of refund cheques in relation to wholly
or partially unsuccessful applications
for excess Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 10 February 2021
Despatch of share certificates for fully paid Rights Shares . . . . . Wednesday, 10 February 2021
Commencement of dealings in fully-paid
Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on
Thursday, 11 February 2021
Temporary counter for trading in
board lots of 200 Adjusted Shares
(in the form of existing share certificates) closes . . . . . . . . . . . . . . . . . . . . . 4:10 p.m. on
Tuesday, 16 February 2021
Parallel trading in the Adjusted Shares
(in the form of new and existing share certificates) ends . . . . . . . . . . . . . . . . 4:10 p.m. on
Tuesday, 16 February 2021

– 11 –

EXPECTED TIMETABLE

(Hong Kong time)

Designated broker ceases to stand in the market to provide matching services for the sale and purchase of odd lots of the Adjusted Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:10 p.m. on Tuesday, 16 February 2021

Last day of free exchange of certificates for the Existing Shares into new certificates . . . . . . . . . . . . . Thursday, 18 February 2021

EFFECT OF BAD WEATHER ON LATEST TIME FOR ACCEPTANCE

The Latest Time for Acceptance will not take effect if there is a tropical cyclone warning signal no. 8 or above, or a ‘‘black’’ rainstorm warning:

(1) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on Tuesday, 2 February 2021. Instead, the Latest Time for Acceptance will be extended to 5:00 p.m. on the same day; or
(2) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on Tuesday, 2 February 2021. Instead, the Latest Time for Acceptance will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m.

If the Latest Time for Acceptance does not take effect on Tuesday, 2 February 2021, the dates of the events subsequent to the Latest Time for Acceptance mentioned in the expected timetable above may be affected. The Company will notify Shareholders by way of announcement(s) on any change to the expected timetable as soon as possible.

– 12 –

LETTER FROM THE BOARD

**China Fortune Holdings Limited 中國長遠控股有限公司[*]**

(Incorporated in Bermuda with limited liability, carrying on business in H.K. as CFH Ltd.)

(Stock Code: 110)

Executive Directors: Registered office: Mr. Lau Siu Ying (Chairman and Clarendon House Chief Executive Officer) 2 Church Street Mr. Wang Yu Hamilton HM 11 Bermuda

Non-executive Director: Mr. Hou Zhenyang Principal place of business in Hong Kong: Room 1505-06, Tower A, Regent Centre Independent Non-executive Directors: 63 Wo Yi Hop Road Dr. Law Chun Kwan Kwai Chung Mr. Fok Wai Ming, Eddie Hong Kong Dr. Lo Wai Shun

15 December 2020

To the Shareholders

Dear Sirs,

(A) PROPOSED CAPITAL REORGANISATION;

(B) PROPOSED CHANGE IN BOARD LOT SIZE;

(C) PROPOSED RIGHTS ISSUE ON THE BASIS OF ONE (1) RIGHTS SHARE FOR EVERY ONE (1) ADJUSTED SHARE HELD ON THE RECORD DATE ON A NON-UNDERWRITTEN BASIS; (D) CONNECTED TRANSACTION – REPAYMENT OF SHAREHOLDER INDEBTEDNESS; AND (E) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement. The purpose of this circular is to provide you with (i) further information on the Capital Reorganisation, the Change in Board Lot Size, the Rights Issue and the Set-off Arrangement; (ii) a letter of recommendation from the Independent Board Committee to the Independent Shareholders in relation to the Rights Issue and the Set-off

for identification purpose only

– 13 –

LETTER FROM THE BOARD

Arrangement; (iii) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Rights Issue and the Set-off Arrangement; (iv) other information required pursuant to the Listing Rules; and (v) a notice of the SGM.

PROPOSED CAPITAL REORGANISATION

The Board hereby proposes the Capital Reorganisation, which will involve: (i) the Share Consolidation whereby every ten (10) authorised and issued Existing Shares of HK$0.10 will be consolidated into one (1) Consolidated Share of HK$1.00; (ii) the Capital Reduction whereby the issued share capital of the Company will be reduced by (a) rounding down the number of Consolidated Shares in the issued share capital of the Company to the nearest whole number by cancelling any fraction of a Consolidated Share in the issued share capital of the Company arising from the Share Consolidation; and (b) cancelling the paid up capital of the Company to the extent of HK$0.99 on each of the then issued Consolidated Shares such that the par value of each issued Consolidated Share will be reduced from HK$1.00 to HK$0.01; and (iii) the Share Subdivision whereby every authorised but unissued Existing Share of HK$0.10 will be sub-divided into ten (10) Adjusted Shares of HK$0.01.

Following the Capital Reorganisation, the Directors will be authorised to utilise and apply any credit balance in the Contributed Surplus Account in accordance with the Bye-laws and all applicable laws, including the application of any credit balance to set off against accumulated losses of the Company, as and when the Directors may consider appropriate.

Effects of the Capital Reorganisation

The Adjusted Shares will rank pari passu in all respects with each other in accordance with the Company’s memorandum and Bye-laws. Other than the expenses to be incurred in relation to the Capital Reorganisation, the implementation thereof will not alter the underlying assets, business operations, management or financial position of the Company or the interests or rights of the Shareholders.

The Board believes that the Capital Reorganisation will not have any material adverse effect on the financial position of the Group or its overall net asset value. No outflow of resources will be caused by the Capital Reorganisation, except for the expenses expected to be insignificant in the context of the net asset value of the Company. The Capital Reorganisation itself does not involve any diminution of any liability in respect of any unpaid capital of the Company or the repayment to the Shareholders of any paid up capital of the Company nor will it result in any change in the relative rights of the Shareholders.

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LETTER FROM THE BOARD

	As at the date of	Immediately after the
	this circular	Capital Reorganisation
Par value	HK$0.10 per	HK$0.01 per
	Existing Share	Adjusted Share
Authorised
Number of shares	2,000,000,000 Existing Shares	20,000,000,000 Adjusted
	of HK$0.10 each	Shares of HK$0.01 each
Share capital	HK$200,000,000	HK$200,000,000
Issued and fully paid
Number of issued shares	917,779,442	91,777,944
	Existing Shares	Adjusted Shares
Amount of issued share capital	HK$91,777,944.20	HK$917,779.44
Unissued
Number of unissued shares	1,082,220,558	19,908,222,056
	Existing Shares	Adjusted Shares
Amount of unissued share capital	HK$108,222,055.80	HK$199,082,220.56

Conditions of the Capital Reorganisation

The Capital Reorganisation is conditional upon:

(a) the passing of a special resolution by the Shareholders to approve the Capital Reorganisation at the SGM;
(b) the compliance with the relevant procedures and requirements under Bermuda law; and
(c) the Stock Exchange granting the listing of, and the permission to deal in, the Adjusted Shares to be in issue.

PROPOSED CHANGE IN BOARD LOT SIZE

As at the date of this circular, the Existing Shares are traded on the Stock Exchange in board lot size of 2,000 Existing Shares. The Board proposes to change the board lot size for trading on the Stock Exchange from 2,000 Existing Shares to 4,000 Adjusted Shares conditional upon the Capital Reorganisation becoming effective.

– 15 –

LETTER FROM THE BOARD

Based on the closing price of HK$0.056 per Existing Share (equivalent to the theoretical closing price of HK$0.56 per Adjusted Share) as at the date of this circular, (i) the value of each existing board lot of Existing Shares is HK$112; (ii) the value of each board lot of 2,000 Adjusted Shares would be HK$1,120 assuming the Capital Reorganisation becoming effective; and (iii) the estimated value per board lot of 4,000 Adjusted Shares would be HK$2,240 assuming that the Change in Board Lot Size had also been effective.

The Change in Board Lot Size will not result in change in the relative rights of the Shareholders.

Reasons for the Capital Reorganisation and the Change in Board Lot Size

The Capital Reorganisation will reduce the total number of shares of the Company in issue and bring about a corresponding upward adjustment in the trading price of the Adjusted Shares. Pursuant to the ‘‘Guide on Trading Arrangements for Selected Types of Corporate Actions’’ issued by the Hong Kong Exchanges and Clearing Limited on 28 November 2008 and updated on 3 July 2018, the expected value per board lot should be greater than HK$2,000 taking into account the minimum transaction costs for a securities trade. Based on the closing price of HK$0.056 per Existing Share as at the Last Trading Day, the value of each board lot, comprising 2,000 Existing Shares, was trading at HK$112, which is far below the aforesaid minimum board lot value. It is expected that after the Capital Reorganisation and the Change in Board Lot Size having become effective, each board lot value of the Adjusted Shares will be above HK$2,000 based on the adjusted price of the Adjusted Shares after the Change in Board Lot Size becoming effective. Thus, the Board considers that the Capital Reorganisation will bring about a corresponding upward adjustment in the trading price per board lot, which will reduce the overall transaction and handling costs of dealing in the Adjusted Shares, including those fees which are charged with reference to the number of board lots. Further, it is expected that the adjusted share price of the Company upon completion of the Capital Reorganisation would reduce excessive volatility of share trading, as when the share price is too low, it would be prone to speculative trading by the market. As a result, the Capital Reorganisation would also attract more investors and extend the base of the Shareholders, and thus provide flexibility for equity fund raising of the Company in the future.

As at the Latest Practicable Date, the balance of the Contributed Surplus Account was nil. Upon the Capital Reorganisation having become effective, a credit of approximately HK$91 million arising from the Capital Reduction will be used to partially set off the accumulated losses of the Company so as to facilitate dividend payout by the Company and thus will be an incentive to attract more investors in the future.

Having considered the above reasons, the Board believes that the Capital Reorganisation is beneficial to and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Status of the Adjusted Shares

The Adjusted Shares in issue upon the Capital Reorganisation having become effective will be identical in all respects and shall rank pari passu in all respects with each other as to all future dividends and distribution which are declared, made or paid in accordance with the Bye-laws. The proposed Capital Reorganisation will not result in any change in the relative rights and interests of the Shareholders as a whole.

Listing Application for the Adjusted Shares

An application will be made by the Company to the Stock Exchange for granting the listing of, and permission to deal in, the Adjusted Shares.

Subject to the granting of the listing of, and permission to deal in, the Adjusted Shares on the Stock Exchange, the Adjusted Shares will be accepted as eligible securities by HKSCC for deposits, clearance and settlement in CCASS with effect from the commencement date of dealings in the Adjusted Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants 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.

Free exchange of share certificates

Subject to the Capital Reorganisation becoming effective, Shareholders may during the prescribed period submit share certificates for Existing Shares to the Share Registrar, Tricor Abacus Limited, Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, to exchange, at the expense of the Company, for certificates of the Adjusted Shares within the prescribed time. Thereafter, certificates of Existing Shares will remain effective as documents of title but 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 specified by the Stock Exchange) per certificate issued or cancelled, whichever is higher, payable by Shareholders. The share certificates of the Existing Shares are yellow in colour. It is expected that the new share certificates for the Adjusted Shares, which will be blue in colour, will be available for collection within 10 Business Days from the date of submission for the exchange. Certificates for the Existing Shares will be valid for delivery, trading and settlement purposes for the period up to 4:10 p.m. on Tuesday, 16 February 2021 and thereafter will not be accepted for delivery, trading and settlement purposes. Nevertheless, certificates for the Existing Shares will continue to be good evidence of legal title and may be exchanged for certificates for the Adjusted Shares at any time at the expense of the relevant Shareholders.

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LETTER FROM THE BOARD

Odd lot arrangements and matching services

In order to facilitate the trading of odd lots (if any) of the Adjusted Shares arising from the Capital Reorganisation and the Change in Board Lot Size, the Company has appointed Cinda International Securities Limited as an agent to provide matching services, on a best effort basis, to the Shareholders for the sale and purchase of odd lots of the Adjusted Shares at the relevant market price per Adjusted Share and the matching period commences from 9:00 a.m. on Monday, 25 January 2021 to 4:00 p.m. on Tuesday, 16 February 2021 (both dates inclusive). Shareholders who wish to take advantage of this facility either to dispose of their odd lots of the Adjusted Shares or top up to a full board lot may, directly or through their brokers, contact Mr. Leung Siu Wa of Cinda International Securities Limited at 45/F Cosco Tower, 183 Queen’s Road Central, Hong Kong at (852) 2235 7841 during office hours. Holders of odd lots of the Adjusted Shares should note that successful matching of the sale and purchase of odd lots of the Adjusted Shares is not guaranteed. Any Shareholder who is in any doubt about the odd lot arrangement is recommended to consult their professional advisers.

Shareholders holding the Adjusted Shares in odd lots should note that the matching of the sale and purchase of odd lots of the Adjusted Shares is on a best effort basis and successful matching of the sale and purchase of odd lots of the Adjusted Shares is not guaranteed.

Shareholders should take note that the Capital Reorganisation is conditional upon satisfaction of conditions set out in the paragraph headed ‘‘Conditions of the Capital ’’ Reorganisation . Therefore, the Capital Reorganisation may or may not proceed.

Shareholders and potential investors of the Company are advised to exercise caution when dealing in the Existing Shares, and if they are in any doubt about their position, they should consult their professional advisers.

PROPOSED RIGHTS ISSUE

The Rights Issue is proposed to take place with the terms set out as follows:

Issue statistics Basis of the Rights Issue : One (1) Rights Share for every One (1) Adjusted Share held on the Record Date Subscription Price : HK$0.53 per Rights Share Number of Shares in issue : 917,779,442 Existing Shares as at the date of this circular

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LETTER FROM THE BOARD

Total number of Rights : 91,777,944 Rights Shares (assuming the Capital Shares Reorganisation has become effective and no further Shares will be issued, repurchased or surrendered on or before the Record Date) Number of Rights Shares : 91,777,944 Rights Shares being undertaken by the Concert Group Gross proceeds to be raised : Up to approximately HK$48.6 million before the Set-off from the Rights Issue Arrangement

Assuming there is no change in the number of issued Shares on or before the Record Date, the maximum number of 91,777,944 Rights Shares to be issued represents:

(a) 100.0% of the number of issued Adjusted Shares (based on the Company’s issued share capital as at the date of this circular); and
(b) 50.0% of enlarged issued share capital of the Company immediately following completion of the Rights Issue.

As at the date of this circular, the Company does not have any derivatives, options, warrants and conversion rights or other similar rights which are convertible or exchangeable into Shares. The Company also has no intention to issue or grant any convertible securities, options and/or warrants on or before the Record Date.

Subscription Price

The Subscription Price represents:

(a) a discount of approximately 5.36% to the theoretical closing price of HK$0.56 per Adjusted Share, based on the closing price of HK$0.056 per Existing Share as quoted on the Stock Exchange on the Last Trading Day and after taking into account of the effect of the Capital Reorganisation;

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LETTER FROM THE BOARD

(b) a discount of approximately 5.36% to the theoretical average closing price of approximately HK$0.56 per Adjusted Share, based on the average closing price of approximately HK$0.056 per Existing Share as quoted on the Stock Exchange for the five (5) consecutive trading days up to and including the Last Trading Day and after taking into account of the effect of the Capital Reorganisation;
(c) a discount of approximately 24.29% to the theoretical closing price of HK$0.7 per Adjusted Share, based on the closing price of HK$0.07 per Existing Share as quoted on the Stock Exchange on the Latest Practicable Date;
(d) a discount of approximately 6.03% to the theoretical average closing price of approximately HK$0.564 per Adjusted Share, based on the average closing price of approximately HK$0.0564 per Existing Share as quoted on the Stock Exchange for the ten (10) consecutive trading days up to and including the Last Trading Day and after taking into account of the effect of the Capital Reorganisation;
(e) a discount of approximately 2.75% to the theoretical ex-right price of approximately HK$0.545 per Adjusted Share based on the closing price of HK$0.056 per Existing Share as quoted on the Stock Exchange on the Last Trading Day and after taking into account of the effect of the Capital Reorganisation; and
(f) a theoretical dilution effect (as defined under Rule 7.27B of the Listing Rules) represented by a discount of approximately 2.75%, represented by the theoretical diluted price of approximately HK$0.545 per Adjusted Share to the benchmarked price of approximately HK$0.56 per Adjusted Share (as defined under Rule 7.27B of the Listing Rules, taking into account the higher of the closing price on the Last Trading Day of HK$0.056 per Existing Share and the average closing prices of the Existing Shares as quoted on the Stock Exchange for the five (5) previous consecutive trading days prior to the date of this circular) and after taking into account the effect of the Capital Reorganisation.

The Subscription Price was determined with reference to the theoretical average closing price of HK$0.56 per Adjusted Share (after taking into account the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last five (5) consecutive trading days immediately prior to and including the date of the Deeds of Covenants and Undertakings, the financial conditions of the Company, current market conditions and the reasons and benefits of the Rights Issue as discussed in the paragraph headed ‘‘Reasons for the Rights Issue, the Set-off Arrangement and the use of proceeds’’ under the section headed ‘‘Proposed Rights Issue’’ in this circular.

– 20 –

LETTER FROM THE BOARD

The Board (including the independent non-executive Directors who have expressed their views after taking into account the advice of the Independent Financial Adviser) considers that the terms of the Rights Issue (including the Subscription Price) are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Conditions of the Rights Issue

The Rights Issue will be conditional upon:

(a) the passing of necessary resolutions by the Shareholders at the SGM approving the Capital Reorganisation and the transaction contemplated thereunder by no later than the Posting Date;
(b) the passing of necessary resolutions by the Independent Shareholders at the SGM approving, among other things, (i) the Rights Issue including the allotment and issue of the Rights Shares (in their nil-paid and fully paid forms); and (ii) the Set-off Arrangement and the transactions respectively contemplated thereunder by no later than the Posting Date;
(c) the Capital Reorganisation having become effective;
(d) the delivery to the Stock Exchange for authorisation and the registration with the Registrar of Companies in Hong Kong respectively one copy of each of the Prospectus Documents duly signed by two Directors (or by their agents duly authorised in writing) as having been approved by resolution of the Directors (and all other documents required to be attached thereto) and otherwise in compliance with the Listing Rules and the Companies (Winding Up and Miscellaneous Provisions) Ordinance not later than the Posting Date;
(e) the posting of the Prospectus Documents to the Qualifying Shareholders and the posting of the Prospectus and a letter to the Excluded Shareholders, if any, for information purpose only explaining the circumstances in which they are not permitted to participate in the Rights Issue on the Posting Date;
(f) the Stock Exchange granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked the listing of and permission to deal in the Shares as well as the Rights Shares in nil-paid and fully-paid forms by no later than the Business Day prior to the first day of their dealings; and
(g) there being no breach of the obligations of the Concert Group under the Deeds of Covenants and Undertakings prior to the Latest Time for Acceptance.

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LETTER FROM THE BOARD

All conditions set out above cannot be waived by any party. If any of the above conditions is not satisfied at or prior to the respective time stipulated therein, the Rights Issue will not proceed.

Non-underwritten basis

Subject to the fulfilment of the conditions of the Rights Issue, the Rights Issue will proceed on a non-underwritten basis irrespective of the level of acceptances of the provisionally allotted Rights Shares. In the event that there is an under subscription of the Rights Issue as a result of Untaken Rights (as defined in the section headed ‘‘Application for excess Rights Shares’’ of this circular below) and such are not taken up by the Qualifying Shareholders (excluding the Concert Group), the Concert Group has, pursuant to the Deeds of Covenants and Undertakings, irrevocably undertaken to the Company to apply for, by way of excess application, an aggregate of 44,416,717 additional Rights Shares. For further details, please refer to the section headed ‘‘Deeds of Covenants and Undertakings’’ in this circular. As Mr. Lau is beneficially interested in 48.8% of the issued share capital of the Company, the fulfilling of his obligations pursuant to the Lau Deed of Covenants and Undertakings may cause him to be required to make a general offer in accordance with the Takeovers Code. An application had been made by Mr. Lau to the Executive for granting of a waiver of any obligation to make a general offer as a result of Mr. Lau fulfilling his obligations pursuant to the Lau Deed of Covenants and Undertakings and the waiver was granted pursuant to Note 6(b) to Rule 26.1 of the Takeovers Code.

The legal adviser of the Company has confirmed that there are no applicable statutory requirements under the Companies Act regarding minimum subscription levels in respect of the Rights Issue.

Apart from Mr. Lau, any other Shareholder who applies to take up all or part of his entitlement under the PAL or apply for excess Rights Shares under the EAF may also unwittingly incur an obligation to make a general offer under the Takeovers Code, unless a waiver from the Executive has been obtained.

Accordingly, the Rights Issue will be made on the term that the Company will provide for Shareholders (except Mr. Lau) to apply on the basis that if the Rights Shares are not fully taken up, the applications of any Shareholder (other than Mr. Lau) for his entitlement under the PAL or for excess Rights Shares under the EAF will be scaled down to a level which will not trigger an obligation on the part of the relevant Shareholder to make a general offer under the Takeovers Code.

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LETTER FROM THE BOARD

Qualifying Shareholders

To qualify for the Rights Issue, a Shareholder must:

(i) be registered as a member of the Company at the close of business on the Record Date; and
(ii) be a Qualifying Shareholder.

In order to be registered as members of the Company at the close of business on the Record Date, transfer documents (together with the relevant share certificates) must be lodged with the Share Registrar no later than 4:30 p.m. on Wednesday, 13 January 2021.

Shareholders whose Shares are held by nominee companies (or which are deposited in CCASS) should note that the Board will regard a nominee company (including HKSCC Nominees Limited) as a single Shareholder according to the register of members of the Company. Shareholders with their Shares held by nominee companies (or which are deposited in CCASS) are advised to consider whether they would like to arrange for registration of the relevant Shares in the their own names prior to the Record Date.

Closure of register of members

The register of members of the Company will be closed from Thursday, 14 January 2021 to Monday, 18 January 2021 (both dates inclusive) for determining the entitlements to the Rights Issue. No transfer of Shares will be registered during this period.

Basis of provisional allotments

The basis of the provisional allotment shall be one (1) Rights Share (in nil-paid form) for every one (1) Adjusted Share held by the Qualifying Shareholders as at the close of business on the Record Date.

Application for all or any part of a Qualifying Shareholder’s provisional allotment shall be made by completing a PAL and lodging the same with remittance for the Rights Shares accepted with the Share Registrar by 4:00 p.m. on Tuesday, 2 February 2021.

Rights of Overseas Shareholders

The Prospectus Documents are not intended to be registered under the applicable securities legislation of any jurisdiction other than Hong Kong.

– 23 –

LETTER FROM THE BOARD

Based on the register of members of the Company as at the Latest Practicable Date, there were a total of three (3) Overseas Shareholders located in the British Virgin Islands and the PRC with the following shareholding structure:

		Aggregate number
		of Existing Shares
	Number of	held by Overseas	Approximate
	Overseas	Shareholder(s) in	percentage of
Jurisdiction	Shareholder(s)	the jurisdiction	shareholdings
British Virgin Islands	2	151,600,013	16.5%
PRC	1	10,000,000	1.1%

Pursuant to Rule 13.36(2) of the Listing Rules, the Company has made enquiry in respect of the legal restrictions under the laws of the relevant places and the requirements of the relevant regulatory body or stock exchange in those places for the Company to extend the Rights Issue to the Overseas Shareholders. On the basis of the results of such enquiries obtained as at the Latest Practicable Date, the Directors note that there is no legal restriction under the laws of or the requirements of the relevant regulatory bodies or stock exchanges in the British Virgin Islands or the PRC with respect to the offer of the Rights Shares to the Overseas Shareholders with registered addresses in those jurisdictions as at the Latest Practicable Date. Please pay attention to the following statements in respect of the British Virgin Islands and the PRC respectively:

The British Virgin Islands

No Shares may be offered to any person in the British Virgin Islands for purchase or subscription except under circumstances that will result in compliance with the rules concerning offering of such securities in the British Virgin Islands and with the laws of the British Virgin Islands. Accordingly, the Prospectus Documents do not constitute and shall not be construed as an offer to the public in the British Virgin Islands to purchase or subscribe for Rights Shares. Rights Shares shall not be received for the account or benefit of any person who is a resident of, or who is domiciled in, the British Virgin Islands, other than a BVI Business Company (as defined under the BVI Business Companies Act (as amended)) incorporated in the British Virgin Islands that is not resident in the British Virgin Islands, nor to a custodian, nominee or trustee of any such person.

– 24 –

LETTER FROM THE BOARD

PRC

Based on the advice of the legal advisers of the PRC, the Prospectus Documents would not be required to be registered under the relevant laws and regulations of the PRC and may be dispatched to the Shareholders in the PRC without any filing or approval requirements or any other restrictions. It is the sole responsibility of any Shareholders in the PRC to ensure the compliance of laws and regulations of the PRC for any action they take in response to the Prospectus Documents. Any application for Rights Shares by Shareholders in the PRC are therefore made against their representation to the Company that they have already complied with the laws and regulations of the PRC and that they will indemnify the Company for any loss or damages if they fail to do so. The Company bears no responsibility in checking the laws and regulations compliance by any Shareholders who apply for Rights Shares, but reserves the right to reject any application made by the Shareholders in the PRC if they have not complied with the laws and regulations of the PRC.

Accordingly, the Rights Issue will be extended to such Overseas Shareholders in the British Virgin Islands and the PRC and there are no Excluded Shareholders for the Rights Issue as at the Latest Practicable Date. Save for the aforesaid Overseas Shareholders, all Shareholders on the Company’s register of members as the Latest Practicable Date have Hong Kong registered addresses.

It is the responsibility of the Shareholders (including the Overseas Shareholders) to observe the domestic legal and regulatory requirements applicable to them for taking up and onward sale of the Rights Shares in nil paid form and the Rights Shares in fully paid form.

No part of the Prospectus Documents should be published, reproduced, distributed or otherwise made available in whole or in part to any other person without the written consent of the Company.

Status of the Rights Shares

The Rights Shares, when issued and fully paid, will rank pari passu in all respects with the Adjusted Shares then in issue. Holders of fully-paid Rights Shares will be entitled to receive all future dividends and distributions which may be declared, made or paid on or after the date of issue of the Rights Shares.

Fractional entitlements to the Rights Shares

The Company will not provisionally allot and will not accept application for any fractions of the Rights Shares. All fractions of the Rights Shares will be aggregated and sold by the Company in the open market if a premium (net of expenses) can be obtained, and the Company will keep the net proceeds for its own benefit. Any unsold fractions of the Rights Shares will be aggregated and made available for excess application by the Qualifying Shareholders.

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LETTER FROM THE BOARD

Share certificates and refund cheques for the Rights Issue

Subject to fulfilment of the conditions of the Rights Issue, share certificates for all fully-paid Rights Shares are expected to be sent on or about Wednesday, 10 February 2021 by ordinary post to the allottees, at their own risk, to their registered addresses. Refund cheques in respect of wholly or partially unsuccessful applications for the excess Rights Shares (if any) are expected to be sent on or about Wednesday, 10 February 2021 by ordinary post to the applicants, at their own risk, to their registered addresses.

Application for excess Rights Shares

Qualifying Shareholders are entitled to apply for, by way of excess application: (i) any unsold entitlements to the Rights Shares of the Excluded Shareholder(s) (if any); (ii) any unsold Rights Shares created by aggregating fractions of the Rights Shares; and (iii) any nilpaid Rights Shares provisionally allotted but not accepted by the Qualifying Shareholders or otherwise not subscribed for by renouncees or transferees of nil-paid Rights Shares. (i) to (iii) are collectively referred to as ‘‘Untaken Rights’’.

Applications for excess Rights Shares may be made by completing an EAF and lodging the same with a separate remittance for the full amount payable for the excess Rights Shares being applied for. The Directors will allocate any excess Rights Shares on a fair and equitable basis based on the following principles:

(i) any excess Rights Shares will be allocated to Qualifying Shareholders who apply for them as far as practicable on a pro-rata basis by reference to the number of the excess Rights Shares applied for under each application;
(ii) no reference will be made to the Rights Shares subscribed through applications by PALs or the existing number of Shares held by Qualifying Shareholders; and
(iii) no preference will be given to applications for topping up odd-lot holdings to whole lot holdings.

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LETTER FROM THE BOARD

Shareholders with their Shares held by a nominee company (or which are deposited in CCASS) should note that the Board will regard such nominee company (including HKSCC Nominees Limited) as a single Shareholder according to the register of members of the Company. Accordingly, Shareholders should note that the aforesaid arrangement in relation to the allocation of the excess Rights Shares will not be extended to the relevant beneficial owners individually. Shareholders with their Shares held by a nominee company (or which are held in CCASS) are advised to consider whether they would like to arrange for the registration of the relevant Shares under their own names prior to the Record Date for the purpose of the Rights Issue. Shareholders who would like to have their names registered on the register of members of the Company prior to the Record Date must lodge all necessary documents with the Registrar for registration by no later than 4:30 p.m. on Wednesday, 13 January 2021. Shareholders and investors of the Company should consult their professional advisers if they are in doubt as to their status.

Pursuant to Rule 7.21(3)(b) of the Listing Rules, the Company will also take steps to identify the applications for excess Rights Shares made by any controlling shareholders or their associates (together, the ‘‘Relevant Shareholders’’), whether in their own names or through nominees. The Company shall disregard the Relevant Shareholders’ applications for excess Rights Shares to the extent that the total number of excess Rights Shares they have applied for exceeds a maximum number equivalent to the total number of Rights Shares offered under the Rights Issue minus the number of Rights Shares taken up by the Relevant Shareholders under their assured entitlement to the Rights Shares. For the purpose of the Rights Issue, the Company will consider the excess application(s) of the Concert Group in accordance with Rule 7.21(3)(b).

If the aggregate number of Rights Shares underlying the Untaken Rights is greater than the aggregate number of excess Rights Shares being applied for under EAFs, the Directors will allocate to each Qualifying Shareholder who applies for excess Rights Shares the actual number of excess Rights Shares being applied for.

The Concert Group confirmed that it intends to apply for any excess Rights Shares if there is an undersubscription of the Rights Issue. Pursuant to Rule 7.21(3)(b), assuming (i) there is no change in the number of issued Shares on or before the Record Date; and (ii) the Concert Group had taken up in full the Rights Shares allotted to it under its respective assured entitlement to the Rights Shares, the maximum number of excess Rights Shares that the Concert Group may apply for would be 44,416,717 Rights Shares.

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LETTER FROM THE BOARD

Application for listing

The Company will apply to the Stock Exchange for the listing of and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms.

Subject to the granting of the listing of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms on the Stock Exchange, the Rights Shares in both their nil-paid and fully-paid forms will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the respective commencement dates of dealings in the Rights Shares in both their nil-paid and fully paid forms on the Stock Exchange or such other dates as determined by HKSCC. Settlement of transactions between participants 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. Shareholders should seek advice from their stockbrokers or other professional advisers for details of those settlement arrangements and how such arrangements will affect their rights and interests.

Dealings in the Rights Shares in both their nil-paid and fully-paid forms will be in new board lot size of 4,000 Rights Shares, which are registered in the branch register of members of the Company in Hong Kong will be subject to the payment of stamp duty, Stock Exchange trading fee, transaction levy, investor compensation levy or any other applicable fees and charges in Hong Kong.

Deeds of Covenants and Undertakings

On 10 November 2020, the Company entered into the Lau Deed of Covenants and Undertakings with Mr. Lau, the KY Deed of Covenants and Undertakings with Mr. KY Lau, the Chan Deed of Covenants and Undertakings with Ms. Chan, the CY Deed of Covenants and Undertakings with Mr. CY Lau and the HB Deed of Covenants and Undertakings with Mr. HB Lau, pursuant to which Mr. Lau, Mr. KY Lau, Ms. Chan, Mr. CY Lau and Mr. HB Lau have irrevocably undertaken to the Company, among other things:

(i) prior to the close of the Rights Issue, not to offer for sale, sell, transfer, contract to sell or otherwise dispose of any of (i) the Shares ultimately beneficially held by them as at the date of the Deeds of Covenants and Undertakings or (ii) the nil-paid rights pertaining to the 44,829,629, 1,851,600, 150,000, 13,798 and 516,200 Rights Shares provisionally allotted to them respectively;

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LETTER FROM THE BOARD

(ii) the 44,829,629, 1,851,600, 150,000, 13,798 and 516,200 Adjusted Shares respectively registered in their name and/or under the name(s) of their nominee(s) as at the date of the Deeds of Covenants and Undertakings shall remain registered in their name and/or under the name(s) of their nominee(s) on the Record Date and until the close of the Rights Issue;
(iii) to subscribe for 44,829,629, 1,851,600, 150,000, 13,798 and 516,200 Rights Shares which will be provisionally allotted to them nil-paid in respect of the 44,829,629, 1,851,600, 150,000, 13,798 and 516,200 Adjusted Shares legally and beneficially owned by them, pursuant to the terms of the Prospectus Documents; and
(iv) to apply, by way of excess application, for an additional 42,042,511, 1,736,484, 140,675, 12,940 and 484,107 Rights Shares respectively.

Pursuant to the Deeds of Covenants and Undertakings, the Company has also undertaken to the Concert Group that the Rights Issue shall be conditional upon fulfilment of the conditions set out in the paragraph headed ‘‘Conditions of the Rights Issue’’ under the section headed ‘‘Proposed Rights Issue’’ in this circular.

The Company also understands from the Concert Group that they will make the relevant applications, and will not withdraw from their applications, in regards to the Rights Shares which will be provisionally allotted to them and the additional Rights Shares, by way of excess application, on the first day the application opens, which is on Tuesday, 19 January 2021.

The allocation of the number of excess Rights Shares which the members of the Concert Group has individually undertaken to apply for was determined by reference to the proportion of their respective existing shareholding percentage in the Concert Group.

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Effects on the shareholding structure of the Company

Set out below is the shareholding structure of the Company (i) as at the date of this circular; (ii) immediately after completion of the Capital Reorganisation and (iii) immediately after completion of the Rights Issue (assuming no further Shares will be issued, repurchased or surrendered from the date of this circular and up to the Record Date):

Immediately after completion of the Rights Issue	Immediately after completion of the Rights Issue	Immediately after completion of the Rights Issue
Assuming all Shareholders have taken up the Rights Shares No. of Adjusted Shares % 89,659,258 48.8 3,703,200 2.0 1,032,400 0.6 300,000 0.2 27,596 0.0 88,833,434 48.4 183,555,888 100.0 94,722,454 51.6	Assuming only the Concert Group had taken up their Rights Shares entitlement and the Concert Group had taken up the maximum number of excess Rights Shares (i.e. 44,416,717 Shares) No. of Adjusted Shares % 131,701,769 71.8 5,439,684 3.0 1,516,507 0.8 440,675 0.2 40,536 0.0 44,416,717 24.2 183,555,888 100.0 139,139,171 75.8
		100.0
		75.8

Notes:

The 188,300,013 Existing Shares out of 448,296,298 Existing Shares are held by Future 2000 Limited, which is a company incorporated under the laws of the British Virgin Islands, the entire issued share capital of which is legally and beneficially owned by Mr. Lau, an executive Director. The remaining 259,996,285 Existing Shares out of the 448,296,298 Existing Shares are held by Mr. Lau in personal interests.
Mr. Lau is the chairman of the Company and an executive Director.
As at the date of this circular, Mr. KY Lau, Mr. HB Lau, Ms. Chan and Mr. CY Lau do not hold any positions with the Company or other members of the Group. None of them whose acquisition of the Shares has been financed directly or indirectly by the core connected person of the Company nor is accustomed to take instruction from the core connected person in relation to the acquisition, disposal, voting or other disposition of the Shares registered in their names or otherwise held by them.
The 137,987 Existing Shares are held by Fortune 97 Associates Limited, which is a company incorporated under the laws of the British Virgin Islands, the entire issued share capital of which is legally and beneficially owned by Mr. CY Lau, the brother of Mr. Lau.
Save as disclosed above, none of the Directors have any shareholding in the Company.

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In order to capture the growth opportunities, the Group intends to apply the net proceeds from the Rights Issue as follows:

(A) If all shareholders participate in the Proposed Rights Issue

Mr. Lau Mr. KY Lau Mr. HB Lau Ms. Chan Mr. CY Lau Other Shareholders Total Amount to be set-off according to the Initial Set-off: Gross proceeds: Expenses in relation to the Proposed Rights Issue: Net proceeds: Use of proceeds Trading and distribution business: General working capital: Total	Rights Shares to be provisionally allotted 44,829,629 1,851,600 516,200 150,000 13,798 44,416,717 91,777,944	Value of Rights Shares to be provisionally allotted HK$ 23,759,703.37 981,348.00 273,586.00 79,500.00 7,312.94 23,540,860.01 48,642,310.32	Rights Shares applied through excess applications – – – – – – –	Value of Rights Shares from excess applications HK$ – – – – – – –	Total amount HK$ 23,759,703.37 981,348.00 273,586.00 79,500.00 7,312.94 23,540,860.01
					48,642,310.32
					(23,759,703.37) 24,882,606.95 (1,614,000.00) 23,268,606.95
					15,823,924.12 7,444,682.83
					23,268,606.95

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LETTER FROM THE BOARD

(B) If no public shareholders participate in the Proposed Rights Issue

Mr. Lau Mr. KY Lau Mr. HB Lau Ms. Chan Mr. CY Lau Other Shareholders Total Amount to be set-off according to the Initial Set-off: Amount to be set-off according to the Second Set-off: Gross proceeds: Expenses in relation to the Proposed Rights Issue: Net proceeds: Use of proceeds General working capital: Total	Rights Shares to be provisionally allotted 44,829,629 1,851,600 516,200 150,000 13,798 – 47,361,227	Value of Rights Shares to be provisionally allotted HK$ 23,759,703.37 981,348.00 273,586.00 79,500.00 7,312.94 – 25,101,450.31	Rights Shares applied through excess applications 42,042,511 1,736,484 484,107 140,675 12,940 – 44,416,717	Value of Rights Shares from excess applications HK$ 22,282,530.83 920,336.52 256,576.71 74,557.75 6,858.20 – 23,540,860.01	Total amount HK$ 46,042,234.20 1,901,684.52 530,162.71 154,057.75 14,171.14 –
					48,642,310.32
					(23,759,703.37) (15,823,924.12) 9,058,682.83 (1,614,000.00) 7,444,682.83
					7,444,682.83
					7,444,682.83

Excluded Shareholders should note that they may or may not be entitled to the Rights Issue. Accordingly, Excluded Shareholders should exercise caution when dealing in the securities of the Company.

Taxation

Shareholders are advised to consult their professional advisers if they are in doubt as to the taxation implications of the receipt, purchase, holding, exercising their rights in, disposing of or dealing in the nil-paid Rights Shares or the fully-paid Rights Shares and, regarding the Excluded Shareholders, their receipt of the net proceeds, if any, from sale of the nil-paid Rights Shares on their behalf. It is emphasised that none of the Company, its Directors or any other parties involved in the Rights Issue accepts responsibility for any tax effects or liabilities of any person resulting from the purchase, holding or disposal of, or dealing in, the Rights Share in both their nil-paid and fully-paid forms.

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LETTER FROM THE BOARD

WARNING OF THE RISKS OF DEALING IN THE EXISTING SHARES, ADJUSTED SHARES AND/OR RIGHTS SHARES IN NIL-PAID FORM

The Rights Issue is subject to the fulfilment of conditions including, among other things, the Stock Exchange granting the listing of, and permission to deal in, the Rights Shares in their nil-paid and fully-paid forms. Please refer to the paragraph headed ‘‘Conditions of the Rights Issue’’ above. Shareholders and potential investors of the Company should note that if the conditions to the Rights Issue are not satisfied, the Rights Issue will not proceed.

The Rights Issue will proceed on a non-underwritten basis irrespective of the level of acceptances of the provisionally allotted Rights Shares. In the event the Rights Issue is not fully subscribed, any Rights Shares not taken up by the Qualifying Shareholders or transferees of nil-paid Rights Shares will not be issued by the Company and the size of the Rights Issue will be reduced accordingly. Investors are advised to exercise caution when dealing in the Existing Shares and/or the Adjusted Shares.

Any dealings in the Existing Shares and/or Adjusted Shares up to the date on which all conditions of the Rights Issue are fulfilled, and any Shareholders dealing in the Rights Shares in nil-paid form will accordingly bear the risk that the Rights Issue may not become unconditional or may not proceed. Any Shareholders or other persons contemplating any dealings in the Existing Shares, Adjusted Shares or Rights Shares in their nil-paid form are recommended to consult their professional advisers.

SET-OFF ARRANGEMENT

As at 31 August 2020, Mr. Lau has made total advances to the Group of HK$12,171,625.90, which is non-interest bearing and repayable on demand. On 31 December 2018, Mr. Lau and the Group entered into the First Loan Agreement where the Group obtained a loan from Mr. Lau of RMB12,000,000.00 on the date of the First Loan Agreement, which is interest free and repayable on 31 December 2021. On 10 July 2020, Mr. Lau and the Group entered into the Second Loan Agreement where the Group obtained a loan from Mr. Lau of US$2,000,000.00 on the date of the Second Loan Agreement, which is interest free and repayable on 31 December 2021. As at 31 August 2020, the Group owes advances of HK$12,171,625.90 to Mr. Lau, which is classified as a current liability and loans owed to Mr. Lau totaling HK$27,412,001.59 under the First Loan Agreement and the Second Loan Agreement, which is classified as a non-current liability.

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LETTER FROM THE BOARD

Pursuant to the Lau Deed of Covenants and Undertakings, Mr. Lau conditionally agrees to (i) the Initial Set-off whereby HK$23,759,703.37 required to be paid by Mr. Lau for the subscription of 44,829,629 Rights Shares provisionally allotted to him pursuant to the Rights Issue would be set-off against the Loan Amount of HK$23,759,703.37; and (ii) the Second Setoff whereby the amount of HK$15,823,924.12 (out of the total amount of HK$22,282,530.83) required to be paid by Mr. Lau for the subscription of up to 42,042,511 excess Rights Shares by using the EAF would be set-off against the remaining Loan Amount of HK$15,823,924.12 after the Initial Set-off. After the Second Set-off, Mr. Lau will be required to pay the remaining balance of HK$6,458,606.71 in cash for the application for excess Rights Shares, before settlement of expenses in relation to the Rights Issue.

Reasons for the Rights Issue, the Set-off Arrangement and the use of proceeds

Assuming that there is no change in the number of issued Shares on or before the Record Date and that the Set-off Arrangement is implemented, the net proceeds from the Rights Issue after the Set-off Arrangement and deducting the related expenses, are estimated to be approximately HK$7.4 million. Assuming that there is no change in the number of issued Shares on or before the Record Date and that the Second Set-off is not implemented, the net proceeds from the Rights Issue after deducting the related expenses, are estimated to be approximately HK$23.3 million.

The Company is an investment holding company and its subsidiaries are principally engaged in trading and distribution of mobile phones and related accessories, development of marketing and after-sales service network and mining and processing of celestite, zinc and lead minerals in the PRC. The Company intends to continue to focus on its trading and distribution business which the Directors believe will continue to grow steadily.

The Company intends to allocate approximately HK$7.4 million for the Group’s working capital regardless of whether Shareholders, other than the Concert Group, participate in the Rights Issue or not. The Group currently requires, on average, approximately HK$1.0 million per month for its working capital needs, which are mainly spent on staff salaries, directors’ remuneration, legal and professional fees, rental and other office expenses. Taking this into account, the intended allocation of HK$7.4 million will be able to meet the Group’s working capital needs for the next seven and a half months.

Assuming all Shareholders, other than the Concert Group, participate in the Rights Issue, the Group intends to allocate approximately HK$15.8 million for its mobile phone trading and distribution business. As the business of mobile phone trading and distribution largely depends on market trend and demand of the general public at a moment in time, the Directors currently cannot predict the amount required for such business nor enter into any sales agreement for the future. However, based on figures from the past two financial years, the Group on average had cost of sales of approximately HK$13.4 million per month, indicating that the proposed allocation of HK$15.8 million will be sufficient to meet the purchase cost for the mobile phone trading and

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distribution business for less than 2 months. The Group has cash and cash equivalents of approximately HK$19.7 million as at 30 June 2020, a portion of which the Directors believe need to be reserved for working capital purposes, thus the actual free cash on hand for its trading business would be less. Based on past experiences in mobile phone trading and distribution by the Group, a larger discount can only be obtained from suppliers if purchases are made in a large bulk. In order to obtain a better gross profit margin in the Group’s business, it is preferable to have on hand a larger cash and cash equivalent balance in case the Group is required to make purchases of phones which may be in demand by the general public, such as Apple Iphones, and obtain a larger discount from its suppliers. The Directors are of the view that, given the nature of mobile phone trading and distribution business and the relatively thin profit margin that comes with it, in order for the Group to continue to expand and generate a larger gross profit margin amount, it requires a larger capital base (i.e. more free cash on hand) in order for it to make purchases of mobile phones for sale.

The core business of the Group is the trading and distribution of mobile phones and related accessories, which was conducted mainly (i) via two operating subsidiaries in the PRC, namely 浙江澳英信息科技有限公司 (Zhejiang Aoying Information Technology Co., Ltd*) and Fortune (Shanghai) International Trading Co., Ltd., for the two years ended 31 December 2019; and (ii) other than the two abovementioned subsidiaries, via an additional operating subsidiary in Hong Kong, namely Fortune Telecom Supply Chain Limited, since 2020 which the Group expanded the geographical coverage of its business in Hong Kong accordingly. As at 30 June 2020, the number of staff employed under these subsidiaries in the PRC and Hong Kong was 41 and 9, respectively. For each of the two years ended 31 December 2019, (i) the Group’s distribution network for the sale of mobile phones and related accessories comprised 31 and 11 wholesale customers which are mainly distributors in the PRC, with a focus in Zhejiang province and Shanghai; and (ii) the Group obtained the supplies from 15 and 7 wholesale suppliers which are mainly distributors in the PRC, respectively. During the two years ended 31 December 2019, the major brands of mobile phones sold by the Group include Apple and Huawei mobile phones. Such as the nature of the industry, the Group does not usually enter into any long term agreements with its customers and businesses are done on a standalone basis. The Group’s existing customers and suppliers were acquainted though business networking events, referrals or are vendors which has had an existing business relationship with the Group for a number of years. The management will continue to seek for new business vendors through the above means and explore other options in sourcing new businesses for the Group.

In terms of the value and role played by the Group in the whole mobile phone distribution industry, the Group has maintained its position of being able to purchase mobile phones in bulk from suppliers, where some require the Group to pay upon delivery whilst selling them to multiple distributors in a lesser amount and also granting them credit terms. Furthermore, the Group has been acting as a facilitator for the mobile phone industry throughout. The Group is able to help manufacturers and suppliers of mobile phone brands in selling their mobile phones to target distributors and customers, whilst providing a platform for retailers to source their required mobile phones. The Group is therefore able to create value in the mobile phone supply chain by

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being the middle-man between the manufacturer and/or upstream suppliers and distributors, as the manufacturers and/or upstream suppliers will not directly sell to the retailers due to (i) the lesser volume of purchase each time and/or (ii) the credit terms required by the distributors. On the other hand, the distributors themselves would not directly source mobile phones as they may not have the necessary time and resource to locate and build business relationships with the manufacturers and/or upstream suppliers. The Group also has the required knowledge and skill of its sales team and the business networks within the mobile phone industry, which at one time had over 8,000 different distributors, located in over 300 cities in the PRC, that had business relationships with the Group, enabling manufacturers/suppliers to rely on the Group to locate distributors from the whole of the PRC whilst not having to incur the time, effort and cost of establishing their own sales team and building the necessary business relationships or networks.

According to the internal financial records of the Company, set out below is a summary of the Group’s five largest customers and suppliers during the year ended 31 December 2019 and their respective background information:

Customers

Rank Customer Business profile Approx. years of business relationship as at the Latest Practicable Date 1 Customer A Technology development, technology consulting, technology transfer in the field of electronic technology 1 2 Customer B Computer software and hardware design, technology development, purchase and sale of communication products and equipment 1 3 Customer C Sales of various products, including digital products and communication equipment 1 4 Customer D Wholesale and retail of electronic products and communication equipment 1 5 Customer E Technical development and sales of electronic products 1 Sub-total Other customers Total	Revenue generated HK$’000 % 20,537 18.9 19,083 17.6 15,494 14.3 11,129 10.3 8,909 8.2 75,152 69.3 33,303 30.7 108,455 100	Revenue generated HK$’000 % 20,537 18.9 19,083 17.6 15,494 14.3 11,129 10.3 8,909 8.2 75,152 69.3 33,303 30.7 108,455 100
		69.3 30.7
		100

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LETTER FROM THE BOARD

Suppliers

Rank Supplier Business profile Approx. years of business relationship as at the Latest Practicable Date 1 Supplier A Sales of various products, including mechanical and electrical products, communication equipment and accessories, electronic components and products 1 2 Supplier B Computer information technology development and technical consultation, wholesale and retail of electronic components and products 1 3 Supplier C Sales of various products, including communication equipment 1 4 Supplier D Wholesale of electronic products, communication equipment and computer software and hardware 1 5 Supplier E Sales of various products, including electronic products and communication equipment 1 Sub-total Other suppliers Total	Purchases made HK$’000 % 40,385 37.6 26,633 24.8 26,283 24.5 4,914 4.6 4,507 4.2 102,722 95.6 4,722 4.4 108,455 100	Purchases made HK$’000 % 40,385 37.6 26,633 24.8 26,283 24.5 4,914 4.6 4,507 4.2 102,722 95.6 4,722 4.4 108,455 100
		95.6 4.4
		100

The Group’s revenue for the mobile phone trading business decreased from approximately HK$216.1 million for the year ended 31 December 2018 to approximately HK$108.5 million for the year ended 31 December 2019 and recorded revenue of approximately HK$21.4 million for the six months ended 30 June 2020. The decrease in revenue from 2018 to 2019 was mainly due to the economic uncertainty caused by the Sino-US trade war, leading to a decrease in demand for mobile phones and related accessories. Although a trade deal was entered into between the U.S. and China in January 2020, COVID-19 pandemic led to a worldwide stoppage in economic activity, even causing a mandatory temporary shutdown of certain cities and areas in the PRC, which contributed to a decrease in the Group’s revenue for the six months ended 30 June 2020. However, the Directors are of the view that, as the PRC is one of the world’s first countries to have stopped the pandemic from spreading and its economy is recovering and have even recorded modest gains, the business of the Group, in particular its mobile phones distribution and trading

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business, will be able to recover in the year 2021 as a result of the recovery of the overall economy in the PRC. In addition, multiple vaccines have been announced in November 2020 to have an extremely high efficacy rating, which the Directors believe will further fuel the recovery of economies not just in the PRC but also the rest of the world.

In the past five years, the Group recorded gross profit margin ranging from approximately 0.9% to 3.9%, with the 0.9% recorded in the year ended 31 December 2019. As stated above, the Group intends to utilise the proceeds from the Rights Issue to expand its capital base, which would allow the Group to expand its trading business activities and enable the Group to make larger bulk purchases each time and obtain a larger discount from its suppliers. This potential larger discount will improve the Group’s gross profit margin. The Directors estimate that the Group will need to achieve approximately HK$300.0 million of revenue with a gross profit margin of approximately 4.0% in order to fully cover its corporate expenses which the Directors believe will be achievable if the Hong Kong and PRC economics can recover as hoped. The Directors believe that, as the global economy recovers from this temporary downturn, coupled with the Rights Issue which would allow access by the Company to a larger cash pool, the Group will be able to make larger purchases to obtain a higher rate of discount and at the same time increase its business volume which will in aggregate improve both its revenue and gross profit margin.

Notwithstanding the outbreak of COVID-19 that caused an adverse impact on the wholesale and retail of mobile phone markets as noted from the deteriorated financial performance of the Group for the year ended 31 December 2019 and the six months ended 30 June 2020, the Company intends to develop its trading and distribution of mobile phone business upon the Proposed Rights Issue and Set-off Arrangement, having considered that (i) the PRC has successfully kept the COVID-19 pandemic in check and its economy has resumed growth; and (ii) the Group’s strategy to sustain its business operations in the PRC while continuing the diversification and expansion of business operations in Hong Kong and as at the Latest Practicable Date, revenue generated from such geographical segment for the year ending 31 December 2020 amounted to approximately HK$9.2 million, the Directors are confident about the Company’s ability to take advantage of the business opportunities that ensue in the near future.

The Group is currently in discussion with a customer, an online and offline multinational distribution platform for a large variety of products, who intends to make purchases ranging from approximately RMB6 million to approximately RMB8 million worth of Apple and Huawei mobile phones, laptops, tablets and related accessories per month, which the Group will source through licensed distributors of Apple and Huawei products. Although the proceeds to be applied to the trading and distribution business is approximately HK$15.8 million, the Directors are of the view that once the HK$15.8 million has been utilised for the purchase of mobile phones and are subsequently sold to the Group’s customers, the proceeds will be able to be re-applied to future purchases and sales of mobile phones. The purpose of obtaining the proceeds to be applied to the purchase of mobile phones is so that the Group will be able to make a larger bulk purchase each time to obtain a higher discount rate from its suppliers so as to earn a better gross profit margin, which in turn will improve the profitability of the Group.

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As part of the Group’s strategy to continue to expand its business and improve its profitability, the Group has entered into preliminary discussion with one of the largest telecommunications services providers in Hong Kong and the PRC for the sales of server equipment. The Directors are of the view that as the fifth generation wireless communications technology (‘‘5G’’) is already put into commercial operation in the PRC and will continue to do so in the near future, it will bring a new round of demand for large-scale network build-out by telecommunication services providers and equipment upgrades by network users. The telecommunications services provider has already requested the Group to propose to them the purchasing plans for 2021. From preliminary discussions, the Group will be required to offer a credit term of 25 days to this customer. As such, the Directors are of the view that the Rights Issue exercise will not only allow the Group to expand its current mobile phone business, but also expand its business scope and begin a business relationship with one of the largest telecommunications services providers in Hong Kong and the PRC, which can only bode well for the Group’s future growth and development.

The Directors, based on their past experiences in sourcing business deals with potential customers, understand that some customers require the Group to have at least the relevant inventory on hand, or at least the required amount of cash available, before entering into any negotiations with the Group for any possible purchases. As such, the Directors are of the view that the Group requires additional funding to make the relevant purchases of mobile phones and related accessories so that it can make concrete negotiations with customers and that more customers will purchase from the Group. The Group is also in negotiation with multiple suppliers of mobile phones and related accessories and understand from them that upon agreement of the relevant terms, the purchase amount is required to be paid up front to these suppliers. As such, the Directors believe that the Group requires a certain level of cash readily available on hand for purchases to be made.

The Directors, based on the above, are therefore of the view that if the Group was able to have available the proceeds from the Rights Issue, it will (a) enable the Group to have additional funding for its mobile phone trading business, which will increase the Group’s turnover and therefore gross profit; (b) allow the Group to make larger bulk purchases from its suppliers each time in order to obtain a higher discount, which will in turn improve the Group’s gross profit margin; (c) capture the economic recovery to be expected in 2021 once the Hong Kong and the PRC economics fully reopen and consumers are willing to spend more as consumer sentiments improve; (d) enable the Group to expand into the 5G telecommunications segment and capture the explosive growth in the next few years; (e) enlarge the Group’s customer base so that the Group will be able to begin negotiations and business relationships with customers that were unwilling to negotiate with the Group before due to the Group being unable to provide proof that it has the relevant inventory or the necessary cash level to make the relevant purchases; and (f) enable the Group access to additional funding so that the Group can make payments to suppliers upon conclusion of negotiations and agreements with these suppliers in order to secure the relevant mobile phones and related accessories.

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LETTER FROM THE BOARD

The Directors confirm that, apart from the supplier as disclosed in the Company’s announcement dated 20 July 2018 in respect of a connected transaction and continuing connected transaction, there is no relationship, agreement, arrangement, understanding and/or undertaking (formal or informal, existing or prior, expressed or implied) among (i) its customers; (ii) its suppliers; each of their ultimate beneficial owner(s) and the Company and its connected person(s). Furthermore, as disclosed in the Company’s announcement dated 29 September 2020, the subsidiary which had business relationship with the relevant supplier has been disposed. The Group is no longer in business with the supplier and its ultimate beneficial owner, Mr. Dai, or any of his associates.

The Directors (including the independent non-executive Directors who have expressed their views after taking into account the advice of the Independent Financial Adviser) have considered other financing alternatives including (i) additional debt financing; and (ii) equity fund raising such as placement of the Shares and open offer. The Directors (other than the members of the Independent Board Committee who will form their view after reviewing and considering the advice from the Independent Financial Adviser) are of the view that while additional debt financing will increase the Group’s gearing ratio, it will also increase the ongoing interest expenses of the Group which may in turn affect the profitability of the Company. As for equity fund raising, such as placement of Shares, it is a common market practice to conduct such activity on a best-effort basis and accordingly the amount to be raised would be uncertain and subject to the then market conditions. In addition, for placement of new Shares, it would lead to immediate dilution in the shareholding interest of existing Shareholders without offering them the opportunity to participate in the enlarged capital base of the Company. In addition, to raise fund from placing, substantial amount of securities must be issued and usually the subscriber(s) will ask for a deep discount to the trading price of the Shares in view of the substantial amount of securities involved. As for open offer, similar to a rights issue, it also offers qualifying shareholders to participate in, but it does not allow the trading of rights entitlements in the open market. The Directors (including the independent non-executive Directors who have expressed their views after taking into account the advice of the Independent Financial Adviser) are of the view that the Rights Issue provides better financial flexibility for the Company as it will strengthen the capital base of the Company, thus enhancing its financial position without the ongoing burden of interest expenses, and also offer all Qualifying Shareholders the opportunity to maintain their pro rata shareholding interests in the Company and avoid shareholding dilution for those Shareholders who take up their entitlement under the Rights Issue in full. In considering methods of settlement of the amount owed to Mr. Lau by the Company, the Company also considered loan capitalisation by issuing Shares to Mr. Lau as a form of repayment to Mr. Lau. However, such loan capitalisation would cause an immediate dilution in the shareholding interest of existing Shareholders without offering them the opportunity to participate in the enlarged capital base of the Company. Furthermore, a loan capitalisation would not raise any proceeds for the Group for its business and working capital use while the Rights Issue would enable the Company to raise additional capital. Taking into account the costs and benefits of each of the alternatives as compared with the Rights Issue, the Directors (other than the members of the Independent Board Committee who will form their view after reviewing and considering the advice from the Independent Financial Adviser) consider raising funds by way of the Rights Issue is more attractive and feasible in the current market condition, and thus, in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Under the Rights Issue, the Qualifying Shareholders who elect not to participate in the Rights Issue are able to sell the nil-paid Rights Shares in the market, while the Qualifying Shareholders who wish to increase their shareholding in the Company through the Rights Issue are able to acquire additional nil-paid Rights Shares in the market and/or through application for excess Rights Shares.

In light of the above, the Board (including the independent non-executive Directors who have expressed their views after taking into account the advice of the Independent Financial Adviser) considers that (i) the Rights Issue provides a good opportunity for the Group to strengthen its capital base and to enhance its financial position with the least theoretical dilution effect; (ii) the Rights Issue would not result in additional interest burden or bring adverse effect to the financial performance of the Group; (iii) the Set-off Arrangement will allow the Company to in effect repay the loan due to Mr. Lau without actual cash outflow; (iv) the Set-off Arrangement will allow the Group’s balance sheet to improve from a net liabilities position to a net asset position; and (v) the Rights Issue, even if no other shareholders participate in the Rights Issue apart from the Concert Group, it would secure partial funding for the Group. Therefore the Board is of the view that it is in the interests of the Company and the Shareholders as a whole to raise capital through the Rights Issue.

As at the Latest Practicable Date, the Company has not any intention, agreement, arrangement, understanding and/or negotiation (i.e. concluded or otherwise) on any potential equity/debt fundraising activities in the next twelve months after the Rights Issue and the Set-off Arrangement.

As at the Latest Practicable Date, save for the Rights Issue, the Company currently has no plan or intention to carry out any future corporate actions in the next twelve months which may have an effect of undermining or negating the intended purpose of the Capital Reorganisation.

Fund Raising Exercise involving Issue of Securities in the past 12 months

The Company had not conducted any fund raising activities involving issue of securities in the twelve (12) months before the date of the Announcement.

IMPLICATIONS UNDER THE LISTING RULES

The Capital Reorganisation and the Rights Issue

The Capital Reorganisation is subject to, among other things, the passing of relevant special resolution(s) by the Shareholders at the SGM. As none of the Shareholders or their associates would have any interest in the Capital Reorganisation, no Shareholder would be required to abstain from voting in favour of the resolution(s) relating to the Capital Reorganisation at the SGM.

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LETTER FROM THE BOARD

In accordance with Rule 7.19A(1) of the Listing Rules, as the Rights Issue will increase the issued shares of the Company by more than 50%, the Rights Issue is subject to the approval of the Shareholders at the SGM by way of poll. Pursuant to Rule 7.27A of the Listing Rules, the Rights Issue must be made conditional on approval by the Shareholders in general meeting by a resolution on which any controlling shareholders and their associates or, where there are no controlling shareholders, the Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour of the Rights Issue.

The Concert Group, comprising Mr. Lau, an executive Director and the chairman of the Company and also the controlling Shareholder, and his associates holding in aggregate of 473,612,285 Existing Shares, representing approximately 51.6% of the issued share capital of the Company as at the date of this circular. The Set-off Arrangement would therefore constitute connected transaction of the Company under Chapter 14A of the Listing Rules and is therefore subject to the reporting and announcement requirements and the approval of the Independent Shareholders at the SGM under the Listing Rules. The Concert Group is required to abstain from voting in favour of the Rights Issue and the Set-off Arrangement at the SGM. As at the date of this circular, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, save for the Concert Group, no other Shareholder is required or indicated his intention to abstain from voting on the Rights Issue and the Set-off Arrangement at the SGM.

IMPLICATIONS UNDER THE TAKEOVERS CODE

As Mr. Lau is beneficially interested in 48.8% of the issued share capital of the Company, the fulfilling of his obligations pursuant to the Lau Deed of Covenants and Undertakings may cause him to be required to make a general offer in accordance with the Takeovers Code. An application had been made by Mr. Lau to the Executive for granting of a waiver of any obligation to make a general offer as a result of Mr. Lau fulfilling his obligations pursuant to the Lau Deed of Covenants and Undertakings and the waiver was granted pursuant to Note 6(b) to Rule 26.1 of the Takeovers Code and the Set-off Arrangement will not constitute a special deal as defined under Rule 25 of the Takeovers Code.

The Concert Group, and their respective associates are required by the Listing Rules to abstain from voting on the proposed resolution(s) approving the Rights Issue and the Set-off Arrangement at the SGM. The register of members of the Company will be closed from Thursday, 31 December 2020 to Thursday, 7 January 2021, both dates inclusive, the determine the identity of the Shareholders entitled to attend and vote at the SGM.

– 42 –

LETTER FROM THE BOARD

SGM

The SGM is convened for (a) the Shareholders, to consider and, if thought fit, approve the Capital Reorganisation in accordance with the Bye-laws and the Listing Rules; and (b) the Independent Shareholders to consider and, if thought fit, approve (i) the Rights Issue; and (ii) the Set-off Arrangement, each in accordance with the Listing Rules. A notice convening the SGM is set out on pages SGM-1 to SGM-5 of this circular.

The voting in respect of the Capital Reorganisation, the Rights Issue and the Set-off Arrangement will be conducted by way of poll.

A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Share Registrar, Tricor Abacus Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

Subject to the approval of the Capital Reorganisation, the Rights Issue and the Set-off Arrangement by the Shareholders (or the Independent Shareholders, as the case may be) at the SGM, the Prospectus Documents will be despatched to the Qualifying Shareholders on or before Tuesday, 19 January 2021 whereas the Prospectus will be despatched to the Excluded Shareholders for information only.

RECOMMENDATION

The Independent Board Committee has been formed to advise the Independent Shareholders in connection with the Rights Issue and the Set-off Arrangement. Messis Capital Limited has been appointed with the Independent Board Committee’s approval as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the same.

You are advised to read carefully the letter of recommendation from the Independent Board Committee and the letter of advice from the Independent Financial Adviser set out on pages 45 to 46 and pages IFA-1 to IFA-31 respectively of this circular. The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the terms of the Rights Issue and the Set-off Arrangement are fair and reasonable so far as the Independent Shareholders are concerned and the Rights Issue and the Set-off Arrangement are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the proposed resolutions approving the Rights Issue and the Set-off Arrangement at the SGM.

– 43 –

LETTER FROM THE BOARD

Further, the Directors consider that the Capital Reorganisation and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole, therefore, the Directors recommend the Shareholders to vote in favour of the resolution approving the Capital Reorganisation and the transactions contemplated thereunder at the SGM.

ADDITIONAL INFORMATION

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

Yours faithfully, By order of the Board CHINA FORTUNE HOLDINGS LIMITED Mr. Lau Siu Ying Chairman and Chief Executive Officer

– 44 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendation, prepared for the purpose of incorporation in this circular, from the Independent Board Committee to the Independent Shareholders regarding the Rights Issue and the Set-off Arrangement.

**China Fortune Holdings Limited 中國長遠控股有限公司[*]**

(Incorporated in Bermuda with limited liability, carrying on business in H.K. as CFH Ltd.)

(Stock Code: 110)

15 December 2020

To the Independent Shareholders

Dear Sirs,

PROPOSED RIGHTS ISSUE ON THE BASIS OF ONE (1) RIGHTS SHARE FOR EVERY ONE (1) ADJUSTED SHARE HELD ON THE RECORD DATE ON A NON-UNDERWRITTEN BASIS; CONNECTED TRANSACTION – REPAYMENT OF SHAREHOLDER INDEBTEDNESS

We refer to the circular dated 15 December 2020 (the ‘‘Circular’’) of the Company of which this letter forms part. Unless the context requires otherwise, terms defined in the Circular shall have the same meanings when used herein.

We have been appointed by the Board to advise the Independent Shareholders as to whether the terms of Rights Issue and the Set-off Arrangement are fair and reasonable so far as the Independent Shareholders are concerned and whether the Rights Issue and the Set-off Arrangement are in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote at the special general meeting of the Company (the ‘‘SGM’’).

Messis Capital Limited has been appointed as the Independent Financial Adviser to advise us and the Independent Shareholders in this respect. Details of the advice from the Independent Financial Adviser, together with the principal factors taken into consideration in arriving at such advice, are set out on pages IFA-1 to IFA-31 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 13 to 44 of the Circular and the additional information set out in the appendices to the Circular.

for identification purpose only

– 45 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms of the Rights Issue, the Set-off Arrangement and the letter from the Independent Financial Adviser, we consider that the terms of the Rights Issue and the Set-off Arrangement are fair and reasonable so far as the Independent Shareholders are concerned and the Rights Issue and the Set-off Arrangement are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed to approve the Rights Issue and the Set-off Arrangement at the SGM respectively.

Yours faithfully,

Independent Board Committee

Dr. Law Chun Kwan Mr. Fok Wai Ming, Eddie Dr. Lo Wai Shun

Independent Non-executive Directors

– 46 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter from the Independent Financial Adviser which sets out its advice to the Independent Board Committee and the Independent Shareholders for inclusion in this circular.

15 December 2020

To: The Independent Board Committee and

the Independent Shareholders of China Fortune Holdings Limited

Dear Sir/Madam,

PROPOSED RIGHTS ISSUE ON THE BASIS OF ONE (1) RIGHTS SHARES FOR EVERY ONE (1) ADJUSTED SHARE

HELD AT THE RECORD DATE ON A NON-UNDERWRITTEN BASIS; AND CONNECTED TRANSACTION – REPAYMENT OF SHAREHOLDER INDEBTEDNESS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the proposed Rights Issue and the Setoff Arrangement, details of which are set out in the letter from the Board (the ‘‘Letter’’) contained in the circular of the Company to the Shareholders dated 15 December 2020 (the ‘‘Circular’’), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

On 10 November 2020, the Company proposes to implement the Rights Issue on the basis of one (1) Rights Share for every one (1) Adjusted Share held on the Record Date at the Subscription Price of HK$0.53 per Rights Share, to raise up to approximately HK$48.6 million before the Set-off Arrangement and expenses by way of issuing up to 91,777,944 Rights Shares. The estimated net proceeds of the Rights Issue, if fully subscribed, will be up to approximately HK$47.0 million.

On 10 November 2020, the Company entered into the Lau Deed of Covenants and Undertakings with Mr. Lau, the KY Deed of Covenants and Undertakings with Mr. KY Lau, the Chan Deed of Covenants with Ms. Chan and the HB Deed of Covenants and Undertakings with Mr. HB Lau, details of which are disclosed in the section headed ‘‘Proposed Rights Issue – Deeds of Covenants and Undertakings’’ in the Letter. In particular, pursuant to the Lau Deed of Covenants and Undertakings, Mr. Lau conditionally agrees to the Set-off Arrangement, details of which are disclosed in the section headed ‘‘Set-off Arrangement’’ in the Letter.

IFA – 1

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In accordance with Rule 7.19A(1) of the Listing Rules, as the Rights Issue will increase the issued shares of the Company by more than 50%, the Rights Issue is subject to approval of the Shareholders at the SGM by way of poll. Pursuant to Rule 7.27A of the Listing Rules, the Rights Issue must be made conditional on approval by the Shareholders in general meeting by a resolution on which any controlling shareholders and their associates or, where there are no controlling shareholders, the Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour of the Rights Issue.

The Concert Group, comprising Mr. Lau, an executive Director and the chairman of the Company and also the controlling Shareholder, and his associates holding in aggregate of 473,612,285 Existing Shares, representing approximately 51.6% of the issued share capital of the Company as at the Latest Practicable Date. The Set-off Arrangement would therefore constitute connected transaction of the Company under Chapter 14A of the Listing Rules and is therefore subject to the reporting and announcement requirements and the approval of the Independent Shareholders at the SGM under the Listing Rules. The Concert Group is required to abstain from voting in favour of the Rights Issue and the Set-off Arrangement at the SGM. As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, save for the Concert Group, no other Shareholder is required or indicated his intention to abstain from voting on the Rights Issue and the Set-off Arrangement at the SGM.

The Independent Board Committee comprising all independent non-executive Directors, namely Dr. Law Chun Kwan, Mr. Fok Wai Ming, Eddie and Dr. Lo Wai Shun, has been established to advise the Independent Shareholders as to (i) whether the terms of the Rights Issue and the Set-off Arrangement are fair and reasonable and in the interest of the Shareholders as a whole; and (ii) how to vote on the resolution(s) relating to the Rights Issue and the Set-off Arrangement. We are appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in these regards.

OUR INDEPENDENCE

As at the Latest Practicable Date, we did not have any relationship with or interest in the Company or any other parties that could reasonably be regarded as relevant to our independence. In the last two years from the date of our appointment, there was no engagement between the Group and us. Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangements exist whereby we had received any fees or benefits from the Company or any other parties. Accordingly, we consider that we are eligible to give independent advice pursuant to Rule 13.84 of the Listing Rules to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Rights Issue and the Set-off Arrangement.

IFA – 2

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION AND RECOMMENDATION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the representations made to us by the Directors and the management of the Company. We have assumed that all statements, information and representations provided by the Directors and the management of the Company, for which they are solely responsible, are true and accurate at the time when they were provided and continue to be so as at the date of the SGM, and the Shareholders will be informed of any material change of information. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular the omission of which would make any statement contained in the Circular, including this letter, incorrect or misleading.

Our review and analyses were based upon, among other things, the information provided by the Company including the announcements and this circular and certain published information from the public domain including trading performances of the Shares on the Stock Exchange, information set out in this circular and the annual report of the Company for the year ended 31 December 2019 (the ‘‘Annual Report’’) and the interim report of the Company for the six months ended 30 June 2020 (the ‘‘Interim Report’’). We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, carried out any independent verification of the information provided, nor have we conducted any independent investigation into the business and affairs of the Group, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Rights Issue. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Where information in this letter has been extracted from published or otherwise publicly available sources, the sole responsibility of us is to ensure that such information has been correctly and fairly extracted, reproduced or presented from the relevant stated sources and not be used out of context.

IFA – 3

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion. Nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company. This letter is issued for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Rights Issue and the Set-off Arrangement, and except for its inclusion in this circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation, we have considered the following principal factors and reasons set out below:

A. Reasons for the Rights Issue and Set-off Arrangement

A.1 Background information of the Group

(a) Principal business of the Group

IFA – 4

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Historical financial performance of the Group

Set out below is a summary of the key financial information of the Group as extracted from the Annual Report for the years ended 31 December 2018 and 2019 (‘‘FY2018’’ and ‘‘FY2019’’) and the Interim Report for the six months ended 30 June 2019 and 2020 (‘‘FP2019’’ and ‘‘FP2020’’):

Revenue Cost of sales Gross profit Other income Other gains and losses Selling and distribution costs Administrative expenses Finance costs Share of results of associates Profit/(loss) before taxation Income tax expense Profit/(loss) for the year/period	Year ended 31 December 2018 2019 (audited) (audited) HK$’000 HK$’000 216,104 108,455 (213,966) (107,444) 2,138 1,011 917 506 22,984 (16,367) (11) (20) (14,928) (17,266) – (605) (647) – 10,453 (32,741) (148) (35) 10,305 (32,776)	Six months ended 30 June 2019 2020 (unaudited) (unaudited) HK$’000 HK$’000 60,867 21,414 (60,316) (20,686) 551 728 256 297 143 2,559 (15) (304) (9,235) (8,437) (292) (458) – – (8,592) (5,615) (95) – (8,687) (5,615)	Six months ended 30 June 2019 2020 (unaudited) (unaudited) HK$’000 HK$’000 60,867 21,414 (60,316) (20,686) 551 728 256 297 143 2,559 (15) (304) (9,235) (8,437) (292) (458) – – (8,592) (5,615) (95) – (8,687) (5,615)
			728 297 2,559 (304) (8,437) (458) –
			(5,615) –
			(5,615)

(i) Comparison between FY2019 and FY2018

The Group recorded revenue of approximately HK$108.5 million for FY2019, representing a decrease of approximately 49.8% as compared to approximately HK$216.1 million for FY2018. As the Group’s revenue was entirely derived from mobile phone trading business in the two years ended 31 December 2019, revenue contribution from (i) Zhejiang was approximately HK$103.4 million and HK$133.8 million, representing approximately 95.3% and 61.9% of the total revenue of the Group; and (ii) Shanghai was approximately HK$5.0 million and HK$80.5 million, representing approximately 4.6% and 37.3%, for each of the two years ended 31 December 2019, respectively. The decrease in revenue was mainly attributable to the significant decrease in the revenue from mobile phone trading business in the PRC, which was due to the economic slowdown and sluggish consumer spending and resulting in slower sales in 2019.

IFA – 5

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Group’s loss before taxation for FY2019 was approximately HK$32.7 million, as compared with profit before taxation of approximately HK$10.5 million in FY2018, mainly due to other losses of approximately HK$16.4 million recognised in FY2019 which consisted impairment loss in respect of plant and equipment, goodwill and trade and other receivables and net fair value loss on financial assets at fair value through profit or loss, as compared with other gain of approximately HK$23.0 million which consisted write back of interest payables and recovery of bad debts in FY2018.

(ii) Comparison between FP2020 and FP2019

The Group recorded revenue of approximately HK$21.4 million for FP2020, representing a decrease of approximately 64.8% as compared to approximately HK$60.9 million for FP2019. During FP2020, revenue contribution from the promotion of mobile application to consumers was approximately HK$1.2 million, representing 5.7% of the total revenue of the Group (FP2019: nil), whereas mobile phone trading business contributed HK$20.2 million or 94.3% of the total revenue of the Group (FP2019: 100%). The decrease in revenue was mainly attributable to the outbreak of the COVID-19 in early 2020, where it has been spreading across the PRC and had an adverse impact on the wholesale and retail of mobile phone markets. The Group’s loss before taxation for FP2020 was approximately HK$5.6 million, as compared with loss before taxation of approximately HK$8.7 million in FP2019, mainly due to the increase in other gains of approximately HK$2.4 million in FP2020 which consisted write back of income tax payables and business tax payables.

IFA – 6

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(c) Financial position of the Group

Set out below is a summary of the audited financial position of the Group as at 31 December 2018 and 2019 as extracted from the Annual Report and the unaudited financial position of the Group as at 30 June 2020 as extracted from the Interim Report:

			As at
	As at 31	December	30 June
	2018	2019	2020
	(audited)	(audited)	(unaudited)
	HK$’000	HK$’000	HK$’000
Cash and cash equivalents	26,563	18,177	19,721
Total assets	85,245	70,937	73,098
Total liabilities	77,809	89,562	104,944
Net assets/(liabilities)	7,436	(18,625)	(31,846)
Gearing ratio (Note)	3.6	(2.4)	(1.4)

Note: Gearing ratio is calculated by dividing total debt which include bank borrowing, amounts due to related parties and amounts due to non-controlling shareholder of subsidiaries with the total equity at the end of the respective year/period multiplied by 100%.

The Group’s total assets decreased by approximately HK$14.3 million or 16.8% from approximately HK$85.2 million as at 31 December 2018 to approximately HK$70.9 million as at 31 December 2019, which was mainly attributable to the decrease in trade and other receivables and cash and cash equivalents. The Group recorded total assets of approximately HK$73.1 million as at 30 June 2020, which slightly increased by approximately HK$2.2 million or 3.0% as compared with that as at 31 December 2019 was mainly attributable to the increase in trade and other receivables which was set off by the decrease in amounts due from related parties.

The Group’s total liabilities increased by approximately HK$11.8 million or 15.1% from approximately HK$77.8 million as at 31 December 2018 to approximately HK$89.6 million as at 31 December 2019, which was mainly attributable to the increase in amounts due to related parties. The Group recorded total liabilities of approximately HK$104.9 million as at 30 June 2020, which further increased by approximately HK$15.4 million or 17.2% as compared with that as at 31 December 2019 was mainly attributable to the increase in trade and other payables as there were two major purchases made close to the period ended 30 June 2020.

IFA – 7

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Group recorded net assets of approximately HK$7.4 million and net liabilities of approximately HK$18.6 million as at 31 December 2018 and 2019, respectively, representing a significant decrease of approximately HK$26.1 million, which was due to the combined effect of the decrease in total assets and increase in total liabilities as mentioned above, as well as the increased accumulative losses as a result from the loss recognised in FY2019. The Group recorded net liabilities of approximately HK$31.8 million as at 30 June 2020, such net liabilities position further worsened by approximately HK$13.2 million or 71.0% as compared with that as at 31 December 2019 which was mainly due to the combined effect of the slight increase in total assets and increase in total liabilities as mentioned above, as well as the increased accumulated losses as a result from the loss recognised in FP2020.

The Group’s gearing ratio was approximately 3.6 times, negative 2.4 times and negative 1.4 times as at 31 December 2018, 31 December 2019 and 30 June 2020, respectively. The negative gearing ratios were arisen from the net liabilities recorded by the Group as at 31 December 2019 and 30 June 2020, which was mainly due to the increase in total liabilities and increase in accumulated losses as mentioned above.

A.2 Reasons for the Rights Issue, the Set-off Arrangement and the use of proceeds

(a) Background of the Set-off Arrangement

As stated in the Letter, as at 31 August 2020, Mr. Lau has made total advances to the Group of HK$12,171,625.90, which is non-interest bearing and repayable on demand. On 31 December 2018, Mr. Lau and the Group entered into the First Loan Agreement where the Group obtained a loan from Mr. Lau of RMB12,000,000.00 on the date of the First Loan Agreement, which is interest free and repayable on 31 December 2021. On 10 July 2020, Mr. Lau and the Group entered into the Second Loan Agreement where the Group obtained a loan from Mr. Lau of US$2,000,000.00 on the date of the Second Loan Agreement, which is interest free and repayable on 31 December 2021. As at 31 August 2020, the Group owes advances of HK$12,171,625.90 to Mr. Lau, which is classified as a current liability and loans owed to Mr. Lau totalling HK$27,412,001.59 under the First Loan Agreement and the Second Loan Agreement, which is classified as a non-current liability.

IFA – 8

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pursuant to the Lau Deed of Covenants and Undertakings, Mr. Lau conditionally agrees to (i) the Initial Set-off whereby HK$23,759,703.37 required to be paid by Mr. Lau for the subscription of 44,829,629 Rights Shares provisionally allotted to him pursuant to the Rights Issue would be set-off against the Loan Amount of HK$23,759,703.37; and (ii) the Second Set-off whereby the amount of HK$15,823,924.12 (out of the total amount of HK$22,282,530.83) required to be paid by Mr. Lau for the subscription of up to 42,042,511 excess Rights Shares by using the EAF would be set-off against the remaining Loan Amount of HK$15,823,924.12 after the Initial Set-off. After the Second Set-off, Mr. Lau will be required to pay the remaining balance of HK$6,458,606.71 in cash for the application for excess Rights Shares, before settlement of expenses in relation to the Rights Issue.

(b) Intended use of proceeds

IFA – 9

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Company intends to allocate approximately HK$7.4 million for the Group’s working capital regardless of whether the Shareholders, other than the Concert Group, participate in the Rights Issue or not. The Group currently requires, on average, approximately HK$1.0 million per month for its working capital needs, which are mainly spend on staff salaries, directors’ remuneration, legal and professional fees, rental and other office expenses. Taking into account of such monthly working capital needs, the intended allocation of such net proceeds of approximately HK$7.4 million will be able to meet the Group’s working capital needs for the next seven and a half months.

Assuming all Shareholders, other than the Concert Group, participate in the Rights Issue, the Group intends to allocate approximately HK$15.8 million for its mobile phone trading and distribution business. As the business of mobile phone trading and distribution largely depends on market trend and demand of the general public at a time, the Directors currently cannot predict the amount required for such business nor enter into any sales agreement for the future. However, based on the Group’s internal financial data from the past two financial years, the Group on average had cost of sales of approximately HK$13.4 million per month, indicating that the proposed allocation of such net proceeds of approximately HK$15.8 million will be sufficient to meet the purchase cost for the mobile phone trading and distribution business for less than 2 months.

As at 30 June 2020, the Group had cash and cash equivalents of approximately HK$19.7 million, a portion of which would be reserved for working capital purposes, thus actual free cash on hand for its trading business would be less. Based on the past experiences in the mobile phone trading and distribution business, the Group can only obtain a larger discount from suppliers if purchases are made in bulk. In order to obtain a better gross profit margin in the Group’s business, it is preferable to have a larger capital base on hand in case the Group would like to capture the business opportunity of purchasing phones currently in trend, such as mobile phones under the Apple brand, in order to obtain a larger discount from its suppliers. The Directors are of the view that, given the nature of mobile phone trading and distribution business and the relatively thin profit margin that comes with it, the Group requires a larger capital base for making purchases of mobile phones in order to expand its business and to enhance its gross profit margin therefrom.

IFA – 10

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As enquired with the Group’s management, the core business of the Group is the trading and distribution of mobile phones and related accessories, which was conducted mainly (i) via two operating subsidiaries in the PRC, namely 浙江澳英信息科技有限公司 (Zhejiang Aoying Information Technology Co., Ltd*) and Fortune (Shanghai) International Trading Co., Ltd., for the two years ended 31 December 2019; and (ii) other than the two abovementioned subsidiaries, via an additional operating subsidiary in Hong Kong, namely Fortune Telecom Supply Chain Limited, since 2020 which the Group expanded the geographical coverage of its business in Hong Kong accordingly. As at 30 June 2020, the number of staff employed under these subsidiaries in the PRC and Hong Kong was 41 and 9, respectively. For each of the two years ended 31 December 2019, (i) the Group’s distribution network for the sale of mobile phones and related accessories comprised 31 and 11 wholesale customers which are mainly distributors in the PRC; and (ii) the Group obtained the supplies from 15 and 7 wholesale suppliers which are mainly distributors in the PRC, respectively. During the two years ended 31 December 2019, the major brands of mobile phones sold by the Group include Apple and Huawei.

Customers

				Approx. years
				of business
				relationship as
				at the Latest
				Practicable	Revenue
Rank	Customer		Business profile	Date	generated
					HK$’000	%
1	Customer	A	Technology development,	1	20,537	18.9
			technology consulting,
			technology transfer in the
			field of electronic
			technology
2	Customer	B	Computer software and	1	19,083	17.6
			hardware design,
			technology development,
			purchase and sale of
			communication products
			and equipment

IFA – 11

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Rank
Customer
Business profile
Approx. years
of business
relationship as
at the Latest
Practicable
Date
3
Customer C
Sales of various products,
including digital products
and communication
equipment
1
4
Customer D
Wholesale and retail of
electronic products and
communication equipment
1
5
Customer E
Technical development and
sales of electronic products
1
Sub-total
Other customers
Total
Suppliers
Rank
Supplier
Business profile
Approx. years
of business
relationship as
at the Latest
Practicable
Date
1
Supplier A
Sales of various products,
including mechanical and
electrical products,
communication equipment
and accessories, electronic
components and products
1
2
Supplier B
Computer information
technology development
and technical consultation,
wholesale and retail of
electronic components and
products
1

Revenue
generated
HK$’000
%
15,494
14.3
11,129
10.3
8,909
8.2
75,152
69.3
33,303
30.7
108,455
100
Purchases made
HK$’000
%
40,385
37.6
26,633
24.8

IFA – 12

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Rank Supplier Business profile Approx. years of business relationship as at the Latest Practicable Date 3 Supplier C Sales of various products, including communication equipment 1 4 Supplier D Wholesale of electronic products, communication equipment and computer software and hardware 1 5 Supplier E Sales of various products, including electronic products and communication equipment 1 Sub-total Other suppliers Total	Purchases made HK$’000 % 26,283 24.5 4,914 4.6 4,507 4.2 102,722 95.6 4,722 4.4 108,455 100	Purchases made HK$’000 % 26,283 24.5 4,914 4.6 4,507 4.2 102,722 95.6 4,722 4.4 108,455 100
		95.6 4.4
		100

Notwithstanding the outbreak of COVID-19 that caused an adverse impact on the wholesale and retail of mobile phone markets as noted from the deteriorated financial performance of the Group over FP2019 and FP2020, the Company intends to develop its trading and distribution of mobile phone business upon the Proposed Rights Issue and Set-off Arrangement, having considered that (i) the PRC government has been successfully keeping the COVID-19 pandemic in check and its economy resumes growth; and (ii) the Group’s strategy to sustain its business operations in the PRC while continuing the diversification and expansion of business operations in Hong Kong and as at the Latest Practicable Date, revenue generated from such geographical segment in the financial year ending 31 December 2020 amounted to approximately HK$9.2 million, the Directors are confident about the Company’s ability to take advantage of the business opportunities that ensue in the near future. For further details regarding the Group’s strategy, please refer to the sections headed ‘‘Reasons for the Rights Issue, the Set-off Arrangement and the use of proceeds’’ in the Letter.

IFA – 13

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors, are therefore of the view that if the Group was able to have available the proceeds from the Rights Issue, it will (a) enable the Group to have additional funding for its mobile phone trading business, which will increase the Group’s turnover and therefore gross profit; (b) allow the Group to make larger bulk purchases from its suppliers each time in order to obtain a higher discount, which will in turn improve the Group’s gross profit margin; (c) capture the economic recovery to be expected in 2021 once the Hong Kong and the PRC economics fully reopen and consumers are willing to spend more as consumer sentiments improve; (d) enable the Group to expand into the 5G telecommunications segment and capture the explosive growth in the next few years; (e) enlarge the Group’s customer base so that the Group will be able to begin negotiations and business relationships with customers that were unwilling to negotiate with the Group before due to the Group being unable to provide proof that it has the relevant inventory or the necessary cash level to make the relevant purchases; and (f) enable the Group access to additional funding so that the Group can make payments to suppliers upon conclusion of negotiations and agreements with these suppliers in order to secure the relevant mobile phones and related accessories.

(c) Reasons for the Rights Issue and the Set-off Arrangement

After enquiring with the Company, we were given to understand that the Group has been relying on various interest-free advances, together with interestfree loan drawdowns in relation to the First Loan Agreement and the Second Loan Agreement, to sustain the daily operation and general working capital of the Group. In considering methods of settlement of the amount owed to Mr. Lau by the Company, the Directors considered loan capitalisation by issuing Shares to Mr. Lau as a form of repayment to Mr. Lau. However, such loan capitalisation would cause an immediate dilution in the shareholding interest of existing Shareholders without offering them the opportunity to participate in the enlarged capital base of the Company. Furthermore, a loan capitalisation would not raise any proceeds for the Group for its business and working capital use while the Rights Issue would enable the Company to raise additional capital.

As at the Latest Practicable Date, the Company did not have any intention, agreement, arrangement, understanding and/or negotiation (i.e. concluded or otherwise) on any potential equity/debt fund-raising activities in the next twelve months after the Rights Issue and the Set-off Arrangement.

As at the Latest Practicable Date, save for the Rights Issue, the Company currently had no plans or intentions to carry out any future corporate actions in the next twelve months which may have an effect of undermining or negating the intended purpose of the Capital Reorganisation.

IFA – 14

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

A.3 Fund-raising activities during the past 12 months

The Company had not conducted any fund-raising activities involving issue of securities in the twelve months prior to the Latest Practicable Date.

A.4 Financing alternatives

As discussed with the Company, the Board has considered other alternative means of fund-raising before resolving to the Rights Issue including the followings:

(i) Debt financing

As set out in this letter above, the Group’s gearing ratio is worsening as the amounts due to related parties and bank borrowings was on an increasing trend. Therefore, if the Company were to raise funds in the form of debt rather than equity, the Company would have to incur additional interest expenses which may in turn affect the profitability of the Company. However, the equity raised through the Rights Issue would not be interest-bearing and hence the Company would have a notional savings in interest payable as compared with incurring interest. Therefore, the Rights Issue as compared to debt financing would allow the Company to strengthen its capital base and liquidity without incurring interest costs.

(ii) Equity financing

As for equity fund-raising, such as placement of Shares, as it is a common market practice to conduct such activity on a best-effort basis and accordingly the amount to be raised would be uncertain and subject to the then market conditions. In addition, as compared with Rights Issue, the placing of new Shares would not allow the existing Shareholders the rights to participate in the fundraising exercise and they would be diluted without being offered an opportunity to maintain their shareholding interests in the Company. Furthermore, to raise fund from placing, substantial amount of securities must be issued and it is not uncommon that the subscriber(s) request for a deeper discount to the trading price of the Shares in view of the substantial amount of securities involved. As for open offer, similar to a rights issue, it also offers qualifying shareholders to participate in, but it does not allow the trading of rights entitlements in the open market.

IFA – 15

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In view of the above, the Rights Issue provides better financial flexibility for the Company available to the Group as (a) if the Company raises funds in the form of debt rather than equity, the Company would incur interest expenses, which would further worsen the Group’s performance given that the Group had already recorded net losses in the year ended 31 December 2019 and the six months ended 30 June 2020; (b) the Rights Issue offers all the Qualifying Shareholders equal opportunity to subscribe for their pro-rata provisional entitlement of the Rights Shares and hence avoids dilution and participate as fully as they wish in the growth opportunity of the Company by way of applying for excess Rights Shares; (c) the Rights Issue allows the Qualifying Shareholders who decide not to take up their entitlements under the Rights Issue to sell the nil-paid Rights Shares in the market for economic benefits; (d) the Rights Issue removes a certain degree of uncertainty as compared to best-efforts placing; and (e) the Rights Issue allows the Company to strengthen its capital base and liquidity without incurring interest costs and also enables the Company to reduce its gearing ratio.

Our view

Based on all of the above and having considered in particular that:

(i) as mentioned in the sub-section headed ‘‘A.1 Background information of the Group – (b) Historical financial performance of the Group’’ in this letter, the Group has been suffering from losses for the year/period which amounted to approximately HK$32.8 million and HK$5.6 million for the year ended 31 December 2019 and the six months ended 30 June 2020, respectively;
(ii) the Group recorded net liabilities of approximately HK$18.6 million and HK$31.8 million as at 31 December 2019 and 30 June 2020, respectively, whereby the Set-off Arrangement will allow the Group’s balance sheet to improve from a net liabilities position to a net asset position;
(iii) the Set-off Arrangement would enable the Group to reduce in reliance on the financial support provided by Mr. Lau without actual cash outflow and also reduce the gearing ratio of the Group;
(iv) the Rights Issue enables the Group to raise additional capital for its business and working capital use; and

IFA – 16

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(v) the Directors considered that the financial alternatives as mentioned in the above sub-section headed ‘‘A.4 Financial alternatives’’ and considered that the Rights Issue as the fund-raising method would provide better financial flexibility to the Company,

we concur with the Directors’ view that each of (a) the Rights Issue is an appropriate means to raise funds, enables the Group to enhance its capital base and for its business development; and (b) the Set-off Arrangement enables the Group to reduce financial reliance on Mr. Lau and improves the financial position of the Group, is in the interest of the Company and the Shareholders as a whole.

B. Principal terms of the Rights Issue

B.1 Terms and Subscription Price

According to the Letter, the Rights Issue is proposed to take place with the terms set out as follows:

Basis of the Rights Issue : One (1) Rights Share for every One (1) Adjusted Share held on the Record Date Subscription Price : HK$0.53 per Rights Share Number of Shares in issue : 917,779,442 Existing Shares as at the date of this circular Total number of : 91,777,944 Rights Shares (assuming the Rights Shares Capital Reorganisation has become effective and no further Shares will be issued, repurchased or surrendered on or before the Record Date) Number of Rights Shares : 91,777,944 Rights Shares being undertaken by the Concert Group Gross proceeds to be raised : Up to approximately HK$48.6 million before from the Rights Issue the Set-off Arrangement

IFA – 17

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Assuming there is no change in the number of issued Shares on or before the Record Date, the maximum number of 91,777,944 Rights Shares to be issued represents:

(a) 100.0% of the number of issued Adjusted Shares (based on the Company’s issued share capital as at the date of this circular); and
(b) 50.0% of enlarged issued share capital of the Company immediately following completion of the Rights Issue.

As at the Latest Practicable Date, the Company does not have any derivatives, options, warrants and conversion rights or other similar rights which are convertible or exchangeable into Shares. The Company also has no intention to issue or grant any convertible securities, options and/or warrants on or before the Record Date.

The Subscription Price is HK$0.53 per Rights Share, payable in full upon acceptance of the relevant provisional allotment of Rights Shares and, where applicable, upon application for excess Rights Shares under the Rights Issue or when a transferee of nil-paid Rights Shares applies for the Rights Shares. The Subscription Price was determined with reference to (i) the theoretical average closing price of HK$0.56 per Adjusted Share (after taking into account the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to and including the date of the Deeds of Covenants and Undertakings; (ii) the financial conditions of the Company; (iii) current market conditions; and (iv) the reasons and benefits of the Rights Issue as discussed in the section headed ‘‘Proposed Rights Issue – Reasons for the Rights Issue, the Set-off Arrangement and the use of proceeds’’ in the Letter.

Comparison with prevailing market price

We note that the Subscription Price represents:

(i) a discount of approximately 5.36% to the theoretical closing price of HK$0.56 per Adjusted Share, based on the closing price of HK$0.056 per Existing Share as quoted on the Stock Exchange on the Last Trading Day and after taking into account of the effect of the Capital Reorganisation;
(ii) a discount of approximately 5.36% to the theoretical average closing price of approximately HK$0.56 per Adjusted Share, based on the average closing price of approximately HK$0.056 per Existing Share as quoted on the Stock Exchange for the five (5) consecutive trading days up to and including the Last Trading Day and after taking into account of the effect of the Capital Reorganisation;

IFA – 18

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) a discount of approximately 24.29% to the theoretical closing price of HK$0.7 per Adjusted Share, based on the closing price of HK$0.07 per Existing Share as quoted on the Stock Exchange on the Latest Practicable Date;
(iv) a discount of approximately 6.03% to the theoretical average closing price of approximately HK$0.564 per Adjusted Share, based on the average closing price of approximately HK$0.0564 per Existing Share as quoted on the Stock Exchange for the ten (10) consecutive trading days up to and including the Last Trading Day and after taking into account of the effect of the Capital Reorganisation;
(v) a discount of approximately 2.75% to the theoretical ex-right price of approximately HK$0.545 per Adjusted Share based on the closing price of HK$0.056 per Existing Share as quoted on the Stock Exchange on the Last Trading Day and after taking into account of the effect of the Capital Reorganisation; and
(vi) a theoretical dilution effect (as defined under Rule 7.27B of the Listing Rules) represented by a discount of approximately 2.75%, represented by the theoretical diluted price of approximately HK$0.545 per Adjusted Share to the benchmarked price of approximately HK$0.56 per Adjusted Share (as defined under Rule 7.27B of the Listing Rules, taking into account the higher of the closing price on the Last Trading Day of HK$0.056 per Existing Share and the average closing prices of the Existing Shares as quoted on the Stock Exchange for the five (5) previous consecutive trading days prior to the date of this circular) and after taking into account the effect of the Capital Reorganisation.

Based on the above, we noted that the Subscription Price in general represents a slight discount to the prevailing market price of the Shares.

IFA – 19

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

B.2 Analysis of the Subscription Price

For the purpose of assessing the fairness and reasonableness of the Subscription Price, we have compared the Subscription Price with reference to (a) the historical price performance of the Shares; (b) liquidity of the Shares; and (c) comparison with recent rights issue transactions, as follows:

(a) Historical Share price performance

Set out below is a chart showing the daily adjusted closing price per Consolidated Share based on the closing price per Existing Share as quoted on the Stock Exchange during the period from 11 November 2019, being the date which is 12 months prior to the Last Trading Day (the ‘‘Review Period’’):

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Historical daily adjusted closing price per Consolidated Share
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0.6
0.4
0.2
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Adjusted Closing price Subscription Price
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Source: the website of the Stock Exchange (http://www.hkex.com.hk)

During the Review Period, the lowest adjusted closing price per Consolidated Share was HK$0.46 recorded on 15 May 2020 while the highest adjusted closing price per Consolidated Share was HK$1.00 recorded on 18 December 2019. The average daily adjusted closing price per Consolidated Share was approximately HK$0.657 per Share.

IFA – 20

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in the above chart, we noted that during the period from November 2019 to June 2020, the daily adjusted closing price per Consolidated Share demonstrated a downward trend, with the adjusted closing prices per Consolidated Share reaching the lower end of HK$0.46 on 15 May 2020. Subsequently, the adjusted closing price per Consolidated Share increased moderately and fluctuated during July to November 2020 with an average adjusted closing price per Consolidated Share of approximately HK$0.625, HK$0.576, HK$0.586 and HK$0.560 in August, September, October and November 2020, respectively.

We noted that the Subscription Price of HK$0.53 per Rights Share has been determined at a price slightly lower than the adjusted closing price per Consolidated Share on the Last Trading Day and the Subscription Price is below most of the daily adjusted closing prices per Consolidated Share throughout the Review Period. The Subscription Price represents (i) a discount of approximately 47.00% to the highest adjusted closing price; (ii) a premium of approximately 15.22% to the lowest adjusted closing price; and (iii) a discount of approximately 19.38% from the average daily adjusted closing price during the Review Period.

IFA – 21

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Liquidity of the Shares

The table below sets out the average daily trading volume of the Shares per month and the respective percentages of the average daily trading volume as compared to the total number of issued Shares during the Review Period:

				Percentage of
			Average	average daily
	Total trading		daily trading	trading
	volume of	Number of	volume of	volume to
	the Shares in	trading days	the Shares in	total number
	the month	in the month	the month	of Shares
				(Approximate
				%)
			(Note 1)	(Note 2)
2019
November (from the beginning
of the Review Period)	204,000	15	13,600	0.00
December	2,626,000	20	131,300	0.01
2020
January	372,000	20	18,600	0.00
February	15,892,000	20	794,600	0.09
March	12,536,000	22	569,818	0.06
April	5,708,000	19	300,421	0.03
May	9,908,000	20	495,400	0.05
June	1,454,000	21	69,238	0.01
July	5,222,000	22	237,364	0.03
August	1,476,000	21	70,286	0.01
September	5,850,000	22	265,909	0.03
October	934,000	18	51,889	0.01
November (up to the Last
Trading Day)	144,000	7	20,571	0.00

Source: the website of the Stock Exchange (http://www.hkex.com.hk)

Notes:

Average daily trading volume is calculated by dividing the total trading volume for the month/period by the number of trading days in the respective month/period.
Calculation is based on the average daily trading volume of Shares divided by the total issued Shares of the Company at the end of each respective month or as at the Last Trading Day.

IFA – 22

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in the table above, the average daily trading volume of Shares during the Review Period was generally low with a range of 13,600 Shares to 794,600 Shares, representing approximately 0.00% to approximately 0.09% of the total number of issued Shares as at the end of each respective month/period. Given the relatively thin trading volume during the Review Period, it is uncertain as to whether Shareholders could acquire or dispose a substantial block of Shares in the open market without exerting impact on the Share price. As such, we consider the Rights Issue is an appropriate way of equity financing for the Company and in order to attract the Qualifying Shareholders to participate in the Rights Issue, and to maintain their respective shareholding interest in the Company.

(c) Comparison with recent rights issue transactions

We have conducted a search of rights issue transactions announced by companies listed on the Stock Exchange during the three-month period from 10 August 2020 up to the Last Trading Day and have identified, based on such search criteria, thirteen rights issues (the ‘‘Rights Issue Comparable(s)’’) for comparison purpose. To the best of our endeavour, we believe that the list of Rights Issue Comparables is an exhaustive list of rights issues meeting the aforesaid search criteria and is a fair and representative sample to be taken as a general reference of the recent market practices in relation to rights issues.

Although the Rights Issue Comparables may be different from the Group in terms of business nature, financial performance, financial position and funding requirements, the Rights Issue Comparables can serve as a market reference for recent market practice in relation to the subscription prices under other rights issues as compared to the relevant prevailing market share prices and provide an insight to the reasonableness of the Subscription Price in respect of the Rights Issue.

IFA – 23

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We set out our findings in the following table:

				Premium/
				(Discount) of	Premium/
				subscription	(Discount) of
				price to the	subscription
				average closing	price to the
				price for the	average closing
			Premium/	five	price for the
			(Discount) of	consecutive	ten consecutive	(Discount) of
			subscription price	days up to and	days up to and	subscription
			to the closing	including the	including the	price to the
Date of	Company name	Basis of	price on the last	last trading	last trading	theoretical ex-	Fully/Partly	Maximum	Excess
announcement	(Stock code)	entitlement	trading day	day	day	rights price	Under-written	dilution	application
						(Note 1)		(Note 2)
			(%)	(%)	(%)	(%)	(Yes/No)	(%)	(Yes/No)
10 Aug 2020	Beaver Group (Holding)	1 for 2	(28.95)	(28.95)	(25.82)	(20.59)	Yes	33.3	Yes
	Company Limited (8275)
24 Aug 2020	Wealth Glory Holdings Limited	5 for 2	(11.10)	(12.10)	(12.10)	(3.60)	Yes	71.43	Yes
	(8269)
28 Aug 2020	Milan Station Holdings Limited	5 for 2	(10.57)	(12.00)	(14.06)	(3.51)	Yes	71.43	Yes
	(1150)
28 Aug 2020	Royal Century Resources	2 for 1	(25.00)	(28.57)	(30.88)	(10.00)	Yes	66.67	No
	Holdings Limited (8125)
3 Sep 2020	AESO Holding Limited (8341)	3 for 1	(16.70)	(16.20)	(16.20)	(4.80)	No	75.00	No
11 Sep 2020	Amber Hill Financial Holdings	3 for 1	(23.66)	(27.55)	(31.73)	(7.79)	No	75.00	No
	Limited (33)
18 Sep 2020	Wan Cheng Metal Packaging	3 for 1	(19.40)	(18.00)	(18.00)	(5.70)	No	75.00	No
	Company Limited (8291)
25 Sep 2020	Green International Holdings	1 for 1	(17.81)	(26.11)	(26.92)	(9.77)	Yes	50.00	Yes
	Limited (2700)
16 Oct 2020	The Hong Kong Building and	1 for 3	(13.90)	(13.50)	(12.60)	(10.90)	Yes	25.00	Yes
	Loan Agency Limited (145)
19 Oct 2020	CHK Oil Limited (632)	3 for 8	26.58	26.26	23.30	17.99	No	27.27	Yes
27 Oct 2020	Longhui International Holdings	1 for 1	(29.00)	(29.00)	(29.70)	(16.96)	No	50.00	Yes
	Limited (1007)
4 Nov 2020	Top Form International Limited	2 for 5	(21.88)	(21.88)	(23.08)	(16.67)	Yes	28.57	No
	(333)
5 Nov 2020	Asia-Pac Financial Investment	3 for 1	(10.70)	(13.20)	(13.50)	(3.70)	No	75.00	No
	Company Limited (8193)
	Maximum		26.58	26.26	23.30	17.99		75.00
	Minimum		(29.00)	(29.00)	(31.73)	(20.59)		25.00
	Average		(15.55)	(16.98)	(17.79)	(7.38)		55.67
10 Nov 2020	The Company (110)	1 for 1	(5.36)	(5.36)	(6.03)	(2.75)	No	50.00	Yes

Source: the website of the Stock Exchange (http://www.hkex.com.hk)

Notes:

The theoretical ex-rights price is calculated by adding the market value of all the issued shares (based on the adjusted closing price of the shares on the last trading day) with the gross amount of subscription proceeds expected to be received from the rights issue (before expenses), and then divided by the total number of issued shares as enlarged by the rights issue. Taking the Company’s case as an example, in case of every 1 Rights Share for every 1 Existing Shares, (1 x closing price on the last trading day) + 1 x (the subscription price)/(1+1) (i.e. (1 x HK$0.56 + 1 x HK$0.53)/(1+1)) = approximately 0.545).
Maximum dilution effect of each rights issue is calculated as: (number of rights shares and (if any) bonus shares to be issued under the basis of entitlement)/(number of existing shares held for the entitlement for the rights shares under the basis of entitlement + number of rights shares and (if any) bonus shares to be issued under the basis of entitlement) x 100%. Taking the Company’s case as an example, for a rights issue with basis of 1 rights share for every 1 existing share taken up, the maximum dilution effect is calculated as ((1)/(1+1))*100) = 50.0%.

IFA – 24

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As set out in the table above, the subscription prices of the Rights Issue Comparables ranged from (i) a discount of approximately 29.00% to a premium of approximately 26.58% to the respective closing price per their shares on the last trading day, with an average discount of approximately 15.55%; (ii) a discount of approximately 29.00% to a premium of approximately 26.26% to the respective closing price per their shares for the five consecutive days up to and including the last trading day, with an average discount of approximately 16.98%; (iii) a discount of approximately 31.73% to a premium of approximately 23.30% to the respective closing price per their shares for the ten consecutive days up to and including the last trading day, with an average discount of approximately 17.79%.

As a result of the above, the Subscription Price represented (i) a discount of approximately 5.36% to the closing price per Adjusted Share on the Last Trading Day; (ii) a discount of approximately 5.36% to the average closing price per Adjusted Share for the five consecutive trading days up to and including the Last Trading Day; and (iii) a discount of approximately 6.03% to the average closing price per Adjusted Share for the ten consecutive trading days up to and including the Last Trading Day, which falls within the range of the Rights Issue Comparables and represents a lower discount than the corresponding average represented by the Rights Issue Comparables.

The premium or discount to the theoretical ex-rights price per share represented by the Rights Issue Comparables ranged from a discount of approximately 20.59% to a premium of approximately 17.99%, with an average discount of approximately 7.38%. The Subscription Price represented a discount of approximately 2.75% to the theoretical ex-rights price per Adjusted Share, which falls within the range of the Rights Issue Comparables and represents a lower discount than the corresponding average represented by the Rights Issue Comparables.

We further noted that the maximum dilution effect of approximately 50.00% in respect of the Rights Issue falls within the range of the maximum dilution effect of the Rights Issue Comparables, and is slightly below the corresponding average maximum dilution effect of approximately 55.67% represented by the Rights Issue Comparables.

IFA – 25

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Our view

Notwithstanding the slight discount represented by the Subscription Price to the prevailing market price of the Shares and the adjusted closing prices per Consolidated Share during the Review Period, we have taken into account that:

(i) the setting of the Subscription Price at a discount to the market price could enhance the attractiveness of the Rights Issue for encouraging Qualifying Shareholders to participate in the Rights Issue and accordingly maintain their respective shareholding interest in the Company and participate in the future growth of the Company;
(ii) the discounts represented by the Subscription Price to the closing price per Adjusted Share on the Last Trading Day, the average Share price for the last five consecutive days up to and including the Last Trading Day, the average Share price for the last ten consecutive days up to and including the Last Trading Day to the theoretical ex-rights price are within the corresponding ranges of discounts represented by the Rights Issue Comparables;
(iii) the daily adjusted closing price per Consolidated Share in the Review Period demonstrated a general declining trend;
(iv) the low liquidity of the Shares during the Review Period as discussed in the above sub-section headed ‘‘(b) Liquidity of the Shares’’;
(v) the Rights Issue offers all the Qualifying Shareholders an equal opportunity to subscribe for their pro-rata provisional entitlement of the Rights Shares and hence avoids dilution; and
(vi) the Subscription Price was determined with reference to the theoretical average closing price of HK$0.56 per Adjusted Share (after taking into account the effect of the Capital Reorganisation) as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to and including the date of the Deeds of Covenants and Undertaking, the financial conditions of the Company, current market conditions and the reasons and benefits of the Rights Issue as discussed in the above sub-section headed ‘‘A.2 Reasons for the Rights Issue, the Set-off Arrangement and the use of proceeds’’ in this letter.

Based on the totality of the foregoing factors, we are of the view that the Subscription Price is on normal commercial terms and is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

IFA – 26

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

B.3 Non-underwritten basis

Based on our review of the basis of allocation, we are not aware of any unusual arrangement as compared to the Rights Issue Comparables. We therefore consider that such non-underwritten basis is consistent with normal market practice.

B.4 Excess application

As stated in the Letter, Qualifying Shareholders are entitled to apply for, by way of excess application: (i) any unsold entitlements to the Rights Shares of the Excluded Shareholder(s) (if any); (ii) any unsold Rights Shares created by aggregating fractions of the Rights Shares; and (iii) any nil-paid Rights Shares provisionally allotted but not accepted by the Qualifying Shareholders or otherwise not subscribed for by renouncees or transferees of nil-paid Rights Shares. (i) to (iii) are collectively referred to as ‘‘Untaken Rights’’. For details, please refer to the section headed ‘‘Proposed Rights Issue – Application for excess Rights Shares’’ in the Letter.

Based on our review of the basis of allocation, we are not aware of any unusual arrangement as compared to the Rights Issue Comparables. We therefore consider that such allocation basis is consistent with normal market practice.

IFA – 27

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

B.5 Potential dilution effect of the Rights Issue

For illustration purposes, the following table set out the shareholding structure of the Company (i) as at the date of this circular; (ii) immediately after completion of the Capital Reorganisation and (iii) immediately after completion of the Rights Issue (assuming no further Shares will be issued, repurchased or surrendered from the date of this circular and up to the Record Date):

Immediately after completion of the Rights Issue

Mr. Lau (Notes 1 and 2) Public Mr. KY Lau (Note 3) Mr. HB Lau (Note 3) Ms. Chan (Note 3) Mr. CY Lau (Notes 3 and 4) Other Shareholders Total Concert Group	As at the date of this circular No. of Existing Shares % 448,296,298 48.8 18,516,000 2.0 5,162,000 0.6 1,500,000 0.2 137,987 0.0 444,167,157 48.4 917,779,442 100.0 473,612,285 51.6	Immediately after completion of the Capital Reorganisation No. of Adjusted Shares % 44,829,629 48.8 1,851,600 2.0 516,200 0.6 150,000 0.2 13,798 0.0 44,416,717 48.4 91,777,944 100.0 47,361,227 51.6	Assuming all Shareholders have taken up the Rights Shares No. of Adjusted Shares % 89,659,258 48.8 3,703,200 2.0 1,032,400 0.6 300,000 0.2 27,596 0.0 88,833,434 48.4 183,555,888 100.0 94,722,454 51.6	Assuming only the Concert Group had taken up their Rights Shares entitlement and the Concert Group had taken up the maximum number of excess Rights Shares (i.e. 44,416,717 Shares) No. of Adjusted Shares % 131,701,769 71.8 5,439,684 3.0 1,516,507 0.8 440,675 0.2 40,536 0.0 44,416,717 24.2 183,555,888 100.0 139,139,171 75.8	Assuming only the Concert Group had taken up their Rights Shares entitlement and the Concert Group had taken up the maximum number of excess Rights Shares (i.e. 44,416,717 Shares) No. of Adjusted Shares % 131,701,769 71.8 5,439,684 3.0 1,516,507 0.8 440,675 0.2 40,536 0.0 44,416,717 24.2 183,555,888 100.0 139,139,171 75.8
					100.0
					75.8

Notes:

The 188,300,013 Existing Shares out of 448,296,298 Existing Shares are held by Future 2000 Limited, which is a company incorporated under the laws of the British Virgin Islands, the entire issued share capital of which is legally and beneficially owned by Mr. Lau, an executive Director. The remaining 259,996,285 Existing Shares out of the 448,296,298 Existing Shares are held by Mr. Lau in personal interests.
Mr. Lau is the chairman of the Company and an executive Director.
As at the date of this circular, Mr. KY Lau, Mr. HB Lau, Ms. Chan and Mr. CY Lau do not hold any positions with the Company or other members of the Group. None of them whose acquisition of the Shares has been financed directly or indirectly by the core connected person of the Company nor is accustomed to take instruction from the core connected person in relation to the acquisition, disposal, voting or other disposition of the Shares registered in their names or otherwise held by them.

IFA – 28

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The 137,987 Existing Shares are held by Fortune 97 Associates Limited, which is a company incorporated under the laws of the British Virgin Islands, the entire issued share capital of which is legally and beneficially owned by Mr. CY Lau, the brother of Mr. Lau.
Save as disclosed above, none of the Directors have any shareholding in the Company.

We are aware of the cumulative potential dilution effect as a result of the Rights Issues. However, we consider that the foregoing should be balanced against, among others, the following factors:

(i) the Rights Issue enables the Company to set off the amounts owed to Mr. Lau;
(ii) the positive financial effect as a result of the Rights Issue as detailed in the section ‘‘C. Possible financial effects of the Rights Issue’’ below;
(iii) the Rights Issue enables the Company to strengthen its capital base, thus enhancing its financial position without the ongoing burden of interest expenses;
(iv) the Subscription Price is on normal commercial terms and is fair and reasonable so far as the Company and the Independent Shareholders are concerned as detailed in the section headed ‘‘B.2 Analysis of the Subscription Price’’ above;
(v) the Independent Shareholders are offered an opportunity to attend and vote for or against the relevant resolution in relation to the Rights Issue and the Set-off Arrangement at the SGM;
(vi) the shareholding interests of the Qualifying Shareholders who take up their provisional allotments of the proposed Rights Issues in full will not be diluted;
(vii) the Qualifying Shareholders who do not wish to take up the Rights Shares have the opportunities to sell their nil-paid rights to subscribe for the Rights Shares in the market for economic benefits;
(viii) the Rights Issue offers the Qualifying Shareholders an opportunity to subscribe for their Rights Shares for the purpose of maintaining their respective pro-rata shareholding interests in the Company at a discount as compared to the historical and prevailing market price of the Shares; and
(ix) those Qualifying Shareholders who take up their assured entitlements in full under the Rights Issue will be able to maintain their respective pro-rata shareholding interests in the Company after completion of the Rights Issue.

IFA – 29

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the foregoing, in view of (i) the positive financial effect as a result of the Rights Issue; and (ii) the maximum dilution of 50.00% as illustrated in the above tables is still within range of the maximum dilution of the Rights Issue Comparables, we consider that the Rights Issue is fair and reasonable and in the interest of the Shareholders and the Company as a whole.

C. Possible financial effects of the Rights Issue and the Set-off Arrangement

As stated in the Letter, the net proceeds (after deducting professional fees and other related expenses) from the Rights Issue and after the Set-off Arrangement would be (a) approximately HK$23.3 million if all Shareholders participate in the Proposed Rights Issue, which shall be applied as to approximately HK$15.8 million for the development of the Group’s trading and distribution business and HK$7.4 million for the general working capital; and (b) approximately HK$7.4 million if no public Shareholders participate in the Proposed Rights Issue, which shall be applied for the Group’s general working capital. Immediately upon completion of the Rights Issue, it is expected that the bank balances and net asset value of the Group with be increased with the amount of net proceeds therefrom and it is also expected that there would be significant improvement in the net assets value and gearing ratio of the Group after the Rights Issue and after the Set-off Arrangement.

The table below illustrates the impacts to the unaudited financial position of the Group as if the Rights Issue and the Set-off Arrangement had completed as at 31 August 2020:

		As enhanced by	As enhanced by
		the net proceeds	the net proceeds
		if all	if no public
		Shareholders	Shareholders
		participate in the	participate in the
	As at 31 August	Proposed	Proposed
	2020	Rights Issue	Rights Issue
	(unaudited)
	HK$’000	HK$’000	HK$’000
Cash and cash equivalents
(Note 1)	31,251	54,520	38,696
Net assets	419	47,448	47,448
Total borrowings (including
amounts due to related
parties and amounts due to
non-controlling shareholders
of subsidiaries) (Note 2)	53,784	30,024	14,200
Gearing ratio	128.4	0.6	0.3

IFA – 30

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

If the Rights Issue and the Set-off Arrangement had completed as at 31 August 2020, the Group’s cash and cash equivalents would be enhanced by the net proceeds of (i) approximately HK$23.3 million if all Shareholders participate in the Proposed Rights Issue; and (ii) approximately HK$7.4 million if no public Shareholders participate in the Proposed Rights Issue.
If the Rights Issue and the Set-off Arrangement had completed as at 31 August 2020, the Group’s total borrowings (including amounts due to related parties and amounts due to non-controlling shareholders of subsidiaries) would be reduced by (i) the Initial Set-off of approximately HK$23.8 million if all Shareholders participate in the Proposed Rights Issue; and (ii) the aggregate amount of approximately HK$39.6 million, calculated as the sum of the Initial Set-off of approximately HK$23.8 million and the Second Set-off of approximately HK$15.8 million, if no public Shareholders participate in the Proposed Rights issue.

In view of the above, the Directors consider, and we concur that the Rights Issue and the Set-off Arrangement can provide additional liquidity to and enhance the overall financial position, as well as working capital of the Company.

RECOMMENDATION

Having taken into consideration the principal factors and reasons discussed above, we are of the opinion that the Rights Issue and the Set-off Arrangement are fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the relevant resolutions to be proposed at the SGM to approve the Rights Issue and the Set-off Arrangement.

Yours faithfully, For and on behalf of Messis Capital Limited

Erica Law Director

Ms. Erica Law is a licensed person registered with the Securities and Futures Commission of Hong Kong and a responsible officer of Messis Capital Limited to carry out type 6 (advising on corporate finance) regulatory activity under the SFO and has over 9 years of experience in corporate finance industry.

IFA – 31

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION OF THE GROUP

Details of the financial information of the Group for the six months ended 30 June 2020 and each of the financial years ended 31 December 2017, 2018 and 2019 are disclosed in the following documents which have been published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.chinafortune.com):

Interim report of the Company for the six months ended 30 June 2020 (pages 18 to 36) https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0922/2020092201182.pdf
Annual report of the Company for the financial year ended 31 December 2019 (pages 84 to 210)
https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0719/2020071900015.pdf
Annual report of the Company for the financial year ended 31 December 2018 (pages 83 to 218)
https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0425/ltn201904251036.pdf
Annual report of the Company for the financial year ended 31 December 2017 (pages 66 to 162)

https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0425/ltn20180425971.pdf

II. INDEBTEDNESS

As at the close of business on 31 October 2020, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the indebtedness of the Group was as follows:

(a) Borrowings

The Group had outstanding borrowings from Mr. Lau of approximately HK$29,420,000, further details of which are set as below: (i) Mr. Lau advanced HK$13,920,000 (equivalent to RMB12,000,000) to the Group which is due on 31 December 2021. The borrowing is carried at amortised cost using an imputed interest rate of 4.75% per annum.

(ii) Mr. Lau also made a loan of approximately of HK$15,500,000 (equivalent to US$2,000,000) which is unsecured, interest free and repayable on 31 December 2021.

I – 1

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Lease liabilities

The Group had lease liabilities payables of approximately HK$590,100 which classified as follows:

Within one year Within a period of more than one year but not more than two years	HK$ Approximately 585,031 5,069
	590,100

Save as aforesaid and apart from intra-group liabilities and normal payables in the ordinary course of business, the Group did not have, at the close of business on 31 October 2020, any debt securities issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptance or acceptance credits, debentures, mortgages, charges, hire purchase or finance lease commitments, guarantees or contingent liabilities.

III. WORKING CAPITAL

The Directors are of the opinion that, after due and careful enquiry, taking into account the present available resources and the estimated net proceeds from the Rights Issue taking into account the Set-off Arrangement, the Group would have sufficient working capital for at least twelve months from the date of this circular in the absence of unforeseen circumstances.

IV. MATERIAL CHANGE

The Directors confirm that there had been no material change in the financial or trading position or outlook of the Group since 31 December 2019 (being the date to which the latest published audited financial statements of the Group were made up) and up to and including the Latest Practicable Date.

V. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Upon Completion and the Capital Reorganisation having become effective, the Group will continue to be principally engaged in trading and distribution of mobile phones and related accessories, development of marketing and after-sales service network and mining and processing of celestite, zinc and lead minerals in the PRC. The Company intends to continue to focus on its trading and distribution business which the Directors believe will continue to grow steadily.

I – 2

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Mobile Phone Business

For the PRC market, its economy was slowed down since 2019. Yet, the continuous development of mobile phone market business model intensifying competition in the retail industry and the uncertainties arising from the emerging US-China trade war presented challenges the development of the Group’s operations and performance.

Customers focus is expected to gradually shift from the functionality of mobile phone to the shopping experience. Customers will normally require services such as function presentations, digital phone books synchronization and pre-installing software, etc, in purchasing a mobile phone. In the 4G era, the convergence of mobile telecommunications and the Internet also led to rapid development of value-added business which requires the retail channels to advance from a pure sales platform to an integrated service platform. In this regard, the large mobile telecommunication chain stores have advantages.

Mining Business

The Group has once commenced mining site exploitation system in our Strontium mining site since 2010. After the expiration of a 5-year mining operating permit on 25 September 2012, 黃石鍶發礦業有限公司 (‘‘Sifa Mining’’) obtained a renewed mining operating permit for 2 years (the ‘‘2-year Permit 2012-2014’’) from the Ministry of Land and Resources of the PRC（中華人民共和國國土資源部）(‘‘MLR’’), under which Sifa Mining was allowed to carry out exploration activities only, but not exploitation activities. The 2-year Permit 2012-2014 was expired on 25 September 2014.

On 27 April 2015, a mining operating permit was granted by MLR for a term of 2 years from 25 September 2014 to 25 September 2016 under which a restriction was added that no exploitation activities were allowed but only exploration activities. Such restriction imposed on the renewed mining permit was basically the same as the previous mining permit which was approved by MLR in 2012 whilst the application for mining exploitation permit is a continuing process.

In the course of applying for further extension after expiry on 25 September 2016, the Department of Land and Resources of Hubei Province of the PRC (the ‘‘DLR’’) issued an announcement (the ‘‘DLR Announcement’’) published on 29 December 2017 in respect of the deadline of application for renewal of the expired mining operating permit.

In the DLR Announcement, the DLR informed the owners of the expired mining operating permits to furnish the application procedures for the renewal before 28 February 2018. If the owners fail to do so, they are responsible to deregister the mining operating permits before 31 March 2018 by themselves or the DLR will deregister the permits instead. The Group was unable to furnish the application before the deadline and therefore, instructed the Group’s lawyers to clarify with the DLR the Group’s situation as to whether the Group would be allowed to submit a new application for the mining operating permit in future.

I – 3

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Despite great efforts to ascertain with the DLR by the Group’s PRC lawyers, the Group had been unable to receive a clear and favourable reply in this regard. As a result, a full impairment of the mining right of HK$174.6 million and related plant and equipment of HK$9.0 million had been made whilst all the related deferred tax liabilities of HK$41.1 million had been derecognised in the profit or loss for the year ended 31 December 2017.

Despite the fact that the above mining right will no longer have any bearing on the financials of the Group for the year ended 31 December 2018, the Directors strived to pursue the ultimate stance of the DLR in respect of the above mining right in the interests of the Shareholders.

During the year ended 31 December 2018, the Group, through its PRC lawyer, has tried to approach the DLR by telephone calls and resubmission of the letter sent in February 2018 for the clarification of the Group’s situation. However, the DLR did not reply to the Group’s enquiries.

According to an online search made by the Group’s PRC lawyer to the Ministry of Natural Resources of the PRC（中華人民共和國自然資源部）on 20 February 2020, the status of the mining operating permit has been displayed as ‘‘expired’’.

I – 4

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

A. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

The following unaudited pro forma statement of adjusted consolidated net tangible assets of the Group attributable to the owners of the Company has been prepared by the Directors in accordance with paragraph 4.29 of the Listing Rules to illustrate the effect of the Rights Issue on the unaudited consolidated net tangible assets of the Group attributable to owners of the Company as if the Rights Issue had been completed on 30 June 2020.

The unaudited pro forma statement of adjusted consolidated net tangible assets is prepared for illustrative purpose only and, because of its hypothetical nature, it may not reflect a true picture of the consolidated net tangible assets of the Group attributable to the owners of the Company had the Rights Issue been completed as at the date to which it is made up or at any future date.

The unaudited pro forma statement of adjusted consolidated net tangible assets is prepared based on the unaudited condensed consolidated statement of financial position of the Group as at 30 June 2020, as extracted from the published interim report of the Company for the six months period ended 30 June 2020, and is adjusted for the effect of the Rights Issue described below.

Rights Issue of Rights Shares of 91,777,944 to be issued at Subscription Price of HK$0.53 per Rights Share: – without excess applications – with excess applications	Unaudited consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2020 HK$’000 (Note 1) 13,358 13,358	Estimated net proceeds from the Rights Issue HK$’000 (Note 2) 23,269 7,445	Unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2020 immediately after the completion of the Rights Issue HK$’000 36,627 20,803	Unaudited consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2020 per Share HK$ (Note 3) 0.15 0.15	Unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2020 per Share immediately after the completion of the Rights Issue HK$ (Note 4) 0.20
					0.11

II – 1

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

Notes to unaudited pro forma financial information

The unaudited consolidated net tangible assets of the Group attributable to the owners of the Company of HK$13,358,000 as at 30 June 2020 are extracted from the published interim report of the Company for the six months ended 30 June 2020.
The estimated net proceeds from the Rights Issue of Rights Shares without excess applications of approximately HK$23,269,000 are based on 91,777,944 Rights Shares to be issued (in the proportion of one (1) right share for every one (1) adjusted share) at the subscription price of HK$0.53 per Rights Share, after deduction of the estimated related expenses of approximately HK$1,614,000 assuming that the Rights Issue had been completed on 30 June 2020.
The estimated net proceeds from the Rights Issue of Rights Shares with excess applications of approximately HK$7,445,000 are based on 91,777,944 Rights Shares to be issued (in the proportion of one (1) right share for every one (1) adjusted share) at the subscription price of HK$0.53 per Rights Share, after deduction of the estimated related expenses of approximately HK$1,614,000 assuming that the Rights Issue had been completed on 30 June 2020.
The calculation of the unaudited consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2020 per Share is determined based on the unaudited consolidated net tangible assets of the Group attributable to the owners of the Company of HK$13,358,000 divided by the number of shares in issue of 91,777,944 as at 30 June 2020.

II – 2

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

The unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2020 per Share immediately after the completion of the Rights Issue without excess applications is arrived at based on the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2020 immediately after the completion of the Rights Issue of HK$36,627,000 divided by 183,555,888 Shares, which represent 91,777,944 Shares in issue as at the Latest Practicable Date and 91,777,944 Rights Shares to be issued pursuant to the Rights Issue assuming that the Rights Issue had been completed on 30 June 2020.

The unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2020 per Share immediately after the completion of the Rights Issue with excess applications is arrived at based on the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2020 immediately after the completion of the Rights Issue of HK$20,803,000 divided by 183,555,888 Shares, which represent 91,777,944 Shares in issue as at the Latest Practicable Date and 91,777,944 Rights Shares to be issued pursuant to the Rights Issue assuming that the Rights Issue had been completed on 30 June 2020.

No adjustments have been made to the unaudited pro forma financial information to reflect any trading results or other transactions of the Group entered into subsequent to 30 June 2020.

II – 3

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

B. INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION

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==> picture [96 x 54] intentionally omitted <==

TO THE BOARD OF DIRECTORS OF CHINA FORTUNE HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of China Fortune Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’) by the directors of the Company (the ‘‘Directors’’) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma statement of adjusted consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2020 and related notes (the ‘‘Unaudited Pro Forma Financial Information’’) as set out in Appendix II to the circular issued by the Company dated 15 December 2020 (the ‘‘Circular’’). The applicable criteria on the basis of which the directors have compiled the Unaudited Pro Forma Financial Information are described in Appendix II to the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the directors to illustrate the impact of the proposed rights issue on the basis of one rights share for every one adjusted shares held on the record date at the subscription price of HK$0.53 per rights share (the ‘‘Rights Issue’’) on the Group’s unaudited consolidated net tangible assets attributable to the owners of the Company as at 30 June 2020 as if the Rights Issue had taken place at 30 June 2020. As part of this process, information about the Group’s financial position has been extracted by the directors from the Group’s unaudited consolidated financial statements for the six months period ended 30 June 2020, on which no auditor’s report or review report has been published.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

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

II – 4

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

Our Independence and Quality Control

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

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

Reporting Accountant’s Responsibilities

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

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

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

II – 5

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The purpose of the Unaudited Pro Forma Financial Information included in the circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction at 30 June 2020 would have been as presented.

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

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

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

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

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

II – 6

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

Opinion

In our opinion:

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

BDO Limited

Certified Public Accountants Choi Man On Practicing Certificate Number: P02410

Hong Kong, 15 December 2020

II – 7

GENERAL INFORMATION

APPENDIX III

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.

The Directors jointly and severally accept full responsibility for accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. SHARE CAPITAL

(a) As at the Latest Practicable Date

HK$

Authorised share capital:

2,000,000,000 Existing Shares of HK$0.10 each Issued and fully paid: 917,779,442 Existing Shares of HK$0.10 each	200,000,000
	91,777,944.20

(b) Immediately following the Capital Reorganisation having become effective (assuming no change in the number of issued Existing Shares (or the Adjusted Shares upon the Capital Reorganisation having become effective) from the Latest Practicable Date up to the Effective Date) HK$ Authorised share capital: 20,000,000,000 Adjusted Shares of HK$0.01 each 200,000,000 Issued and fully paid: 91,777,944 Adjusted Shares of HK$0.01 each 917,779.44

III – 1

GENERAL INFORMATION

APPENDIX III

(c) Immediately following the Capital Reorganisation having become effective and completion of the Rights Issue (assuming (i) no change in the number of issued Existing Shares (or the Adjusted Shares upon the Capital Reorganisation having become effective) from the Latest Practicable Date up to the Record Date; and (ii) all Qualifying Shareholders have taken up the Rights Shares to which they are entitled)

HK$

Authorised share capital:

20,000,000,000 Adjusted Shares of HK$0.01 each Issued and fully paid: 91,777,944 Adjusted Shares immediately following the Capital Reorganisation having become effective 91,777,944 Rights Shares to be allotted and issued under the Rights Issue 183,555,888 Adjusted Shares in issue immediately upon completion of the Rights Issue	200,000,000
	917,779.44 917,779.44
	1,835,558.88

All Existing Shares rank pari passu with each other in all respects including the rights as to voting, dividends and return of capital.

Since 31 December 2019 (being the end of the last financial year of the Company) and up to the Latest Practicable Date, no Existing Shares had been issued.

The Company will apply to the Stock Exchange for the listing of and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms. No part of the share capital or any other securities of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Existing Shares or Adjusted Shares or Rights Shares or any other securities of the Company to be listed or dealt in on any other stock exchange.

As at the Latest Practicable Date, there were no arrangements under which future dividends are waived or agreed to be waived.

III – 2

GENERAL INFORMATION

APPENDIX III

As at the Latest Practicable Date, the Company had no outstanding convertible securities, options, warrants or derivatives in issue which conferred any right to subscribe for, convert, or exchange into the Existing Shares and there was no share or loan capital of any member of the Group which was under option, or agreed conditionally or unconditionally to be put under option.

3. DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’) set out in Appendix 10 to the Listing Rules to be notified to the Company and the Stock Exchange were as follows:

Name of director Capacity Mr. Lau Siu Ying Held by a discretionary trust (Note) Beneficial owner	Number of issued ordinary Existing Shares held 188,300,013 259,996,285 448,296,298	Percentage of the issued share capital of the Company 20.5 28.3
		48.8

Note:

These shares are held by Future 2000 Limited, a company incorporated in the British Virgin Islands which in turn is held by a discretionary trust, the beneficiaries of which include Mr. Lau Siu Ying, his spouse and his children.

The interest disclosed above represents long positions in the shares and underlying shares of the Company or its associated corporations.

III – 3

GENERAL INFORMATION

APPENDIX III

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which they were taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein; or (c) pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

4. SUBSTANTIAL SHAREHOLDERS

The register of substantial Shareholders maintained by the Company pursuant to Section 336 of the SFO shows that, as at the Latest Practicable Date, the following Shareholders had notified the Company of relevant interests in the issued share capital of the Company:

Name of substantial shareholder Capacity Mr. Lau Siu Ying Held by a discretionary trust (Note 1) Beneficial owner Mr. Lee Wai, Timothy Held by controlled entity (Note 2)	Number of issued ordinary Existing Shares held 188,300,013 259,996,285 448,296,298 188,300,013	Percentage of the issued share capital of the Company 20.5 28.3
		48.8
		20.5

Notes:

These shares are held by Future 2000 Limited, a company incorporated in the British Virgin Islands which in turn is held by a discretionary trust, the beneficiaries of which include Mr. Lau Siu Ying, his spouse and his children.
Under the SFO, Mr. Lee Wai, Timothy is deemed to have interests in the Shares of the Company as he is entitled to exercise more than one-third of the voting power at general meetings of Future 2000 Limited.

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APPENDIX III

5. ADDITIONAL DISCLOSURE OF DEALINGS IN SHARES

As at the Latest Practicable Date,

(a) save as disclosed in the section headed ‘‘Letter from the Board – Effects on the Shareholding Structure of the Company’’ of this circular, none of the members of the Concert Group held, owned or controlled any other Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company;
(b) no person had irrevocably committed themselves to vote for or against the resolution to be proposed at the SGM to approve the Capital Reorganisation, the Rights Issue and the Set-off Arrangement;
(c) save for the Deeds of Covenants and Undertakings, the Concert Group did not have any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with any other persons;
(d) none of the members of the Concert Group had borrowed or lent any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company or similar rights which are convertible or exchangeable into Shares;
(e) save as disclosed in the paragraph headed ‘‘Directors’ and Chief Executive’s Interests in the Shares, Underlying Shares and Debentures of the Company and its Associated Corporation’’ in this appendix, none of the Directors was interested in any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company or similar rights which are convertible or exchangeable into any Shares;
(f) none of the Directors had dealt for value in any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company during the period commencing six months before the date of the Rights Issue Announcement and ending on the Latest Practicable Date;
(g) none of (i) the subsidiaries of the Company, (ii) the pension fund of the Company or of any of its subsidiaries, nor (iii) any advisers to the Company as specified in class (2) of the definition of ‘‘associate’’ under the Takeovers Code (other than persons enjoying exempt principal trader status under the Takeovers Code), had any interest in the Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company;
(h) save for the Deeds of Covenants and Undertakings, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate in the Takeovers Code;

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(i) no Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company were managed on a discretionary basis by fund managers (other than exempt fund managers) connected with the Company;
(j) none of the Company nor any Directors had borrowed or lent any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company or similar rights which are convertible or exchangeable into Shares;
(k) there was no benefit to be given to any Directors as compensation for loss of office in any member of the Group or otherwise in connection with the Capital Reorganisation, the Rights Issue and the Set-off Arrangement;
(l) there was no agreement, arrangement or understanding (including any compensation arrangement) (i) between the Concert Group and any of the Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence the Capital Reorganisation, the Rights Issue and the Set-off Arrangement; and (ii) between any Directors and any other persons which is conditional on or dependence upon the Capital Reorganisation, the Rights Issue and the Set-off Arrangement; and
(m) save for the Deeds of Covenants and Undertakings, there was no material contract entered into by the Concert Group in which any Director had a material personal interest.

6. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

None of the Directors or their respective associates was materially interested in any business which competes or is likely to compete, either directly or indirectly, with the Group’s business as at the Latest Practicable Date.

7. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had service contracts with the Company or any of its subsidiaries or associated companies (i) which (including both continuous and fixed term contract) had been entered into or amended within six months before 10 November 2020 (being the date of the Announcement); (ii) which were continuous contracts with a notice period of 12 months or more; or (iii) which were fixed term contracts with more than 12 months to run irrespective of the notice period. No Director had any service contracts with the Group other than those which were expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

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8. DIRECTORS ’ INTERESTS IN GROUP ’ S ASSETS OR CONTRACT OR ARRANGEMENT OF SIGNIFICANCE

As at the Latest Practicable Date, none of the Directors had any interest in any assets which had been since 31 December 2019 (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.

As at the Latest Practicable Date, save for the Deeds of Covenants and Undertakings, none of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date and which was significant in relation to the business of the Group.

9. LITIGATION

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

10. MATERIAL CONTRACTS

The following material contracts (not being contracts entered into in the ordinary course of business carried on or intended to be carried on by the Group) were entered into by members of the Group from 11 November 2018 (being the date falling two years immediately preceding 10 November 2020 (being the date of the Announcement)) up to and including the Latest Practicable Date:

(i) the First Loan Agreement;
(ii) the Second Loan Agreement;
(iii) the sale and purchase agreement dated 29 September 2020 entered into by 上海遠嘉國際貿易有限公司(Shanghai Yuanjia International Trade Co., Ltd.), an indirect whollyowned subsidiary of the Company (as seller) and 廣州萬創電子有限公司(Guangzhou Wanchuang Electronics Co., Ltd.) (as buyer), in respect of the disposal of the 51.0% issued share capital of the 重慶遠嘉通信設備有限公司(Chongqing Yuanjia Communication Equipment Company Limited*);
(iv) the Chan Deed of Covenants and Undertakings;
(v) the CY Deed of Covenants and Undertakings;
(vi) the HB Deed of Covenants and Undertakings;
for identification purpose only

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APPENDIX III

(vii) the KY Deed of Covenants and Undertakings; and
(viii) the Lau Deed of Covenants and Undertakings.

11. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, except as disclosed in the paragraph headed ‘‘MATERIAL CHANGE’’ set out in Appendix I to this circular, the Directors were not aware of any material adverse change in the financial position or trading position of the Group since 31 December 2019, being the date to which the latest published audited financial statements of the Group were made up.

12. EXPENSES

The expenses in connection with the Capital Reorganisation, the Change in Board Lot Size, the Rights Issue and the Set-off Arrangement, including but not limited to the financial advising fees, printing, registration, translation, legal and accounting fees are estimated to be approximately HK$1.6 million and are payable by the Company.

13. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given their opinions, letters or advice contained in this circular:

Name Qualifications Messis Capital Limited a licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO BDO Limited certified public accountants

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter, advice or report, as the case may be, and reference to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, none of the above experts had any shareholding, directly or indirectly, in any member of the Group nor did they 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, none of the above experts had any direct or indirect interest in any assets which had been, since 31 December 2019 (the date to which the latest published audited financial statements of the Group were made up), acquired, or disposed of by or leased to, or were proposed to be acquired, disposed of by or leased to any member of the Group.

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GENERAL INFORMATION

APPENDIX III

CORPORATE INFORMATION OF THE COMPANY AND PARTIES INVOLVED IN THE RIGHTS ISSUE

Registered Office of the Company Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda

Head Office and Principal Place Room 1505-06, Tower A, Regent Centre, of Business in Hong Kong of 63 Wo Yi Hop Road, Kwai Chung, Hong Kong the Company

Authorised Representatives of Mr. Lau Siu Ying the Company Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong Mr. So Chi Kai Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong Company Secretary of Mr. So Chi Kai the Company Certified Public Accountant Auditor/Reporting Accountants BDO Limited of the Company Certified Public Accountants 25th Floor, Wing On Centre, 111 Connaught Road Central, Central, Hong Kong Principal Bankers of China Construction Bank the Company Shanghai Fujian Road branch No. 455, Beijing East Road, Huangpu District, Shanghai PRC China Merchants Bank Shanghai Bund Branch No. 16, Zhongshan East Road, Huangpu District, Shanghai PRC

ICBC (Asia)

Basement, Ground Floor and First Floor of 122 QRC, Nos. 122-126 Queen’s Road Central, Hong Kong

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Principal Share Registrar and Conyers Corporate Services (Bermuda) Limited Transfer Office of the Clarendon House, 2 Church Street, Company Hamilton HM 11, Bermuda Hong Kong Branch Share Tricor Abacus Limited Registrar and Transfer Office Level 54, Hopewell Centre, 183 Queen’s Road East, of the Company Hong Kong Legal Advisers to the Company As to Hong Kong law D. S. Cheung & Co. 29/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong

As to Bermuda law

Conyers Dill & Pearman 29th Floor, One Exchange Square, 8 Connaught Square, Central, Hong Kong

Independent Financial Adviser to Messis Capital Limited the Independent Board Room 1606, 16/F, Tower 2, Admiralty Centre, Committee and the 18 Harcourt Road, Hong Kong Independent Shareholders

15. PARTICULARS OF DIRECTORS AND SENIOR MANAGEMENT

(a) Name and address

Name Address

Executive Directors

Mr. Lau Siu Ying (Chairman and Room 1505-06, Chief Executive Officer) Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong

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GENERAL INFORMATION

APPENDIX III

Name Address Mr. Wang Yu Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong Non-executive Director Mr. Hou Zhenyang Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong Independent non-executive Director Dr. Law Chun Kwan Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong Mr. Fok Wai Ming, Eddie Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong Dr. Lo Wai Shun Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong

Business address of the Directors and chief executive officer

The business address of the Directors and chief executive officer is the same as the Company’s head office and principal place of business in Hong Kong at Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong.

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(b) Qualification and position held

Executive Directors

Mr. Lau Siu Ying (‘‘Mr. Lau’’), aged 56, is the founder, Chairman and Chief Executive Officer of the Company since 1992. Mr. Lau has extensive working experiences in the telecommunications industry for over 25 years and has established solid business contacts in both Hong Kong and the PRC. Mr. Lau is responsible for directing the Group’s overall business policy and strategies as well as overseeing the Group’s business development in Hong Kong and the PRC. Prior to setting up his business, Mr. Lau worked for Hutchison Whampoa Group for approximately 5 years, in charge of the business development of the telecommunications in the PRC. Mr. Lau holds a bachelor degree in Business Administration from the Chinese University of Hong Kong and a master degree of science in Information Technology from the National University of Ireland, Dublin.

Mr. Lau is currently the trustee in New Asia College of the Chinese University of Hong Kong and the Board Councilor of China Mobile Communications Association. In the aspects of social and economic activities, Mr. Lau is devoted to promoting economic and educational development. He served as the vice president of the Hong Kong Association of Jieyang, the honorary president of Shanghai Chaoshan Chamber of Commerce, Hong Kong and Macau Director of the Dongguan City Youth Federation and the vice president of Hong Kong Island Chaoren Association Limited.

Mr. Lau has not entered into any service contract with the Company and there is no designated length of service but his appointment is subject to retirement by rotation and re-election and other related provisions as stipulated in the bye-laws of the Company and the Listing Rules. As at the Latest Practicable Date, Mr. Lau was entitled to receive a remuneration of approximately HK$1,920,000 per annum.

Mr. Wang Yu (‘‘Mr. Wang’’), aged 54, joined the Group in April 2006 and was appointed as an Executive Director of the Company in November 2009. Mr. Wang is the General Manager of a subsidiary of the Company and in-charge of the mining business segment of the Company. Mr. Wang graduated from Xi’an Jiaotong University with a master degree and a bachelor degree in Computer Science. Mr. Wang has more than 10 years working experiences in channel and distribution management on computer products and mobile phones with local and multinational companies in the PRC. Prior to joining the Group, Mr. Wang was a General Manager of a listed company in the PRC focusing on IT business.

III – 12

GENERAL INFORMATION

APPENDIX III

Pursuant to the letter of appointment with the Company, Mr. Wang is not appointed for any specified length or proposed length of service with the Company. Pursuant to the bye-laws of the Company, his appointment is subject to retirement and re-election at the next annual general meeting of the Company. As an executive Director of the Company, Mr. Wang will receive an annual director’s fee of approximately RMB390,000 per annum. Mr. Wang has neither relationship with any Director, senior management nor substantial nor controlling shareholder of the Company.

Non-executive Directors

Mr. Hou Zhenyang (‘‘Mr. Hou’’), aged 46, has over 15 years of experience in real estate investment trust finds (REITs), real estate development, management, acquisition, asset management, insurance and business management. He obtained a bachelor’s degree in economics and marketing and a master degree in business administration from the University of Auckland, New Zealand, in 1997 and 2009, respectively.

Mr. Hou served in various positions of KVB Global Capital Limited from 2008 to 2014, including manager of the finance department, vice chairman, head of the investment and director. He joined as a managing partner of United States RW Holdings REIT, Asia from 2015 to 2019. He is currently the president of Asia Region of USA InvestCo Holdings Inc since July 2019 and also the vice chairman of Irvine Family Offices, Asia, since July 2020. Mr. Hou has extensive experience in business management, real estate operations, investment and financing as well as risk management.

Pursuant to the letter of appointment with the Company, Mr. Hou is not appointed for any specified length or proposed length of service with the Company. Pursuant to the bye-laws of the Company, he will hold office until the next general meeting of the Company. As a non-executive Director of the Company, Mr. Hou will receive an annual director’s fee of HK$120,000.

Independent non-executive Directors

Dr. Law Chun Kwan (‘‘Dr. Law’’), aged 54, was appointed as an independent non-executive Director of the Company in June 2012. Dr. Law has extensive working experience in various business fields including advertising, telecommunications, information technology and real estate development in both Hong Kong and the PRC. Dr. Law is presently engaged in real estate development business in the PRC. Dr. Law holds a bachelor degree of social science from the Chinese University of Hong Kong, a master degree of e-business and a doctorate degree of business administration in information systems from the Edith Cowan University, Western Australia.

III – 13

GENERAL INFORMATION

APPENDIX III

Pursuant to the bye-laws of the Company, Dr. Law will hold office until the next general meeting of the Company. As an independent non-executive Director of the Company, Dr. Law will receive an annual director’s fee of HK$125,000, which was determined by reference to his duties and responsibilities, and the prevailing market conditions.

Mr. Fok Wai Ming, Eddie (‘‘Mr. Fok’’), aged 52, has over 20 years of experience in accounting, finance and corporate management of both listed and unlisted companies in Hong Kong. Mr. Fok obtained a bachelor’s degree of science in engineering from the University of Hong Kong and a bachelor’s degree in laws from the University of Wolverhampton. Mr. Fok is also a member of the Hong Kong Institute of Certified Public Accountants.

Mr. Fok was previously a financial controller and company secretary of the Company from October 1999 to April 2000, an independent non-executive Director of the Company from September 2004 to September 2006, the chief financial officer and company secretary of the Company from September 2006 to November 2007 and a financial controller and company secretary of the Company from January 2014 to April 2018. He served Carnival Group International Holdings (stock code: 996) as executive director from 2007 to 2010. He also served as the company secretary of South West Eco Development Limited (stock code: 1908) from May 2013 to December 2013. He served as an independent non-executive director of Longhui International Holdings Limited (stock code: 1007) and Wanjia Group Holdings Limited (stock code: 401) from 2016 to 2018 and from 2017 to 2018 respectively. He is currently the director of Wayze Professional Services Limited.

Pursuant to the letter of appointment with the Company, Mr. Fok is not appointed for any specified length or proposed length of service with the Company. Pursuant to the bye-laws of the Company, he will hold office until the next general meeting of the Company. As an independent non-executive Director of the Company, Mr. Fok will receive an annual director’s fee of HK$125,000.

Dr. Lo Wai Shun (‘‘Dr. Lo’’), aged 59, was appointed as an independent nonexecutive Director of the Company in June 2018. Dr. Lo holds a bachelor degree in sciences and a master degree in philosophy from The Chinese University of Hong Kong, and a doctorate degree in Physics from Brown University, United States of America. He is also an Adjunct Professor of The Chinese University of Hong Kong and a Visiting Professor of Peking University (School of Innovation and Entrepreneurship). Dr. Lo is currently a general partner of DL Capitals, an angel investment fund focusing on disruptive and exponential technologies and has over 20 years of extensive experience in various business fields including intellectual property commercialisation, business models innovation and technology transfer. Dr. Lo had served as a non-executive director for various listed companies in Hong Kong from 2000 to 2005.

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GENERAL INFORMATION

APPENDIX III

Pursuant to the letter of appointment with the Company, Dr. Lo is not appointed for any specified length or proposed length of service with the Company. Pursuant to the bye-laws of the Company, he will hold office until the next general meeting of the Company. As an independent non-executive director of the Company, Dr. Lo will receive an annual director’s fee of HK$125,000, which was determined by reference to his duties and responsibilities, and the prevailing market conditions. Dr. Lo is not connected and has no relationship with any other directors, senior management or substantial or controlling shareholders of the Company.

16. MISCELLANEOUS

(a) As at the Latest Practicable Date, there was no restriction affecting the remittance of profits or repatriation of capital of the Company into Hong Kong from outside Hong Kong.
(b) The English text of this circular and the accompanying form of proxy shall prevail over the respective Chinese text in case of inconsistency.

17. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection (i) at the head office and principal place of business of the Company in Hong Kong at Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong during normal business hours (except Saturdays and public holidays) from 10:00 a.m. to 1:00 p.m. and from 2:00 p.m. to 5:00 p.m.; (ii) on the websites of the Company (www.chinafortune.com); and (iii) the SFC (www.sfc.hk) in the period from the date of this circular up to and including the date of the SGM:

(a) the memorandum of association and the bye-laws of the Company;
(b) the letter from the Board, the text of which is set out on pages 13 to 44 of this circular;
(c) the letter from the Independent Board Committee, the text of which is set out on pages 45 to 46 of this circular;
(d) the letter from the Independent Financial Adviser, the text of which is set out on pages IFA-1 to IFA-31 of this circular;
(e) the annual reports of the Company for each of the three years ended 31 December 2019 and the interim report of the Company for the six months ended 30 June 2020;
(f) the report from BDO Limited on the unaudited pro forma financial information of the Group, the text of which is set out in Appendix II to this circular;

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APPENDIX III

(g) the written consents referred to in the paragraph headed ‘‘Experts and Consents’’ in this appendix;
(h) the material contracts referred to in the paragraph headed ‘‘Material Contracts’’ in this appendix;
(i) the Deeds of Covenants and Undertakings; and
(j) this circular.

III – 16

NOTICE OF SPECIAL GENERAL MEETING

**China Fortune Holdings Limited 中國長遠控股有限公司[*]**

(Incorporated in Bermuda with limited liability, carrying on business in H.K. as CFH Ltd.)

(Stock Code: 110)

NOTICE IS HEREBY GIVEN that a special general meeting (the ‘‘Meeting’’) of China Fortune Holdings Limited (the ‘‘Company’’) will be held at Room 1505-06, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong on Thursday, 7 January 2021 at 10:00 a.m. to consider and, if thought fit, pass the following special resolution and, with or without modification, the following ordinary resolutions of the Company:

SPECIAL RESOLUTION

‘‘THAT, conditional upon (i) compliance by the Company with the requirements of section 46(2) of the Companies Act 1981 of Bermuda (the ‘‘Companies Act’’) to effect the Capital Reduction (as defined below) and; (ii) the Listing Committee of The Stock Exchange of Hong Kong Limited granting approval of the listing of, and the permission to deal in, the Adjusted Shares (as defined below) in issue, with effect from the second business day immediately following the date of passing this resolution or the above conditions are fulfilled (whichever is the later) (the ‘‘Effective Date’’):
(a) every ten (10) issued shares of the Company of par value of HK$0.10 each (the ‘‘Existing Shares’’) in the share capital of the Company will be consolidated into one (1) consolidated share of par value of HK$1.00 (the ‘‘Consolidated Share’’) in share capital of the Company (the ‘‘Share Consolidation’’);
(b) immediately upon the Share Consolidation becoming effective, (i) the total number of Consolidated Shares in the issued share capital of the Company immediately following the Share Consolidation will be rounded down to a whole number by cancelling any fraction in the issued share capital of the Company which may arise from the Share Consolidation; and (ii) the par value of each of the then issued Consolidated Shares will be reduced from HK$1.00 to HK$0.01 (the ‘‘Adjusted Shares’’ and each an ‘‘Adjusted Share’’) by cancelling the paid up capital of the Company to the extent of HK$0.99 on each of the then issued Consolidated Shares (the ‘‘Capital Reduction’’);
for identification purpose only

SGM – 1

NOTICE OF SPECIAL GENERAL MEETING

(c) immediately following the Capital Reduction, each of the authorised but unissued Existing Share of par value of HK$0.10 will be sub-divided into ten (10) Adjusted Shares of par value of HK$0.01 each (the ‘‘Share Sub-division’’, together with the Share Consolidation and Capital Reduction, shall comprise the ‘‘Capital Reorganisation’’);
(d) all Adjusted Shares in issue immediately following the Capital Reorganisation becoming effective will rank pari passu in all respects with each other;
(e) the credits arising from the Capital Reduction will be applied towards setting off the accumulated losses of the Company as at the Effective Date, the excess of which (if any) will be credited to the contributed surplus account of the Company within the meaning of the Companies Act (the ‘‘Contributed Surplus Account’’) and the board of directors of the Company (the ‘‘Directors’’) or a committee thereof be and are hereby authorised to use the amount then standing to the credit of the Contributed Surplus Account to eliminate or set off the accumulated losses of the Company which may arise from time to time and/or to pay dividend and/or to make any other distribution out of the Contributed Surplus Account from time to time without further authorisation from the shareholders of the Company and/ or to use the credit in such other manner as may be permitted under the bye-laws of the Company in effect from time to time and all applicable laws without further authorisation from the shareholders of the Company and all such actions in relation thereto be approved, ratified and confirmed; and
(f) any one of the Directors be and is hereby authorised, for and on behalf of the Company, to enter into any agreement, deed or instrument and/or to execute and deliver all such documents and/or do all such acts on behalf of the Company as he/she may consider necessary, desirable or expedient to complete, implement and give effect to any and all the arrangements in relation to the Capital Reorganisation and (where applicable) to aggregate all fractional Adjusted Shares and sell them for the benefits of the Company.

For the purpose of this resolution, ‘‘business day’’ means a day (other than a Saturday, Sunday or public holiday in Hong Kong) on which licensed banks in Hong Kong are generally open for business.’’

SGM – 2

NOTICE OF SPECIAL GENERAL MEETING

ORDINARY RESOLUTION

‘‘THAT subject to (i) the passing of resolutions numbered 1 and 3 as set out in the notice convening the Meeting and (ii) The Stock Exchange of Hong Kong Limited granting or agreeing to grant the listing of, and permission to deal in, the Rights Shares (as defined below) (in their nil-paid and fully-paid forms); and (iii) satisfaction of all conditions as set out in the paragraph headed ‘‘Conditions of the Rights Issue’’ in the letter from the board of the circular of the Company dated 15 December 2020 (the ‘‘Circular’’):
(a) the issue by way of rights issue (the ‘‘Rights Issue’’) of 91,777,944 Adjusted Shares (as defined in resolution numbered 1 above) (the ‘‘Rights Shares’’) at a subscription price of HK$0.53 per Rights Share to the shareholders of the Company (the ‘‘Shareholders’’) whose names shall appear on the register of members of the Company at the close of business on Monday, 18 January 2021 (the ‘‘Qualifying Shareholders’’), or such other date as may be determined by the Company as the record date for the determination of the provisional entitlements of the Shareholders under the Rights Issue (the ‘‘Record Date’’) (excluding those Shareholders (the ‘‘Excluded Shareholders’’) whose addresses as shown on the register of members of the Company are outside Hong Kong whom the Directors, after making relevant enquiries, consider their exclusion from the Rights Issue to be necessary or expedient on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place) on the basis of one (1) Rights Share for every one (1) Adjusted Share then held on the Record Date be and is hereby approved;
(b) any Director be and is hereby authorised to allot and issue the Rights Shares (in both their nil-paid form and fully-paid form) pursuant to and in connection with the Rights Issue in particular, (i) the Rights Shares may be offered, allotted or issued otherwise than pro rata to the Qualifying Shareholders and, in particular, the Directors be and are hereby authorised to make such exclusions or other arrangements in relation to fractional entitlements and/or the Excluded Shareholders as they deem necessary, desirable or expedient having regard to any restrictions or obligations under the bye-laws of the Company or the laws of, or the rules and regulations of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong provided that in the case of the Excluded Shareholders, the Rights Shares in nil-paid form shall not be allotted and issued to the Excluded Shareholders but shall be aggregated and issued to a nominee to be named by the Company and be dealt with on terms set out in the Circular; (ii) the Rights Shares which would otherwise have been made available for application by the Qualifying Shareholders or the Excluded Shareholders (as the case may be) will be made available for subscription under forms of application for excess Rights Shares; and

SGM – 3

NOTICE OF SPECIAL GENERAL MEETING

(c) any Director be and is hereby authorised to do all such acts and things, to sign and execute all such documents and to take such steps as he/she may, in his/her absolute discretion, consider necessary, appropriate, desirable or expedient to implement or to give effect to or in connection with the Rights Issue and the transactions contemplated thereunder.’’

ORDINARY RESOLUTION

‘‘THAT
(a) the set-off arrangement (the ‘‘Set-off Arrangement’’) whereby (i) the HK$23,759,703.37 required to be paid by Mr. Lau Siu Ying (‘‘Mr. Lau’’) for the subscription of 44,829,629 Rights Shares (as defined in resolution numbered 2 above) to be provisionally allotted to him pursuant to the Rights Issue (as defined in resolution numbered 2 above) would be set-off against the loan amount of HK$23,759,703.37 owed by the Company to Mr. Lau (the ‘‘Initial Set-off’’); and (ii) the amount of HK$15,823,924.12 (out of the total amount of HK$22,282,530.83) required to be paid by Mr. Lau for the subscription of up to 42,042,511 excess Rights Shares by using the excess application forms would be set-off against the remaining loan amount of HK$15,823,924.12 after the Initial Set-off, and all the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) the Directors be and are hereby authorised to do all such acts and things and to sign and execute all such documents and to take all such steps which, in the opinion of the Directors, may be necessary, desirable or expedient to give effect to the terms of, or the transactions contemplated by, the Set-Off Arrangement (including, without limitation, the Deeds of Covenants and Undertakings (as defined in the Circular (as defined in resolution numbered 2 above)) and to agree to such variation, amendments or waiver or matters relating thereto as are, in the opinion of the Directors, in the interests of the Company and its shareholders as a whole.’’

By order of the Board

China Fortune Holdings Limited Lau Siu Ying

Chairman and Chief Executive Officer

Hong Kong, 15 December 2020

SGM – 4

NOTICE OF SPECIAL GENERAL MEETING

Notes:

All resolutions will be put to vote at the Meeting by way of poll.
The register of members of the Company will be closed from Thursday, 31 December 2020 to Thursday, 7 January 2021 (both days inclusive), during which no transfer of shares of the Company will be registered. In order to qualify for the attendance of the Meeting, all transfers accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Abacus Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, for registration not later than 4:30 p.m. on Wednesday, 30 December 2020.
A proxy form for use at the Meeting is enclosed with the circular issued by the Company dated 15 December 2020.
Any member of the Company entitled to attend and vote at the Meeting is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares of the Company may appoint more than one proxy. A proxy need not be a member of the Company.
To be valid, the instrument appointing a proxy must be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised.
The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed, or a certified copy of that power or authority, shall be deposited at Tricor Abacus Limited at the address set out in Note 2 above not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof, and in default the instrument of proxy shall not be treated as valid.
Where there are joint registered holders of any share of the Company, any one of such persons may vote at the Meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto but if more than one of such joint holders be present at the Meeting personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such share shall alone be entitled to vote in respect thereof.

As at the date of this notice, the Directors are as follows:

Executive Directors: Independent Non-executive Directors: Mr. Lau Siu Ying (Chairman and Chief Executive Officer) Dr. Law Chun Kwan Mr. Wang Yu Mr. Fok Wai Ming, Eddie Dr. Lo Wai Shun

Non-executive Director: Mr. Hou Zhenyang

SGM – 5

AI assistant

Hang Seng Bank Limited — Proxy Solicitation & Information Statement 2020

48870_rns_2020-12-14_8a34be50-d06d-471c-b8eb-64bb34f137c1.pdf

China Fortune Holdings Limited 中國長遠控股有限公司[*]

(A) PROPOSED CAPITAL REORGANISATION; (B) PROPOSED CHANGE IN BOARD LOT SIZE; (C) PROPOSED RIGHTS ISSUE ON THE BASIS OF ONE (1) RIGHTS SHARE FOR EVERY ONE (1) ADJUSTED SHARE

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

EXPECTED TIMETABLE

EXPECTED TIMETABLE

EXPECTED TIMETABLE

EFFECT OF BAD WEATHER ON LATEST TIME FOR ACCEPTANCE

China Fortune Holdings Limited 中國長遠控股有限公司[*]

(Stock Code: 110)

(A) PROPOSED CAPITAL REORGANISATION;

(B) PROPOSED CHANGE IN BOARD LOT SIZE;

(C) PROPOSED RIGHTS ISSUE ON THE BASIS OF ONE (1) RIGHTS SHARE FOR EVERY ONE (1) ADJUSTED SHARE HELD ON THE RECORD DATE ON A NON-UNDERWRITTEN BASIS; (D) CONNECTED TRANSACTION – REPAYMENT OF SHAREHOLDER INDEBTEDNESS; AND (E) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

PROPOSED CAPITAL REORGANISATION

Effects of the Capital Reorganisation

LETTER FROM THE BOARD

Conditions of the Capital Reorganisation

PROPOSED CHANGE IN BOARD LOT SIZE

LETTER FROM THE BOARD

Reasons for the Capital Reorganisation and the Change in Board Lot Size

LETTER FROM THE BOARD

Status of the Adjusted Shares

Listing Application for the Adjusted Shares

Free exchange of share certificates

LETTER FROM THE BOARD

Odd lot arrangements and matching services

PROPOSED RIGHTS ISSUE

Subscription Price

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Conditions of the Rights Issue

LETTER FROM THE BOARD

Non-underwritten basis

Qualifying Shareholders

Closure of register of members

Basis of provisional allotments

Rights of Overseas Shareholders

LETTER FROM THE BOARD

The British Virgin Islands

LETTER FROM THE BOARD

PRC

Status of the Rights Shares

Fractional entitlements to the Rights Shares

LETTER FROM THE BOARD

Share certificates and refund cheques for the Rights Issue

Application for excess Rights Shares

LETTER FROM THE BOARD

Application for listing

Deeds of Covenants and Undertakings

LETTER FROM THE BOARD

Effects on the shareholding structure of the Company

(A) If all shareholders participate in the Proposed Rights Issue

LETTER FROM THE BOARD

(B) If no public shareholders participate in the Proposed Rights Issue

Taxation

LETTER FROM THE BOARD

WARNING OF THE RISKS OF DEALING IN THE EXISTING SHARES, ADJUSTED SHARES AND/OR RIGHTS SHARES IN NIL-PAID FORM

SET-OFF ARRANGEMENT

LETTER FROM THE BOARD

Reasons for the Rights Issue, the Set-off Arrangement and the use of proceeds

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Customers

LETTER FROM THE BOARD

Suppliers

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Hang Seng Bank Limited Proxy Solicitation & Information Statement 2020

**China Fortune Holdings Limited 中國長遠控股有限公司[*]**

**China Fortune Holdings Limited 中國長遠控股有限公司[*]**

**China Fortune Holdings Limited 中國長遠控股有限公司[*]**