HC Group Inc. — Capital/Financing Update 2018

Nov 16, 2018

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

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

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HC GROUP INC. 慧聰集團有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 02280)

ISSUE OF HK$350,000,000 2.85% PLUS HIBOR GUARANTEED AND SECURED NOTES AND

ISSUE OF HK$100,000,000 2.85% PLUS HIBOR GUARANTEED AND SECURED CONVERTIBLE BONDS

Financial Adviser

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On 16 November 2018, the Company and the Investor entered into the Investment Agreement pursuant to which the Investor conditionally agreed to subscribe for the Notes and the Convertible Bonds.

The Convertible Bonds will be convertible into Shares of the Company. Assuming full conversion of the Convertible Bonds at the conversion price of HK$6.00 per Conversion Share, the Convertible Bonds will be convertible into 16,666,667 new Shares. The Conversion Shares represent approximately 1.488% of the existing issued share capital of the Company and approximately 1.466% of the issued share capital of the Company as enlarged by the issue of the Conversion Shares.

The estimated net proceeds from the issue of the Notes and the Convertible Bonds would be approximately HK$436 million.

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The Conversion Shares which may fall to be issued upon the exercise of the conversion rights under the Convertible Bonds will be issued under the General Mandate granted by the Shareholders to the Directors at the annual general meeting held on 25 May 2018.

As the Investment Agreement may or may not proceed to completion, Shareholders and potential investors are advised to exercise caution when dealing in the securities of the Company.

THE INVESTMENT AGREEMENT

Date

16 November 2018

Parties

• (1) the Company; and

• (2) the Investor.

The Investor is an investment holding company. The Investor is a company incorporated in the British Virgin Islands and is a wholly-owned subsidiary of CCBI Investment Limited. CCBI Investment Limited is a company incorporated in the Cayman Islands and is a wholly-owned subsidiary of CCB International (Holdings) Limited. CCB International (Holdings) Limited is a company incorporated in Hong Kong and is a wholly-owned subsidiary indirectly held by China Construction Bank Corporation, a company listed on the main board of the Stock Exchange (Stock Code: 939) and the Shanghai Stock Exchange (Stock Code: 601939). To the best knowledge, information and belief of the Directors, having made all reasonable enquires, the Investor and its ultimate beneficial owners are independent of and not connected with the Company or any of its connected persons.

Principal terms of the Notes

Principal amount	HK$350 million
Maturity date	The date falling on the second anniversary of the issue date (the
	“Original Notes Maturity Date”).
	The Company may, by delivering an extension notice to
	the Investor at least three months before the Original Notes
	Maturity Date, request the Original Notes Maturity Date be
	extended by 12 months.

Interest	The Notes will bear interest from the issue date of the Notes at
	the rate of the aggregate of the margin of 2.85% per annum and
	the applicable HIBOR rate on the principal amount of the Notes
	outstanding. The interest will be payable in arrears once every
	three months from the issue date of the Notes.

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Handling fee The Company will pay to the Noteholder a fee (exclusive of any bank charges) calculated at the rate of 1% per annum on the principal amount of the Notes outstanding. The handling fee will be payable at the same time with each interest payment. Transferability of the Notes The Notes will be transferable subject to registration of the transfer with the Company in accordance with the terms of the Notes. Early redemption At any time after 15 months from the date of issue of the Notes, provided that there is no event of default, the Company may at its option redeem the Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount of the Notes plus the applicable premium as of, and accrued and unpaid interest and handling fee, if any, to the redemption date. The Company will give not less than 20 business days’ prior written notice of redemption. Ranking The Notes constitute direct, unconditional and secured obligations of the Company and will rank at all times pari passu without any preference among the Notes.

Principal terms of the Convertible Bonds

Principal amount HK$100 million Maturity date The date falling on the second anniversary of the issue date (the “ Original Bonds Maturity Date ”). The Company may, by delivering an extension notice to the Investor at least three months before the Original Bonds Maturity Date, request the Original Bonds Maturity Date be extended by 12 months. Interest The Convertible Bonds will bear interest from the issue date of the Convertible Bonds at the rate of the aggregate of the margin of 2.85% per annum and the applicable HIBOR rate on the principal amount of the Convertible Bonds outstanding. The interest will be payable in arrears once every three months from the issue date of the Convertible Bonds.

Handling fee The Company will pay to the Bondholder a fee (exclusive of any bank charges) calculated at the rate of 1% per annum on the principal amount of the Convertible Bonds outstanding. The handling fee will be payable at the same time with each interest payment.

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Conversion price

HK$6.00 per Conversion Share, subject to adjustment in the event of consolidation or subdivision, capitalisation of profits or reserves, capital distribution, rights issue of Shares or options over Shares rights, issue of other securities and/or modification of conversion/exchange/subscription rights, issue of Shares at less than the current market price, and buy-back of Shares.

• Number of Conversion Shares issuable

• 16,666,667 new Shares will be issued upon full conversion of the Convertible Bonds based on the initial conversion price of HK$6.00 per Share.

• Transferability of the The Convertible Bonds will be transferable subject to Convertible Bonds registration of the transfer with the Company in accordance with the terms of the Convertible Bonds.

Other terms of the Convertible Bonds

Set out below is a summary of the other principal terms of the Convertible Bonds:

• Issue price 100% of the principal amount of the Convertible Bonds, payable in full at the issue of the Convertible Bonds.

• Conversion period The Bondholder has the right to convert the Convertible Bonds in whole or in part into Conversion Shares at any time on or after the issue date of the Convertible Bonds up to the maturity date (including any extension pursuant to the terms of the Convertible Bonds).

• Redemption at maturity Subject to extension to the Original Bonds Maturity Date and unless previously redeemed, the Company will redeem the Convertible Bonds at the total principal amount outstanding of the Convertible Bonds, plus the applicable premium, and accrued and unpaid interest and handling fee on the Original Bonds Maturity Date.

Early redemption At any time after 15 months from the date of issue of the Convertible Bonds, provided that there is no event of default, the Company may at its option redeem the Convertible Bonds, in whole but not in part, at a redemption price equal to 100% of the principal amount of the Convertible Bonds plus the applicable premium as of, and accrued and unpaid interest and handling fee, if any, to the redemption date.

The Company will give not less than 20 business days’ prior written notice of redemption.

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Mandatory conversion

• (a) If (i) at any time, the market price of the Shares exceeds HK$14.00 (but is equal to or below HK$18.00); and (ii) the average daily trading volume of the Shares during the period of thirty (30) consecutive trading days immediately preceding the determination date of the market price is no fewer than 8,000,000 Shares, the Company may (but is not obliged to), within one business day of such occurrence, by written notice to the Bondholder, request the Bondholder to exercise the conversion rights in relation to a portion of the Convertible Bonds held, provided that (A) the portion of the Convertible Bonds converted shall not in aggregate exceed 50% of the outstanding amount of the Convertible Bonds on the date of its issue; and (B) no event of default has occurred or is likely to occur as a result of the exercise of the conversion rights.

• (b) If (i) at any time, the market price of the Shares exceeds HK$18.00; and (ii) the average daily trading volume of the Shares during the period of thirty (30) consecutive trading days immediately preceding the determination date of the market price is no fewer than 8,000,000 Shares, the Company may (but is not obliged to), within one business day of such occurrence, by written notice to the Bondholder, request the Bondholder to exercise the conversion rights in relation to all or any portion of the Convertible Bonds, provided that (A) the portion of the Convertible Bonds converted shall not in aggregate exceed 50% of the outstanding amount of the Convertible Bonds on the date of its issue; and (B) no event of default has occurred or is likely to occur as a result of the exercise of the conversion rights.

Status

Voting

• Listing

The Convertible Bonds constitute direct, unconditional and secured obligations of the Company and will at all times rank pari passu and without any preference or priority among themselves.

A Bondholder will not be entitled to vote at any general meetings of the Company by reason only of it being a Bondholder.

No application will be made for the listing of the Convertible Bonds on the Stock Exchange or any other exchange.

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Comparison of conversion price

The initial conversion price of HK$6.00 per Conversion Share was arrived at after arm’s length negotiation between the parties and represents:

• (i) a premium of approximately 22.20% to the closing price of the Shares of HK$4.91 as quoted on the Stock Exchange on the date of the Investment Agreement;

• (ii) a premium of approximately 23.61% to the average closing price of HK$4.854 per Share for the last 5 consecutive trading days up to and including 15 November 2018, the last trading day before the date of the Investment Agreement; and

• (iii) a premium of approximately 20.29% to the average closing price of HK$4.988 per Share for the last 10 consecutive trading days up to and including 15 November 2018, the last trading day before the date of the Investment Agreement.

Conversion Shares

Assuming full conversion of the Convertible Bonds at the conversion price of HK$6.00 per Conversion Share, the Convertible Bonds will be convertible into 16,666,667 new Shares. The Conversion Shares represent approximately 1.488% of the existing issued share capital of the Company and approximately 1.466% of the issued share capital of the Company as enlarged by the issue of the Conversion Shares.

The Conversion Shares have a nominal value of HK$1,666,666.70 and a market value of approximately HK$81.83 million based on the closing price of the Shares of HK$4.91 on 16 November 2018, the date of the Investment Agreement.

The Conversion Shares will rank pari passu in all respects with the Shares then in issue on the relevant conversion date.

Application for listing

An application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Shares which may fall to be issued upon conversion of the Convertible Bonds.

As the initial conversion price of HK$6.00 per Conversion Share is at a premium to the benchmarked price as defined under Rule 13.36(5) of the Listing Rules, the new Shares that may fall to be issued upon the conversion of the Convertible Bonds may be issued under the General Mandate.

At the annual general meeting held on 25 May 2018, the Directors were granted authority to issue up to 224,270,442 Shares, representing 20% of the total number of Shares of the Company in issue as at the date of the annual general meeting. The Company has not issued any Shares pursuant to such General Mandate. As the total number of Conversion Shares that may fall to be issued upon the exercise of the Convertible Bonds will fall within the limit of the General Mandate, no Shareholders’ approval will be required to approve the issue of the Convertible Bonds.

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CONDITIONS PRECEDENT OF THE INVESTMENT AGREEMENT

The obligations of the Investor to subscribe and pay for the Notes and the Convertible Bonds are conditional upon the following:

• (i) the Investor having received all of the conditions precedent documents and evidence set out in the Investment Agreement;

• (ii) the representations and warranties of each Obligor contained in the Investment Agreement and related documents to which it is a party being correct, accurate and not misleading on the date of the Investment Agreement and each issue date of the Notes and the Convertible Bonds;

• (iii) no default is outstanding or would result from the issuance by the Company of the Notes or the Convertible Bonds to the Investor;

• (iv) the Shares deposited into each Share Collateral Account in aggregate represents:

• (a) in respect of Mr. Liu Jun, 44,870,000 Shares; and

• (b) in respect of the Wisdom Limited, 62,273,794 Shares;

• (v) satisfactory commercial, financial and legal due diligence of each Obligor, the Group and their respective business;

• (vi) approval of the transactions contemplated under the Investment Agreement and related documents from the investment committee of the Investor have been obtained and such approval not being revoked; and

• (vii) the Investor is satisfied with the results of all necessary “know your customer” requirements and other anti-money laundering checks,

in each case, in form and substance satisfactory to the Investor.

• (b) The Investor’s obligations to subscribe for the Convertible Bonds under this Agreement are further conditional upon:

• (i) the Stock Exchange having granted the approval for the listing of, and permission to deal in, the Conversion Shares; and

• (ii) the Investor having received evidence that the Company has sufficient authorised but unissued Shares in the share capital of the Company which is authorised to be issued pursuant to the General Mandate to enable it to perform its obligations under the Convertible Bonds when the conversion rights are exercised in full.

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Completion of the issue of the Notes and the Convertible Bonds will take place as soon as practicable upon the satisfaction of the conditions precedent. If the conditions precedent cannot be fulfilled within three months from the date of the Investment Agreement, the Investment Agreement will terminate and cease to be of any effect.

SECURITY

To secure the obligations of the Company under the Notes and the Convertible Bonds, (i) each of Mr. Liu Jun, an executive Director and the Chief Executive Officer of the Company, and Mr. Guo Fansheng, a non-executive Director, has provided an individual guarantee; (ii) the Subsidiary Guarantors have pledged their shares, each in favour of the Investor; and (iii) each of Mr. Liu Jun and Wisdom Limited has agreed to establish the Share Collateral Account.

REASONS FOR THE ISSUE OF THE NOTES AND THE CONVERTIBLE BONDS AND USE OF PROCEEDS

The Company is a provider of information services, transaction services and data services.

The Directors consider that the issue of the Notes and the Convertible Bonds represents an opportunity for the Company to raise additional funds for the development of its operations. The estimated net proceeds from the issue of the Notes and the Convertible Bonds will be approximately HK$436 million. The Company intends to apply the net proceeds for the following purposes:

• (1) 50%-55% for transaction services enablement and supply-chain financing;

• (2) 20% for information services related technology development including user-generated content and apps;

• (3) 20% for data services related Software-as-a-Service, internet of things and blockchain applications; and

• (4) 5%-10% for general purposes.

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SHAREHOLDING OF THE COMPANY

The table below sets out the Company’s shareholding structure as at the date of this announcement and upon full conversion of the Convertible Bonds, assuming no further issue or repurchase of Shares and no conversion of any of the convertible securities of the Company:

Directors and their associates Liu Jun Liu Xiaodong_(Note 1) Guo Fansheng(Note 2) Li Jianguang(Note 3) Lee Wee Ong Substantial Shareholders: Digital China Holdings Limited and its associates(Note 4)_ Guo Jiang and his spouse The Investor Public Shareholders Total	Shareholding as at the date of this announcement No. of Shares % 47,470,000 4.24% 62,273,794 5.56% 57,749,015 5.15% 32,000,384 2.86% 25,350,672 2.26% 253,671,964 22.64% 128,858,771 11.50% 513,027,610 45.79% 1,120,402,210 100.00%	Shareholding immediately upon full conversion of the Convertible Bonds No. of Shares % 47,470,000 4.17% 62,273,794 5.48% 57,749,015 5.08% 32,000,384 2.81% 25,350,672 2.23% 253,671,964 22.31% 128,858,771 11.33% 16,666,667 1.47% 513,027,610 45.12% 1,137,068,877 100.00%	Shareholding immediately upon full conversion of the Convertible Bonds No. of Shares % 47,470,000 4.17% 62,273,794 5.48% 57,749,015 5.08% 32,000,384 2.81% 25,350,672 2.23% 253,671,964 22.31% 128,858,771 11.33% 16,666,667 1.47% 513,027,610 45.12% 1,137,068,877 100.00%
			22.31% 11.33%
			1.47%
			45.12%
			100.00%

Note:

1. Such interest in the Company is held by Wisdom Limited, a company wholly-owned by Mr. Liu Xiaodong.

2. Such interest in the Company comprises: (a) 35,000,000 Shares held by Mr. Guo Fansheng; and (b) 22,749,015 Shares held by a trustee of a trust of which Mr. Guo Fansheng is a beneficiary.

3. Such interest in the Company is held by Callister Trading Limited, a company wholly-owned by Mr. Li Jianguang.

4. Such interest in the Company comprises: (a) 230,263,964 Shares held by Talent Gain Developments Limited and (b) 23,408,000 Shares held by Unique Golden Limited, respectively. Unique Golden Limited is wholly and beneficially owned by Talent Gain Developments Limited, which in turn is wholly and beneficially owned by Digital China (BVI) Limited, which ultimately is wholly and beneficially owned by Digital China Holdings Limited, a company whose shares are listed on the Stock Exchange (stock code: 00861).

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EQUITY FUND RAISING ACTIVITIES OF THE COMPANY IN THE LAST 12 MONTHS

On 5 January 2018, the Company entered into two subscription agreements with the Zhongfu Bondholders and the Huijia Bondholders pursuant to which (i) the Zhongfu Bondholders agreed to exchange the Zhongfu Convertible Bonds with the then outstanding amount of HK$60,285,000 for Shares at the price of HK$10.00 per Share, and (ii) the Huijia Bondholders agreed to exchange the Huijia Convertible Bonds with the then outstanding amount of HK$225,000,000 for Shares at the price of HK$7.50 per Share. An aggregate of 36,028,500 Shares were issued pursuant to such exchange and convertible bonds with an aggregate amount of HK$285,285,000 were released and cancelled.

Save as disclosed above, the Company has not carried out any other equity fund raising exercise in the twelve months immediately preceding the date of this announcement.

GENERAL

As the Investment Agreement may or may not proceed to completion, Shareholders and potential investors are advised to exercise caution when dealing in the securities of the Company.

DEFINITIONS

“associate”	has the meaning ascribed to it under the Listing Rules;
“Board”	the board of Directors;
“Bondholders”	holders of the Convertible Bonds;
“Company”	HC Group Inc., a company incorporated in the Cayman Islands
	with limited liability, the Shares of which are listed on the main
	board of the Stock Exchange;
“connected person”	has the meaning ascribed to it under the Listing Rules;
“Conversion Shares”	new Shares to be issued upon conversion of the Convertible
	Bonds;
“Convertible Bonds”	the 2.85% guaranteed and secured convertible bonds due 2020
	issued by the Company;
“Directors”	the directors of the Company;
“General Mandate”	the authorisation granted to the Directors pursuant to an
	ordinary resolution of the Company passed at the annual
	general meeting of the Company held on 25 May 2018 to allot
	and issue up to 20% of the aggregate of the nominal value of
	the share capital of the Company in issue on the date of the
	passing of the resolution;

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“Group”	the Company and its subsidiaries;
“HIBOR”	the Hong Kong interbank offered rate administered by the
	Treasury Markets Association for Hong Kong dollars;
“HK$”	Hong Kong dollar, the lawful currency of Hong Kong;
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC;
“Huijia Bondholders”	the holders of the Huija Convertible Bonds;
“Huijia Convertible Bonds”	the convertible bonds issued by the Company as part
	consideration to settle the acquisition of Huijia Yuantian
	Limited, which has had an outstanding principal amount of
	HK$225,000,000 as at 5 January 2018;
“Investment Agreement”	the agreement dated 16 November 2018 between the Company
	and the Investor;
“Investor”	Chance Talent Management Limited;
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange;
“Noteholder”	holder of the Notes;
“Notes”	the 2.85% guaranteed and secured notes due 2020 issued by the
	Company;
“Obligors”	means the Company, Wisdom Limited, Mr. Liu Jun, Mr. Guo
	Fansheng, the Subsidiary Guarantors and subsidiaries of the
	Company party to the share pledges in relation to the Subsidiary
	Guarantors;
“PRC”	the People’s Republic of China, excluding Hong Kong, the
	Macau Special Administrative Region and Taiwan;
“Share Collateral Account”	the securities account maintained by Mr. Liu Jun and Wisdom
	Limited with CCB International Securities Limited as the
	safekeeping agent;
“Shareholders”	registered holders of Shares from time to time;
“Shares”	ordinary shares of HK$0.10 each in the capital of the Company;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;

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“Subsidiary Guarantors” five subsidiaries of the Company which have pledged their shares as security for the Notes and the Convertible Bonds;

“Zhongfu Bondholders” the holders of the Zhongfu Convertible Bonds;

• “Zhongfu Convertible the convertible bonds issued by the Company as part Bonds” consideration to settle the acquisition of Zhongfu Holdings Limited, which has had an outstanding principal amount of HK$60,285,000 as at 5 January 2018;

“%”

per cent.

By order of the Board HC GROUP INC. Liu Jun Chairman and Chief Executive Officer

Hong Kong, 16 November 2018

As at the date of this announcement, the board of directors of the Company comprises:

• Mr. Liu Jun (Executive Director, Chairman and Chief Executive Officer)

• Mr. Lee Wee Ong (Executive Director and Chief Financial Officer)

• Mr. Liu Xiaodong (Executive Director and Co-President)

• Mr. Guo Fansheng (Non-executive Director)

• Mr. Li Jianguang (Non-executive Director)

• Mr. Wong Chi Keung (Non-executive Director)

• Mr. Zhang Ke (Independent Non-executive Director)

• Mr. Zhang Tim Tianwei (Independent Non-executive Director)

• Ms. Qi Yan (Independent Non-executive Director)

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