HC Group Inc. — Capital/Financing Update 2020

Aug 27, 2020

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.

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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)

DISCLOSEABLE TRANSACTION IN RELATION TO THE DISPOSAL OF 55% OF EQUITY INTEREST IN HOME ELECTRONIC APPLIANCES WORLD

EQUITY TRANSFER AGREEMENT

The Board is pleased to announce that on 27 August 2020, Beijing Huicong, a wholly-owned subsidiary of the Company, has entered into the Equity Transfer Agreement with Guangdong Lingqiu, Mr. Yu, Xinyu Congying and Home Electronic Appliances World, pursuant to which Beijing Huicong has agreed to transfer: (i) 30% of the equity interest in Home Electronic Appliances World to Guangdong Lingqiu at the 1[st] Transfer Consideration of RMB45,000,000; and (ii) 25% of the equity interest in Home Electronic Appliances World to Xinyu Congying at the 2[nd] Transfer Consideration of RMB22,500,000.

Upon Completion, Beijing Huicong will own 20% of the equity interest in Home Electronic Appliances World and the Target Group will cease to be the subsidiaries of the Company.

LISTING RULES IMPLICATIONS

As the highest applicable percentage ratio pursuant to Chapter 14 of the Listing Rules in respect of the Transfer contemplated under the Equity Transfer Agreement exceeds 5% but less than 25%, the Transfer constitutes a discloseable transaction of the Company and is subject to the reporting and announcement requirements, but is exempt from the circular and Shareholders’ approval requirements under Chapter 14 of the Listing Rules.

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THE EQUITY TRANSFER AGREEMENT

The Board is pleased to announce that on 27 August 2020, Beijing Huicong, a wholly-owned subsidiary of the Company, has entered into the Equity Transfer Agreement with Guangdong Lingqiu, Mr. Yu, Xinyu Congying and Home Electronic Appliances World, pursuant to which Beijing Huicong has agreed to transfer: (i) 30% of the equity interest in Home Electronic Appliances World to Guangdong Lingqiu at the 1[st] Transfer Consideration of RMB45,000,000 (“ Equity Interest Transfer 1 ”); and (ii) 25% of the equity interest in Home Electronic Appliances World to Xinyu Congying at the 2[nd] Transfer Consideration of RMB22,500,000 (“ Equity Interest Transfer 2 ”).

The principal terms of the Equity Transfer Agreement are set out as follows:

Date

27 August 2020

Parties

1. Beijing Huicong;

2. Guangdong Lingqiu;

3. Mr. Yu;

4. Xinyu Congying; and

5. Home Electronic Appliances World.

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, Mr. Yu, Guangdong Lingqiu, Xinyu Congying and their ultimate beneficial owners are third parties independent of the Company and its connected persons.

Subject matter

Beijing Huicong has agreed to transfer: (i) 30% of the equity interest in Home Electronic Appliances World to Guangdong Lingqiu at the 1[st] Transfer Consideration of RMB45,000,000; and (ii) 25% of the equity interest in Home Electronic Appliances World to Xinyu Congying at the 2[nd] Transfer Consideration of RMB22,500,000. The aggregate value of the consideration for the Transfer, being the sum of the 1[st] Transfer Consideration and the 2[nd] Transfer Consideration, is RMB67,500,000.

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Consideration and Payment Manner

The 1[st] Transfer Consideration

The 1[st] Transfer Consideration was determined after arm’s length negotiation between Beijing Huicong and Guangdong Lingqiu after taking into account the factors including but not limited to (i) the net asset value of Home Electronic Appliances World as at 30 June 2020 of RMB47,306,668; (ii) the historical financial performance of Home Electronic Appliances World; (iii) the website “nahuomall.com” (拿貨商城) (the “ Website ”), an online trading platform for home electronic appliances, and the mobile applications currently operated by Home Electronic Appliances World; and (iv) the future prospect and development of Home Electronic Appliances World.

Guangdong Lingqiu shall settle the 1[st] Transfer Consideration in the following manner:

1. 50% of the 1[st] Transfer Consideration within seven working days after the signing date of the Equity Transfer Agreement; and

2. 50% of the 1[st] Transfer Consideration within seven working days after the day of the grant of the approval for the Equity Interest Transfer 1 by the relevant market regulation and tax departments of the PRC.

The 2[nd] Transfer Consideration

The 2[nd] Transfer Consideration was determined after arm’s length negotiation between Beijing Huicong and Xinyu Congying after taking into account the factors including but not limited to (i) the net asset value of Home Electronic Appliances World as at 30 June 2020 of RMB47,306,668; (ii) the historical financial performance of Home Electronic Appliances World; (iii) the past contribution of Mr. Yu, the ultimate controller of Xinyu Congying, to Home Electronic Appliances World as the chief executive officer and director of Home Electronic Appliances World, and his expertise, experience, business network and resources in relation to the e-commerce service industry that can be brought to Home Electronic Appliances World; (iv) the Website and the mobile applications currently operated by Home Electronic Appliances World; and (v) the future prospect and development of Home Electronic Appliances World.

Xinyu Congying shall settle the 2[nd] Transfer Consideration in the following manner:

1. 50% of the 2[nd] Transfer Consideration within seven working days after the signing date of the Equity Transfer Agreement; and

2. 50% of the 2[nd] Transfer Consideration within seven working days after the day of grant of the approval for the Equity Interest Transfer 2 by the relevant market regulation and tax departments of the PRC.

The date of Completion shall be the date when Home Electronic Appliances World receives the approval for the Transfer granted by the State Administration for Market Regulation.

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Transfer Arrangement

Beijing Huicong, shall within 30 days after receiving the first instalment payment of the 1[st] Transfer Consideration and the 2[nd] Transfer Consideration from each of Guangdong Lingqiu and Xinyu Congying, respectively:

1. cooperate with Guangdong Lingqiu and Xinyu Congying to complete the registration procedures for the Transfer, and the relevant modification of tax registration procedures (the “ Registration ”); and

2. amend the articles of association of Home Electronic Appliances World (the “ Amendment ”) in order to reflect the arrangements agreed by the Parties pursuant to the Equity Transfer Agreement, including but not limited to the composition and the power of the board of directors of Home Electronic Appliances World.

If approval or exemption from Chance Talent Management Limited (“ Chance Talent ”) is required for the Transfer pursuant to the investment agreement entered into between Chance Talent and the Company on 16 November 2018, Beijing Huicong shall complete the Registration and the Amendment within ten working days after such approval or exemption is obtained. Furthermore, Beijing Huicong guarantees that it will obtain the necessary approval or exemption for the Transfer from Chance Talent before 31 August 2020.

INFORMATION OF HOME ELECTRONIC APPLIANCES WORLD

Home Electronic Appliances World is established under the laws of the PRC with limited liability and is owned as to 75% by Beijing Huicong as at the date of this announcement. Home Electronic Appliances World is principally engaged in the provision of B2B e-commerce service for home appliances in the PRC, which operates the Website and the relevant mobile applications.

Set out below is the unaudited consolidated financial information of Home Electronic Appliances World prepared in accordance with the generally accepted accounting principles in the PRC for the years ended 31 December 2018 and 2019, respectively:

	For the year	ended
	31 December
	2018	2019
	RMB	RMB
Net profit before taxation	13,008,729	5,063,877
Net profit after taxation	11,343,127	4,005,564

The unaudited net asset value of Home Electronic Appliances World as at 31 December 2019 and 30 June 2020 was RMB54,211,372 and RMB47,306,668, respectively.

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INFORMATION OF THE GROUP AND BEIJING HUICONG

The Group endeavours to become the leading industrial internet group in the PRC. By focusing on and integrating advantageous resources, the Group has upgraded its organisational structure, with its business composed of three segments, namely the business groups of technology-driven new retail, smart industries, and platform and corporate services.

Beijing Huicong is a wholly-owned subsidiary of the Company established under the laws of the PRC with limited liability. It is principally engaged in the provision of business information in the PRC.

INFORMATION OF GUANGDONG LINGQIU, XINYU CONGYING AND MR. YU

Guangdong Lingqiu is a company established under the laws of the PRC with limited liability and is principally engaged in e-commerce transactions, and provision of domestic and foreign business services and corporate management consultancy services. As at the date of this announcement, it is wholly owned by SPH China Limited, a limited liability company incorporated under the laws of Hong Kong, which is ultimately wholly owned by China Lesso Group Holdings Limited, a company listed on the main board of the Stock Exchange (stock code: 2128).

Xinyu Congying is a limited partnership established under the laws of the PRC and is principally engaged in the software and information technology service industry. As at the date of this announcement, Xinyu Congying is owned as to 96% by Mr. Yu. Mr. Yu is a merchant who has over 17 years of experience in the home electronic appliances industry. He is the chief executive officer and a director of Home Electronic Appliances World, as well as the founder of the Website. Mr. Yu is an individual independent of the Company and its connected persons.

FINANCIAL EFFECT OF THE TRANSFER AND USE OF PROCEEDS

Upon Completion, Beijing Huicong will own 20% of the equity interest in Home Electronic Appliances World. The Target Group will cease to be the subsidiaries of the Company, but will be accounted as an investment in associates of the Group and will be accounted for and consolidated in the Group’s financial results as associates using equity method.

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The shareholding of Home Electronic Appliances World as at the date of this announcement and immediately after Completion are set out below:

Shareholders Guangdong Lingqiu Beijing Huicong Mr. Yu Xinyu Congying Total:	As at the date of this announcement Subscribed capital Approximate percentage of equity holding (RMB) (%) – – 30,000,000 75% 10,000,000 25% – – 40,000,000 100%	Immediately after Completion Subscribed capital Approximate percentage of equity holding (RMB) (%) 12,000,000 30% 8,000,000 20% 10,000,000 25% 10,000,000 25% 40,000,000 100%

It is expected that the Group will realise a gain on the Transfer of approximately RMB32,000,000, which is calculated based on (i) the 1[st] Transfer Consideration; (ii) the 2[nd] Transfer Consideration; and (iii) the estimated expenses in connection with the Transfer.

The net proceeds of the Transfer will be approximately RMB67,400,000. The Board intends to use the proceeds from the Transfer as working capital and to repay the debt of the Group.

REASONS FOR AND BENEFITS OF THE TRANSFER

Since March 2020, the Group has been focusing on the dual – wheel driving model of “hc360. com (慧聰網) + zol.com.cn (中關村在線)” as its principal business, and actively using “investment + incubation” to support the development of vertical runways. The Directors believe that the Company will realise cash return from the Transfer, which is in line with the Group’s policy on the development of vertical runways. Coupled with the leadership and management of Mr. Yu and Xinyu Congying, and the new capital and support brought in by Guangdong Lingqiu, the Directors believe that Home Electronic Appliances World will be able to sustain a good development, which will in turn benefit the Group through its shareholdings in Home Electronic Appliances World.

Having considered the above, the Directors are of the view that the terms of the Equity Transfer Agreement are on normal commercial terms that are fair and reasonable, and the entering into of the Equity Transfer Agreement and the Transfer are in the interests of the Company and the Shareholders as a whole.

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LISTING RULES IMPLICATIONS

As the highest applicable percentage ratio pursuant to Chapter 14 of the Listing Rules in respect of the Transfer contemplated under the Equity Transfer Agreement exceeds 5% but less than 25%, the Transfer constitutes a discloseable transaction of the Company and is subject to the reporting and announcement requirements, but is exempt from the circular and Shareholders’ approval requirements under Chapter 14 of the Listing Rules.

DEFINITIONS

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

“Beijing Huicong”	北京慧聰互聯信息技術有限公司(Beijing Huicong Internet
	Information Technology Co., Ltd*), a wholly-owned
	subsidiary of the Company
“Board”	the board of directors of the Company
“Business Day(s)”	a day on which licensed banks in the PRC are open for
	business
“Company”	HC Group Inc., a company incorporated with limited liability
	under the laws of the Cayman Islands, the Shares of which
	are listed on the main board of the Stock Exchange
“Completion”	Completion of the Transfer pursuant to the Equity Transfer
	Agreement
“connected person(s)”	has the meaning ascribed to it under the Listing Rules
“controlling shareholder(s)”	has the meaning ascribed to it under the Listing Rules
“Directors”	the directors of the Company
“Equity Transfer Agreement”	an equity transfer agreement entered into on 27 August 2020,
	between Guangdong Lingqiu, Beijing Huicong, Mr. Yu,
	Xinyu Congying and Home Electronic Appliances World
	in respect of the transfer of the equity interest of Home
	Electronic Appliances World
“1stTransfer Consideration”	the consideration for the transfer of 30% of the equity
	interest in Home Electronic Appliances World to Guangdong
	Lingqiu in the sum of RMB45,000,000 pursuant to the
	Equity Transfer Agreement
“Group”	the Company and its subsidiaries as at the date of this
	announcement

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“Guangdong Lingqiu”	廣東領球商貿有限公司(Guangdong Lingqiu Commercial
	Trading Co., Ltd.*), a company established under the laws of
	the PRC with limited liability
“HK$”	the Hong Kong dollar(s), the lawful currency of Hong Kong
“Home Electronic Appliances	廣東家電世界電子商務有限公司(Guangdong Home
World”	Electronic Appliances World E-Commerce Co., Ltd.*), a
	company established under the laws of the PRC with limited
	liability, and a subsidiary indirectly owned as to 75% by the
	Company as at the date of this announcement
“Hong Kong”	the Hong Kong Special Administrative Region of the
	People’s Republic of China
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Mr. Yu”	Mr. Yu Zhiguo (喻治國), a merchant, the chief executive
	officer and a director of Home Electronic Appliances World,
	and an individual who is independent of the Company and its
	connected persons
“Parties”	Guangdong Lingqiu, Beijing Huicong, Mr. Yu, Xinyu
	Congying and Home Electronic Appliances World
“PRC”	the People’s Republic of China, and for the purpose of this
	announcement, excludes Hong Kong, the Macau Special
	Administrative Region of the People’s Republic of China
	and Taiwan
“RMB”	Renminbi, the lawful currency of the PRC
“2ndTransfer Consideration”	the consideration for the transfer of 25% of the equity
	interest in Home Electronic Appliances World to Xinyu
	Congying in the sum of RMB22,500,000 pursuant to the
	Equity Transfer Agreement
“Share(s)”	the share(s) of the Company
“Shareholder(s)”	the shareholders of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Target Group”	Home Electronic Appliances World and its subsidiaries

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“Transfer”

the Equity Interest Transfer 1 and the Equity Interest Transfer 2

“Xinyu Congying”

新余聰穎網路科技合夥企業(有限合夥) (Xinyu Congying Internet Technology Partnership (Limited Partnership)*), a limited partnership established in the PRC

“%”

per cent

• For identification purpose only

By Order of the Board HC Group Inc. Liu Jun Chairman

Hong Kong, 27 August 2020

As at the date of this announcement, the Board comprises:

• Mr. Liu Jun (Executive Director and Chairman)

• Mr. Zhang Yonghong (Executive Director and Chief Executive Officer)

• Mr. Liu Xiaodong (Executive Director and President)

• Mr. Guo Fansheng (Non-executive Director)

• Mr. Sun Yang (Non-executive Director)

• Mr. Lin Dewei (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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