Huazhang Technology Holding Limited — Capital/Financing Update 2021

Mar 2, 2021

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 any securities of the Company.

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HUAZHANG TECHNOLOGY HOLDING LIMITED 華章科技控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1673)

SUBSCRIPTION OF NEW SHARES UNDER SPECIFIC MANDATE

THE SUBSCRIPTION

The Board is pleased to announce that on 2 March 2021 (after trading hours), the Company and the Subscriber entered into the Subscription Agreement. Pursuant to the Subscription Agreement, the Company has conditionally agreed to allot and issue, and the Subscriber has conditionally agreed to subscribe for, an aggregate of 153,846,153 Subscription Shares. The Subscription Shares will be issued at the Subscription Price of HK$0.65 per Subscription Share.

The aggregate number of 153,846,153 Subscription Shares to be allotted and issued under the Subscription represents (i) approximately 20.99% of the issued share capital of the Company as at the date of this announcement; and (ii) approximately 17.35% of the issued share capital of the Company as enlarged by the issue of the Subscription Shares (assuming there will be no other changes in the issued share capital of the Company between the date of this announcement and the Completion). The Subscription Shares will be issued under the Specific Mandate.

The Subscription Price of HK$0.65 per Subscription Share as determined after arm’s length negotiations between the Company and the Subscriber with reference to the recent trading price of the Shares, the trading volume of the Shares and the existing financial position of the Group. The Subscription Price represents (i) a discount of approximately 22.62% to the closing price of HK$0.840 per Share as quoted on the Stock Exchange on 2 March 2021, being the date of the Subscription Agreement; (ii) a discount of approximately 23.17% over the average closing price of approximately HK$0.846 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to the date of the Subscription Agreement; and (iii) a discount of approximately 22.62% over the average closing price of approximately HK$0.840 per Share as quoted on the Stock Exchange for the last ten consecutive trading days immediately prior to the date of the Subscription Agreement.

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GENERAL

The Subscription will be subject to Shareholders’ approval. The EGM will be convened and held for the purposes of considering of, and if thought fit, approving, among other things, the Subscription and the Specific Mandate to issue Subscription Shares.

Mr. Fang Hui, the ultimate beneficial owner of the Subscriber, was a director of Environmental Resources, an indirect wholly-owned subsidiary of the Company, between 18 September 2019 and 1 September 2020. As at the date of this announcement, Mr. Fang Hui is not regarded as a connected person of the Company as Environmental Resources is an insignificant subsidiary of the Company. Mr. Fang Hui is also the ultimate beneficial owner of Creation Best, which is the holder of the Bonds. As at the date of this announcement, Creation Best has not exercised the conversion right to convert any Bonds, in whole or in part, into Shares and is not regarded as a connected person of the Company. For further information on the issuance of Bonds, please refer to the Company’s announcements dated 1 December 2020 and 28 December 2020. As at the date of this announcement, Mr. Fang Hui directly owns approximately 1.02% of the issued share capital of the Company. As part of the Subscription, the Company has agreed to appoint two persons to be nominated by the Subscriber to the Board. Each such person must fulfil the necessary requirements of the Listing Rules and such appointment will be approved by the Nomination Committee of the Company. If the Subscription does not proceed and if requested by the Board, such person shall resign from office without any compensation for loss of office. Further announcement will be made by the Company upon such persons being appointed to the Board.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries none of the Shareholders has a material interest in the transactions contemplated under the Subscription. None of the Shareholders is required to abstain from voting at the EGM in respect of the resolutions relating to the Subscription and the Specific Mandate.

A circular containing, among others, details of the Subscription Agreement and the notice of EGM will be despatched to the Shareholders as soon as practicable in compliance with the Listing Rules.

Shareholders and potential investors should note that Completion is subject to the fulfilment or waiver of conditions under the Subscription Agreement and may or may not proceed. Shareholders and potential investors are reminded to exercise caution when dealing in the Shares.

THE SUBSCRIPTION

The Board is pleased to announce that on 2 March 2021 (after trading hours), the Company and the Subscriber entered into the Subscription Agreement in relation to the Subscription.

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Set out below are the principal terms of the Subscription Agreement:

SUBSCRIPTION AGREEMENT

Date:

2 March 2021 (after trading hours)

Parties:

Issuer: The Company Subscriber: The Subscriber

Mr. Fang Hui, the ultimate beneficial owner of the Subscriber, was a director of Environmental Resources, an indirect wholly-owned subsidiary of the Company, between 18 September 2019 and 1 September 2020. As at the date of this announcement, Mr. Fang Hui is not regarded as a connected person of the Company as Environmental Resources is an insignificant subsidiary of the Company. Mr. Fang Hui is also the ultimate beneficial owner of Creation Best, which is the holder of the Bonds. As at the date of this announcement, Creation Best has not exercised the conversion right to convert any Bonds, in whole or in part, into Shares and is not regarded as a connected person of the Company. For further information on the issuance of Bonds, please refer to the Company’s announcements dated 1 December 2020 and 28 December 2020. As at the date of this announcement, Mr. Fang Hui owns approximately 1.02% of the issued share capital of the Company.

Save as disclosed above, to the best of the Directors’ knowledge, information and belief having made all reasonable enquires, the Subscriber and its ultimate beneficial owner are independent of and not connected with the Company and its connected persons.

Subscription Shares

Pursuant to the Subscription Agreement, the Company has conditionally agreed to allot and issue, and the Subscriber has conditionally agreed to subscribe for an aggregate of 153,846,153 Subscription Shares.

The total number of 153,846,153 Subscription Shares to be allotted and issued under the Subscription represents (i) approximately 20.99% of the issued share capital of the Company as at the date of this announcement; and (ii) approximately 17.35% of the issued share capital of the Company as enlarged by the issue of the Subscription Shares (assuming there will be no other changes in the issued share capital of the Company between the date of this announcement and the Completion).

Immediately upon Completion, the Subscriber will become a substantial shareholder of the Company.

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Subscription Price

The Subscription Price of HK$0.65 per Subscription Share represents:

• (i) a discount of approximately 22.62% to the closing price of HK$0.840 per Share as quoted on the Stock Exchange on the date of the Subscription Agreement;

• (ii) a discount of approximately 23.17% over the average closing price of approximately HK$0.846 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to the date of the Subscription Agreement;

• (iii) a discount of approximately 22.62% over the average closing price of approximately HK$0.840 per Share as quoted on the Stock Exchange for the last ten consecutive trading days immediately prior to the date of the Subscription Agreement.

The aggregate amount from the Subscription will be HK$100,000,000, is estimated to be HK$0.65 per Subscription Share.

The aggregate nominal value of the Subscription Shares will be HK$1,538,461.53.

The Subscription Price was arrived at after arm’s length negotiations between the Company and the Subscriber with reference to the recent trading performance of the Shares, the trading volume of the Shares and the existing financial position of the Group. The Directors consider that the Subscription Price and the terms of the Subscription Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

Ranking of the Subscription Shares

The Subscription Shares, when allotted and issued, will rank pari passu in all respects among themselves and with the Shares in issue on the date of allotment and issue of the Subscription Shares.

Conditions precedent

Completion is conditional upon the satisfaction of the following conditions:

• (a) the Listing Committee having granted (either unconditionally or subject only to conditions to which neither the Company nor the Subscriber reasonably objects) listing of, and permission to deal in, the Subscription Shares and the Listing Committee not having withdrawn or revoked such listing and permission on or before the Completion;

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• (b) the Shares remaining listed and traded on the Main Board of the Stock Exchange at all times from the date of the Subscription Agreement to the date of the Completion, save for any temporary trading halt or suspension in trading for no longer than three (3) consecutive trading days (or such longer period as the Subscriber may agree in writing), and there being no indication from the Stock Exchange that the listing of the Shares on the Stock Exchange will be suspended, revoked or withdrawn at any time before or after the Completion, whether in connection with any of the transactions contemplated by the Subscription Agreement or otherwise;

• (c) the passing by the Shareholders who are entitled to vote and not required to be abstained from voting under the Listing Rules in the EGM to be held and convened of resolution(s) to approve the Subscription Agreement, and the transactions contemplated thereunder, including the allotment and issue of the Subscription Shares;

• (d) each of the Company’s representations, warranties and undertakings under the Subscription Agreement remaining true, complete and accurate and not misleading at the Completion as if repeated at the Completion and at all times between the date of the Subscription Agreement and the Completion;

• (e) the Company having obtained from or made to (as the case may be) all relevant authorities all applicable approvals and filings in connection with the Subscription;

• (f) the Company having duly performed and observed all of the obligations, undertakings, covenants and agreements required to be performed and observed by it prior to the Completion under the Subscription Agreement;

• (g) the Subscriber receiving from the Company all of the documents pursuant to the Subscription Agreement, in form and substance satisfactory to the Subscriber;

• (h) there shall not be in effect any Applicable Laws restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby and by the other transaction documents;

• (i) no Action shall have been commenced by or before any Governmental Authority against any party hereto, seeking to restrain or materially and adversely alter the transactions contemplated hereby and by the other transaction documents which, in the reasonable, good faith determination of the Subscriber, is likely to render it impossible or unlawful to consummate such transactions; and

• (j) each of the Subscriber’s representations, warranties and undertakings under the Subscription Agreement remaining true, complete and accurate in all material respects and not misleading in any material respect at the date of the Completion as if repeated at the date of the Completion and at all times between the date of the Subscription Agreement and the date of the Completion.

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The Subscriber may waive all or any of the above conditions (save for the conditions (a), (c) and (h)) at any time by notice in writing to the Company. The Company may not unilaterally waive any of the above conditions other than condition (j). In the event that any of the above conditions of the Subscription are not fulfilled (or waived, if applicable) prior to 31 May 2021 (or such later date as the Company and the Subscriber may agree in writing), the Subscription Agreement shall terminate and cease to be of any effect. Neither of the parties shall have any claim against each other save for any liability arising out of any antecedent breach.

Appointment of Directors

As part of the Subscription, the Company has agreed to appoint two persons to be nominated by the Subscriber to the Board. Each such person must fulfil the necessary requirements of the Listing Rules and such appointment will be approved by the Nomination Committee of the Company. If the Subscription does not proceed and if requested by the Board, such person shall resign from office without any compensation for loss of office. Further announcement will be made by the Company upon such persons being appointed to the Board.

Completion of the Subscription

Completion of the Subscription shall take place on a day falling no later than fourteen days from the fulfilment of all the conditions precedent (or such later date, subject to the approval of the Stock Exchange, as may be agreed between the parties in writing).

Application for listing

The Company will apply to the Listing Committee for the listing of, and permission to deal in, the Subscription Shares on the Stock Exchange.

Shareholders and potential investors should note that Completion is subject to the fulfilment or waiver of conditions under the Subscription Agreement and may or may not proceed. Shareholders and potential investors are reminded to exercise caution when dealing in the Shares.

INFORMATION ON THE SUBSCRIBER

The Subscriber is an investment holding company incorporated in the British Virgin Islands.

Mr. Fang Hui, the ultimate beneficial owner of the Subscriber, was a director of Environmental Resources, an indirect wholly-owned subsidiary of the Group, between 18 September 2019 and 1 September 2020. Mr. Fang Hui is also the ultimate beneficial owner of Creation Best, the holder of the Bonds and as at the date of this announcement, none of the Bonds have been converted into Shares. As at the date of this announcement, Mr. Fang Hui holds 7,440,000 Shares, representing approximately 1.02% of the Company’s total Shares in issue.

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As announced in the Company’s announcement dated 7 October 2019, the Government of Dubai gave its approval for a venture, under Mr. Fang AK’s stewardship, to establish the Dubai Recycling Project in the Jebel Ali Free Zone, Dubai, United Arab Emirates. Mr. Fang AK is the father of Mr. Fang Hui. The Board then announced in the Company’s announcement dated 26 May 2020 that the Company entered into the Dubai Shareholders’ Agreement with Mr. Fang AK to develop the Dubai Recycling Project, subject to the Company raising at least RMB300 million (equivalent to approximately HK$327.1 million). Nonetheless, as the Company was unable to raise the agreed funding by the long stop date, being 31 August 2020, the Dubai Shareholders’ Agreement lapsed as announced by the Company’s announcement dated 1 September 2020.

Environmental Resources is wholly-owned by Fine Global which is the proposed joint venture company under the Dubai Shareholders’ Agreement. Environment Resources in turn is the sole beneficial owner of the entire equity interest in HeHe Resources. HeHe Resources is the vehicle which Mr. Fang AK used to secure the licenses for the Dubai Recycling Project. From their respective date of incorporation until the date of this announcement, none of Fine Global, Environment Resources nor HeHe Resources has conducted any business. As such, these subsidiaries are insignificant subsidiaries of the Group for the purpose of Rule 14A.09(1) of the Listing Rules and the Subscriber and its ultimate beneficial owner is consequently not a connected person.

REASONS FOR THE SUBSCRIPTION AND USE OF PROCEEDS

The Company is an investment holding company. The Group are principally engaged in the research and development, manufacture and sale of industrial products, project contracting services, environmental products and the provision of supporting services in the PRC.

Starting in early 2018, the government of China began the process of banning the import of foreign waste materials (including recyclable plastics, waste paper and scrap metal) for recycling and until recently, the government of China implemented a complete ban of import of solid wastes. For decades, China was the world’s largest importer of waste. The import ban policy caused the world’s major waste-exporting countries to scramble for alternative destinations and for investors to consider getting in on recycling business in both developed and emerging countries. The Company considers that the potential market for this business is considerably large given the amount of global waste. For some years, the Company has been looking to expand the Group’s environmental services business by investing in and establishing waste recycling plants outside China using the existing skills, technology and expertise of the Group. Due to COVID-19, the Group has not been able to implement this plan last year, but with the advent of the COVID-19 vaccine the Company believes it is now time to prepare itself for the reopening of global trade and investment opportunities abroad.

The net proceeds from the issue of the Subscription Shares will be HK$100 million. The Company intends to use the net proceeds to fund part of its investment in the waste recycling plants outside China.

The Directors consider that the terms of the Subscription Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

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EQUITY FUND RAISING ACTIVITIES OF THE COMPANY DURING THE PAST 12 MONTHS

The Company has conducted the following fund-raising activities in the past 12 months before the date of this announcement:

Date of	Fund raising	New proceeds	Intended use of
announcement	activity	(approximately)	proceeds	Actual use of proceeds
1 December 2020	Issue of the	HK$100,000,000	Repayment of the bonds	Repayment of the bonds
	Bonds		of HK$100,000,000	of HK$100,000,000
			due on 29 September	due on 29 September
			2020	2020

Saved as disclosed above, the Company has not conducted any equity fund raising activities in the past 12 months immediately preceding the date of this announcement.

EFFECT OF THE SHAREHOLDING STRUCTURE OF THE COMPANY

The following table illustrates the shareholding structure of the Company (i) as at the date of this announcement; (ii) upon Completion (assuming no conversion of the Bonds and no other Shares are issued and/or repurchased by the Company from the date of this announcement up to and including the date of the Completion); and (iii) upon Completion (assuming fully conversion of the Bonds but no other Shares are issued and/or repurchased by the Company from the date of this announcement up to and including the date of the Completion):

Shareholders Florescent Holdings Limited (Note 1) Subscriber and its associates (Note 2) Public Shareholders Total	(i) As at the date of this announcement Number of Shares Approximate % 312,120,000 42.59% 7,440,000 1.02% 413,335,225 56.39% 732,895,225 100%	(ii) Upon Completion (assuming that no conversion of the Bonds) Number of Shares Approximate % 312,120,000 35.20% 161,286,153 18.19% 413,335,225 46.61% 886,741,378 100%	(iii) Upon Completion (assuming fully conversion of the Bonds) Number of Shares Approximate % 312,120,000 30.37% 302,131,223 29.40% 413,335,225 40.23% 1,027,586,448 100%	(iii) Upon Completion (assuming fully conversion of the Bonds) Number of Shares Approximate % 312,120,000 30.37% 302,131,223 29.40% 413,335,225 40.23% 1,027,586,448 100%
				100%

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Notes:

1. Florescent Holdings Limited, a company owned as to 77.90% by Lian Shun Limited, which in turn is beneficially owned as to 61.31% by Mr. Zhu Gen Rong, as to 20.74% by Mr. Wang Ai Yan and as to 17.95% by Mr. Liu Chuan Jiang, being the executive Directors and the substantial Shareholders. Florescent Holdings Limited holds 312,120,000 Shares representing approximately 42.59% of the issued share capital of the Company as at the date of this announcement. Mr. Zhu Gen Rong and Mr. Wang Ai Yan respectively hold 2,044,000 Shares representing approximately 0.28% of the issued share capital of the Company and 368,000 Shares representing approximately 0.05% of the issued share capital of the Company as at the date of this announcement.

2. The Subscriber and Creation Best are investment holding companies incorporated in British Virgin Islands which are beneficially owned by Mr. Fang Hui. Creation Best will hold 140,845,070 new Shares assuming the Bonds will be fully converted into Shares and upon Completion, the Subscriber will own 153,846,153 Shares. As at the date of this announcement, Mr. Fang Hui holds 7,440,000 Shares.

LISTING RULES IMPLICATIONS

As the Subscription Shares will be allotted and issued under the Specific Mandate to be obtained at the EGM, the Subscription is subject to the Shareholders’ approval. The EGM will be convened for the purpose of considering and, if thought fit, approving, among other things, (i) the grant of the Specific Mandate; and (ii) the Subscription Agreement and the transactions contemplated thereunder.

GENERAL

To the best knowledge of the Directors, no Shareholder will be required to abstain from voting on the resolution(s) approving the aforesaid matters.

A circular containing, among other things, (i) further details of the Subscription; and (ii) a notice convening the EGM, will be despatched to the Shareholders as soon as practicable in accordance with the Listing Rules.

DEFINITIONS

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

“Action” any legal or administrative action, suit or proceeding excluding any preliminary investigation carry out by any Governmental Authority “Applicable Laws” with respect to a person, any laws, regulations, rules, measures, guidelines, treaties, judgments, determination, orders or notices of any Governmental Authority or stock exchange that is applicable to such person

“Board” the board of Directors

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“Bonds”	the 12.0% convertible bonds due 2021 in an aggregate principal
	amount of HK$100,000,000 issued by the Company
“Business Day(s)”	any day (excluding Saturday, Sunday or public holiday) in Hong
	Kong or the Cayman Islands
“Company”	Huazhang Technology Holding Limited, a company incorporated
	in the Cayman Islands with limited liability and the issued Shares
	of which are listed on the Stock Exchange (stock code: 1673)
“Completion”	the completion of the Subscription pursuant to the Subscription
	Agreement
“connected person(s)”	has the meaning ascribed to it under the Listing Rules
“Creation Best”	Creation Best International Limited, a company incorporated in
	Hong Kong with limited liability, which is the holder of the Bonds
“Director(s)”	director(s) of the Company
“Dubai Recycling Project”	the project to establish solid waste-recycling plant(s) in Dubai
	which is being initiated and implemented by Mr. Fang AK and
	members of management team appointed by him
“Dubai Shareholders’	the agreement entered into between the Company and Mr. Fang
Agreement”	AK to establish the joint venture to develop the Dubai Recycling
	Project, further details of which is set out in the announcement
	dated 26 May 2020
“EGM”	the extraordinary general meeting of the Company to be convened
	for the purpose of considering and, if thought fit, approving
	the Subscription Agreement and the transactions contemplated
	thereunder
“Environmental Resources”	Hua Zhang Environmental Resources Investment Limited, a
	company incorporated in Hong Kong
“Fine Global”	Fine Global Enterprises Limited, a company incorporated in the
	British Virgin Islands
“Governmental Authority”	any national, provincial, municipal or local government,
	administrative or regulatory body or department, court, tribunal,
	arbitrator or any body that exercises the function of a regulator

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“Group”	the Company and its subsidiaries
“HeHe Resources”	HeHe Resources FZE, a company incorporated in the Jebel Ali
	Free Zone, Dubai, United Arab Emirates
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	Hong Kong Special Administrative Region of the People’s
	Republic of China
“Listing Committee”	the Listing Committee of the Stock Exchange
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Mr. Fang AK”	Mr. Fang Ankong, the father of Mr. Fang Hui
“Mr. Fang Hui”	Mr. Fang Hui, the ultimate beneficial owner of the Subscriber and
	Creation Best
“PRC”	the People’s Republic of China (for the purpose of this
	announcement excluding Hong Kong, Macau Special
	Administrative Region of the People’s Republic of China and
	Taiwan)
“Share(s)”	share(s) of HK$0.01 each in the share capital of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Specific Mandate”	the specific mandate to be granted by the Shareholders to the
	Board at the EGM for the allotment and issue of the Subscription
	Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscriber”	Dao He Investment Limited, a company incorporated in the British
	Virgin Islands with limited liability
“Subscription”	the subscription for the Subscription Shares by the Subscriber
	pursuant to the Subscription Agreement

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“Subscription Agreement” the subscription agreement dated 2 March 2021 entered into between the Company and the Subscriber in respect of the subscription of 153,846,153 Subscription Shares “Subscription Price” HK$0.65 per Subscription Share

“Subscription Shares” an aggregate of 153,846,153 new Shares to be allotted and issued by the Company to the Subscriber under the Subscription

“%”

per cent.

By order of the Board Huazhang Technology Holding Limited Zhu Gen Rong Chairman

Hong Kong, 2 March 2021

As at the date of this announcement, the executive directors are Mr. Zhu Gen Rong, Mr. Wang Ai Yan, Mr. Liu Chuan Jiang and Mr. Jin Hao, and the independent non-executive directors are Mr. Dai Tian Zhu, Mr. Kong Chi Mo and Mr. Heng, Keith Kai Neng.

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