Kingwell Group Limited — M&A Activity 2019

Jun 21, 2019

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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KINGWELL GROUP LIMITED 京維集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1195)

MAJOR TRANSACTION IN RELATION TO THE DISPOSAL OF 35% EQUITY INTERESTS IN THE TARGET COMPANY

Financial adviser to the Company

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THE DISPOSAL

On 21 June 2019 (after trading hours), the Company and the Purchaser entered into the Sale and Purchase Agreement, pursuant to which the Company conditionally agreed to sell and the Purchaser conditionally agreed to acquire the Sale Shares, being 35% equity interests in the Target Company, at the Consideration of RMB53.0 million (equivalent to approximately HK$60.4 million).

Upon Completion, the Company will cease to have any interest in the Target Company, and the financial results of the Target Company will no longer be consolidated into the consolidated financial statements of the Company.

IMPLICATIONS OF THE LISTING RULES

As one or more of the applicable percentage ratios calculated pursuant to Rule 14.07 of the Listing Rules in respect of the Disposal is more than 25% but less than 75%, the Disposal constitutes a major transaction for the Company under Rule 14.06(3) of the Listing Rules and is subject to reporting, announcement and Shareholders’ approval requirements under Chapter 14 of the Listing Rules.

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To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, no Shareholder is required to abstain from voting on the resolution(s) in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder at the EGM.

A circular containing, amongst other matters, further details of the Disposal and the notice of the EGM will be dispatched to the Shareholders on or before 15 July 2019 in compliance with the Listing Rules.

Shareholders and potential investors should note that the Completion is subject to fulfilment of the conditions precedent under the Sale and Purchase Agreement. As the Disposal may or may not proceed, shareholders and potential investors of the Company are advised to exercise caution when dealing in the Shares and if there is any doubt about their positions, they should consult their professional advisers.

THE DISPOSAL

On 21 June 2019 (after trading hours), the Company and the Purchaser entered into the Sale and Purchase Agreement, pursuant to which the Company conditionally agreed to sell and the Purchaser conditionally agreed to acquire the Sale Shares, being the 35% equity interests in the Target Company, at the Consideration of RMB53.0 million (equivalent to approximately HK$60.4 million).

Major terms of the Sale and Purchase Agreement are as follows:

THE SALE AND PURCHASE AGREEMENT

Date: 21 June 2019

Parties: (i) the Company as the vendor; and

(ii) Wu Fong Shing as the Purchaser

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Purchaser is an Independent Third Party.

Asset to be disposed

The Sale Shares, representing 35% equity interests in the Target Company comprising an aggregate of 17,500 shares of the Target Company, free from any lien, charge or encumbrance.

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Consideration

The Consideration of RMB53.0 million (equivalent to approximately HK$60.4 million) shall be settled in cash by the Purchaser in the following manner:

• (i) first instalment of RMB10.6 million (equivalent to approximately HK$12.1 million) is payable within five Business Days from the date of the Sale and Purchase Agreement;

• (ii) second instalment of RMB10.6 million (equivalent to approximately HK$12.1 million) is payable within five Business Days after three months from the date of the Sale and Purchase Agreement;

• (iii) third instalment of RMB10.6 million (equivalent to approximately HK$12.1 million) is payable within five Business Days after six months from the date of the Sale and Purchase Agreement;

• (iv) fourth instalment of RMB10.6 million (equivalent to approximately HK$12.1 million) is payable within five Business Days after nine months from the date of the Sale and Purchase Agreement; and

• (v) remaining RMB10.6 million (equivalent to approximately HK$12.1 million) is payable within five Business Days after twelve months from the date of the Sale and Purchase Agreement, or within five Business Days after the Completion (whichever is later).

The Consideration was determined after arm’s length negotiations between the Company and the Purchaser after taking into account of (i) the Group's share of net assets of the Target Company as at 30 June 2018 of approximately RMB50.3 million (equivalent to approximately HK$57.3 million); and (ii) financial performance and licensing issue of the Target Company and its subsidiaries. The Directors are of the view that the Consideration is fair and reasonable.

Conditions precedent

Completion is conditional upon the fulfillment of the following Conditions:

• (i) the Shareholders having approved the Sale and Purchase Agreement and the transactions contemplated thereunder at the EGM;

• (ii) the Sale and Purchase Agreement and transactions contemplated thereunder have been completed in accordance with the memorandum and articles of association of the Company and all applicable laws and regulations (including the Listing Rules); and

• (iii) warranties given by the Purchaser and the Company remaining true, accurate and not misleading in all material respects prior to Completion, and there have been no circumstances that would reasonably cause the warranties to be no longer true, accurate and not misleading.

None of the Conditions can be waived without consent of both the Purchaser and the Company.

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The Company and the Purchaser shall use their best endeavour to procure the fulfilment of the Conditions. If any of the Conditions are not satisfied by 30 June 2020, the Company and the Purchaser may extend the latest time for satisfying all the Conditions by mutually agreeing in writing or terminate the Sale and Purchase Agreement.

Undertaking, Warranties and Indemnity

The Company and the Purchaser have given customary warranties to the other party.

Completion

Completion shall take place on the seventh business day after all the Conditions have been fulfilled or any other day at any venue the Company and the Purchaser both agreed upon.

Upon Completion, the Target Company will cease to be an associate company of the Company.

INFORMATION ON THE TARGET COMPANY

The Target Company is an investment holding company incorporated in the British Virgin Islands with limited liability. As at the date of this announcement, the Company is interested in 35% of the Target Company and financial results of the Target Company are consolidated as “investment in an associate” in the financial statements of the Group.

The Target Company has two 70% owned subsidiaries, namely Longkou Jinxin and Longkou Jinhui, which are engaged in the mining, processing, refining and sale of gold bars in the PRC.

Longkou Jinxin

The Longkou Jinxin, a company established in the PRC on 28 June 2005 with limited liability which holds the mine exploitation license and exploration license of the Shanchakou Mine, and owns a gold processing plant and a gold refinery plant.

Longkou Jinhui

The Longkou Jinhui was established on 20 September 1999, a company established in the PRC with limited liability which holds the gold mine exploitation license of the Yaojia Mine.

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Summary of financial information of the Target Company for the two years ended 30 June 2017 and 2018 are set out below:

Total assetsTotal liabilitiesNet assetsNon-controlling interestsReconciliation to the Group’s interest in the Target Company:Proportion of the Group’s ownershipGroup’s share of net assets of the Target CompanyRevenueLoss for the year attributable to:Owners of the Target CompanyNon-controlling interests of the Target Company	As at 30 June20172018RMB’000RMB’000394,343390,559(147,134)(153,367)247,209237,192(96,440)(93,592)150,769143,60035%35%52,76950,260For the year ended 30 June20172018RMB’000RMB’00049,8674,637(18,035)(7,168)(7,772)(2,894)

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INFORMATION ON THE PURCHASER

The Purchaser is the controlling shareholder of the Target Company, interested in 65% equity interest in the Target Company comprising an aggregate of 32,500 shares of the Target Company.

REASONS FOR AND BENEFIT OF THE DISPOSAL

The Company is principally engaged in property development, property leasing and gold mining business.

The Sale Shares were acquired on 30 January 2015, however, performance of the Target Company has not been satisfactory. Due to decrease in production volume by Longkou Jinxin and Longkou Jinhui and plunging gold price, the Target Company recorded a net loss of approximately RMB25.8 million (equivalent to approximately HK$29.4 million) and approximately RMB10.1 million (equivalent to approximately HK$11.5 million) for the financial year ended 30 June 2017 and 2018, respectively. As a result, the Group shared loss of the Target Company of approximately RMB6.3 million (equivalent to approximately HK$7.2 million) and approximately RMB2.5 million (equivalent to approximately HK$2.9 million) for the financial year ended 30 June 2017 and 2018, respectively. The Company had also recorded an impairment loss of approximately RMB73.1 million (equivalent to approximately HK$83.3 million) for the year ended 30 June 2017.

In addition, the mine exploitation license and exploration license of the Shanchakou Mine had expired on 1 June 2018 and 28 September 2018 respectively, and the mine exploitation license of the Yaojia Mine had expired on 31 December 2017. Although Longkou Jinxin and Longkou Jinhui had applied for the renewal of the above licenses, as at the date of this announcement, due to the tightened environmental regulations, no renewal approval was granted by the provincial government. Management of the Target Company is of the view that it would be difficult to obtain licenses renewal under the tightened regulations.

On another hand, given the present economic condition and political tension between the United States and the PRC, gold price is expected to be volatile, which cast further uncertainty over the gold mining industry.

In view of (i) the detreating financial performance of the Target Company; (ii) the expiration of licenses of the Shanchakou Mine and Yaojia Mine; (iii) the difficulty of renewing the mining licenses; and (iv) the prospect of the gold mining industry, the Company has been devoting more resources in property related businesses. In 2018 and 2019, the Company acquired a property management business and 700 carpark spaces in Xuzhou City. The Company is also actively searching for new investment opportunities in property market and suitable site for property development project. As such, the Board believes that the Disposal is in line with the investment strategy of the Group.

Based on the abovementioned factors, the Directors consider that the terms of the Sale and Purchase Agreement are fair and reasonable, and the Disposal is in the interests of the Company and its Shareholders as a whole.

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USE OF PROCEEDS

The Group intends to apply the proceeds from the Disposal for (i) new investment opportunities in property market in the PRC; (ii) settle part of the outstanding consideration due for the acquisition of 700 carpark spaces in Xuzhou City; and (iii) general working capital of the Group.

FINANCIAL EFFECT OF THE DISPOSAL

As a result of the Disposal, the Group is expected to record an unaudited gain of approximately RMB2.7 million (equivalent to approximately HK$3.1 million) which represents the difference between the Consideration of RMB53.0 million (equivalent to approximately HK$60.4 million) and the proportion of equity interest in the Target Company of the Group of approximately RMB50.3 million (equivalent to approximately HK$57.3 million) as at 30 June 2018.

Upon Completion, the Company will cease to have any interest in the Target Company, and the financial results of the Target Company will no longer be consolidated into the consolidated financial statements of the Company.

IMPLICATIONS OF THE LISTING RULES

As one or more of the applicable percentage ratios calculated pursuant to Rule 14.07 of the Listing Rules in respect of the Disposal is more than 25% but less than 75%, the Disposal constitutes a major transaction for the Company under Rule 14.06(3) of the Listing Rules and is subject to the reporting, announcement and Shareholders’ approval requirements under Chapter 14 of the Listing Rules.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, no Shareholder is required to abstain from voting on the resolution(s) in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder at the EGM.

A circular containing, amongst other matters, further details of the Disposal and the notice of the EGM will be dispatched to the Shareholders on or before 15 July 2019 in compliance with the Listing Rules.

Shareholders and potential investors should note that the Completion is subject to fulfilment of the conditions precedent under the Sale and Purchase Agreement. As the Disposal may or may not proceed, shareholders and potential investors of the Company are advised to exercise caution when dealing in the Shares and if there is any doubt about their positions, they should consult their professional advisers.

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DEFINITIONS

In this announcement, unless the context otherwise requires, the following words and expressions have the following meanings ascribed to them respectively:

“associate(s)”	has the same meaning ascribed thereto under the Listing Rules
“Board”	the board of Directors
“Business Day(s)”	any day other than a Saturday, Sunday or public holiday on which banks
	are generally open for business in Hong Kong
“Company”	Kingwell Group Limited（京維集團有限公司）, a limited company
	incorporated in Cayman Islands with limited liability and the shares of
	which are listed on the main board of the Stock Exchange (stock code:
	1195)
“Completion”	completion of the Disposal
“Conditions”	The conditions precedent to the Completion as set out in the paragraph
	headed “Conditions Precedent” under the section headed “The Sale and
	Purchase Agreement” in this announcement
“connected person(s)”	has the same meaning ascribed to it in the Listing Rules
“Consideration”	the consideration of RMB53.0 million (equivalent to approximately
	HK$60.4 million) payable by the Purchaser to the Company for the
	Disposal pursuant to the Sale and Purchase Agreement
“Director(s)”	the director(s) of the Company
“Disposal”	the proposed disposal of 35% equity interests in the Target Company
	by the Company to the Purchaser pursuant to the terms of the Sale and
	Purchase Agreement
“EGM”	the extraordinary general meeting of the Company to be convened
	for the purpose of considering, and if thought fit, approving, among
	other things, the Sale and Purchase Agreement and the transactions
	contemplated thereunder
“Group”	the Company and its subsidiaries

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“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Independent Third Party”	any person or company and their respective ultimate beneficial
	owner(s), to the best knowledge, information and belief of the Directors
	and having made all reasonable enquiries, is a third party independent
	of the Company and its connected persons
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“Longkou Jinhui”	龍口市金滙黃金有限責任公司(Longkou Jinhui Gold Company
	Limited*), a subsidiary of the Target Company and is mainly engaged in
	the mining, processing, refining and sale of gold bars in the PRC
“Longkou Jinxin”	龍口市金鑫黃金有限公司(Longkou Jinxin Gold Company Limited*),
	a subsidiary of the Target Company and is mainly engaged in the
	mining, processing, refining and sale of gold bars in the PRC
“PRC”	The People’s Republic of China
“Purchaser”	Wu Fong Shing, who is the controlling shareholder of the Target
	Company, interested in 65% equity interest in the Target Company
“RMB”	Renminbi, the lawful currency of PRC
“Sale and Purchase	the sale and purchase agreement dated 21 June 2019 entered into
Agreement”	between the Company and the Purchaser in relation to the Disposal
“Sale Share(s)”	the 17,500 shares, representing 35% equity interests in the Target
	Company to be disposed of by the Company to the Purchaser
“Shanchakou Mine”	the mining asset of Longkou Jinxin, located at Dazhuangzi Village,
	Xiadingjia Town, Longkou City, Shandong Province, PRC
“Share(s)”	ordinary share(s) of HK$0.10 each in the issued share capital of the
	Company

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“Shareholder(s)” holder(s) of the Share(s)

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Target Company” Port First Limited（首港有限公司）, a limited company established in British Virgin Islands, held as to 35% by the Company and as to 65% by the Purchaser, and principally engages in investment holdings

“Xuzhou City”

a city in Jiangsu Province, the PRC

“Yaojia Mine” the mining asset of Longkou Jinhui, located at Huangshanguan Town, Longkou City, Shandong Province, PRC

“%” per cent

The exchange rate used for the purpose of this announcement is at RMB1.00 = HK$1.14.

By Order of the Board Kingwell Group Limited Mu Dongsheng Chairman

Hong Kong, 21 June 2019

As at the date of this announcement, the Board comprises Mr. Mu Dongsheng and Mr. Sze Ming Yee as executive Directors, Mr. Cheung Chuen, Mr. Ling Aiwen and Mr. Lu Lin as independent non-executive Directors.

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