Li Ning Company Limited - Proxy Solicitation & Information Statement 2018

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, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Chinlink International Holdings Limited, you should at once hand this circular to the purchaser(s) or the transferee(s), or to 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(s) or the transferee(s).

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 losses howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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CHINLINK INTERNATIONAL HOLDINGS LIMITED 普匯中金國際控股有限公司*

(Incorporated in Bermuda with limited liability)

(Stock Code: 0997)

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 26.625% EQUITY INTERESTS IN TWO NON-WHOLLY OWNED PRC SUBSIDIARIES

Capitalised terms used on this cover shall have the same meanings as those defined in this circular, unless the context requires otherwise. A letter from the Board is set out on pages 4 to 14 of this circular.

25 June 2018

for identification purposes only

CONTENTS

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4
APPENDIX I	– FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . . .	I-1
APPENDIX II	– FINANCIAL INFORMATION OF THE TARGET COMPANIES .	II-1
APPENDIX III	– UNAUDITED PRO FORMA FINANCIAL INFORMATION OF
	THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV	– PROPERTY VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
APPENDIX V	– GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1

– i –

DEFINITIONS

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

‘‘Acquisition’’

the acquisition of the Sale Interest by the Company from the Vendor pursuant to the terms and conditions of the S&P Agreement

‘‘Board’’ the board of Directors
‘‘Business Day’’

a day (other than a Saturday, Sunday and public holidays) on which licensed banks in Hong Kong are open for general business during their normal business hours

‘‘Commercial Complex’’
Daminggong Construction Materials and Furniture Shopping Centre (Dongshanhuan Branch) which forms part of the Property

‘‘Company’’ Chinlink International Holdings Limited, a company incorporated in Bermuda whose issued Shares are listed on the main board of the Stock Exchange (Stock Code: 0997)

‘‘Completion’’
completion of the Acquisition in accordance with the terms and conditions of the S&P Agreement
‘‘Completion Date’’ the date of Completion, which took place on 15 February 2018
‘‘connected person(s)’’

has the meaning ascribed to it under the Listing Rules

‘‘Consideration’’
the cash consideration of RMB295,941,700 (equivalent to approximately HK$366,079,880) for the Acquisition
‘‘Director(s)’’ the director(s) of the Company from time to time
‘‘Enlarged Group’’ the Group as enlarged by the Target Companies
‘‘Finance Lease Company’’ 普匯中金融資租賃有限公司 (Chinlink Finance Lease Company Limited*), a company established as a wholly foreign-owned company in the PRC and currently an indirect non-wholly-owned subsidiary of the Company

– 1 –

DEFINITIONS

‘‘Financial Guarantee Company’’ 陝西普匯中金融資擔保有限公司 (Shaanxi Chinlink Financial Guarantee Limited*), a company established as a wholly foreign-owned company in the PRC and currently an indirect non-wholly-owned subsidiary of the Company
‘‘Group’’ the Company and its subsidiaries ‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC ‘‘Latest Practicable Date’’ 22 June 2018 being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange
‘‘Long Stop Date’’ the date falling within one month after the date of the S&P Agreement, or such other date as the parties to the S&P Agreement may agree
‘‘Mr. Li’’ Mr. Li Weibin, a controlling shareholder of the Company ‘‘Phase Two Land’’ the remaining undeveloped portion of the land parcel adjacent to the Commercial Complex
‘‘PRC’’ the People’s Republic of China, which for the purpose of this circular, shall exclude Hong Kong, Macau Special Administrative Region of the PRC and Taiwan
‘‘Property’’ the land parcel and shopping mall owned by the Target Company A situated at the east side of Banyin Road, Baqiao District, Xian City, Shaanxi Province, PRC[#] （中國陝西省西安市灞橋區半引路東側）
‘‘S&P Agreement’’ the sale and purchase agreement dated 30 January 2018 (as amended by a supplemental agreement on 15 February 2018) and entered into between the Vendor and the Company in respect of the Acquisition
‘‘Sale Interest’’ 26.625% of the entire equity interests in each of the Target Companies held by the Vendor before Completion

– 2 –

DEFINITIONS

‘‘SFC’’

the Securities and Futures Commission of Hong Kong

‘‘Share(s)’’
ordinary share(s) of HK$0.3125 each in the share capital of the Company
‘‘Shareholder(s)’’

holder(s) of the Share(s)

‘‘Stock Exchange’’

The Stock Exchange of Hong Kong Limited

‘‘Target Company A’’
西安唐榮置業有限公司 (Xi’an Tang Rong Real Estate Limited[#] ), a company established in the PRC with limited liability and a 73.375%-owned subsidiary of the Company before Completion
‘‘Target Company B’’
西安大明宮灞橋建材家居有限公司 (Xi’an Da Ming Gong Ba Qiao Furniture and Fixture Limited[#] ), a company established in the PRC with limited liability and a 73.375%-owned subsidiary of the Company before Completion
‘‘Target Companies’’
Target Company A and Target Company B collectively
‘‘Vendor’’
西安中天科技有限責任公司 (Xi’an Zhongtian Technology Company Limited[#] ), a company established in the PRC with limited liability and the registered and beneficial owner of 26.625% of the entire equity interests in each of the Target Companies before Completion
‘‘Wealth Keeper’’
Wealth Keeper International Limited, a company incorporated in the British Virgin Islands and the entire issued share capital of which is owned by Mr. Li, which as at the Latest Practicable Date is beneficially interested in 824,763,200 Shares representing approximately 62.25% of the issued share capital of the Company
‘‘HK$’’
Hong Kong dollars, the lawful currency of Hong Kong
‘‘RMB’’ Renminbi, the lawful currency of the PRC
‘‘%’’
per cent.

In this circular, amounts in RMB are translated into HK$ on the basis of RMB1 = HK$1.1237. The conversion rate is for illustration purpose only and should not be taken as a representation that RMB could actually be converted into HK$ at such rate or at other rates or at all.

– 3 –

LETTER FROM THE BOARD

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CHINLINK INTERNATIONAL HOLDINGS LIMITED 普匯中金國際控股有限公司*

(Incorporated in Bermuda with limited liability)

(Stock Code: 0997)

Executive Directors:

Mr. Li Weibin (Chairman and Managing Director) Mr. Siu Wai Yip Ms. Lam Suk Ling, Shirley Mr. Lau Chi Kit

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Non-executive Director: Ms. Fung Sau Mui

Independent non-executive Directors:

Dr. Ho Chung Tai, Raymond Ms. Lai Ka Fung, May Ms. Chan Sim Ling, Irene

Head Office and Principal Place of Business in Hong Kong: Suites 5-6, 40/F One Exchange Square 8 Connaught Place Central, Hong Kong

25 June 2018

To the Shareholders and, for information only, holders of the Share Options and the outstanding convertible bonds of the Company

Dear Sir/Madam,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 26.625% EQUITY INTERESTS IN TWO NONWHOLLY OWNED PRC SUBSIDIARIES

A. INTRODUCTION

Reference is made to (a) the announcements of the Company dated 18 February 2015, 30 April 2015, 29 May 2015, 30 June 2015, 31 July 2015 and 31 August 2015 in relation to, among other things, the acquisition by the Group of the entire issued share capital of E-Innovation

For identification purposes only

– 4 –

LETTER FROM THE BOARD

Limited which indirectly holds 73.375% equity interests in each of the Target Companies; and (b) the announcements of the Company dated 30 January 2018 and 15 February 2018 in relation to, among other things, the acquisition of the Sale Interest, which represents 26.625% of the entire equity interests of each of the Target Companies, at a total cash consideration of RMB295,941,700 (equivalent to approximately HK$366,079,880).

Mr. Li, through his controlled company, has provided an unsecured short-term interest-free bridging loan facility to the Group for the settlement of the Consideration, and following the satisfaction of all the conditions precedent under the S&P Agreement, Completion took place on 15 February 2018.

As one or more of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) in respect of the Acquisition exceeds 25% but all are less than 100%, the Acquisition constitutes a major transaction of the Company under the Listing Rules and is subject to reporting, announcement and Shareholders’ approval requirements under Chapter 14 of the Listing Rules.

Since no Shareholder is required to abstain from voting if the Company were to convene a general meeting for the approval of the S&P Agreement and the transactions contemplated thereunder, and the Company has obtained a written approval for the S&P Agreement and the transactions contemplated thereunder from Wealth Keeper and Mr. Li (the controlling shareholders of the Company holding in aggregate 363,188,358 Shares, representing approximately 53.12% of the issued share capital of the Company as at the date of entering into the S&P Agreement), a general meeting of the Company to approve the S&P Agreement and the transactions contemplated thereunder will not be required pursuant to Rule 14.44 of the Listing Rules and will not be convened.

As the Vendor was a substantial shareholder of the Target Companies and the Target Companies were non-wholly owned subsidiaries of the Company before Completion, the Vendor was considered as a connected person of the Company under Rule 14A.07 of the Listing Rules. Since the Vendor was a connected person of the Company at the subsidiary level only and the Board has approved the Acquisition and the independent non-executive Directors have confirmed that the terms of the Acquisition are fair and reasonable and are on normal commercial terms or better and in the interests of the Company and the Shareholders as a whole, the Acquisition is exempted from independent financial advice requirements under Rule 14A.101 of the Listing Rules.

The purpose of this circular is to provide you with, among other things, further details of the S&P Agreement, the accountants’ report of the Target Companies, the pro forma financial information of the Enlarged Group and the valuation of the Property.

– 5 –

LETTER FROM THE BOARD

B. THE ACQUISITION

The S&P agreement

Date

30 January 2018 (as amended by a supplemental agreement dated 15 February 2018)

Parties

(1) The Company; and
(2) The Vendor

To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, the Vendor is a company established in the PRC with limited liability and was the registered and beneficial owner of 26.625% of the entire equity interests of each of the Target Companies before Completion. It is principally engaged in research and development, manufacturing and sales of electronic components.

Since the Vendor was a substantial shareholder of each of the Target Companies which are non-wholly owned subsidiaries of the Company prior to Completion, it was a connected person to the Company.

Assets to be acquired

The Sale Interest, representing 26.625% of the entire equity interests of each of the Target Companies.

Consideration

The Consideration for the Acquisition is RMB295,941,700 (equivalent to approximately HK$366,079,880) which shall be satisfied in cash by the Company or its nominee to the Vendor or its nominee at Completion.

The Consideration was determined after arm’s length negotiation between the Company and the Vendor with reference to (i) the unaudited management accounts of the Target Companies as at 30 September 2017 prepared in accordance with the generally accepted accounting principles of the PRC; (ii) the preliminary fair value of the Property held by the Target Companies prepared by an independent valuer, based on direct market approach, of not less than RMB2,000,000,000 as at 30 September 2017; and (iii) the business prospect of the Target Companies.

– 6 –

LETTER FROM THE BOARD

Mr. Li had initially provided, through his controlled company, an unsecured short-term interest free bridging loan facility to the Group for the settlement of the Consideration upon Completion. The substantial part of such bridging loan has subsequently been re-financed by a secured 2-year loan facility of US$41,000,000 made available to the Company in April 2018 (details of which were set out in the announcement of the Company dated 15 February 2018).

Based on the above, the Directors consider that the Consideration is fair and reasonable to the Company and taking into account the reasons as further elaborated in the section headed ‘‘Reasons for and Benefits of the Acquisition’’ below, the Acquisition is in the interests of the Company and the Shareholders as a whole.

Conditions precedent

Completion of the S&P Agreement was conditional upon the following conditions precedent to be satisfied by 4:00 p.m. on the date falling within one month after the date of the S&P Agreement:

(1) the Shareholders passing at a special general meeting the resolutions approving the S&P Agreement and the transactions contemplated thereunder or Shareholders holding not less than 50% of the voting rights approving the aforementioned matters by way of written shareholders’ approval in lieu of holding a general meeting;
(2) all necessary consents, licences and approvals for or in connection with the sale of the Sale Interest having been obtained by the Vendor;
(3) all necessary consents, licences and approvals for or in connection with the purchase of the Sale Interest having been obtained by the Group; and
(4) there being no event, fact or circumstance which constitutes a breach or a potential breach of the warranties given by the Vendor or other provisions under the S&P Agreement.

– 7 –

LETTER FROM THE BOARD

Completion

Completion took place on 15 February 2018. After Completion, the Target Companies are now indirect wholly-owned subsidiaries of the Company. The financial results of the Target Companies have already been consolidated into the Group and will remain so after Completion.

Information on the Target Companies

Business of the Target Companies

Target Company A

Target Company A is a company established in the PRC with limited liability and was indirectly owned as to 73.375% by the Company and directly held as to 26.625% by the Vendor immediately prior to Completion. After Completion and as at the Latest Practicable Date, it is an indirect wholly owned subsidiary of the Company. It is the holder of the Property and is principally engaged in leasing of properties.

Target Company B

Target Company B is a company established in the PRC with limited liability and was indirectly owned as to 73.375% by the Company and directly held as to 26.625% by the Vendor immediately prior to Completion. After Completion and as at the Latest Practicable Date, it is an indirect wholly owned subsidiary of the Company. It is principally engaged in operation and management of commercial buildings.

– 8 –

LETTER FROM THE BOARD

Shareholding structure of the Target Companies

Immediately prior to Completion

==> picture [261 x 245] intentionally omitted <==

----- Start of picture text -----

Company
100%
Esteemed Zone Limited
100%
E-Innovation Limited
100%
High Express
Vendor
International Limited
73.375% 26.625%
Target Company A Target Company B
----- End of picture text -----

– 9 –

LETTER FROM THE BOARD

Immediately after Completion and as at the Latest Practicable Date

==> picture [409 x 309] intentionally omitted <==

----- Start of picture text -----

Company
100% 100%
Dawn Brightness Global
Esteemed Zone Limited
Limited
100% 100%
E-Innovation Limited Fair Fortune Group Limited
100% 100%
High Express
Brave Plan Limited
International Limited
100%
73.375% 西安普中商業運營管理
有限公司
26.625% 73.375% 26.625%
Xian Chinlink Commercial
Operation Management
Company Limited
Target Company A Target Company B
----- End of picture text -----*

For identification purpose only

– 10 –

LETTER FROM THE BOARD

Financial information of the Target Companies

Set out below is the audited turnover and profit before and after taxation of Target Company A (prepared in accordance with the generally accepted accounting principles in Hong Kong) for each of the two financial years ended 31 March 2017 and 31 March 2018 as extracted from Appendix II to this circular:

	For the year	For the year
	ended	ended
	31 March 2017	31 March 2018
	(HK$’000)	(HK$’000)
Turnover	22,611	27,172
Profit before taxation	105,458	157,594
Profit after taxation	85,611	130,638

According to the audited accounts of Target Company A, the audited net asset value of Target Company A (prepared in accordance with the generally accepted accounting principles in Hong Kong) was approximately HK$1,774,599,000 as at 31 March 2018.

Set out below is the audited turnover and profit before and after taxation of Target Company B (prepared in accordance with the generally accepted accounting principles in Hong Kong) for each of the two financial years ended 31 March 2017 and 31 March 2018 as extracted from Appendix II to this circular:

		For the year	For the year
		ended	ended
		31 March 2017	31 March 2018
		(HK$’000)	(HK$’000)
Turnover		54,450	65,621
(Loss)/Profit	before taxation	(8,745)	45,175
(Loss)/Profit	after taxation	(8,745)	45,175

According to the audited accounts of Target Company B, the audited net asset value of Target Company B (prepared in accordance with the generally accepted accounting principles in Hong Kong) was approximately HK$72,250,000 as at 31 March 2018.

– 11 –

LETTER FROM THE BOARD

Management discussion and analysis of the results of the Target Companies

The management discussion and analysis of the results of the Target Companies for the three years ended 31 March 2016, 2017 and 2018 are set out in Appendix II to this circular:

Reasons for and benefits of the Acquisition

The Group is principally engaged in property investment, trading (including mainly electronic components and appliance, consumer products and furniture and fixtures, etc.), provision of financing guarantee services, finance leasing services and logistics services in the PRC and interior decoration works in Hong Kong and Macau Special Administrative Region of the PRC.

In view of the rapid and continuous economic growth of the Shaanxi Province and the urbanisation of the surrounding regions, the geographical advantage of locating at one of the most prosperous districts of the Shaanxi Province, and the well-established scope and reputation as a distribution centre of construction and related materials, the Directors consider that the Target Companies, which are engaged in property development and property management in the regions, have a tremendous growth potential.

In August 2015, the Group completed the acquisition of 73.375% of the equity interests in each of the Target Companies. Since then, the Property owned by Target Company A has been developed into a leading base for trading of interior building materials in the region by integrating the provision of construction and related materials both commercial and residential premises in the nearby area. Besides, the Target Companies have recorded considerable rental income and management services fee income that have been contributing to the financial results of the Group.

Having considered the income contribution to the Group, the business potential of the property development and management market and the potential appreciation of the Property owned by the Target Companies, the Acquisition allows the Group to increase its equity interests in the Target Companies from 73.375% to 100%, which will further strengthen the ability of the Group to control its pace of development in the property development business, further developing the Phase Two Land which will enlarge the customer base of the Group and thus strengthening the synergy effect with the existing business of the Group.

– 12 –

LETTER FROM THE BOARD

In respect of the development on Phase Two Land, in 2015, it was originally planned to develop a mixed-use commercial and residential building with total gross area of 119,000 square metres and would be completed by end of 2016. Due to the unfavorable Xi’an property market condition during the last few years, the development was postponed. However, in the past 12 months, Xi’an real estates experienced a strong surge especially in the residential sector. The commercial sector for office and retail is lagging behind but it is generally expected to pick up very soon. Further, there has been substantial demographic changes in the neighborhood around Phase Two Land. As part of the overall Xi’an old city redevelopment scheme, the area is now built with high-rise residential estates occupied mostly by young families with relatively high spending power and preference for lifestyle shopping experience. Considering such change and the up-side potential, the Group intends to change the development plan as to develop a life-style retail and leisure complex providing the same 119,000 square metres to integrate with the Commercial Complex. The construction work will commence in the third quarter of 2019 and is expected to be completed in the third quarter of 2022. Accordingly, rental of the development will begin in the fourth quarter of 2022. The Group is intended to keep it as long-term investment, generating rental income and management services fee income but does not rule out the possibility for partial sale should the market condition becomes highly favorable.

Based on the above, the Directors consider that the entering into of the S&P Agreement, the Acquisition, and the transactions contemplated thereunder are in the best interests of the Company and the Shareholders as a whole. The independent non-executive Directors have confirmed that the terms of the Acquisition are fair and reasonable and are on normal commercial terms or better and in the interests of the Company and the Shareholders as a whole.

As none of the Directors has a material interest in the transactions contemplated under the S&P Agreement, none of them abstained from voting on the Board resolutions approving the S&P Agreement.

Financial effect of the Acquisition

After Completion, the Target Companies became indirect wholly-owned subsidiaries of the Company. The financial results of the Target Companies have already been consolidated into the Group and remained so after Completion. As reflected in the unaudited pro forma financial information of the Enlarged Group set out in Appendix III to this circular, the Acquisition would have little effect on the total assets of the Group but would increase the total liabilities of approximately HK$346.8 million primarily due to the provision of a bridging loan by Mr. Li’s controlled company to settle the Consideration. Based on the audited financial information of the Target Companies for the year ended 31 March 2018 shown in the accountants’ report set out in Appendix II to this circular, the turnover and the profit before tax of the Target Companies have both shown notable growth for the year ended 31 March 2018 as compared to last financial year. Accordingly, it is reasonably believed by the Board that the Target Companies would contribute substantially to the future earnings of the Group after Completion.

– 13 –

LETTER FROM THE BOARD

Listing Rules implication

Recommendation

The Board considers that the terms of the S&P Agreement, the Acquisition and the transactions contemplated thereunder are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

Additional information

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

By order of the Board

Chinlink International Holdings Limited Mr. Li Weibin

Chairman

– 14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Financial information on the Group for each of the three financial years ended 31 March 2015, 2016 and 2017 and the six months ended 30 September 2017 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.chinlinkint.com/en_US/index.html):

annual report of the Company for the year ended 31 March 2015 published on 29 July 2015 (pages 80 to 211);
annual report of the Company for the year ended 31 March 2016 published on 28 July 2016 (pages 89 to 263);
annual report of the Company for the year ended 31 March 2017 published on 27 July 2017 (pages 119 to 307); and
interim report of the Company for the six months ended 30 September 2017 published on 21 December 2017 (pages 36 to 96).

I – 1

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. STATEMENT OF INDEBTEDNESS AND CONTINGENT LIABILITIES

As at the close of business on 30 April 2018, being the latest practicable date for the sole purpose of this statement of indebtedness prior to the date of this Circular, the Group had outstanding borrowings comprising the following:

Bank borrowings, secured and guaranteed Bank overdraft, secured and guaranteed Amounts due to the Company’s former subsidiaries, unsecured and unguaranteed Amounts due to related companies of the Group, unsecured and unguaranteed Other borrowings, secured and guaranteed Other borrowings, unsecured and unguaranteed Loans from staff of the Group, unsecured and unguaranteed 9% coupon bonds of the Company, unsecured and guaranteed 12% coupon bonds of the Company, unsecured and guaranteed Obligations under finance leases, secured and unguaranteed Amount due to a director of the Company, unsecured and unguaranteed	HK$’000 970,839 9,992 9,536 492,621 346,789 104,877 29,705 350,000 117,728 844 8,363
	2,441,294

Bank borrowings, secured and guaranteed
Bank overdraft, secured and guaranteed
Amounts due to the Company’s former subsidiaries,
unsecured and unguaranteed
Amounts due to related companies of the Group,
unsecured and unguaranteed
Other borrowings, secured and guaranteed
Other borrowings, unsecured and unguaranteed
Loans from staff of the Group, unsecured and unguaranteed
9% coupon bonds of the Company, unsecured and guaranteed
12% coupon bonds of the Company, unsecured and guaranteed
Obligations under finance leases, secured and unguaranteed
Amount due to a director of the Company, unsecured and unguaranteed

HK$’000
970,839
9,992
9,536
492,621
346,789
104,877
29,705
350,000
117,728
844
8,363

2,441,294

Bank borrowings and bank overdraft

As at 30 April 2018, the secured and guaranteed bank borrowings and bank overdraft of approximately HK$970,839,000 and HK$9,992,000 of the Group were secured by:

a) investment properties of the Group located in the PRC;
b) properties, plant and equipment and bank deposits of the Group; and
c) Assignment of rights over Mr. Li life insurance policy.

Other borrowings

As at 30 April 2018, the secured and guaranteed other borrowings of the Company of approximately HK$346,789,000 were secured by the investment properties under construction of the Group.

I – 2

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Obligation under finance lease

As at 30 April 2018, the finance lease obligation of approximately HK$844,000 of the Group was secured by the lessor’s charge over the leased asset of the Group.

Contingent liabilities or guarantees

As at 30 April 2018, the Group has entered into agreements with banks and other lenders in respect of its financing guarantee services to provide corporate guarantees with respect to bank loans granted to independent third parties and related companies. The maximum liabilities of the Group as at 30 April 2018 under these guarantees were approximately HK$383,780,000 and such guarantees were secured by pledged bank deposits of the Group of approximately HK$245,270,000.

Disclaimer

Except as disclosed above and apart from intra-group liabilities, the Group did not have, as of 30 April 2018, any other debt securities issued and outstanding, and authorised or otherwise created but unissued, terms loans, other borrowings and indebtedness, bank overdrafts, liabilities under acceptances (other than normal trade bills), acceptance credits, hire purchases commitments, finance lease obligations, mortgages, charges, guarantees or other material contingent liabilities.

3. WORKING CAPITAL STATEMENT

The Directors are of the opinion that, in the absence of unforeseen circumstances and after taking into account the financial resources and credit facilities available to the Group (including its internally generated funds and a HK$400 million long-term loan facility from Mr. Li obtained on 1 April 2018), the Group will have sufficient working capital to satisfy its present requirements and the requirements in the next 12 months.

I – 3

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group

The Shaanxi Province, with Xi’an in particular, is surging back to catch on the opportunities presented by the important national strategies including the Belt and Road Initiative (the ‘‘Belt and Road’’), the China’s Western Development Strategy to develop the vast western regions of China, and the recent announcement in January 2018 by the Chinese State Council to position Xi’an as one of the nine National Central Cities in China, a city of the highest level, meaning that Xi’an should perform as the engine of the regional development. It further affirms its status as an international metropolis, a crucial role in economic and culture exchange with the international community as espoused by the Belt and Road. It is also mandated to become a culture, trade, logistics and finance centre of north-western China along the Silk Road, and most importantly, to be the hard and core technology capital of the world. Xi’an has a large number of higher education and research institutions in China, only after Beijing and Shanghai, each year there are more than 300,000 graduates entering the job market. Xi’an also possesses strong technology base in the area of national defence, aerospace, aircraft, biomedicine, computer science and software, etc. Its technology base and human resources are amongst the top three in the nation.

The Group enjoys early mover advantage in Shaanxi and Xi’an. Since 2012, the Group has been gradually building up its comprehensive financial service eco-system including alternative finance, international trading, logistics services and property investment. The Group was there to witness the progress of Xi’an and Shaanxi Province, notably the high yearly GDP growth, the establishment of China (Shaanxi) Pilot Free Trade Zone, the ongoing urbanisation and improvements of city commute facilities, the decrease of unsold property stock and raising property price, the growth of young and educated population, etc. But the most phenomenal changes are the mushroom of start-ups, co-work space, accelerators and incubators and the increase in large domestic and international corporations setting up plants, research and development centres, regional logistics hubs in Xi’an and other parts of the Province. To name just a few, Alibaba, Tencent, Jingdong, and even Amazon, have chosen to set up their regional base in Xi’an, not to mention Samsung Electronics and Micron, two of the largest IC manufacturers in the world. This is mainly attributed to the new Provincial and Municipal governments’ policies and incentives schemes launched in recent two years to promote innovation and creativity, commercialisation of research results, and most importantly, private enterprise and entrepreneurship. Early this year, People’s Government of Xi’an Municipality introduced a plan to encourage local enterprises to go for public listing either in Shanghai, Shenzhen or overseas stock markets including mainly Hong Kong. The Group sees big opportunity as these new business activities will definitely create more demands for capital in forms of equity and loans, and eventually appreciates the Group’s investment value.

I – 4

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

This favourable business environment provides the Group a great opportunity to further expand its existing alternative financing businesses, i.e. the financing guarantee and finance lease. Finance Lease Company started the business in September 2017 and during the Year, the Group secured a state-owned enterprise (‘‘SOE’’) as a strategic partner which has agreed to invest RMB120.0 million in the Finance Lease Company. As at the Latest Practicable Date, RMB91.8 million has been injected into the Finance Lease Company. Partnering with SOE can enhance the credit standing of the Finance Lease Company, making it more accessible to bank financing at lower costs. In addition, the partnership can expand the Finance Lease Company’s customer base by bringing in tourism related leasing business. The Group is also exploring ways to securitise some of the leasing portfolio in order to enhance the balance sheet liquidity and the overall yield.

In respect of the property investment business segment, Chinlink•Worldport Integrated Logistics Park in Hanzhong City (‘‘Chinlink•Worldport’’) is expected to commence operation by the third quarter of 2018, offering approximately 150,000 square metres space for wholesale distribution of building materials and household goods, warehouses and other auxiliary commercial facilities such as business hotels, restaurants, banks, etc., the Group will also offer its full range of financial services to its tenants. The high-speed railway service between Xi’an, Hanzhong and Chengdu was open at the end of 2017, the traffics and economic activities of Hanzhong has been substantially increased, and it is becoming an investment hot spot in the region. Chinlink•Worldport as a trading and logistics hub will surely benefit from this macro environment change and is expecting significant appreciation in its investment value in the near future. Additionally, in May 2017, the Group acquired a 25-level office building (the ‘‘Commercial Building’’) in Xi’an, targeted to be completed by the third quarter of 2018 and it will be for rental purposes which will further increase our incomes from property investment.

The international trading and supply chain finance have registered very high growth in the last two years. From this year onward, the Group’s Hong Kong and Xi’an offices will work closely on the cross-border trade of edible oil from Russia and other types of commodity products, by utilising Xi’an’s customer base and Hong Kong’s competitive funding costs. Factoring will be a new business line and a growth area for the Group and is an ideal synergy with the Group’s international trading and supply chain finance businesses. As Xi’an is becoming an international and regional trading hub under the Belt and Road, it is a very good timing for the Group to roll out and expand its supply chain finance and factoring businesses.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Logistics services has been a supporting function to the Group’s international trading and financial services to provide warehousing and stock monitoring services. It is not a profit centre amongst the Group’s other businesses and not expecting any substantial change in the future.

Over the last few years, income from the interior decoration work business is reducing as a result of the Group’s repositioning from this business operation and foresees limited opportunity for any new and large-scale projects in future.

The Group is an integrated financial services provider operating in China and Hong Kong and holds multiple licences to provide various types of financial services. The Group is also undergoing the process of applying for factoring and microfinance licences in Xi’an. If the approvals are granted, the Group can have a full range of finance licences to operate in Shaanxi Province and other part of China (depending on the territorial restrictions on certain licence like the Financial Guarantee Company which allows to operate only within the Shaanxi Province), and the synergy among the Group’s different financial services businesses will be more prominent. In November 2017, Chinlink completed the acquisition of 51% stake in the MCM Holdings Limited and its subsidiaries (‘‘MCM Group’’), a boutique investment bank incorporated in Hong Kong, with office in London and affiliates in Singapore and Mumbai, to conduct securities and futures brokerages, advisory and asset management business regulated by the Securities and Futures Commission of Hong Kong. The acquisition of MCM Group is a very important strategic move of the Group. Such acquisition provides a unique opportunity for the Group to expand its financial services scopes by utilising MCM Group’s expertise in international capital market and asset management. Combining the Group’s knowledge and strong relationship of the China market with MCM Group’s extensive global network and the investment banking experience of its founders and key members, the Group is well-positioned to open up a new business frontier as a cross-border integrated financial platform to serve the growing capital and investment needs of its clients in the Shaanxi Province, who are traditionally underserved by major international financial institutions due to the development disparity relative to the coastal region, but in the threshold of high growth because of the strategic and geographic importance under the Belt and Road, the China’s Western Development Strategy and the Greater Xi’an Metropolitan development plan. MCM Group will serve as the conduit to connect the up-and-coming Chinese corporates and capital, and the Shaanxi and Xi’an in particular, to the international financial market.

Future looks very encouraging for the Group. It has successfully transformed into a comprehensive financial service group with well-established foothold in Shaanxi Province, the most potential market in China and possesses the extensive global reach from Hong Kong, one of the most important financial centres in the world. It is time for the Group to capitalise on its past years’ efforts.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Target Companies

Target Company A is the holder of the Property and is principally engaged in leasing of properties. Target Company B is principally engaged in operation and management of the Property. In view of the rapid and continuous economic growth of the Shaanxi Province and the urbanization of the surrounding regions, the geographical advantage of locating at one of the most prosperous districts of the Shaanxi Province, and the well-established reputation as a distribution centre of construction and furnishing materials, the Directors consider that the Target Companies, which are engaged in leasing and property development and property management in the regions, have a tremendous growth potential.

Before Completion, the Group owned as 73.375% of the equity interests in each of the Target Companies and the Target Companies have been contributing considerable rental and management services fee incomes to the Group.

Having considered the income contribution to the Group, the business potential of the leasing, property development and management markets and the potential value appreciation of the Property owned by the Target Companies, the Acquisition allows the Group to increase its equity interests in the Target Companies from 73.375% to 100%, which will allow the Group the total authority to control the development plan of Phase Two Land to cope with the rapid market change and its future business mode to integrate with the existing Commercial Complex in order to bring in new income sources and maximize its combined equity value.

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

1. ACCOUNTANT’S REPORT OF THE TARGET COMPANIES

The following is the text of a report set out on pages II-1 to II-87 received from the Company’s reporting accountant, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF CHINLINK INTERNATIONAL HOLDINGS LIMITED

Introduction

We report on the historical financial information of 西安唐榮置業有限公司 (Xi’an Tang Rong Real Estate Limited) (‘‘Tang Rong’’) set out on pages II-4 to II-46, which comprises the statements of financial position of Tang Rong as at 31 March 2016, 2017 and 2018 and the statements of profit or loss and other comprehensive income, the statements of changes in equity and the statements of cash flows for each of the three years then ended (the ‘‘Relevant Periods’’) and a summary of significant accounting policies and other explanatory information (together, the ‘‘Historical Financial Information’’). The Historical Financial Information set out on pages II-4 to II-46 forms an integral part of this report, which has been prepared for inclusion in the circular of Chinlink International Holdings Limited (the ‘‘Company’’) dated 25 June 2018 (the ‘‘Circular’’) in connection with the major and connected transaction in relation to the proposed acquisition of 26.625% equity interest in each of Tang Rong and 西安大明宮灞橋建材家居有限公司 (Xi’an Da Ming Gong Ba Qiao Furniture and Fixture Limited), both being non-wholly owned subsidiaries of the Company.

Directors’ responsibility for the Historical Financial Information

The directors of Tang Rong are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 1 to the Historical Financial Information, and for such internal control as the directors determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

The directors of the Company are responsible for the contents of this Circular in which the Historical Financial Information of Tang Rong is included, and such information is prepared based on accounting policies materially consistent with those of the Company.

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

Reporting accountants’ responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 ‘‘Accountants’ Reports on Historical Financial Information in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of Tang Rong, as well as evaluating the overall presentation of the Historical Financial Information.

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

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of Tang Rong’s financial position as at 31 March 2016, 2017 and 2018 and of Tang Rong’s financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation set out in Note 1 to the Historical Financial Information.

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

Report on matters under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page II-4 have been made.

Dividends

We refer to note 12 to the Historical Financial Information which states that no dividends have been paid by Tang Rong in respect of the Relevant Periods.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong 25 June 2018

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

HISTORICAL FINANCIAL INFORMATION OF TANG RONG

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The financial statements of Tang Rong for the Relevant Periods, on which the Historical Financial Information is based, have been prepared in accordance with the accounting policies which conform with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the HKICPA and were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA (‘‘Underlying Financial Statements’’).

The Historical Financial Information is presented in HK dollars and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

HISTORICAL FINANCIAL INFORMATION

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes Revenue 5 Cost of services Gross profit Other income and losses 6 Gain on fair value change of investment properties 14 Administrative expenses Finance costs 7 Profit before taxation 8 Income tax expense 9 Profit for the year attributable to the owners of Tang Rong Other comprehensive (expense) income Item that will not be subsequently reclassified to profit or loss: Exchange difference arising from translation to presentation currency Total comprehensive (expense) income for the year attributable to the owners of Tang Rong	For the 2016 HK$’000 25,192 (6,902) 18,290 38 67,709 (2,207) (19,810) 64,020 (14,121) 49,899 (63,780) (13,881)	year ended 31 March 2017 2018 HK$’000 HK$’000 22,611 27,172 (5,270) (4,654) 17,341 22,518 50 48 107,303 153,955 (1,448) (1,206) (17,788) (17,721) 105,458 157,594 (19,847) (26,956) 85,611 130,638 (86,334) 151,130 (723) 281,768	year ended 31 March 2017 2018 HK$’000 HK$’000 22,611 27,172 (5,270) (4,654) 17,341 22,518 50 48 107,303 153,955 (1,448) (1,206) (17,788) (17,721) 105,458 157,594 (19,847) (26,956) 85,611 130,638 (86,334) 151,130 (723) 281,768
			22,518 48 153,955 (1,206) (17,721)
			157,594 (26,956)
			130,638 151,130
			281,768

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANIES

STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Property, plant and equipment 13 Investment properties 14 CURRENT ASSETS Other receivables, deposits and prepayments Tax recoverable Bank balances and cash 15 CURRENT LIABILITIES Other payables and accruals Construction costs accruals Receipts in advance 16 Other borrowings 17 Loans from staffs and staffs of a fellow subsidiary 17 Loans from a fellow subsidiary 18 NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Receipts in advance 16 Deferred tax liabilities 19 NET ASSETS	As at 31 March 2016 2017 HK$’000 HK$’000 162 50 2,054,375 2,043,120 2,054,537 2,043,170 5,490 4,794 7 7 1,877 18,598 7,374 23,399 7,283 8,155 4,930 4,301 9,762 12,438 65,969 53,257 5,302 5,444 250,002 260,408 343,248 344,003 (335,874) (320,604) 1,718,663 1,722,566 13,063 10,241 212,046 219,494 225,109 229,735 1,493,554 1,492,831	2018 HK$’000 5 2,402,774
		2,402,779
		2,217 7 3,291
		5,515
		8,588 4,632 10,732 56,763 12,057 262,210
		354,982
		(349,467)
		2,053,312
		9,688 269,025
		278,713
		1,774,599

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

Notes CAPITAL AND RESERVES Paid-up capital 20 Reserves EQUITY ATTRIBUTABLE TO OWNERS OF TANG RONG	As at 31 March 2016 2017 HK$’000 HK$’000 365,200 365,200 1,128,354 1,127,631 1,493,554 1,492,831	2018 HK$’000 365,200 1,409,399
		1,774,599

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANIES

STATEMENTS OF CHANGES IN EQUITY

At 1 April 2015 Profit for the year Other comprehensive expense: Exchange difference arising from translation to presentation currency Total comprehensive (expense) income for the year At 31 March 2016 Profit for the year Other comprehensive expense: Exchange difference arising from translation to presentation currency Total comprehensive (expense) income for the year At 31 March 2017 Profit for the year Other comprehensive income: Exchange difference arising from translation to presentation currency Total comprehensive income for the year As at 31 March 2018	Attributable to own Paid-up capital Translation reserve HK$’000 HK$’000 365,200 34,255 – – – (63,780) – (63,780) 365,200 (29,525) – – – (86,334) – (86,334) 365,200 (115,859) – – – 151,130 – 151,130 365,200 35,271	ers of Tang Rong Retained profits HK$’000 1,107,980 49,899 – 49,899 1,157,879 85,611 – 85,611 1,243,490 130,638 – 130,638 1,374,128	Total HK$’000 1,507,435
			49,899 (63,780)
			(13,881)
			1,493,554
			85,611 (86,334)
			(723)
			1,492,831
			130,638 151,130
			281,768
			1,774,599

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANIES

STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES Profit for the year Adjustments for: Finance costs Depreciation of property, plant and equipment Gain on fair value change of investment properties Interest income Loss on disposal of property, plant and equipment Income tax expense Operating cash flows before movements in working capital (Increase) decrease in other receivables, deposits and prepayments Increase (decrease) in receipts in advance Increase (decrease) in other payables and accruals NET CASH GENERATED FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Proceeds on disposal of property, plant and equipment Settlement of construction cost accruals Interest received NET CASH USED IN INVESTING ACTIVITIES	For the 2016 HK$’000 49,899 19,810 109 (67,709) (19) 5 14,121 16,216 (439) 3,094 1,936 20,807 – (915) 19 (896)	year ended 31 March 2017 2018 HK$’000 HK$’000 85,611 130,638 17,788 17,721 104 47 (107,303) (153,955) (50) (48) – – 19,847 26,956 15,997 21,359 391 2,910 1,171 (4,268) 1,310 (345) 18,869 19,656 1 – (357) (83) 50 48 (306) (35)	year ended 31 March 2017 2018 HK$’000 HK$’000 85,611 130,638 17,788 17,721 104 47 (107,303) (153,955) (50) (48) – – 19,847 26,956 15,997 21,359 391 2,910 1,171 (4,268) 1,310 (345) 18,869 19,656 1 – (357) (83) 50 48 (306) (35)
			21,359 2,910 (4,268) (345)
			19,656
			– (83) 48
			(35)

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANIES

FINANCING ACTIVITIES Interest paid New other borrowings raised New loans from a fellow subsidiary New loans from staffs and staffs of a fellow subsidiary Repayment of other borrowings Repayment of loans from a fellow subsidiary Repayment of loans from staffs and staffs of a fellow subsidiary NET CASH USED IN FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR, represented by bank balances and cash	For the 2016 HK$’000 (13,831) 68,870 21,638 8,309 (56,490) (37,550) (9,737) (18,791) 1,120 808 (51) 1,877	year ended 31 March 2017 2018 HK$’000 HK$’000 (7,113) (7,413) 58,991 61,852 43,933 5,152 4,442 6,322 (68,565) (63,064) (29,327) (38,086) (3,780) (749) (1,419) (35,986) 17,144 (16,365) 1,877 18,598 (423) 1,058 18,598 3,291	year ended 31 March 2017 2018 HK$’000 HK$’000 (7,113) (7,413) 58,991 61,852 43,933 5,152 4,442 6,322 (68,565) (63,064) (29,327) (38,086) (3,780) (749) (1,419) (35,986) 17,144 (16,365) 1,877 18,598 (423) 1,058 18,598 3,291
			(35,986)
			(16,365) 18,598 1,058
			3,291

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. General and basis of preparation

Tang Rong is a private limited company established in the People’s Republic of China (the ‘‘PRC’’). Its immediate holding company is High Express International Limited, a company incorporated in Hong Kong and its ultimate holding company is Wealth Keeper International Limited (‘‘Wealth Keeper’’), a company incorporated in the British Virgin Islands. The ultimate controlling shareholder of Wealth Keeper is Mr. Li Weibin (‘‘Mr. Li’’), the chairman and managing director of Chinlink International Holdings Limited (the ‘‘Company’’). The address of the registered office and principal place of business of Tang Rong is Room 10701, Unit 1, Block 1, Guo Jia Tan, 1600 Ban Po Road, Ba Qiao District, Xi’an City.

The functional currency of Tang Rong is Renminbi (‘‘RMB’’). For the convenience of the Historical Financial Information users, the Historical Financial Information of Tang Rong is presented in Hong Kong dollars (‘‘HK$’’).

The principal activity of Tang Rong is leasing of properties.

Going concern basis

In preparing the Historical Financial Information, the directors of Tang Rong have given careful consideration to the future liquidity of Tang Rong in light of the fact that, as at 31 March 2016, 2017 and 2018, Tang Rong’s current liabilities exceeded its current assets by approximately HK$335,874,000, HK$320,604,000 and HK$349,467,000 respectively.

The Company has agreed to provide adequate funds to Tang Rong to meet in full its financial obligations as and when they fall due for the foreseeable future. Accordingly, the directors of Tang Rong consider that Tang Rong will have sufficient working capital to finance its operations and the Historical Financial Information has been prepared on a going concern basis.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANIES

2. Adoption of New and Revised Hong Kong Financial Reporting Standards (‘‘HKFRSs’’)

For the purpose of preparing and presenting the Historical Financial Information for the Relevant Periods, Tang Rong has consistently applied HKFRSs issued by the HKICPA which are effective for the accounting period beginning on 1 April 2017 throughout the Relevant Periods.

Tang Rong has not early applied the following new and revised HKFRSs that have been issued but are not yet effective:

HKFRS 9 Financial Instruments[1] HKFRS 15 Revenue from Contracts with Customers and the related Amendments[1] HKFRS 16 Leases[2] HKFRS 17 Insurance Contracts[4] HK(IFRIC) – Int 22 Foreign Currency Transactions and Advance Consideration[1] HK(IFRIC) – Int 23 Uncertainty over Income Tax Treatments[2] Amendments to HKFRS 2 Classification and Measurement of Share-based Payment Transactions[1] Amendments to HKFRS 4 Applying HKFRS 9 Financial Instruments with HKFRS 4 Insurance Contracts[1] Amendments to HKFRS 9 Prepayment Features with Negative Compensation[2] Amendments to HKFRS 10 Sale or Contribution of Assets between an Investor and HKAS 28 and its Associate or Joint Venture[3] Amendments to HKAS 19 Plan Amendment, Curtailment or Settlement[2] Amendments to HKAS 28 Long-term Interests in Associates and Joint Ventures[2] Amendments to HKAS 28 As part of the Annual Improvements to HKFRSs 2014 – 2016 Cycle[1] Amendments to HKAS 40 Transfers of Investment Property[1] Amendments to HKFRSs Annual Improvements to HKFRSs 2015 – 2017 Cycle[2]

1 Effective for annual periods beginning on or after 1 January 2018
2 Effective for annual periods beginning on or after 1 January 2019
3 Effective for annual periods beginning on or after a date to be determined
4 Effective for annual periods beginning on or after 1 January 2021

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

HKFRS 9 Financial instruments

HKFRS 9 introduces new requirements for the classification and measurement of financial assets, financial liabilities, general hedge accounting and impairment requirements for financial assets.

Key requirements of HKFRS 9 are:

all recognised financial assets that are within the scope of HKFRS 9 are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive income. All other financial assets are measured at their fair value at the end of subsequent accounting periods. In addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.
in relation to the impairment of financial assets, HKFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under HKAS 39 Financial Instruments: Recognition and Measurement (‘‘HKAS 39’’). The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANIES

The directors of Tang Rong anticipate the following potential impact on the initial application of HKFRS 9:

Classification and measurement:

All financial assets and financial liabilities will continue to be measured on the same bases as are currently measured under HKAS 39.

Impairment:

In general, the directors of Tang Rong anticipate that the application of the expected credit loss model of HKFRS 9 will result in earlier provision of credit losses which are not yet incurred in relation to the Tang Rong’s financial assets measured at amortised cost and other items that subject to the impairment provisions upon application of HKFRS 9 by Tang Rong. Based on the assessment by the directors of Tang Rong, if the expected credit loss model were to be applied by Tang Rong, the accumulated amount of impairment loss to be recognised by Tang Rong as at 1 January 2018 would be immaterial. Such further impairment recognised under expected credit loss model would reduce the retained profits at 1 April 2018.

HKFRS 15 Revenue from contracts with customers

HKFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. HKFRS 15 will supersede the current revenue recognition guidance including HKAS 18 Revenue, HKAS 11 Construction contracts and the related interpretations when it becomes effective.

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANIES

The core principle of HKFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under HKFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ’control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in HKFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by HKFRS 15.

In 2016, the HKICPA issued Clarifications to HKFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.

The directors of Tang Rong anticipate that the application of HKFRS 15 in the future may result in more disclosures, however, the directors of Tang Rong do not anticipate that the application of HKFRS 15 will have a material impact on the timing and amounts of revenue recognised in the respective reporting periods.

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

HKFRS 16 Leases

HKFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. HKFRS 16 will supersede HKAS 17 Leases and the related interpretations when it becomes effective.

HKFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. For the classification of cash flows, upon application of HKFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing cash flows by Tang Rong.

In contrast to lessee accounting, HKFRS 16 substantially carries forward the lessor accounting requirements in HKAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease. Furthermore, extensive disclosures are required by HKFRS 16.

Furthermore, the application of new requirements may result changes in measurement, presentation and disclosure as indicated above.

The directors of Tang Rong do not anticipate that the application of other new and revised HKFRSs will have a material impact on the future financial statements of Tang Rong.

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

3. Significant accounting policies

The Historical Financial Information has been prepared in accordance with accounting policies which are in conformity with HKFRSs issued by HKICPA. In addition, the Historical Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.

The Historical Financial Information has been prepared on the historical cost basis except for investment properties that are measured at fair values at the end of each reporting period, as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, Tang Rong takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in this Historical Financial Information is determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 Share-based payment, leasing transactions that are within the scope of HKAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 Inventories or value in use in HKAS 36 Impairment of assets.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

APPENDIX II

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable.

Revenue is recognised when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to Tang Rong and when specific criteria have been met for each of Tang Rong’s activities as described below.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Tang Rong’s accounting policy for recognition of revenue from operating lease is described in the accounting policy for leasing below.

Property, plant and equipment

Property, plant and equipment are stated in the statement of financial position at cost less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Depreciation is recognised so as to write off the cost of assets less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

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APPENDIX II

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties include land held for undetermined future use, which is regarded as held for capital appreciation purpose.

Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at their fair values. All of Tang Rong’s property interests held under operating leases to earn rentals or for capital appreciation purposes are classified and accounted for as investment properties and are measured using the fair value model. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss for the period in which they arise.

Construction costs incurred for investment properties under construction are capitalised as part of the carrying amount of the investment properties under construction.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

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APPENDIX II

Tang Rong as lessor

Rental income from operating leases is recognised in profit or loss on a straightline basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset. Other than investment properties measured under fair value model, such costs are recognised as an expense on a straight-line basis over the lease term.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from ’profit before taxation’ as reported in the statement of profit or loss and other comprehensive income because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The liability of Tang Rong for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Historical Financial Information and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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APPENDIX II

The carrying amount of deferred tax asset is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which Tang Rong expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

For the purposes of measuring deferred taxation for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.

Retirement benefits costs

Payments to state-managed retirement benefits scheme in the PRC are recognised as an expense when employees have rendered service entitling them to the contributions.

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APPENDIX II

Short-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All shortterm employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leave and sick leave) after deducting any amount already paid.

Impairment on tangible assets

At the end of the reporting period, Tang Rong reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss, if any.

When it is not possible to estimate the recoverable amount of an asset individually, Tang Rong estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

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APPENDIX II

Financial instruments

Financial assets and financial liabilities are recognised when Tang Rong becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

Financial assets of Tang Rong are classified as loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables and deposits and bank balances and cash) are measured at amortised cost using the effective interest method, less any impairment (see the accounting policy in respect of impairment loss on loans and receivables below).

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APPENDIX II

Impairment of loans and receivables

Loans and receivables are assessed for indicators of impairment at the end of each reporting period. Loans and receivables are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the loans and receivables, the estimated future cash flows of the loans and receivables have been affected.

Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
breach of contract, such as default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

The amount of impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity instruments

Debt and equity instruments issued by Tang Rong are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

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APPENDIX II

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of Tang Rong after deducting all of its liabilities. Equity instruments issued by Tang Rong are recognised at the proceeds received, net of direct issue costs.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Financial liabilities at amortised cost

Financial liabilities including other payables and accruals, construction costs accruals, other borrowings, loans from staffs and staffs of a fellow subsidiary and loans from a fellow subsidiary are subsequently measured at amortised cost, using the effective interest method.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

Financial guarantee contracts issued by the Group are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of:

(i) the amount of obligation under the contract, as determined in accordance with HKAS 37 ‘‘Provisions, contingent liabilities and contingent assets’’; and
(ii) the amount initially recognised less, where appropriate, cumulative amortisation recognised over the guarantee period.

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APPENDIX II

Derecognition

Tang Rong derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Tang Rong derecognises financial liabilities when, and only when, obligations of Tang Rong are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

4. Critical accounting judgement and key source of estimation uncertainty

In the application of accounting policies of Tang Rong, which are described in note 3, the directors of Tang Rong are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and associated assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgment in applying accounting policies

The following is the critical judgment that the directors of Tang Rong have made in the process of applying the accounting policies of Tang Rong and that have the most significant effect on the amounts recognised in this Historical Financial Information.

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Deferred taxation on investment properties

For the purposes of measuring deferred taxation arising from investment properties that are measured using the fair value model, the directors of Tang Rong have reviewed Tang Rong’s investment properties and concluded that all of Tang Rong’s investment properties are held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sale. Therefore, in measuring Tang Rong’s deferred taxation on investment properties, the directors have determined that the presumption that the carrying amounts of investment properties measured using the fair value model are recovered entirely through sale is rebutted. Accordingly, deferred taxation in relation to Tang Rong’s investment properties has been measured based on the tax consequences of recovering the carrying amounts entirely through use.

Key source of estimation uncertainty

The following is the key assumption concerning the future, and key source of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Valuation of investment properties

At the end of each reporting period during the Relevant Periods, Tang Rong’s investment properties are stated at fair value based on the valuation performed by an independent qualified professional valuer. In determining the fair value, the valuer has applied significant judgement and estimation in determining the valuation methodology, adoption of significant assumptions and use of various unobservable inputs in the valuation models, including prices realised on actual sales or asking prices of comparable properties. Comparable properties are analysed and carefully weighed against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of market values. As at 31 March 2016, 2017 and 2018, the carrying amounts of investment properties were HK$2,054,375,000, HK$2,043,120,000 and HK$2,402,774,000 respectively.

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5. Revenue and segment information

Revenue represents rental income generated from investment properties during the Relevant Periods.

The directors of Tang Rong, being the chief operating decision makers (‘‘CODM’’), assesses the performance and allocates the resources of Tang Rong as a whole because Tang Rong is engaged in the single business of leasing of properties. Therefore, the directors of Tang Rong consider that Tang Rong only has one operating segment under the standard of HKFRS 8 Operating segments. In this regard, no segment information is presented.

Geographical information

The revenue and non-current assets of Tong Rong are located in the PRC based on location of assets.

Information about major customers

There is no single customer contributing over 10% of the total revenue of Tang Rong during the Relevant Periods.

6. Other income and losses

Bank interest income Loss on disposal of property, plant and equipment Others	For the 2016 HK$’000 19 (5) 24 38	year ended 31 March 2017 2018 HK$’000 HK$’000 50 48 – – – – 50 48	year ended 31 March 2017 2018 HK$’000 HK$’000 50 48 – – – – 50 48
			48

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

7. Finance costs

Interest expense on: Other borrowings Loans from staffs and staffs of a fellow subsidiary Loans from a fellow subsidiary Total finance costs	For the 2016 HK$’000 6,474 641 12,695 19,810	year ended 31 March 2017 2018 HK$’000 HK$’000 6,731 6,274 607 998 10,450 10,449 17,788 17,721	year ended 31 March 2017 2018 HK$’000 HK$’000 6,731 6,274 607 998 10,450 10,449 17,788 17,721
			17,721

8. Profit before taxation

Profit before taxation has been arrived at after charging (crediting): Auditor’s remuneration Depreciation of property, plant and equipment Staff costs (including directors’ emoluments) Salaries and other benefits Contributions to retirement benefits scheme Total staff costs Gross rental income from investment properties Less: direct operating expenses incurred for investment properties that generated rental income	For the 2016 HK$’000 12 109 2,307 347 2,654 (25,192) 6,902 (18,290)	year ended 31 March 2017 2018 HK$’000 HK$’000 12 12 104 47 1,455 1,194 100 92 1,555 1,286 (22,611) (27,172) 5,270 4,654 (17,341) (22,518)	year ended 31 March 2017 2018 HK$’000 HK$’000 12 12 104 47 1,455 1,194 100 92 1,555 1,286 (22,611) (27,172) 5,270 4,654 (17,341) (22,518)
			1,286
			(27,172) 4,654
			(22,518)

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

9. Income tax expense

Current tax: PRC Enterprise Income Tax Deferred tax (note 19)	For the 2016 HK$’000 – 14,121 14,121	year ended 31 March 2017 2018 HK$’000 HK$’000 – – 19,847 26,956 19,847 26,956	year ended 31 March 2017 2018 HK$’000 HK$’000 – – 19,847 26,956 19,847 26,956
			26,956

No provision for Hong Kong Profits Tax has been made as Tang Rong’s income neither arises in, nor is derived from, Hong Kong.

The concessionary tax rate of 15% is applied to Tang Rong throughout the Relevant Periods as it is recognised as ‘‘Go-West’’ regional development programme corporate which is entitled to apply a tax rate of 15%. The entitlement of this tax benefit is subject to renewal by tax bureau in the PRC every year. The latest approvals for Tang Rong were obtained for the years ended 31 March 2016, 2017 and 2018.

The income tax expense for the Relevant Periods can be reconciled to the profit before taxation per the statements of profit or loss and other comprehensive income as follows:

Profit before taxation Tax at applicable tax rate of 15% Tax effect of expenses not deductible for tax purpose Tax effect of tax loss not recognised Tax effect of deductible temporary differences not recognised Income tax expense for the year	For the 2016 HK$’000 64,020 9,603 1,024 2,063 1,431 14,121	year ended 31 March 2017 2018 HK$’000 HK$’000 105,458 157,594 15,819 23,639 831 829 1,581 928 1,616 1,560 19,847 26,956	year ended 31 March 2017 2018 HK$’000 HK$’000 105,458 157,594 15,819 23,639 831 829 1,581 928 1,616 1,560 19,847 26,956
			23,639 829 928 1,560
			26,956

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APPENDIX II

10. Directors’ emoluments and employees’ emoluments

Directors’ emoluments

During the Relevant Periods, all directors’ emoluments were borne by a fellow subsidiary. No emolument was paid or payable by Tang Rong to the directors of Tang Rong as an inducement to join or upon joining Tang Rong or as compensation for loss of office. There was no arrangement under which a director or the chief executive of Tang Rong waived or agreed to waive any emoluments.

Employees’ emoluments

The emoluments of the five highest paid individuals of Tang Rong during the Relevant Periods were as follows:

Salaries and allowances Discretionary bonus (Note) Contributions to retirement benefits scheme	For the 2016 HK$’000 351 28 75 454	year ended 31 March 2017 2018 HK$’000 HK$’000 298 309 56 63 69 69 423 441	year ended 31 March 2017 2018 HK$’000 HK$’000 298 309 56 63 69 69 423 441
			441

Note: Discretionary bonus is determined having regard to the performance of the individuals and market trend.

The emoluments were within the following band: Nil – HK$1,000,000	2016 Number of employees 5	2017 Number of employees 5	2018 Number of employees 5

During the Relevant Periods, no emolument was paid or payable by Tang Rong to the five highest paid individuals as an inducement to join or upon joining Tang Rong or as compensation for loss of office.

11. Earnings per share

No earnings per share information is presented for the purpose of this report as its inclusion is not considered meaningful.

12. Dividend

No dividend was paid or proposed during the Relevant Periods, nor has any dividend been proposed since the end of the Relevant Periods.

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13. Property, plant and equipment

COST At 1 April 2015 Disposals Exchange realignment At 31 March 2016 Disposals Exchange realignment At 31 March 2017 Exchange realignment At 31 March 2018 DEPRECIATION At 1 April 2015 Provided for the year Eliminated on disposals Exchange realignment At 31 March 2016 Provided for the year Eliminated on disposals Exchange realignment At 31 March 2017 Provided for the year Exchange realignment At 31 March 2018 CARRYING VALUES At 31 March 2016 At 31 March 2017 At 31 March 2018	Computer equipment HK$’000 271 (19) (12) 240 – (13) 227 22 249 184 27 (19) (8) 184 26 – (11) 199 26 21 246 56 28 3	Furniture, fixtures and office equipment HK$’000 170 (8) (7) 155 (15) (9) 131 13 144 71 16 (3) (5) 79 49 (14) (5) 109 21 12 142 76 22 2	Motor vehicles HK$’000 341 – (14) 327 – (19) 308 30 338 240 66 – (9) 297 29 – (18) 308 – 30 338 30 – –	Total HK$’000 782 (27) (33)
				722 (15) (41)
				666 65
				731
				495 109 (22) (22)
				560 104 (14) (34)
				616 47 63
				726
				162
				50
				5

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum:

Computer equipment	20%
Furniture, fixtures and office equipment	10%
Motor vehicles	20%

14. Investment properties

Completed investment properties held for rental purposes: At 1 April Change in fair value recognised in profit or loss Exchange realignment At 31 March Leasehold land with undetermined future use: At 1 April Change in fair value recognised in profit or loss Exchange realignment At 31 March Total Unrealised gain on properties revaluation included in profit or loss	As at 31 March 2016 2017 HK$’000 HK$’000 1,930,799 1,915,917 66,858 94,307 (81,740) (110,461) 1,915,917 1,899,763 143,624 138,458 851 12,996 (6,017) (8,097) 138,458 143,357 2,054,375 2,043,120 67,709 107,303	2018 HK$’000 1,899,763 151,587 191,652
		2,243,002
		143,357 2,368 14,047
		159,772
		2,402,774
		153,955

Tang Rong owns the shopping mall building situated at the east side of Banyin Road, Baqiao District, Xi’an City, Shaanxi Province, the PRC (namely, Daminggong Construction Materials and Furniture Shopping Centre (Dongsanhuan Branch)) (‘‘Xi’an Commercial Complex’’) and the undeveloped land parcel adjacent to the Xi’an Commercial Complex (‘‘Phase 2 of the Xi’an Commercial Complex’’). Xi’an Commercial Complex are rented to third party tenants and receiving rental and management income.

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APPENDIX II

Tang Rong’s investment properties are categorised into level 3 of the fair value hierarchy. At the end of each reporting period, the directors of Tang Rong work closely with the independent qualified professional valuer to establish and determine the appropriate valuation techniques and inputs to be used in determining the fair value of the investment properties.

As at 31 March 2016, 2017 and 2018, the fair values of the Xi’an Commercial Complex and the Phase 2 of the Xi’an Commercial Complex as determined by Colliers International (Hong Kong) Ltd. (‘‘Colliers’’) are approximately RMB1,601,000,000, RMB1,683,000,000, RMB1,811,000,000 (equivalent to HK$1,915,917,000, HK$1,899,763,000, HK$2,243,002,000) and RMB115,700,000, RMB127,000,000 and RMB129,000,000 (equivalent to HK$138,458,000, HK$143,357,000 and HK$159,772,000) respectively.

For the Xi’an Commercial Complex, the valuation has been arrived at using the income capitalisation approach. This valuation method estimates the value of a property on a market basis by capitalizing rental income on a fully leased basis. For the Phase 2 of the Xi’an Commercial Complex, the valuation has been arrived at using the market approach by making reference to comparable sale transactions as available in the relevant markets.

Colliers is an independent qualified professional valuer not connected with Tang Rong and has appropriate qualification and recent experience in the valuation of similar projects in relevant locations.

At 31 March 2016, 2017 and 2018, certain portions of Tang Rong’s investment properties with carrying amounts of HK$1,915,917,000, HK$1,899,763,000 and HK$2,207,828,000 respectively were pledged to secure general banking facilities granted to related companies as disclosed in note 25.

In estimating the fair value of the property, the highest and best use of the property is its current use.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANIES

Set out below is the significant unobservable inputs used for fair value measurements:

Information about fair value measurements using significant unobservable inputs

	Fair value					Relationship of
	as at					unobservable
	31 March 2016	Valuation techniques		Key unobservable inputs	Weighted average price	inputs to fair value
	HK$
(1)	Completed properties held	for rental purpose
	Xi’an Commercial Complex
	HK$1,915,917,000	Income capitalisation		Monthly market rent, taking into	Retail portion: RMB2.03	The higher the rent, the
	(RMB1,601,000,000)		approach	account the differences in location	(equivalent to HK$2.43)/sqm/day	higher the fair value
				and individual factors such as	Office portion: RMB0.90
				frontage and size between the	(equivalent to HK$1.08)/sqm/day
				comparables and the property	Car park portion: RMB585
					(equivalent to HK$700)
					per month per lot
(2)	Leasehold land with undetermined future use
	Phase 2 of the Xi’an Commercial Complex
	HK$138,458,000	Direct market		Price per square metre of gross floor	RMB1,178	The higher the price, the
	(RMB115,700,000)		approach	area which derived from the area of	(equivalent to HK$1,410)/sqm	higher the fair value
				land and respective plot ratio, using
				direct market comparables and taking
				into account of adjustments on
				location, land use right terms and
				development scale factor
	Fair value					Relationship of
	as at					unobservable
	31 March 2017	Valuation techniques		Key unobservable inputs	Weighted average price	inputs to fair value
	HK$
(1)	Completed properties held	for rental purpose
	Xi’an Commercial Complex
	HK$1,899,763,000	Income capitalisation		Monthly market rent, taking into	Retail portion: RMB2.20	The higher the rent, the
	(RMB1,683,000,000)		approach	account the differences in location	(equivalent to HK$2.48)/sqm/day	higher the fair value
				and individual factors such as	Office portion: RMB0.97
				frontage and size and the property	(equivalent to HK$1.09)/sqm/day
					Car park portion: RMB585
					(equivalent to HK$660)
					per month per lot
(2)	Leasehold land with undetermined future use
	Phase 2 of the Xi’an Commercial Complex
	HK$143,357,000	Direct market		Price per square metre of gross floor	RMB1,296	The higher the price, the
	(RMB127,000,000)		approach	area which derived from the area of	(equivalent to HK$1,463)/sqm	higher the fair value
				land and respective plot ratio, using
				direct market comparables and taking
				into account of adjustments on
				location, land use right terms and
				development scale factor

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==> picture [371 x 240] intentionally omitted <==

----- Start of picture text -----

Fair value Relationship of
as at unobservable
31 March 2018 Valuation techniques Key unobservable inputs Weighted average price inputs to fair value
HK$
(1) Completed properties held for rental purpose
Xi’an Commercial Complex
HK$2,243,002,000 Income capitalisation Monthly market rent, taking into Retail portion: RMB2.35 The higher the rent, the
(RMB1,811,000,000) approach account the differences in location (equivalent to HK$2.91)/sqm/day higher the fair value
and individual factors such as Office portion: RMB0.99
frontage and size between the (equivalent to HK$1.23)/sqm/day
comparables and the property Car park portion: RMB585
(equivalent to HK$725) per month
per lot
(2) Leasehold land with undetermined future use
Phase 2 of the Commercial Complex
HK$159,772,000 Direct market Price per square metre of gross floor RMB1,308 The higher the price, the
(RMB129,000,000) approach area which derived value location, (equivalent to HK$1,620)/sqm higher the fair value
and individual factors, respective plot
ratio, using direct market comparables
and taking into account of
adjustments on location,
----- End of picture text -----

15. Bank balances and cash

During the Relevant Periods, the entire bank balances were current deposits, carrying interest at market rates ranged from 0.3% to 0.35% per annum.

16. Receipts in advance

Tang Rong had entered into rental contracts with tenants and received advance payments representing prepaid rental which are non-interest bearing. As at 31 March 2016, 2017 and 2018, receipts in advance were classified as current and non-current liabilities by reference to expected utilisation of rental prepayments.

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APPENDIX II

17. Loans from staffs and staffs of a fellow subsidiary and other borrowings

Loans from staffs Loans from staffs of a fellow subsidiary (Note a) Other borrowings (Note b)	As at 31 March 2016 2017 HK$’000 HK$’000 935 987 4,367 4,457 5,302 5,444 65,969 53,257	2018 HK$’000 1,031 11,026
		12,057
		56,763

Notes:

(a) The staffs are employed by the fellow subsidiary, Xi’an Da Ming Gong Ba Qiao Furniture and Fixture Limited (‘‘Ba Qiao’’).
(b) Other borrowings represent loans from independent third parties.

The above amounts are repayable within a year after the date of withdrawal, unsecured and carried fixed interest rate.

The effective interest rate of the loans was 12.5% per annum.

18. Loans from a fellow subsidiary

The amount represented loans advanced to Ba Qiao. The amounts were unsecured and repayable within a year after the date of withdrawal. The interest rate of loans from Ba Qiao as at 31 March 2016, 2017 and 2018 ranged from 4.35% to 6.6% per annum.

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19. Deferred tax liabilities

The following are the major deferred tax liabilities recognised and movements thereon during the Relevant Periods:

At 1 April 2015 Charge to profit or loss (note 9) Exchange realignment At 31 March 2016 Charge to profit or loss (note 9) Exchange realignment At 31 March 2017 Charge to profit or loss (note 9) Exchange realignment At 31 March 2018	Accelerated tax depreciation HK$’000 – (3,965) 62 (3,903) (3,751) 290 (7,364) (3,863) (892) (12,119)	Fair value gain on investment properties HK$’000 (206,788) (10,156) 8,801 (208,143) (16,095) 12,108 (212,130) (23,093) (21,683) (256,906)	Total HK$’000 (206,788) (14,121) 8,863
			(212,046) (19,846) 12,398
			(219,494) (26,956) (22,575)
			(269,205)

Tang Rong has unused tax losses of approximately RMB83,615,000, RMB92,776,000 and RMB98,002,000 (equivalent to HK$104,655,000, HK$115,191,000 and HK$121,380,000) at 31 March 2016, 2017 and 2018 respectively, which are available to offset against future profit. No deferred tax asset has been recognised in respect of the tax losses at 31 March 2016, 2017 and 2018 due to unpredictability of future profit streams. As at 31 March 2016, 2017 and 2018, included in unrecognised tax losses are losses of approximately RMB83,615,000, RMB92,776,000 and RMB98,002,000 (equivalent to HK$104,655,000, HK$115,191,000 and HK$121,380,000) which will expire in 5 years from the year of origination which is ranged from 2019 to 2023 respectively.

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20. Paid-up capital

Fully paid-up registered capital of Tang Rong:

RMB’000

At 1 April 2015, 31 March 2016, 31 March 2017 and 31 March 2018 Shown in the Historical Financial Information as	320,000
	HK$’000 365,200

21. Operating lease commitments

Tang Rong as lessor

At the end of each reporting period, Tang Rong had contracted with tenants for the following future minimum lease payments:

Within one year	As at 31 March 2016 2017 HK$’000 HK$’000 1,059 1,691	2018 HK$’000 1,137

22. Capital risk management

Tang Rong manages its capital to ensure it will be able to continue as a going concern. The Company has agreed to provide adequate funds to Tang Rong to meet in full its financial obligations as and when they fall due for the foreseeable future.

The capital structure of Tang Rong consists of debts which include other borrowings, loans from a fellow subsidiary and loans from staffs and staffs of a fellow subsidiary, net of cash and cash equivalents and equity attributable to the owners of Tang Rong, comprising paid-up capital and reserves.

The directors of Tang Rong review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on the recommendations of the directors, Tang Rong will balance its overall capital structure through issue of new debts or the redemption of existing debts.

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23. Financial instruments

Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 March 2016 2017 HK$’000 HK$’000 5,855 21,966 333,486 331,565	2018 HK$’000 3,944
		344,250

Financial risk management objectives and policies

Major financial instruments of Tang Rong include other receivables and deposit, bank balances and cash, other payables and accruals, construction costs accruals, other borrowings, loans from staffs and staffs of a fellow subsidiary and loans from a fellow subsidiary. Details of these financial instruments are set out in respective notes. The risks associated with these financial instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. Management of Tang Rong manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

(i) Interest rate risk

Tang Rong is exposed to cash flow interest rate risk in relation to variable rate bank balances (see note 15 for details). Cash flow interest rate risk is mainly concentrated on the fluctuation of prevailing market rates arising from the bank balances of Tang Rong.

Tang Rong’s fair value interest rate risk relates primarily to its fixed-rate other borrowings, loans from staffs and staffs of a fellow subsidiary and loans from a fellow subsidiary (see note 17 and 18 for details). Tang Rong currently does not have an interest rate hedging policy and has not used any derivative contracts to hedge its exposure to interest rate risk. However, the management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise.

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APPENDIX II

The directors consider Tang Rong’s exposure to interest rate risk of variable-rate bank balances is minimal taking into account the minimal fluctuation on market interest rate and the carrying amounts at the end of the reporting period. Accordingly, no sensitivity analysis on interest rate risk is presented.

Credit risk

At 31 March 2016, 2017 and 2018, other than those financial assets whose carrying amounts best represent the maximum exposure to credit risk, Tang Rong’s maximum exposure to credit risk which will cause a financial loss to Tang Rong arising from the amount of contingent liabilities in relation to the financing guarantees issued by Tang Rong is disclosed in note 25. In order to minimise the credit risk, the management of Tang Rong has closely monitored the loan repayment status of Ba Qiao and Esteemed Zone Limited as well as their financial performance regularly to ensure that follow-up action is taken timely.

Tang Rong’s bank balances are deposited with banks of high credit rating and Tang Rong has limited exposure to any single financial institution.

Liquidity risk

In the management of the liquidity risk, Tang Rong monitors and maintains a level of cash and cash equivalents deemed adequate by management of Tang Rong to finance its operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of borrowings.

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

The following tables detail the remaining contractual maturity of Tang Rong for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which Tang Rong can be required to pay. The table includes both interest and principal cash flows.

Weighted average interest rate % At 31 March 2016 Other payables and accruals N/A Construction costs accruals N/A Loans from staffs and staffs of a fellow subsidiary 12.50 Other borrowings 12.50 Loans from fellow subsidiary 6.60 Financial guarantee – Maximum amount guaranteed N/A Weighted average interest rate % At 31 March 2017 Other payables and accruals N/A Construction costs accruals N/A Loans from staffs and staffs of a fellow subsidiary 12.50 Other borrowings 12.50 Loans from a fellow subsidiary 4.35 Financial guarantee – Maximum amount guaranteed N/A	On demand or within 3 months HK$’000 7,283 – 772 19,379 252,655 291,556 571,645 On demand or within 3 months HK$’000 8,155 – 779 5,833 263,067 658,220 936,054	3 months to 1 year HK$’000 – 4,930 5,450 50,465 – – 60,845 3 months to 1 year HK$’000 – 4,301 5,438 50,897 – – 60,636	Total undiscounted cash flows HK$’000 7,283 4,930 6,222 69,844 252,655 291,556 632,490 Total undiscounted cash flows HK$’000 8,155 4,301 6,217 56,730 263,067 658,220 996,690	Carrying amount HK$’000 7,283 4,930 5,302 65,969 250,002 –
				333,486
				Carrying amount HK$’000 8,155 4,301 5,444 53,257 260,408 –
				331,365

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

Weighted average interest rate % At 31 March 2018 Other payables and accruals N/A Construction costs accruals N/A Loans from staffs and staffs of a fellow subsidiary 12.50 Other borrowings 12.50 Loans from a fellow subsidiary 4.35 Financial guarantee – Maximum amount guaranteed N/A	On demand or within 3 months HK$’000 8,588 – 1,870 7,559 264,753 512,500 795,270	3 months to 1 year HK$’000 – 4,632 11,144 53,154 – – 68,930	Total undiscounted cash flows HK$’000 8,588 4,632 13,014 60,713 264,753 512,500 864,200	Carrying amount HK$’000 8,588 4,632 12,057 56,763 262,210 –
				344,250

The amounts included above for financial guarantee contracts are the maximum amounts Tang Rong could be required to settle under the arrangement for the full guaranteed amount if that amount is claimed by the counterparties to the guarantee. Based on the expectations at the end of each reporting period, the directors of Tang Rong consider that it is more likely than not that no amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee which is a function of the likelihood that the financial receivables held by the counterparties which are guaranteed suffer credit losses.

Fair values

The management of Tang Rong considers that the carrying amounts of financial assets and financial liabilities recognised at amortised cost in the Historical Financial Information approximate their fair values.

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APPENDIX II

24. Reconciliation of liabilities arising from financing activities

The table below details changes in Tang Rong’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the statements of cash flows as cash flows from financing activities.

At 1 April 2015 Financing cash flows Accrued interest Interest paid Exchange realignment At 31 March 2016 Financing cash flows Accrued interest Interest paid Exchange realignment At 31 March 2017 Financing cash flows Accrued interest Interest paid Exchange realignment At 31 March 2018	Other borrowings HK$’000 56,423 12,380 6,349 (6,636) (2,547) 65,969 (9,574) 6,078 (5,641) (3,575) 53,257 (1,212) 6,597 (6,983) 5,104 56,763	Loans from staffs and staffs of a fellow subsidiary HK$’000 6,807 (1,428) 766 (577) (266) 5,302 662 1,260 (1,472) (308) 5,444 5,573 674 (430) 796 12,057	Loans from a fellow subsidiary HK$’000 271,011 (15,912) 12,695 (6,618) (11,174) 250,002 14,606 10,450 – (14,650) 260,408 (32,934) 10,449 – 24,287 262,210	Total HK$’000 334,241 (4,960) 19,810 (13,831) (13,987)
				321,273 5,694 17,788 (7,113) (18,533)
				319,109 (28,573) 17,720 (7,413) 30,187
				331,030

25. Related party transactions

Details of the balances of loans from a fellow subsidiary were disclosed in the statements of financial position and note 18. During the Relevant Periods, Tang Rong entered into the following transactions with the fellow subsidiary:

Interest expense on loans from a fellow subsidiary	For the 2016 HK$’000 12,695	year ended 31 March 2017 2018 HK$’000 HK$’000 10,450 10,449

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APPENDIX II

Apart from the transactions as listed in the table above, corporate guarantees were provided by Tang Rong to banks in respect of bank borrowings granted to Ba Qiao and Esteemed Zone Limited (‘‘Esteemed Zone’’), an intermediate holding company, as at 31 March 2016, 2017 and 2018 respectively. Details of the guarantee amounts are set out in note 25.

In addition, certain portion of investment properties held by Tang Rong with carrying amounts of HK$1,915,917,000, HK$1,899,763,000 and HK$2,207,828,000 as at 31 March 2016, 2017 and 2018 respectively were pledged to banks for Ba Qiao to obtain bank borrowings amounted to HK$291,556,000 and HK$28,200,000 as at 31 March 2016 and 2017 and for Esteemed Zone to obtain bank borrowings amounted to HK$630,000,000 and HK$512,000,000 at 31 March 2017 and 2018 respectively.

Compensation of key management personnel

The directors of Tang Rong consider that the directors and certain management of Tang Rong are the key management of Tang Rong. The remuneration of key management personnel of Tang Rong during the Relevant Periods was as follows:

Salaries and allowances Discretionary bonus Contributions to retirement benefits scheme	For the 2016 HK$’000 307 21 58 386	year ended 31 March 2017 2018 HK$’000 HK$’000 256 226 44 45 53 33 353 304	year ended 31 March 2017 2018 HK$’000 HK$’000 256 226 44 45 53 33 353 304
			304

The remuneration of the key management personnel of Tang Rong is determined having regard to the performance of the individuals and market trend.

26. Contingent liabilities

As at 31 March 2016 and 2017, Tang Rong has provided corporate guarantees to certain banks for Ba Qiao to obtain bank borrowings amounted to RMB243,634,000 (equivalent to HK$291,556,000) and RMB25,000,000 (equivalent to HK$28,200,000) respectively. In addition, as at 31 March 2017 and 2018, Tang Rong has provided corporate guarantees to certain bank for Esteemed Zone, to obtain bank borrowings amounted to HK$630,000,000 and HK$512,500,000 respectively.

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27. Subsequent financial statements

No audited financial statements of Tang Rong have been prepared in respect of any period subsequent to 31 March 2018.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANIES

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF CHINLINK INTERNATIONAL HOLDINGS LIMITED

Introduction

We report on the historical financial information of 西安大明宮灞橋建材家居有限公司(Xi’an Da Ming Gong Ba Qiao Furniture and Fixture Limited) (‘‘Ba Qiao’’) set out on pages II-50 to II-87, which comprises the statements of financial position of Ba Qiao as at 31 March 2016, 2017 and 2018 and the statements of profit or loss and other comprehensive income, the statements of changes in equity and the statements of cash flows for each of the three years then ended (the ‘‘Relevant Periods’’) and a summary of significant accounting policies and other explanatory information (together, the ‘‘Historical Financial Information’’). The Historical Financial Information set out on pages II-50 to II-87 forms an integral part of this report, which has been prepared for inclusion in the circular of Chinlink International Holdings Limited (the ‘‘Company’’) dated 25 June 2018 (the ‘‘Circular’’) in connection with the major and connected transaction in relation to the proposed acquisition of 26.625% equity interest in each of 西安唐榮置業有限公司(Xi’an Tang Rong Real Estate Limited) (‘‘Tang Rong’’) and Ba Qiao, both being non-wholly owned subsidiaries of the Company.

Directors’ responsibility for the Historical Financial Information

The directors of Ba Qiao are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 1 to the Historical Financial Information, and for such internal control as the directors determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

The directors of the Company are responsible for the contents of this Circular in which the Historical Financial Information of Ba Qiao is included, and such information is prepared based on accounting policies materially consistent with those of the Company.

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Reporting accountants’ responsibility

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of Ba Qiao, as well as evaluating the overall presentation of the Historical Financial Information.

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

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of Ba Qiao’s financial position as at 31 March 2016, 2017 and 2018 and of Ba Qiao’s financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation set out in Note 1 to the Historical Financial Information.

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APPENDIX II

Report on matters under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page II-50 have been made.

Dividends

We refer to note 11 to the Historical Financial Information which states that no dividends have been paid by Ba Qiao in respect of the Relevant Periods.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong 25 June 2018

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APPENDIX II

HISTORICAL FINANCIAL INFORMATION OF BA QIAO

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The financial statements of Ba Qiao for the Relevant Periods, on which the Historical Financial Information is based, have been prepared in accordance with the accounting policies which conform with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the HKICPA and were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA (‘‘Underlying Financial Statements’’).

The Historical Financial Information is presented in HK dollars and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

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APPENDIX II

HISTORICAL FINANCIAL INFORMATION

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes Revenue 5 Cost of services Gross profit Other income, gains and losses 6 Selling and marketing expense Administrative expenses Finance costs 7 (Loss) profit before taxation 8 Income tax expense 9 (Loss) profit for the year attributable to the owners of Ba Qiao Other comprehensive (expense) income Item that will not be subsequently reclassified to profit or loss: Exchange difference arising from translation to presentation currency Total comprehensive (expense) income for the year attributable to the owners of Ba Qiao	For the 2016 HK$’000 50,763 (43,942) 6,821 12,216 (12,516) (7,945) (24,894) (26,318) – (26,318) (2,170) (28,488)	year ended 31 March 2017 2018 HK$’000 HK$’000 54,450 65,621 (44,031) (47,161) 10,419 18,460 9,781 57,666 (6,377) (7,685) (9,034) (7,854) (13,534) (15,412) (8,745) 45,175 – – (8,745) 45,175 (1,723) 4,285 (10,468) 49,460	year ended 31 March 2017 2018 HK$’000 HK$’000 54,450 65,621 (44,031) (47,161) 10,419 18,460 9,781 57,666 (6,377) (7,685) (9,034) (7,854) (13,534) (15,412) (8,745) 45,175 – – (8,745) 45,175 (1,723) 4,285 (10,468) 49,460
			18,460 57,666 (7,685) (7,854) (15,412)
			45,175 –
			45,175 4,285
			49,460

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Property, plant and equipment 13 Loans to a fellow subsidiary 14 CURRENT ASSETS Other receivables and deposits Bank balances and cash 15 CURRENT LIABILITIES Other payables and accruals Construction costs accruals Receipts in advance 16 Deposits received from tenants 16 Amount due to a related company 17 Amount due to a fellow subsidiary 18 Amount due to immediate holding company 19 Loan from staff 20 Tax payable Bank borrowings 21 NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Receipts in advance 16 Bank borrowings 21 Amount due to a related company 17 NET ASSETS	As at 31 March 2016 2017 HK$’000 HK$’000 153,830 120,963 250,002 260,408 403,832 381,371 2,591 1,852 5,752 30,178 8,343 32,030 9,147 34,024 1,615 2,287 18,378 24,223 25,110 15,577 5,984 179,399 – – – 90,393 6,821 – 1,200 1,215 29,096 28,220 97,351 375,338 (89,008) (343,308) 314,824 38,063 19,106 15,273 262,460 – – – 281,566 15,273 33,258 22,790	2018 HK$’000 107,841 262,210
		370,051
		2,085 33,333
		35,418
		44,986 2,509 21,897 19,623 9,821 30,964 54,434 – 1,223 –
		185,457
		(150,039)
		220,012
		14,339 – 133,423
		147,762
		72,250

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APPENDIX II

Notes CAPITAL AND RESERVES Paid-up capital 23 Reserves EQUITY ATTRIBUTABLE TO OWNERS OF BA QIAO	As at 31 March 2016 2017 HK$’000 HK$’000 94,560 94,560 (61,302) (71,770) 33,258 22,790	2018 HK$’000 94,560 (22,310)
		72,250

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APPENDIX II

STATEMENTS OF CHANGES IN EQUITY

At 1 April 2015 Loss for the year Other comprehensive expense: Exchange difference arising from translation to presentation currency Total comprehensive expense for the year At 31 March 2016 Loss for the year Other comprehensive expense: Exchange difference arising from translation to presentation currency Total comprehensive expense for the year At 31 March 2017 Profit for the year Other comprehensive income: Exchange difference arising from translation to presentation currency Total comprehensive income for the year As at 31 March 2018	Attributable to ow Paid-up capital Translation reserve HK$’000 HK$’000 94,560 (4,513) – – – (2,170) – (2,170) 94,560 (6,683) – – – (1,723) – (1,723) 94,560 (8,406) – – – 4,285 – 4,285 94,560 (4,121)	ners of Ba Qiao Accumulated losses HK$’000 (28,301) (26,318) – (26,318) (54,619) (8,745) – (8,745) (63,364) 45,175 – 45,175 (18,189)	Total HK$’000 61,746
			(26,318) (2,170)
			(28,488)
			33,258
			(8,745) (1,723)
			(10,468)
			22,790
			45,175 4,285
			49,460
			72,250

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES (Loss) profit for the year Adjustments for: Interest income Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Finance costs Adjustment on carrying amount of amount due to a related company Operating cash flows before movements in working capital (Increase) decrease in other receivables and deposits Increase in other payables and accruals (Decrease) increase in deposits received from tenants Increase (decrease) in receipts in advance NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Interest received Purchase of property, plant and equipment New loans to a fellow subsidiary Repayment of loans to a fellow subsidiary Settlement of construction cost accruals NET CASH FROM (USED IN) INVESTING ACTIVITIES	For the 2016 HK$’000 (26,318) (12,811) 26,126 – 24,894 – 11,891 (931) 2,628 (488) 4,927 18,027 6,734 (9) (21,638) 37,550 (86) 22,551	year ended 31 March 2017 2018 HK$’000 HK$’000 (8,745) 45,175 (10,493) (10,555) 24,717 25,075 13 2 13,534 15,412 – (47,780) 19,026 27,329 1,381 (50) 25,959 7,213 (8,261) 2,420 4,218 (6,790) 42,323 30,122 43 106 (137) (1,283) (43,933) (5,152) 29,327 38,086 – – (14,700) 31,757	year ended 31 March 2017 2018 HK$’000 HK$’000 (8,745) 45,175 (10,493) (10,555) 24,717 25,075 13 2 13,534 15,412 – (47,780) 19,026 27,329 1,381 (50) 25,959 7,213 (8,261) 2,420 4,218 (6,790) 42,323 30,122 43 106 (137) (1,283) (43,933) (5,152) 29,327 38,086 – – (14,700) 31,757
			27,329 (50) 7,213 2,420 (6,790)
			30,122
			106 (1,283) (5,152) 38,086 –
			31,757

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

FINANCING ACTIVITIES Interest paid New bank borrowings raised Advance from a related company New loan from staff Advance from a fellow subsidiary Advance from immediate holding company Repayment of bank borrowings Repayment to a related company Repayment of loan from staff Repayment to immediate holding company NET CASH USED IN FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR, represented by bank balances and cash	For the 2016 HK$’000 (24,281) 30,390 6,078 6,929 – – (63,661) – – – (44,545) (3,967) 10,078 (359) 5,752	year ended 31 March 2017 2018 HK$’000 HK$’000 (10,802) (1,271) – – 196,803 74,799 – – – 29,607 88,787 – (250,868) (29,607) (19,770) (87,826) (6,555) – – (47,371) (2,405) (61,669) 25,218 210 5,752 30,178 (792) 2,945 30,178 33,333	year ended 31 March 2017 2018 HK$’000 HK$’000 (10,802) (1,271) – – 196,803 74,799 – – – 29,607 88,787 – (250,868) (29,607) (19,770) (87,826) (6,555) – – (47,371) (2,405) (61,669) 25,218 210 5,752 30,178 (792) 2,945 30,178 33,333
			(61,669)
			210
			30,178 2,945
			33,333

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APPENDIX II

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. General and basis of preparation

Ba Qiao is a private limited company established in the People’s Republic of China (the ‘‘PRC’’). Its immediate holding company is High Express International Limited, a company incorporated in Hong Kong and its ultimate holding company is Wealth Keeper International Limited (‘‘Wealth Keeper’’), a company incorporated in the British Virgin Islands. The ultimate controlling shareholder of Wealth Keeper is Mr. Li Weibin (‘‘Mr. Li’’), the chairman and managing director of the Company. The address of the registered office and principal place of business of Ba Qiao is Room 10701, Unit 1, Block 1, Guo Jia Tan, 1600 Ban Po Road, Ba Qiao District, Xi’an City.

The functional currency of Ba Qiao is Renminbi (‘‘RMB’’). For the convenience of the Historical Financial Information users, the Historical Financial Information of Ba Qiao is presented in Hong Kong dollars (‘‘HK$’’).

The principal activity of Ba Qiao is the provision of property management services.

Going concern basis

In preparing the Historical Financial Information, the directors of Ba Qiao have given careful consideration to the future liquidity of Ba Qiao in light of the fact that, as at 31 March 2018, the expected time for settlement of loans advanced to a fellow subsidiary, Xi’an Tang Rong Real Estate Limited (‘‘Tang Rong’’), is critical to the liquidity of Ba Qiao.

As the Company has agreed to provide adequate funds to Tang Rong to meet in full its financial obligations as and when they fall due for the foreseeable future, the directors of Ba Qiao consider that Ba Qiao will have sufficient working capital to finance its operations and the Historical Financial Information has been prepared on a going concern basis.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANIES

2. Adoption of New and Revised Hong Kong Financial Reporting Standards (‘‘HKFRSs’’)

For the purpose of preparing and presenting the Historical Financial Information for the Relevant Periods, Ba Qiao has consistently applied HKFRSs issued by the HKICPA which are effective for the accounting period beginning on 1 April 2017 throughout the Relevant Periods.

Ba Qiao has not early applied the following new and revised HKFRSs that have been issued but are not yet effective:

1 Effective for annual periods beginning on or after 1 January 2018
2 Effective for annual periods beginning on or after 1 January 2019
3 Effective for annual periods beginning on or after a date to be determined
4 Effective for annual periods beginning on or after 1 January 2021

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APPENDIX II

HKFRS 9 Financial instruments

HKFRS 9 introduces new requirements for the classification and measurement of financial assets, financial liabilities, general hedge accounting and impairment requirements for financial assets.

Key requirements of HKFRS 9 are:

all recognised financial assets that are within the scope of HKFRS 9 are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive income. All other financial assets are measured at their fair value at the end of subsequent accounting periods. In addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.
in relation to the impairment of financial assets, HKFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under HKAS 39 Financial Instruments: Recognition and Measurement (‘‘HKAS 39’’). The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

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The directors of Ba Qiao anticipate the following potential impact on the initial application of HKFRS 9:

Classification and measurement:

All financial assets and financial liabilities will continue to be measured on the same bases as are currently measured under HKAS 39.

Impairment:

In general, the directors of Ba Qiao anticipate that the application of the expected credit loss model of HKFRS 9 will result in earlier provision of credit losses which are not yet incurred in relation to the Ba Qiao’s financial assets measured at amortised cost and other items that subject to the impairment provisions upon application of HKFRS 9 by Ba Qiao.

Based on the assessment by the directors of Ba Qiao, if the expected credit loss model were to be applied by Ba Qiao, the accumulated amount of impairment loss to be recognised by Ba Qiao as at 1 April 2018 would be increased as compared to the accumulated amount recognised under HKAS 39 mainly attributable to expected credit losses provision. Such further impairment recognised under expected credit loss model would increase the accumulated losses at 1 April 2018.

HKFRS 15 Revenue from contracts with customers

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Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

In 2016, the HKICPA issued Clarifications to HKFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.

The directors of Ba Qiao anticipate that the application of HKFRS 15 in the future may result in more disclosures, however, the directors of Ba Qiao do not anticipate that the application of HKFRS 15 will have a material impact on the timing and amounts of revenue recognised in the respective reporting periods.

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HKFRS 16 Leases

Furthermore, the application of new requirements may result changes in measurement, presentation and disclosure as indicated above.

The directors of Ba Qiao do not anticipate that the application of other new and revised HKFRSs will have a material impact on the future financial statements of Ba Qiao.

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3. Significant accounting policies

The Historical Financial Information has been prepared on the historical cost basis at the end of each reporting period, as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, Ba Qiao takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in this Historical Financial Information is determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 Share-based payment, leasing transactions that are within the scope of HKAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 Inventories or value in use in HKAS 36 Impairment of assets.

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

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Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable for services provided in the normal course of business net of sales related tax.

Revenue is recognised when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to Ba Qiao and when specific criteria have been met for each of Ba Qiao’s activities as described below.

Management fee income is recognised when services are rendered.

Property, plant and equipment

Property, plant and equipment are stated in the statement of financial position at cost less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

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Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from accounting profit as reported in the statement of profit or loss and other comprehensive income because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The liability of Ba Qiao for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

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The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which Ba Qiao expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Retirement benefits costs

Payments to state-managed retirement benefits scheme in the PRC are recognised as an expense when employees have rendered service entitling them to the contributions.

Short-term employee benefits

A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leave and sick leave) after deducting any amount already paid.

Impairment on tangible assets

At the end of the reporting period, Ba Qiao reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss, if any.

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When it is not possible to estimate the recoverable amount of an asset individually, Ba Qiao estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Financial instruments

Financial assets and financial liabilities are recognised when Ba Qiao becomes a party to the contractual provisions of the instruments.

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Financial assets

Financial assets of Ba Qiao are classified as loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables and deposits, loans to a fellow subsidiary and bank balances and cash) are measured at amortised cost using the effective interest method, less any impairment (see the accounting policy in respect of impairment loss on loans and receivables below).

Impairment of loans and receivables

Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
breach of contract, such as default or delinquency in interest or principal payments; or

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it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets.

Financial liabilities and equity instruments

Debt and equity instruments issued by Ba Qiao are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of Ba Qiao after deducting all of its liabilities. Equity instruments issued by Ba Qiao are recognised at the proceeds received, net of direct issue costs.

Effective interest method

Interest expense is recognised on an effective interest basis.

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Financial liabilities at amortised cost

Financial liabilities including other payables and accruals, construction costs accruals, management fee deposits received from tenants, amount due to a related company, a fellow subsidiary and immediate holding company, loan from staff and bank borrowings are subsequently measured at amortised cost, using the effective interest method.

Derecognition

Ba Qiao derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the consideration received and receivable is recognised in profit or loss.

Ba Qiao derecognises financial liabilities when, and only when, obligations of Ba Qiao are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

4. Key source of estimation uncertainty

In the application of accounting policies of Ba Qiao, which are described in note 3, the directors of Ba Qiao are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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Impairment assessment of property, plant and equipment

The directors of Ba Qiao assess impairment whenever events or changes in circumstances indicate that the carrying amount of an item of property, plant and equipment may not be recoverable. When the recoverable amounts of property, plant and equipment differ from the original estimates, adjustment will be made and recognized in the period in which such event takes place. As at 31 March 2016, 2017 and 2018, the carrying amounts of property, plant and equipment were approximately HK$153,830,000, HK$120,963,000 and HK$107,841,000, respectively.

5. Revenue and segment information

Revenue represents management fee income during the Relevant Periods.

The directors of Ba Qiao, being the chief operating decision makers (‘‘CODM’’), assesses the performance and allocates the resources of Ba Qiao as a whole because Ba Qiao is engaged in the single business of provision of property management services to tenants of commercial buildings owned by Tang Rong in the PRC. Therefore, the directors of Ba Qiao consider that Ba Qiao only has one operating segment under the standard of HKFRS 8 Operating segments. In this regard, no segment information is presented.

Geographical information

The revenue and non-current assets of Ba Qiao are located in the PRC based on location of assets.

Information about major customers

There is no single customer contributing over 10 % of the total revenue of Ba Qiao during the Relevant Periods.

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6. Other income, gains and losses

Bank interest income Interest income from a fellow subsidiary Adjustment on carrying amount of amount due to a related company Loss on disposal of property, plant and equipment Others	For the 2016 HK$’000 116 12,695 – – (595) 12,216	year ended 31 March 2017 2018 HK$’000 HK$’000 43 106 10,450 10,449 – 47,780 (13) (2) (699) (667) 9,781 57,666	year ended 31 March 2017 2018 HK$’000 HK$’000 43 106 10,450 10,449 – 47,780 (13) (2) (699) (667) 9,781 57,666
			57,666

7. Finance costs

Interest expense on: Bank borrowings Amount due to a related company Amount due to immediate holding company Imputed interest expense from amount due to a related company Total finance costs	For the 2016 HK$’000 24,709 185 – – 24,894	year ended 31 March 2017 2018 HK$’000 HK$’000 10,223 1,271 – – 3,311 4,584 – 9,557 13,534 15,412	year ended 31 March 2017 2018 HK$’000 HK$’000 10,223 1,271 – – 3,311 4,584 – 9,557 13,534 15,412
			15,412

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8. (Loss) profit before taxation

Loss before taxation has been arrived at after charging: Auditor’s remuneration Depreciation of property, plant and equipment Staff costs (including directors’ emoluments) Salaries and other benefits Contributions to retirement benefits scheme Total staff costs	For the 2016 HK$’000 22 26,126 10,000 2,443 12,443	year ended 31 March 2017 2018 HK$’000 HK$’000 11 11 24,717 25,075 10,237 9,518 2,058 3,419 12,295 12,937	year ended 31 March 2017 2018 HK$’000 HK$’000 11 11 24,717 25,075 10,237 9,518 2,058 3,419 12,295 12,937
			12,937

9. Income tax expense

Current tax: PRC Enterprise Income Tax Deferred tax	For the 2016 HK$’000 – – –	year ended 31 March 2017 2018 HK$’000 HK$’000 – – – – – –	year ended 31 March 2017 2018 HK$’000 HK$’000 – – – – – –
			–

No provision for Hong Kong Profits Tax has been made as Ba Qiao’s income neither arises in, nor is derived from, Hong Kong.

The concessionary tax rate of 15% is applied to Ba Qiao throughout the Relevant Periods as it is recognised as ‘‘Go-West’’ regional development programme corporate which is entitled to apply a tax rate of 15%. The entitlement of this tax benefit is subject to renewal by tax bureau in the PRC every year. The latest approvals for Ba Qiao were obtained for the years ended 31 March 2016, 2017 and 2018.

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The income tax expense for the Relevant Periods can be reconciled to the (loss) profit before taxation per the statements of profit or loss and other comprehensive income as follows:

(Loss) profit before taxation Tax at applicable tax rate of 15% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Utilisation of tax losses previously not recognised Tax effect of tax losses not recognised Income tax expense for the year	For the 2016 HK$’000 (26,318) (3,948) 1,291 – – 2,657 –	year ended 31 March 2017 2018 HK$’000 HK$’000 (8,745) 45,175 (1,311) 6,776 889 2,368 – (7,167) – (1,977) 422 – – –	year ended 31 March 2017 2018 HK$’000 HK$’000 (8,745) 45,175 (1,311) 6,776 889 2,368 – (7,167) – (1,977) 422 – – –
			6,776 2,368 (7,167) (1,977) –
			–

10. Directors’ emoluments and employees’ emoluments

Directors’ emoluments

During the Relevant Periods, all directors’ emolument were borne by a fellow subsidiary. No emolument was paid or payable by Ba Qiao to the directors of Ba Qiao as an inducement to join or upon joining Ba Qiao or as compensation for loss of office. There was no arrangement under which a director or the chief executive of Ba Qiao waived or agreed to waive any emoluments.

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Employees’ emoluments

The emoluments of the five highest paid individuals of Ba Qiao during the Relevant Periods were as follows:

Salaries and allowances Discretionary bonus (Note) Contributions to state-managed retirement benefits scheme	For the 2016 HK$’000 658 35 89 782	year ended 31 March 2017 2018 HK$’000 HK$’000 512 755 75 147 99 129 686 1,031	year ended 31 March 2017 2018 HK$’000 HK$’000 512 755 75 147 99 129 686 1,031
			1,031

Note: Discretionary bonus is determined having regard to the performance of the	Note: Discretionary bonus is determined having regard to the performance of the	Note: Discretionary bonus is determined having regard to the performance of the	individuals and
market trend.
	2016	2017	2018
	Number of	Number of	Number of
	employees	employees	employees
The emoluments were
within the following band:
Nil – HK$1,000,000	5	5	5

During the Relevant Periods, no emolument was paid or payable by Ba Qiao to the five highest paid individuals as an inducement to join or upon joining Ba Qiao or as compensation for loss of office.

11. (Loss) earnings per share

No (loss) earnings per share information is presented for the purpose of this report as its inclusion is not considered meaningful.

12. DIVIDEND

No dividend was paid or proposed during the Relevant Periods, nor has any dividend been proposed since the end of the Relevant Periods.

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13. PROPERTY, PLANT AND EQUIPMENT

COST At 1 April 2015 Additions Disposals Exchange realignment At 31 March 2016 Additions Disposals Exchange realignment At 31 March 2017 Additions Disposals Exchange realignment At 31 March 2018 DEPRECIATION At 1 April 2015 Provided for the year Eliminated on disposals Exchange realignment At 31 March 2016 Provided for the year Eliminated on disposals Exchange realignment At 31 March 2017 Provided for the year Eliminated on disposals Exchange realignment At 31 March 2018 CARRYING VALUES At 31 March 2016 At 31 March 2017 At 31 March 2018	Leasehold improvement HK$’000 261,078 – – (10,912) 250,166 – – (14,195) 235,971 – – 22,942 258,913 76,148 25,412 – (3,578) 97,982 24,042 – (6,004) 116,020 24,757 – 12,413 153,190 152,184 119,951 105,723	Computer equipment HK$’000 966 – – (40) 926 8 (200) (49) 685 8 – 67 760 467 188 – (23) 632 277 (187) (37) 685 1 – 67 753 294 – 7	Furniture, fixtures and office equipment HK$’000 1,986 9 (3) (84) 1,908 129 – (110) 1,927 1,275 (42) 244 3,404 578 193 (3) (27) 741 220 – (46) 915 317 (40) 101 1,293 1,167 1,012 2,111	Motor vehicles HK$’000 1,712 – – (72) 1,640 – – (93) 1,547 – – 150 1,697 1,177 333 – (55) 1,455 178 – (86) 1,547 – – 150 1,697 185 – –	Total HK$’000 265,742 9 (3) (11,108)
					254,640 137 (200) (14,447)
					240,130 1,283 (42) 23,403
					264,774
					78,370 26,126 (3) (3,683)
					100,810 24,717 (187) (6,173)
					119,167 25,075 (40) 12,731
					156,933
					153,830
					120,963
					107,841

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The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum:

Leasehold improvement	10%
Computer equipment	20%
Furniture, fixtures and office equipment	10%
Motor vehicles	20%

14. Loans to a fellow subsidiary

Advances to Tang Rong Advances to Tang Rong	As at 31 March 2016 2017 2018 HK$’000 HK$’000 HK$’000 250,002 260,408 262,210 Maximum balance outstanding during the year 2016 2017 2018 HK$’000 HK$’000 HK$’000 250,002 260,408 262,210	2018 HK$’000 262,210

Certain directors of Ba Qiao are also directors of Tang Rong. The amounts were unsecured and were repayable a year after the date of withdrawal. However, the directors of Ba Qiao expects the amount to be settled after one year from the end of each reporting period. The amounts carried interest ranged from 4.35% to 6.6% per annum as at 31 March 2016, 2017 and 2018.

15. Bank balances and cash

During the Relevant Periods, the entire bank balances are current deposits, carrying interest at market rates ranged from 0.30% to 0.35% per annum.

16. Receipts in advance and deposits received from tenants

Ba Qiao had entered into contracts of provision of property management services with tenants and received management fees in advance and deposits from tenants which are noninterest bearing. As at 31 March 2016, 2017 and 2018, receipts in advance and deposits received from tenants are classified as current and non-current liabilities based on the timing of performance of the related management services and the expiry of rental periods respectively as stated on the relevant contracts.

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17. Amount due to a related company

Xi’an Hao Hua Real Estate Limited Analysed for reporting purpose as: Current liability Non-current liability	As at 31 March 2016 2017 HK$’000 HK$’000 5,984 179,399 As at 31 March 2016 2017 HK$’000 HK$’000 5,984 179,399 – –	2018 HK$’000 143,244
		2018 HK$’000 9,821 133,423

The amount due to a related company in which Mr. Li has a significant influence is unsecured, non-interest bearing and repayable a year after the date of withdrawal.

Agreements were entered with the related company on 30 September 2017 and agreed that the amount due to a related company is repayable on 4 April 2020. Accordingly, such balance was classified as non-current liability at 31 March 2018 and using effective interest rate method of 14% per annum. During the year ended 31 March 2018, the adjustment on amount due to a related company of HK$47,780,000 was credited to profit or loss and the imputed interest expense of HK$9,557,000 was recognised to profit or loss.

18. Amount due to a fellow subsidiary

Real King International (Xi’an) Information Technology Company Limited	As at 31 March 2016 2017 HK$’000 HK$’000 – –	2018 HK$’000 30,964

The amount due to a fellow subsidiary was unsecured, non-interest bearing and repayable a year after the date of withdrawal.

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19. Amount due to immediate holding company

High Express International Limited	As at 31 March 2016 2017 HK$’000 HK$’000 – 90,393	2018 HK$’000 54,434

The amount due to immediate holding company was unsecured and repayable on demand. The amount carried interest at 6% per annum as at 31 March 2017 and 2018.

20. Loan from staff

The amount was unsecured, repayable within a year after withdrawal and non-interest bearing. The amount was fully settled during the year ended 31 March 2017.

21. Bank borrowings

Bank borrowings, secured Carrying amounts of the borrowings repayable based on contractual term#: Within one year More than one year, but not exceeding two years More than two years, but not exceeding five years More than five years Less: Amount due within one year shown under current liabilities Amount shown under non-current liabilities	As at 31 March 2016 2017 HK$’000 HK$’000 291,556 28,220 29,096 28,220 60,936 – 110,551 – 90,973 – 29,096 28,220 262,460 –	2018 HK$’000 –
		– – – –
		–
		–

Note: Details of pledge of assets and guarantee on the borrowings are set out in note 27.

The amounts due are based on scheduled repayment dates set out in the loan agreements.

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As at 31 March 2016, Ba Qiao had a significant secured variable rate bank borrowing, which was denominated in RMB, amounted to HK$261,023,000 (HK$28,493,000 repayable within 1 year, HK$31,006,000 repayable one to two years, HK$110,551,000 repayable two to five years and HK$90,973,000 repayable over five years). Such bank borrowing was early repaid in full during the year ended 31 March 2017.

The ranges of effective interest rates per annum (which are also equal to contracted interest rates) on the bank borrowings of Ba Qiao are as follows:

				As	at	31	March
			2016				2017	2018
Variable-rate	bank	borrowings*	6.60%-8.51%				7.5%	–

The interest rates of all variable rate bank borrowings of Ba Qiao are based on the base rate fixed by the People’s Bank of China (‘‘PBOC’’) plus a premium.

22. Deferred taxation

Ba Qiao has unused tax losses of approximately RMB57,603,000, RMB60,050,000 and RMB48,916,000 (equivalent to HK$70,950,000, HK$73,765,000 and HK$60,584,000) at 31 March 2016, 2017 and 2018 respectively, which are available to offset against future profit. No deferred tax asset has been recognised in respect of the tax losses at 31 March 2016, 2017, 2018 due to unpredictability of future profit streams. As at 31 March 2016, 2017 and 2018, included in unrecognised tax losses are losses of RMB57,603,000, RMB60,050,000 and RMB48,916,000 (equivalent to HK$70,950,000, HK$73,765,000 and HK$60,584,000) which will expire in 5 years from the year of origination which is ranged from 2019 to 2022 respectively.

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23. Paid-up capital

Fully paid-up registered capital of Ba Qiao:

At 1 April 2015, 31 March 2016, 31 March 2017 and 31 March 2018 Shown in the Historical Financial Information as	RMB’000 80,000
	HK$’000 94,560

24. Capital risk management

Ba Qiao manages its capital to ensure it will be able to continue as a going concern. The directors of Ba Qiao consider that Ba Qiao will have sufficient working capital to finance its operations as the Company has agreed to provide adequate funds to Tang Rong to meet in full its financial obligations as and when they fall due for the foreseeable future.

The capital structure of Ba Qiao consists of debts which include bank borrowings, loan from staff, amounts due to a related company, fellow subsidiary and immediate holding company, net of cash and cash equivalents and equity attributable to the owners of Ba Qiao, comprising paid-up capital and reserves.

The directors of Ba Qiao review the capital structure on a regular basis. As part of this review, the director considers the cost of capital and the risks associated with each class of capital. Based on the recommendations of the directors, Ba Qiao will balance its overall capital structure through issue of new debts or the redemption of existing debts.

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25. Financial instruments

Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	As at 31 March 2016 2017 HK$’000 HK$’000 258,345 292,438 332,031 340,107	2018 HK$’000 297,628
		281,757

Financial risk management objectives and policies

Major financial instruments of Ba Qiao include other receivables and deposits, loans to a fellow subsidiary, bank balances and cash, other payables and accruals, construction costs accruals, loan from staff, amounts due to a related company, fellow subsidiary and immediate holding company, management fee deposits received from tenants and bank borrowings,. Details of these financial instruments are set out in respective notes. The risks associated with these financial instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. Management of Ba Qiao manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

Interest rate risk

Ba Qiao is exposed to cash flow interest rate risk in relation to variable-rate bank balances (see note 14 for details) and variable-rate bank borrowings (see note 20 for details). Cash flow interest rate risk of Ba Qiao is mainly concentrated on the fluctuation of base rate fixed by the PBOC arising from the bank borrowings.

Ba Qiao’s fair value interest rate risk relates primarily to its fixed-rate loans to a fellow subsidiary, and amount due to immediate holding company (see note 14 and 19 for details). Ba Qiao currently does not have an interest rate hedging policy and has not used any derivative contracts to hedge its exposure to interest rate risk. However, the management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise.

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Sensitivity analysis

The directors consider Ba Qiao’s exposure to interest rate risk of variable-rate bank balances is minimal taking into account the minimal fluctuation on market interest rate and the carrying amounts at the end of the reporting period.

The sensitivity analysis below was determined based on the exposure to interest rates for the variable-rate bank borrowings at the end of each reporting period. The analysis is prepared assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year. A 25 basis points increase or decrease represented management’s assessment of the reasonably possible change in interest rates. A negative number below indicates an increase in post-tax loss where the interest rates had been 25 basis points higher and all other variables were held constant. For interest rates had been 25 basis points lower, there would be an equal and opposite impact on the result for each of the relevant year.

Increase in loss for the year	For the 2016 HK$’000 (618)	year ended 31 March 2017 2018 HK$’000 HK$’000 (60) –

In the directors’ opinion, the sensitivity analysis is unrepresentative of the inherent interest rate risk as the year end exposure does not reflect the exposure during the Relevant Periods.

Credit risk

At 31 March 2016, 2017 and 2018, Ba Qiao’s has concentration of credit risk in relation to the loans to a fellow subsidiary as disclosed in note 14. In order to minimise the credit risk, the management of Ba Qiao has reviewed the recoverability of the loans to a fellow subsidiary regularly and closely monitored its financial performance to ensure that follow-up action is taken timely. In this regard, the management of Ba Qiao considers that the credit risk on the balances is significantly reduced.

Ba Qiao’s bank balances are deposited with banks of high credit rating and Ba Qiao has limited exposure to any single financial institution.

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Liquidity risk

In the management of the liquidity risk, Ba Qiao monitors and maintains a level of cash and cash equivalents deemed adequate by management of Ba Qiao to finance its operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of borrowings.

The following tables detail the remaining contractual maturity of Ba Qiao for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which Ba Qiao can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate at the end of the reporting period.

On demand or within 3 months HK$’000 945 1,615 25,110 18,587 6,821 –	3 months to 1 year HK$’000 – – – 12,984 – 5,984	1 – 2 years HK$’000 – – – 66,122 – –	2 – 5 years HK$’000 – – – 119,959 – –	Over 5 years HK$’000 – – – 98,715 – –	Total undiscounted cash flows HK$’000 945 1,615 25,110 316,367 6,821 5,984	Carrying amount HK$’000 945 1,615 25,110 291,556 6,821 5,984
53,078	18,968	66,122	119,959	98,715	356,842	332,031
On demand or within 3 months HK$’000 24,231 2,287 15,577 – – –	3 months to 1 year HK$’000 – – – 30,337 179,399 95,817	1 – 2 years HK$’000 – – – – – –	2 – 5 years HK$’000 – – – – – –	Over 5 years HK$’000 – – – – – –	Total undiscounted cash flows HK$’000 24,231 2,287 15,577 30,337 179,399 95,817	Carrying amount HK$’000 24,231 2,287 15,577 28,220 179,399 90,393
42,095	305,553	–	–	–	347,648	340,107

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FINANCIAL INFORMATION OF THE TARGET COMPANIES

Weighted average interest rate % At 31 March 2018 Other payables and accruals N/A Construction costs accruals N/A Deposits received from tenants N/A Amount due to a fellow subsidiary N/A Amount due to a related company 14.00 Amount due to immediate holding company 6.00	On demand or within 3 months HK$’000 30,983 2,509 19,623 30,964 9,821 –	3 months to 1 year HK$’000 – – – – – 57,700	1 – 2 years HK$’000 – – – – – –	2 – 5 years HK$’000 – – – – 173,396	Over 5 years HK$’000 – – – – – –	Total undiscounted cash flows HK$’000 30,983 2,509 19,623 30,964 183,217 57,700	Carrying amount HK$’000 30,983 2,509 19,623 30,964 143,244 54,434
	93,900	57,700	–	173,396	–	324,996	281,757

The amounts included above for variable interest rate instruments for nonderivative financial liabilities are subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period.

Fair values

The management of Ba Qiao considers that the carrying amounts of financial assets and financial liabilities recognised at amortised cost in the Historical Financial Information approximate their fair values.

26. Reconciliation of liabilities arising from financing activities

The table below details changes in Ba Qiao’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the statements of cash flows as cash flows from financing activities.

At 1 April 2015 Financing cash flows Accrued interest Interest paid Exchange realignment At 31 March 2016 Financing cash flows Accrued interest Interest paid Exchange realignment At 31 March 2017 Financing cash flows Adjustment on carrying amount of amount due to a related company Accrued interest Interest paid Exchange realignment At 31 March 2018	Amount due to a related company HK$’000 – 6,078 185 (185) (94) 5,984 177,033 – – (3,618) 179,399 (13,027) (47,780) 9,557 – 15,095 143,244	Amount due to a fellow subsidiary HK$’000 – – – – – – – – – – – 29,607 – – – 1,357 30,964	Amount due to immediate holding company HK$’000 – – – – – – 88,787 3,311 – (1,705) 90,393 (47,371) – 4,584 – 6,828 54,434	Loan from staff HK$’000 – 6,929 – – (108) 6,821 (6,555) – – (266) – – – – – – –	Bank borrowings HK$’000 337,828 (33,271) 24,709 (24,096) (13,614) 291,556 (250,868) 10,223 (10,802) (11,889) 28,220 (29,607) – 1,271 (1,271) 1,387 –	Total HK$’000 337,828 (20,264) 24,894 (24,281) (13,816)
						304,361 8,397 13,534 (10,802) (17,478)
						298,012 (60,398) (47,780) 15,412 (1,271) 24,667
						228,642

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APPENDIX II

27. Related party transactions

Apart from the loans to a fellow subsidiary, amounts due to a related company, fellow subsidiary and immediate holding company as disclosed in the statements of financial position and respective notes, Ba Qiao entered into the following transactions with related parties:

Interest expense on amount due to immediate holding company Interest expense on amount due to a related company Interest income on loans to a fellow subsidiary Imputed interest expense from amount due to a related company Adjustment on carrying amount of amount due to a related company	For the 2016 HK$’000 – 185 12,695 – –	year ended 31 March 2017 2018 HK$’000 HK$’000 3,311 4,584 – – 10,450 10,449 – 9,557 – 47,780

Apart from the transactions as listed in the table above, below is the summary of assets pledged and guarantee granted by related parties in relation to the secured bank borrowings at the end of each reporting period:

Bank borrowings secured by corporate guarantee offered by Tang Rong and pledge of certain portions of investment properties owned by Tang Rong	For the 2016 HK$’000 291,556	year ended 31 March 2017 2018 HK$’000 HK$’000 28,220 –

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APPENDIX II

Compensation of key management personnel

The directors of Ba Qiao consider that the directors and certain management of Ba Qiao are the key management of Ba Qiao. The remuneration of key management personnel of Ba Qiao during the Relevant Periods was as follows:

Salaries and allowances Discretionary bonus Contributions to retirement benefits scheme	For the 2016 HK$’000 867 45 151 1,063	year ended 31 March 2017 2018 HK$’000 HK$’000 723 932 108 183 162 179 993 1,294	year ended 31 March 2017 2018 HK$’000 HK$’000 723 932 108 183 162 179 993 1,294
			1,294

The remuneration of the key management personnel of Ba Qiao is determined having regard to the performance of the individuals and market trend.

28. Subsequent financial statements

No audited financial statements of Ba Qiao have been prepared in respect of any period subsequent to 31 March 2018.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

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2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET COMPANY A

Set out below is the management discussion and analysis of the Target Company A for each of the three financial years ended 31 March 2018:

For the year ended 31 March 2016

Financial review of operations

Revenue

During the year ended 31 March 2016, the Target Company A achieved a turnover of approximately HK$25.2 million, a gross profit of approximately HK$18.3 million and a net profit of approximately HK$49.9 million.

Fair value changes of investment properties

The fair value changes of investment properties amounted approximately HK$67.7 million for the year ended 31 March 2016.

Direct operating expenses

The Target Company A incurred approximately HK$6.9 million direct operating expenses for the year ended 31 March 2016. The ratio of direct operating expenses over the rental income was 0.27.

Administrative expenses

The Target Company A incurred approximately HK$2.2 million administrative expenses for the year ended 31 March 2016.

Finance costs

The Target Company A incurred approximately HK$19.8 million finance costs for the year ended 31 March 2016.

Income tax

The Target Company A incurred approximately HK$14.1 million income tax expense for the year ended 31 March 2016. The income tax expense was derived from the deferred tax due to the fair value changes of investment properties. The concessionary tax rate of 15% was applied to the Target Company A.

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APPENDIX II

Liquidity and financial resources

As at 31 March 2016, the Target Company A’s net assets amounted to approximately HK$1,493.6 million. The current ratio, representing current assets divided by current liabilities was 0.02.

Total borrowings of the Target Company A as at 31 March 2016 were approximately HK$321.3 million which consisted of loans from staff and staff of a fellow subsidiary of approximately HK$5.3 million, loans from a fellow subsidiary of approximately HK$250.0 million and other borrowings of approximately HK$66.0 million. The cash and bank balances of the Target Company A amounted to approximately HK$1.9 million. The gearing ratio, as a ratio of total borrowings over total assets, was 0.16.

During the year, Target Company A funded its working capital requirement and capital expenditure mainly through its own operational cash flow and other borrowings.

Charges of assets

As at 31 March 2016, certain portion of investment properties held by the Target Company A with carrying amounts of HK$1,915,917,000 were pledged to banks for the Target Company B to obtain bank borrowings amounted to HK$291,556,000.

Contingent liabilities

As at 31 March 2016, the Target Company A has provided corporate guarantees to certain banks for the Target Company B to obtain bank borrowings amounted to HK$291,556,000.

Employees

The Target Company A had 26 employees as at 31 March 2016. Apart from statedmanaged retirement benefit, the Target Company A provides management personnel and employees with on-the-job education, training and other opportunities to improve their skills and knowledge. In general, the Target Company A determines employee compensation based on each employee’s performance, qualifications, position and seniority.

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APPENDIX II

Foreign currency exposure

During the year, the rental income generated from investment properties was mainly dominated in Renminbi. Other borrowings, loans from staff and staff of a fellow subsidiary and loans from a fellow subsidiary were all denominated in Renminbi.

As the exchange rates of Hong Kong dollars against Renminbi were relatively stable during the year, the Target Company A’s exposure to fluctuations in exchange rates was minimal. The Target Company A will closely monitor the foreign currency exposure and to arrange for hedging facilities when necessary.

Significant investments

During the year ended 31 March 2016, the Target Company A did not have any significant investment.

Material acquisitions and disposals

The Target Company A did not have any material acquisition and disposal during the year ended 31 March 2016.

For the year ended 31 March 2017

Financial review of operations

Revenue

The Target Company A generated turnover of approximately HK$22.6 million for the year ended 31 March 2017, representing a decrease of approximately 10.3% from HK$25.2 million in the previous year. The decrease was mainly due to the Target Company A offered competitive prices to the tenants when they renewed the tenancy agreements. The gross profit of approximately HK$17.3 million and a net profit of approximately HK$85.6 million were recorded for the year ended 31 March 2017.

Fair value changes of investment properties

The fair value changes of investment properties amounted approximately HK$107.3 million for the year ended 31 March 2017.

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APPENDIX II

Direct operating expenses

The Target Company A incurred approximately HK$5.3 million direct operating expenses for the year ended 31 March 2017, representing a decrease of approximately 23.2% from HK$6.9 million in the previous year. The decrease was mainly due to the decrease in the salary and other benefits expenses. The ratio of direct operating expenses over the rental income was 0.23.

Administrative expenses

The Target Company A incurred approximately HK$1.4 million administrative expenses for the year ended 31 March 2017, representing a decrease of approximately 36.4% from HK$2.2 million in the previous year. The decrease was mainly due to the decrease in the salary and other benefits expenses.

Finance costs

The Target Company A incurred approximately HK$17.8 million finance costs for the year ended 31 March 2017, representing a decrease of approximately 10.1% from HK$19.8 million in the previous year. The decrease was mainly due to the decrease in interest expenses on the other borrowings and the loans from a fellow subsidiary.

Income tax

The Target Company A incurred approximately HK$19.8 million income tax expense for the year ended 31 March 2017, representing an increase of approximately 40.4% from HK$14.1 million in the previous year. The income tax expense was derived from the deferred tax due to the fair value changes of investment properties. The increase was mainly due to the increase in fair value changes of investment properties incurred for the year ended 31 March 2017 compared with that for the year ended 31 March 2016. The concessionary tax rate of 15% was applied to the Target Company A.

Liquidity and financial resources

As at 31 March 2017, the Target Company A’s net assets amounted to approximately HK$1,492.8 million. The current ratio, representing current assets divided by current liabilities was 0.07.

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APPENDIX II

Total borrowings of the Target Company A as at 31 March 2017 were approximately HK$319.1 million which consisted of loans from staff and staff of a fellow subsidiary of approximately HK$5.4 million, loans from a fellow subsidiary of approximately HK$260.4 million and other borrowings of approximately HK$53.3 million. The cash and bank balances of the Target Company A amounted to approximately HK$18.6 million. The gearing ratio, as a ratio of total borrowings over total assets, was 0.15.

During the year, Target Company A funded its working capital requirement and capital expenditure mainly through its own operational cash flow and loans from a fellow subsidiary.

Charges of assets

As at 31 March 2017, certain portion of investment properties held by the Target Company A with carrying amounts of HK$1,899,763,000 were pledged to banks for the Target Company B to obtain a bank borrowing amounted to HK$28,200,000 and for an intermediate holding company to obtain bank borrowings amounted to HK$630,000,000 respectively.

Contingent liabilities

As at 31 March 2017, the Target Company A has provided corporate guarantees to certain banks for the Target Company B to obtain bank borrowings amounted to HK$28,200,000 and for an intermediate holding company to obtain bank borrowings amounted to HK$630,000,000 respectively.

Employees

The Target Company A had 17 employees as at 31 March 2017. Apart from statedmanaged retirement benefit, the Target Company A provides management personnel and employees with on-the-job education, training and other opportunities to improve their skills and knowledge. In general, the Target Company A determines employee compensation based on each employee’s performance, qualifications, position and seniority.

Foreign currency exposure

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Significant investments

During the year ended 31 March 2017, the Target Company A did not have any significant investment.

Material acquisitions and disposals

The Target Company A did not have any material acquisition and disposal during the year ended 31 March 2017.

For the year ended 31 March 2018

Financial review of operations

Revenue

The Target Company A generated turnover of approximately HK$27.2 million for the year ended 31 March 2017, representing an increase of approximately 20.4% from HK$22.6 million in the previous year. The increase was mainly due to the increase in the average occupancy rate for the year ended 31 March 2018 compared with that for the year ended 31 March 2017. The gross profit of approximately HK22.5 million and a net profit of approximately HK$130.6 million were recorded for the year ended 31 March 2018.

Fair value changes of investment properties

The fair value changes of investment properties amounted approximately HK$154.0 million for the year ended 31 March 2018.

Direct operating expenses

The Target Company A incurred approximately HK$4.7 million direct operating expenses for the year ended 31 March 2018, representing a decrease of approximately 11.3% from HK$5.3 million in the previous year. The decrease was mainly due to the decrease in the salary and other benefits expenses. The ratio of direct operating expenses over the rental income was 0.17.

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Administrative expenses

The Target Company A incurred approximately HK$1.2 million administrative expenses for the year ended 31 March 2018, representing a decrease of approximately 14.3% from HK$1.4 million in the previous year. The decrease was mainly due to the decrease in the salary and other benefits expenses.

Finance costs

The Target Company A incurred approximately HK$17.7 million finance costs for the year ended 31 March 2018, representing a decrease of approximately 0.6% from HK$17.8 million in the previous year.

Income tax

The Target Company A incurred approximately HK$27.0 million income tax expense for the year ended 31 March 2018, representing an increase of approximately 36.4% from HK$19.8 million in the previous year. The income tax expense was derived from the deferred tax due to the fair value changes of investment properties. The increase was mainly due to the increase in fair value changes of investment properties incurred for the year ended 31 March 2018 compared with that for the year ended 31 March 2017. The concessionary tax rate of 15% was applied to the Target Company A.

Liquidity and financial resources

As at 31 March 2018, the Target Company A’s net assets amounted to approximately HK$1,774.6 million. The current ratio, representing current assets divided by current liabilities was 0.02.

Total borrowings of the Target Company A as at 31 March 2018 were approximately HK$331.0 million which consisted of loans from staff and staff of a fellow subsidiary of approximately HK$12.1 million, loans from a fellow subsidiary of approximately HK$262.2 million and other borrowings of approximately HK$56.7 million. The cash and bank balances of the Target Company A amounted to approximately HK$3.3 million. The gearing ratio, as a ratio of total borrowings over total assets, was 0.14.

During the year, Target Company A funded its working capital requirement and capital expenditure mainly through its own operational cash flow and loans from a fellow subsidiary.

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Charges of assets

As at 31 March 2018, certain portion of investment properties held by the Target Company A with carrying amounts of HK$2,207,828,000 were pledged to a bank for an intermediate holding company to obtain bank borrowings amounted to HK$512,500,000.

Contingent liabilities

As at 31 March 2018, the Target Company A has provided corporate guarantees to a bank for an intermediate holding company to obtain bank borrowings amounted to HK$512,500,000.

Employees

The Target Company A had 11 employees as at 31 March 2018. Apart from statedmanaged retirement benefit, the Target Company A provides management personnel and employees with on-the-job education, training and other opportunities to improve their skills and knowledge. In general, the Target Company A determines employee compensation based on each employee’s performance, qualifications, position and seniority.

Foreign currency exposure

Significant investments

During the year ended 31 March 2018, the Target Company A did not have any significant investment.

Material acquisitions and disposals

The Target Company A did not have any material acquisition and disposal during the year ended 31 March 2018.

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3. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET COMPANY B

Set out below is the management discussion and analysis of the Target Company B for each of the three financial years ended 31 March 2018:

For the year ended 31 March 2016

Financial review of operations

Revenue

During the year ended 31 March 2016, the Target Company B achieved a turnover of approximately HK$50.8 million, a gross profit of approximately HK$6.8 million and a net loss of approximately HK$26.3 million.

Direct operating expenses

The Target Company B incurred approximately HK$44.0 million direct operating expenses for the year ended 31 March 2016. The ratio of direct operating expenses over the management fee income was 0.87.

Selling and marketing expenses

The Target Company B incurred approximately HK$12.5 million selling and marketing expenses for the year ended 31 March 2016. It comprised advertising expenses and salary expenses.

Administrative expenses

The Target Company B incurred approximately HK$7.9 million administrative expenses for the year ended 31 March 2016.

Finance costs

The Target Company B incurred approximately HK$24.9 million finance costs for the year ended 31 March 2016.

Liquidity and financial resources

As at 31 March 2016, the Target Company B’s net assets amounted to approximately HK$33.3 million. The current ratio, representing current assets divided by current liabilities was 0.09.

Total borrowings of the Target Company B as at 31 March 2016 were approximately HK41.9 million which consisted of amount due to a related company of approximately HK$6.0 million, loan from a staff of approximately HK$6.8 million and bank borrowings of

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approximately HK$29.1 million. The cash and bank balances of the Target Company B amounted to approximately HK$5.8 million. The gearing ratio, as a ratio of total borrowings over total assets, was 0.10.

During the year, Target Company B funded its working capital requirement and capital expenditure mainly through its own operational cash flow and bank borrowings.

Charges of assets

As of 31 March 2016, none of the Target Company B’s assets was pledged.

Contingent liabilities

The Target Company B did not have any material contingent liability as at 31 March 2016.

Employees

The Target Company B had 163 employees as at 31 March 2016. Apart from statedmanaged retirement benefit, the Target Company B provides management personnel and employees with on-the-job education, training and other opportunities to improve their skills and knowledge. In general, the Target Company B determines employee compensation based on each employee’s performance, qualifications, position and seniority.

Foreign currency exposure

During the year, revenue and cost for management service were mainly dominated in Renminbi. Bank borrowings, amount due to a related company and loan from staff were all denominated in Renminbi.

As the exchange rates of Hong Kong dollars against Renminbi were relatively stable during the year, the Target Company B’s exposure to fluctuations in exchange rates was minimal. The Target Company B will closely monitor the foreign currency exposure and to arrange for hedging facilities when necessary.

Significant investments

During the year ended 31 March 2016, the Target Company B did not have any significant investment.

Material acquisitions and disposals

The Target Company B did not have any material acquisition and disposal during the year ended 31 March 2016.

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For the year ended 31 March 2017

Financial review of operations

Revenue

The Target Company B generated turnover of approximately HK$54.5 million for the year ended 31 March 2017, representing an increase of approximately 7.3% from HK$50.8 million in the previous year. The increase was mainly due to the increase in the average occupancy rate for the year ended 31 March 2017 compared with that for the year ended 31 March 2016. The gross profit of approximately HK$10.4 million and a net loss of approximately HK$8.7 million were recorded for the year ended 31 March 2017.

Direct operating expenses

The Target Company B incurred approximately HK$44.0 million direct operating expenses for the year ended 31 March 2017, representing a decrease of approximately 0.2% from HK$43.9 million in the previous year. The ratio of direct operating expenses over the management fee income was 0.81.

Selling and marketing expenses

The Target Company B incurred approximately HK$6.4 million selling and marketing expenses for the year ended 31 March 2017, representing a decrease of approximately 48.8% from HK$12.5 million in the previous year. It comprised advertising expenses and salary expenses. The decrease was mainly due to the decrease in the advertising expenses.

Administrative expenses

The Target Company B incurred approximately HK$9.0 million administrative expenses for the year ended 31 March 2017, representing an increase of approximately 13.9% from HK$7.9 million in the previous year. The increase was mainly due to the increase in the staff benefits expenses.

Finance costs

The Target Company B incurred approximately HK$13.5 million finance costs for the year ended 31 March 2017, representing a decrease of approximately 45.8% from HK$24.9 million in the previous year. The decrease was mainly due to the decrease in interest expenses on the bank borrowings.

Liquidity and financial resources

As at 31 March 2017, the Target Company B’s net assets amounted to approximately HK$22.8 million. The current ratio, representing current assets divided by current liabilities was 0.09.

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APPENDIX II

Total borrowings of the Target Company B as at 31 March 2017 were approximately HK$298.0 million which consisted of amount due to a related company of approximately HK$179.4 million, amount due immediate holding company of approximately HK$90.4 million and bank borrowings of approximately HK$28.2 million. The cash and bank balances of the Target Company B amounted to approximately HK$30.2 million. The gearing ratio, as a ratio of total borrowings over total assets, was 0.72.

During the year, Target Company B funded its working capital requirement and capital expenditure mainly through its own operational cash flow and loans from a fellow subsidiary.

Charges of assets

As of 31 March 2017, none of the Target Company B’s assets was pledged.

Contingent liabilities

The Target Company B did not have any material contingent liability as at 31 March 2017.

Employees

The Target Company B had 141 employees as at 31 March 2017. Apart from statedmanaged retirement benefit, the Target Company B provides management personnel and employees with on-the-job education, training and other opportunities to improve their skills and knowledge. In general, the Target Company B determines employee compensation based on each employee’s performance, qualifications, position and seniority.

Foreign currency exposure

During the year, revenue and cost for management service were mainly dominated in Renminbi. Bank borrowings, amount due to a related company and amount due to immediate holding company were all denominated in Renminbi.

Significant investments

During the year ended 31 March 2017, the Target Company B did not have any significant investment.

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APPENDIX II

Material acquisitions and disposals

The Target Company B did not have any material acquisition and disposal during the year ended 31 March 2017.

For the year ended 31 March 2018

Financial review of operations

Revenue

The Target Company B generated turnover of approximately HK$65.6 million for the year ended 31 March 2018, representing an increase of approximately 20.4% from HK$54.5 million in the previous year. The increase was mainly due to the increase in the average occupancy rate for the year ended 31 March 2018 compared with that for the year ended 31 March 2017. The gross profit of approximately HK$18.5 million and a net profit of approximately HK$45.2 million were recorded for the year ended 31 March 2018.

Direct operating expenses

The Target Company B incurred approximately HK$47.2 million direct operating expenses for the year ended 31 March 2018, representing an increase of approximately 7.3% from HK$44.0 million in the previous year. The increase was mainly due to the increase in the salary and other benefits expenses. The ratio of direct operating expenses over the management fee income was 0.72.

Selling and marketing expenses

The Target Company B incurred approximately HK$7.7 million selling and marketing expenses for the year ended 31 March 2018, representing an increase of approximately 20.3% from HK$6.4 million in the previous year. It comprised advertising expenses and salary expenses. The increase was mainly due to the increase in the advertising expenses.

Administrative expenses

The Target Company B incurred approximately HK$7.9 million administrative expenses for the year ended 31 March 2018, representing a decrease of approximately 12.2% from HK$9.0 million in the previous year. The decrease was mainly due to the decrease in the salary and other benefits expenses.

Finance costs

The Target Company B incurred approximately HK$15.4 million finance costs for the year ended 31 March 2018, representing an increase of approximately 14.1% from HK$13.5 million in the previous year. The increase was mainly due to the increase in imputed interest expense from amount due to a related company.

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Liquidity and financial resources

As at 31 March 2018, the Target Company B’s net assets amounted to approximately HK$72.3 million. The current ratio, representing current assets divided by current liabilities was 0.19.

Total borrowings of the Target Company B as at 31 March 2018 were approximately HK$95.2 million which consisted of amount due a related company of approximately HK$9.8 million, amount due to a fellow subsidiary of approximately HK$31.0 million and amount due to immediate holding company of approximately HK$54.4 million. The cash and bank balances of the Target Company B amounted to approximately HK$33.3 million. The gearing ratio, as a ratio of total borrowings over total assets, was 0.23.

During the year, Target Company B funded its working capital requirement and capital expenditure mainly through its own operational cash flow and loans from a fellow subsidiary.

Charges of assets

As of 31 March 2018, none of the Target Company B’s assets was pledged.

Contingent liabilities

The Target Company B did not have any material contingent liability as at 31 March 2018.

Employees

The Target Company B had 89 employees as at 31 March 2018. Apart from statedmanaged retirement benefit, the Target Company B provides management personnel and employees with on-the-job education, training and other opportunities to improve their skills and knowledge. In general, the Target Company B determines employee compensation based on each employee’s performance, qualifications, position and seniority.

Foreign currency exposure

During the year, revenue and cost for management service were mainly dominated in Renminbi. Amount due to a related company, amount due to a fellow subsidiary and amount due to immediate holding company were all denominated in Renminbi.

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APPENDIX II

Significant investments

During the year ended 31 March 2018, the Target Company B did not have any significant investment.

Material acquisitions and disposals

The Target Company B did not have any material acquisition and disposal during the year ended 31 March 2018.

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APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
(A) Independent Reporting Accountants’ Assurance Report on the Compilation of Unaudited Pro Forma Financial Information

To the Directors of Chinlink International Holdings Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Chinlink International 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 consolidated statement of assets and liabilities as at 30 September 2017 and related notes as set out on pages III-6 to III-8 of Appendix III to the circular issued by the Company dated 25 June 2018 (the ‘‘Circular’’). The applicable criteria on the basis of which the Directors have compiled the unaudited pro forma financial information are described on pages III-6 to III-8 of Appendix III to the Circular.

The unaudited pro forma financial information has been compiled by the Directors to illustrate the impact of the proposed major and connected transaction in relation to the proposed acquisition of 26.625% equity interest in each of 西安唐榮置業有限公司 (Xi’an Tang Rong Real Estate Limited) and 西安大明宮灞橋建材家居有限公司 (Xi’an Da Ming Gong Ba Qiao Furniture and Fixture Limited) (‘‘DMG Group’’) on the Group’s financial position as at 30 September 2017 as if the transaction had taken place at 30 September 2017. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Group’s condensed consolidated financial statements for the six months ended 30 September 2017, on which a review report has been published.

Directors’ Responsibilities 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 (the ‘‘HKICPA’’).

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

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 behaviour.

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 Accountants’ 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 accountants 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.

III – 2

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The purpose of unaudited pro forma financial information included in an investment 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 September 2017 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 accountants’ judgment, having regard to the reporting accountants’ 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.

III – 3

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

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.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong 25 June 2018

III – 4

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(B) Basis of Preparation of the Unaudited Pro Forma Financial Information of the Enlarged Group

In connection with the proposed major and connected transaction in relation to the proposed acquisition of 26.625% equity interest in each of Tang Rong and Ba Qiao (‘‘DMG Group’’) (the ‘‘Acquisition’’) by Chinlink International Holdings Limited (the ‘‘Company’’) and its subsidiaries (the ‘‘Group’’) (together with the DMG Group hereinafter referred to as the ‘‘Enlarged Group’’), the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group has been prepared to illustrate the effect of the Acquisition on the Group’s financial position as at 30 September 2017 as if the Acquisition had taken place on 30 September 2017.

The unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group is prepared based on (i) the information on the unaudited condensed consolidated statement of financial position of the Group as at 30 September 2017 which has been extracted from the published interim report of the Group for the six months ended 30 September 2017.

The unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group has been prepared by the Directors of the Company in accordance with paragraph 4.29 of the Listing Rules and is solely for the purpose to illustrate the assets and liabilities of the Enlarged Group as if the Acquisition had taken place on 30 September 2017.

The unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group is prepared based on the aforesaid historical data after giving effect to the pro forma adjustments described below in the accompanying notes that are (i) directly attributable to the Acquisition; and (ii) factually supportable.

The unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group has been prepared by the Directors based on certain assumptions and estimates and for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the assets and liabilities of the Enlarged Group upon completion of the Acquisition as at 30 September 2017 or at any future dates.

Accordingly, it does not purport to describe the financial position of the Enlarged Group that would have been attained had the Acquisition been completed on 30 September 2017, nor to predict the future financial position of the Enlarged Group.

III – 5

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(C) Unaudited Pro Forma Financial Information

Unaudited pro forma consolidated statement of assets and liabilities

NON-CURRENT ASSETS Property, plant and equipment Investment properties Intangible assets Amounts due from former subsidiaries Deposits and prepayments CURRENT ASSETS Inventories Trade receivables Trade receivables from related companies Loan receivables Finance lease receivables Other receivables, deposits and prepayments Amounts due from former subsidiaries Restricted deposits Pledged bank deposits Bank balances and cash	The Group as at 30 September 2017 Pro forma adjustment HK$’000 HK$’000 Note (1) Note (2) 24,638 3,537,675 585 14,528 13,824 3,591,250 1,258 26,242 8 83,387 17,949 44,424 5,793 86,987 380,404 255,735 (255,735) 902,187	Unaudited pro forma Enlarged Group HK$’000 24,638 3,537,675 585 14,528 13,824
		3,591,250
		1,258 26,242 8 83,387 17,949 44,424 5,793 86,987 380,404 –
		646,452

III – 6

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

CURRENT LIABILITIES Deferred revenue Trade payables Other payables and accruals Loans from staffs Construction costs accruals Receipts in advance Deposits received from tenants Amounts due to related companies Amount due to a director Amount due to ultimate holding company Provision for warranty Financing guarantee contracts Tax payable Bank and other borrowings Obligations under finance leases Net current assets (liabilities) Total assets less current liabilities NON CURRENT LIABILITIES 3% Convertible Bonds 9% Coupon bonds Deferred tax liabilities Receipts in advance Bank and other borrowings Amounts due to related companies Amounts due to former subsidiaries Obligations under finance leases Net assets	The Group as at 30 September 2017 Pro forma adjustment HK$’000 HK$’000 2 25,595 57,440 92,145 6,027 111,344 56,005 19,997 11,818 21,984 7,792 127 5,040 6,007 550,888 813 880,879 21,308 3,612,558 239,731 335,551 258,778 23,176 564,087 212,119 7,834 284 1,641,560 1,970,998	Unaudited pro forma Enlarged Group HK$’000 2 25,595 149,585 6,027 111,344 56,005 19,997 11,818 21,984 7,792 127 5,040 6,007 550,888 813
		973,024
		(326,572)
		3,264,678
		239,731 335,551 258,778 23,176 564,087 212,119 7,834 284
		1,641,560
		1,623,118

III – 7

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. Notes to unaudited pro forma consolidated statement of assets and liabilities

Notes:

(1) The amounts are extracted from the published interim report of the Group for the six months ended 30 September 2017.
(2) The adjustment represents the impact of acquisition of 26.625% non-controlling interests in DMG Group by the Group at the pro forma purchase consideration of RMB295,941,700 (equivalent to approximately HK$347,880,000), as if the acquisition had taken place on 30 September 2017.

Pro forma fair value of consideration as at 30 September 2017: Cash Less: Pro forma carrying amount of 26.625% non-controlling interests in DMG Group as at 30 September 2017 Pro forma amount recognised in equity attributable to owners of the Company	HK$’000 347,880
	(465,378)
	(117,498)

The directors of the Company expect to fund the purchase consideration by obtaining bridging loan from Mr. Li’s controlled company.

III – 8

PROPERTY VALUATION REPORT

APPENDIX IV

The following is the text of a letter, summary of value and valuation certificate prepared for the purpose of incorporation in this circular received from Collier International (Hong Kong) Ltd., an independent valuer, in connection with its valuation as at 31 March 2018 of the Property to be acquired by the Group. Terms defined in this appendix applies to this appendix only.

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Colliers International (Hong Kong) Limited Valuation & Advisory Services Company Licence No: C-006052

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Suite 5701 Central Plaza 18 Harbour Road Wanchai Hong Kong

The Board of Directors

Chinlink International Holdings Limited Suite 5-6, 40/F One Exchange Square 8 Connaught Place Central Hong Kong

25 June 2018

Dear Sirs,

INSTRUCTIONS, PURPOSE AND VALUATION DATE

We refer to your instructions for us to assess the market value of the Property located in The People’s Republic of China (‘‘The PRC’’) to be acquired by Chinlink International Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter together referred to as the ‘‘Group’’). We confirm that we have carried out inspection, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the Property as at 31 March 2018 (the ‘‘Valuation Date’’).

VALUATION STANDARDS

The valuation has been carried out in accordance with HKIS Valuation Standards 2017 published by The Hong Kong Institute of Surveyors effective from 30 December 2017 with reference to the International Valuation Standards 2017 published by the International Valuation Standards Council effective from 1 July 2017, and the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

IV – 1

PROPERTY VALUATION REPORT

APPENDIX IV

BASIS OF VALUATION

Our valuation has been undertaken on the basis of market value, which is defined by The Hong Kong Institute of Surveyors as ‘‘the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion’’.

Market value is understood as the value of an asset or liability estimated without regard to costs of sale or purchase (or transaction) and without offset for any associated taxes or potential taxes.

This estimate specifically excludes an estimated price inflated or deflated by special considerations or concessions granted by anyone associated with the sale, or any element of special value.

VALUATION ASSUMPTIONS

Our valuation has been made on the assumption that the owner sells the Property on the open market without the benefit of deferred terms contracts, leasebacks, joint ventures, or any similar arrangements which would affect its value.

No allowances have been made in our valuation for any charges, mortgages or amounts owing neither on the property interests nor for any expenses or taxes which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the Property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

As the Property is held under long term land use rights, we have assumed that the owner has free and uninterrupted rights to use the Property for the whole of the unexpired term of the land use rights.

VALUATION METHODOLOGY

For the valuation of the land and building of Phase I of the Property, we have adopted the Income Capitalisation Approach. This valuation method estimates the value of a property on a market basis by capitalizing rental income on a fully leased basis.

For the valuation of Phase II of the Property, we have adopted the Market Approach by making reference to comparable sale transactions as available in the relevant markets.

IV – 2

PROPERTY VALUATION REPORT

APPENDIX IV

LAND TENURE AND TITLE INVESTIGATION

We have been provided with copies of documents in relation to the titles of the Property. However, we have not scrutinized the original documents to verify ownership or to verify any amendments, which may not appear on the copies handed to us. We have relied to a considerable extent on the information provided by the Group.

We have relied on the advice given by The PRC legal adviser – GFE Law Office, on The PRC laws, regarding the titles to the Property in The PRC. We do not accept liability for any interpretation that we have placed on such information, which is more properly placed within the sphere of the legal adviser.

All legal documents disclosed in this letter, summary of value and valuation certificate are for reference only. No responsibility is assumed for any legal matters concerning the legal titles to the Property set out in this letter, summary of value and valuation certificate.

SOURCES OF INFORMATION

We have relied to a considerable extent on the information provided by the Group and The PRC legal adviser, in respect of the titles to the Property in The PRC. We have also accepted advice given to us on matters such as the identification of the Property, particulars of occupancy, tenancy details, statutory notices, easements, tenure, site areas, site plans and all other relevant matters. Dimensions, measurements and areas included in the valuation are based on information contained in the documents provided to us and are, therefore, only approximations.

We have also been advised by the Group that no material factors or information have been omitted or withheld from the information supplied and consider that we have been provided with sufficient information to reach an informed view. We believe that the assumptions used in preparing our valuation are reasonable and have had no reason to doubt the truth and accuracy of the information provided to us by the Group which is material to the valuation.

SITE MEASUREMENT

We have not carried out detailed on-site measurements to verify the correctness of the site areas in respect of the Property but have assumed that the areas shown on the documents and plans provided to us are correct. All documents have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.

IV – 3

PROPERTY VALUATION REPORT

APPENDIX IV

SITE INSPECTION

We have inspected the exterior and, where possible, the interior of the Property. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report whether the Property are free of rot, infestation or any other structural defects. No tests were carried out on any of the services.

CURRENCY

Unless otherwise stated, all monetary figures stated in this report are in Renminbi (‘‘RMB’’).

Our summary of value and valuation certificate is attached hereto.

Yours faithfully, For and on behalf of

Colliers International (Hong Kong) Ltd.

Vincent Cheung

Registered Professional Surveyor (General Practice) BSc(Hons) MBA FRICS MHKIS MISCM MHKSI MCIREA Registered Real Estate Appraiser PRC Deputy Managing Director, Asia Valuation & Advisory Services

Note:

Vincent Cheung holds a Master of Business Administration and he is a Registered Professional Surveyor (General Practice) with about 20 years’ experiences in real estate industry and assets valuations sector. His experiences on valuations cover Greater China and other regions. Vincent is a fellow member of the Royal Institution of Chartered Surveyors, a member of The Hong Kong Institute of Surveyors, a member of Institute of Shopping Centre Management, a member of Hong Kong Securities and Investment Institute, a member of China Institute of Real Estate Appraisers and Agents and a Registered Real Estate Appraiser PRC. Vincent is one of the valuers on the ‘‘list of property valuers for undertaking valuation for incorporation or reference in listing particulars and circulars and valuations in connection with takeovers and mergers’’ as well as a Registered Business Valuer of the Hong Kong Business Valuation Forum.

IV – 4

PROPERTY VALUATION REPORT

APPENDIX IV

SUMMARY OF VALUE

Group I – Property to be acquired by the Group for investment in The PRC

No. Property Market value in existing state as at 31 March 2018 Interest to be attributable to the Group post-acquisition RMB 1 The land and building of Phase I of Daminggong Dongcheng International, Baqiao District, Xi’an, Shaanxi Province, The People’s Republic of China 1,811,000,000 100% Sub-total:	Market value in existing state as at 31 March 2018 to be attributable to the Group post-acquisition RMB 1,811,000,000
	1,811,000,000

IV – 5

PROPERTY VALUATION REPORT

APPENDIX IV

Group II – Property to be acquired by the Group for future development in The PRC

No. Property Market value in existing state as at 31 March 2018 Interest to be attributable to the Group post-acquisition RMB 2 Phase II of Daminggong Dongcheng International, Baqiao District, Xi’an, Shaanxi Province, The People’s Republic of China 129,000,000 100% Sub-total: Grand-total:	Market value in existing state as at 31 March 2018 to be attributable to the Group post-acquisition RMB 129,000,000
	129,000,000
	1,940,000,000

IV – 6

PROPERTY VALUATION REPORT

APPENDIX IV

VALUATION CERTIFICATE

Group I – Property to be acquired by the Group for investment in The PRC

No. Property Description and tenure 1 The land and building of Daminggong Dongcheng International Phase I of Daminggong (the ‘‘Development’’) is a commercial Dongcheng International, development which is being developed Baqiao District, by 2 phases on a land parcel with Xi’an, Shaanxi Province, a site area of approximately 58,698.32 The People’s Republic square metres. of China The property comprises the land and building, excluding any ancillary renovation and plant and machinery, of Phase I of the Development with an apportioned site area of approximately 40,937.00 square metres.

Market value in existing state as at Particulars of occupancy 31 March 2018 RMB As at the Valuation Date, 1,811,000,000 the property was leased to (One Billion different tenants subject to Eight Hundred and an occupancy rate of 99% Eleven Million) and a monthly existing rent of circa RMB1,682,767 100% interest to exclusive of management be attributable to the fees, carparking fees and Group post-acquisition: air conditioning charges. 1,811,000,000 (One Billion Eight Hundred and Eleven Million)

The property is a 7-storey commercial building plus 2 basement floors for wholesale and retail of building materials, home furniture and fixtures as well as lighting and electrical appliances. It has a total gross floor area of approximately 189,992.56 square metres. Basement Level 2 of Phase I provides 1,283 car parking spaces.

Details of the uses and gross floor areas of the property are as follows:

Use Underground Freezer Station Underground Car Parking Commercial Office Total	Gross Floor Area (square metres)
	1,030.60 34,173.14 149,654.07 5,134.75
	189,992.56

As advised by the Client, the property was completed in about 2012.

The land use rights of the property were granted for a term expiring on 6 December 2052 for commercial uses.

IV – 7

PROPERTY VALUATION REPORT

APPENDIX IV

Notes:

The Property is inspected by Mr. Kit Cheung MHKIS MRICS RPS(GP) MCIREA Registered Real Estate Appraiser PRC on 15 May 2018.
The valuation of the Property was prepared by Mr. Kit Cheung MHKIS MRICS RPS(GP) MCIREA Registered Real Estate Appraiser PRC and Mr. Vincent Cheung MHKIS FRICS RPS (GP) MISCM MHKSI MCIREA Registered Real Estate Appraiser PRC.
Pursuant to a State-owned Construction Land Use Rights Grant Contract, No. GF-2008-2601-27723, entered into between State-owned Land Resources Bureau of Xi’an and 西安盛唐投資發展股份有限公司 dated 7 November 2012, the land use rights of the Development were contracted to be granted to 西安盛唐投資發展股份有限公司 with details as follows:

Land Use	:	Commercial
Site Area	:	58,698.32 square metres
Lot No.	:	BQ3-4-11
Land Use Rights Term	:	40 years
Maximum Plot Ratio	:	4.0
Maximum Site Coverage	:	52%

Pursuant to a State-owned Land Use Rights Certificate, Xi Fang Guo Yong (2013 Chu) Di No. 07, issued by the People’s Government of Xi’an dated 2 April 2013, the land use rights of the Development with a total site area of approximately 58,698.32 square metres were granted to 西安盛唐投資發展股份有限公司for a term expiring on 6 December 2052 for commercial uses.

IV – 8

PROPERTY VALUATION REPORT

APPENDIX IV

Pursuant to ten Building Ownership Certificates and Real Estate Title Certificates dated 2 April 2015 and 2016, the building ownership of the property with a total gross floor area of 189,992.56 square metres is vested in 西安唐榮置業有限公司 (‘‘Xi’an Tangrong’’).

Details of the Building Ownership Certificates and Real Estate Title Certificates are listed as follows:

Certificate No.
Usage
Floor
Xi An Shi Fang Quan Zheng Ba Qiao Qu Zi Di
No. 1200108019-39-2-10000-1
Underground
Freezer Station
–1
Xi An Shi Fang Quan Zheng Ba Qiao Qu Zi Di
No. 1200108019-39-1-1F201-1
Underground
Car Parking
–2
Shan (2016) Xi An Shi Bu Dong Chan Quan Di
No. 1083487
Commercial
–1
Shan (2016) Xi An Shi Bu Dong Chan Quan Di
No. 1083486
Commercial
1
Shan (2016) Xi An Shi Bu Dong Chan Quan Di
No. 1083485
Commercial
2
Shan (2016) Xi An Shi Bu Dong Chan Quan Di
No. 1083483
Commercial
3
Shan (2016) Xi An Shi Bu Dong Chan Quan Di
No. 1083484
Commercial
4
Xi An Shi Fang Quan Zheng Ba Qiao Qu Zi Di
No. 1200108019-39-1-10501-1
Commercial
5
Xi An Shi Fang Quan Zheng Ba Qiao Qu Zi Di
No. 1200108019-39-1-10601-1
Commercial
6
Xi An Shi Fang Quan Zheng Ba Qiao Qu Zi Di
No. 1200108019-39-1-10701-1
Others
7

Approximate
Gross Floor
Area
(square metres)
1,030.60
34,173.14
22,332.34
20,708.64
21,303.87
21,312.91
21,345.06
21,345.06
21,306.19
5,134.75

189,992.56

IV – 9

PROPERTY VALUATION REPORT

APPENDIX IV

In the course of our valuation by Income Capitalisation Approach, we have adopted the following key parameters:

Details

Market Yield 4.50% Market Rent Retail: RMB1.86 per square metre per day Office: RMB0.99 per square metre per day Market Comparables In the course of our valuation of the property, we have considered and analysed the retail and office rental comparables in the vicinity. These comparables are adopted as they are considered relevant to the property in terms of physical and locational attributes. The achievable Level 1 unit rents of retail rental comparables are ranging from RMB2.60 per square metre per day to RMB3.15 per square metre per day. The achievable unit rents of office rental comparables are ranging from RMB1.20 per square metre per day to RMB1.30 per square metre per day. The unit rents adopted in the valuation are consistent with the unit rents of the relevant comparables after due adjustments in terms of floor level, location, term and size, etc.

The locational and market information of the property are summarized as below:
Location : The property is located at the eastern side of East 3rd Ring Road, Baqiao District, Xi’an, Shaanxi Province, The PRC.
Transportation : Luohe Station of Metro Line No. 1 is within a 20-minute walking distance. Various public bus routes and taxis are available along East 3rd Ring Road. Xi’an North Railway Station and Xi’an Xianyang International Airport are located in approximately 25 kilometres and 50 kilometres away respectively.
Nature of : The subject area is a predominately residential area within Baqiao Surrounding Area District. The neighbourhood of the property is dominated by residential developments.
We have been provided with a legal opinion regarding the legality of the property by The PRC legal adviser of the Group, which contains, inter alia, the following:
(a) Xi’an Tangrong has legally and effectively obtained the land use rights of the property;
(b) Xi’an Tangrong has legally and effectively obtained the building ownership rights of the property; and
(c) Subject to the land use rights term and the permitted land use, Xi’an Tangrong has rights to freely use, transfer, let or mortgage the land and building of the property subject to the agreement of the mortgagee.

IV – 10

PROPERTY VALUATION REPORT

APPENDIX IV

VALUATION CERTIFICATE

Group II – Property to be acquired by the Group for future development in The PRC

Market value in existing state as at No. Property Description and tenure Particulars of occupancy 31 March 2018 RMB 2 Phase II of Daminggong The property comprises a portion As at the Valuation Date, 129,000,000 Dongcheng International, of the Development with an the property was a vacant (One Hundred and Baqiao District, Xi’an, apportioned site area of land. Twenty Nine Million) Shaanxi Province, approximately 17,761.32 The People’s Republic of square metres. 100% interest to China be attributable to the According to the information Group post-acquisition: provided, the maximum 129,000,000 permissible gross floor area of (One Hundred and the property is approximately Twenty Nine Million) 98,250.00 square metres

The land use rights of the property were granted for a term expiring on 6 December 2052 for commercial uses.

Notes:

The Property is inspected by Mr. Kit Cheung MHKIS MRICS RPS(GP) MCIREA Registered Real Estate Appraiser PRC on 15 May 2018.
The valuation of the Property was prepared by Mr. Kit Cheung MHKIS MRICS RPS(GP) MCIREA Registered Real Estate Appraiser PRC and Mr. Vincent Cheung MHKIS FRICS RPS (GP) MISCM MHKSI MCIREA Registered Real Estate Appraiser PRC.

IV – 11

PROPERTY VALUATION REPORT

APPENDIX IV

Pursuant to a State-owned Construction Land Use Rights Grant Contract, No. GF-2008-2601-27723, entered into between State-owned Land Resources Bureau of Xi’an and 西安盛唐投資發展股份有限公司 dated 7 November 2012, the land use rights of the Development were contracted to be granted to 西安盛唐投資發展股份有限公司 with details as follows:

Land Use : Commercial Site Area : 58,698.32 square metres Lot No. : BQ3-4-11 Land Use Rights Term : 40 years Maximum Plot Ratio : 4.0 Maximum Site Coverage : 52%

Pursuant to a State-owned Land Use Rights Certificate, Xi Fang Guo Yong (2013 Chu) Di No. 07, issued by the People’s Government of Xi’an dated 2 April 2013, the land use rights of the Development with a total site area of approximately 58,698.32 square metres were granted to 西安盛唐投資發展股份有限公司 for a term expiring on 6 December 2052 for commercial uses.
Pursuant to a Construction Land Use Planning Permit, Xi Gui Fang Di Zi Di No. 2013-01, issued by the Xi’an Planning Bureau and dated 10 January 2013, the proposed land use of the Development with a site area of approximately 88.048 Mu for commercial uses was approved.
In the course of our valuation by Market Approach, we have adopted the following key parameters:

Details

Adopted Accommodation Value RMB1,308 per square metre

Market Comparables

In the course of our valuation of the property, we have considered and analysed the land sale comparables in the vicinity. These comparables are adopted as they are considered relevant to the property in terms of physical and locational attributes. The accommodation values of the land sale comparables are ranging from RMB1,143 per square metre to RMB2,006 per square metre. The accommodation value adopted in the valuation is consistent with the accommodation values of the relevant comparables after due adjustments in terms of location, term and size, etc.

IV – 12

PROPERTY VALUATION REPORT

APPENDIX IV

The locational and market information of the property are summarized as below:
Location : The property is located at the eastern side of East 3rd Ring Road, Baqiao District, Xi’an, Shaanxi Province, The PRC.
Transportation : Luohe Station of Metro Line No. 1 is within a 20-minute walking distance. Various public bus routes and taxis are available along East 3rd Ring Road. Xi’an North Railway Station and Xi’an Xianyang International Airport are located in approximately 25 kilometres and 50 kilometres away respectively.
Nature of : The subject area is a predominately residential area within Baqiao Surrounding Area District. The neighbourhood of the property is dominated by residential developments.
We have been provided with a legal opinion regarding the legality of the Property by The PRC legal adviser of the Group, which contains, inter alia, the following:
(a) Xi’an Tangrong has legally and effectively obtained the land use rights of the property; and
(b) Subject to the land use rights term and the permitted land use, Xi’an Tangrong has rights to freely use, transfer, let or mortgage the land of the property subject to the agreement of the mortgagee.

IV – 13

GENERAL INFORMATION

APPENDIX V

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.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date (assuming no further Shares will be issued or repurchased since the Latest Practicable Date) were as follows:

Authorised: 2,000,000,000 Ordinary Shares Issued, fully paid or credited as fully paid: 1,324,869,692 Ordinary Shares in issue as at the Latest Practicable Date	HK$ 625,000,000
	414,021,778.75

V – 1

GENERAL INFORMATION

APPENDIX V

3. DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS 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 the chief executives of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (i) 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); (ii) pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein; or (iii) pursuant to the Model Code of Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’) contained in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

(i) Long position in the Shares/underlying shares

Number of Shares/underlying shares held (including Share Options)

				Approximate
				percentage of
				the issued
				shares of the
				Company as
		Interest in		at the Latest
	Beneficial	controlled		Practicable
Name of Director	owner	corporation	Total	Date
Mr. Li	66,833,618	824,763,200	891,596,818	67.30%
	(note 1)	(note 2)
Mr. Lau Chi Kit (note 3)	561,869	–	561,869	0.04%

Notes:

It includes Share Options entitling Mr. Li to subscribe for 778,018 Shares.
824,763,200 Shares are held by Wealth Keeper International Limited (‘‘Wealth Keeper’’), the entire issued share capital of which is wholly and beneficially owned by Mr. Li. Accordingly, Mr. Li is deemed to have the same interest as Wealth Keeper by virtue of the SFO.
It includes 200,000 Shares beneficially owned by Mr. Lau Chi Kit and Share Options entitling him to subscribe for 361,869 Shares.

V – 2

APPENDIX V

GENERAL INFORMATION

(ii) Long positions in the Share Options

		Number of	Approximate
Name of Director	Capacity	Share Options	% of interest
			(Note)
Mr. Li	Beneficial owner	778,018	0.06%
Mr. Siu Wai Yip	Beneficial owner	542,804	0.04%
Ms. Lam Suk Ling, Shirley	Beneficial owner	542,804	0.04%
Mr. Lau Chi Kit	Beneficial owner	361,869	0.03%
Ms. Fung Sau Mui	Beneficial owner	180,935	0.01%
Dr. Ho Chung Tai, Raymond	Beneficial owner	361,869	0.03%
Ms. Lai Ka Fung, May	Beneficial owner	180,935	0.01%
Ms. Chan Sim Ling, Irene	Beneficial owner	180,935	0.01%

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interest or short position in the shares, underlying shares and debentures of the Company and its associated corporation (within the meaning of Part XV of the SFO) which were required (i) 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); (ii) pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein; or (iii) pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

V – 3

GENERAL INFORMATION

APPENDIX V

4. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS

On 30 March 2018, the Financial Guarantee Company and 西安德萬通商業運營管理有限公司 (Xi’an Dewantong Commercial Operation and Management Company Limited*) (‘‘Dewantong’’) entered into a financing guarantee contract (the ‘‘Dewantong FG Contract’’). Pursuant to Dewantong FG Contract, the Financial Guarantee Company has agreed to provide financing guarantee to the lending banks in favour of Dewantong for procuring Dewantong in obtaining the bank loans.

The principal terms of the Dewantong FG Contracts are set out below:

				Guaranteed	Approximate	Guarantee
Contract			Contract date	amount	guarantee income	service period
				RMB in million	RMB in million
Dewantong	FG	Contract	30 March 2018	4.000	0.100	30 March 2018 to
						25 March 2019

The transactions pursuant to the Dewantong FG Contract constituted continuing connected transactions under the Listing Rules as Mr. Li, an executive Director and the controlling Shareholder, indirectly holds 50% of Dewantong’s equity interest. Further details of the Dewantong FG Contract are set out in the announcements of the Company dated 30 March 2018.

On 28 March 2018, the Financial Guarantee Company and 陝西滾石新天地文化投資有限公司 (Shaanxi Gun Shi Xin Tian Di Cultural Investment Company Limited*) (‘‘Gun Shi’’) entered into a financing guarantee contract (‘‘GS FG Contract’’). Pursuant to the GS FG Contract, the Financial Guarantee Company has agreed to provide financing guarantee to the lending bank in favor of Gun Shi for procuring Gun Shi in obtaining the bank loans.

The principal terms of the GS FG Contract are set out below:

		Guaranteed	Approximate	Guarantee
Contract	Contract date	amount	guarantee income	service period
		RMB in million	RMB in million
GS FG Contract	28 March 2018	5.000	0.1000	28 March 2018 to
				15 March 2019

The transactions pursuant to the GS FG Contract constituted continuing connected transactions under the Listing Rules as 68.13% of the equity interest of Gun Shi is held by the relative of Mr. Li and the remaining 31.87% of the equity interest of Gun Shi is held by Hao Hua (as defined below). Further details of the GS FG Contract are set out in the announcement of the Company dated 28 March 2018.

V – 4

GENERAL INFORMATION

APPENDIX V

The guarantee amount and financing guarantee services income charged to Dewantong and Gun Shi were based on the credit risk assessment on the respective parties and the prevailing market bank loan rates in the PRC.

On 19 September 2017, 普匯中金融資租賃有限公司 (Chinlink Finance Lease Company Limited) (the ‘‘Finance Lease Company’’), as at the Latest Practicable Date, an indirect nonwholly-owned subsidiary of the Company, and 西安浩華置業有限公司 (Xi’an Hao Hua Zhi Ye Company Limited) (‘‘Hao Hua’’) entered into an assets purchase agreement, pursuant to which the Finance Lease Company agreed to purchase certain assets from Hao Hua for a consideration of RMB16.0 million and thereafter lease back the assets to Hao Hua under a finance leasing arrangement for a term of 12 months. The total interest income and handling fee (including valueadded tax) charged to Hao Hua was RMB1.22 million and RMB0.32 million respectively.

The transactions pursuant to the finance lease arrangement constituted continuing connected transactions under the Listing Rules as Hao Hua is owned as to 60% by Mr. Li. Further details of such finance lease arrangement are set out in the announcement of the Company dated 19 September 2017.

The terms of the finance lease arrangement were negotiated between Chinlink Finance Lease and Hao Hua on an arm’s length basis with reference to prevailing market rates and terms for similar finance lease arrangements.

Save as disclosed above, as at the Latest Practicable Date, (i) none of the Directors had any direct or indirect interest in any assets which had been, since 31 March 2017, being the date to which the latest published audited financial statements of the Group 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; and (ii) none of the Directors was materially interested, directly and indirectly, in any contract or arrangement subsisting as at the Latest Practicable Date which was significant in relation to the business of the Group.

5. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered or was proposing to enter into any service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation, other than statutory compensation.

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective close associates (as defined under the Listing Rules) had any interests in any business which competed or might compete with the business of the Group.

V – 5

GENERAL INFORMATION

APPENDIX V

7. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, save as disclosed in the profit warning announcement of the Company dated 14 June 2018 in which the Group is expected to record a loss for the year ended 31 March 2018 mainly attributable to (i) a one-off non-cash loss arising from the valuation of the 3% convertible bonds with principal amount of HK$312 million issued for the acquisition of the entire equity interests in, and the shareholder’s loan due by, Zhong Hui Global Limited and its subsidiaries in excess of the fair value of the identified assets and liabilities acquired by the Group; (ii) a one-off non-cash loss arising from the valuation of the 3% convertible bonds with principal amount of HK$58.0 million issued as consideration for financing the construction of office building in relation to the above-mentioned acquisition; and (iii) interest expense incurred on the 3% convertible bonds as mentioned above, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 March 2017, being the date to which the latest published audited consolidated financial statements of the Group were made up.

8. LITIGATION

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

9. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) were entered into by members of the Group within the two years immediately preceding and including the Latest Practicable Date and were or might be material:

(i) the underwriting agreement and the supplemental agreement entered into among the Company, Emperor Securities Limited, Mr. Li and Wealth Keeper dated 7 September 2016 and 30 September 2016 respectively in relation to the underwriting and respective arrangements in respect of a five-for-one rights issue of the Company;
(ii) the sale and purchase agreement dated 2 February 2017 and the supplemental deed dated 13 March 2017 entered into among Bestwin International Investment Limited, Glorious Harvest Limited, Mr. Li and the Company in respect of the acquisition of the entire issued share capital of Zhong Hui Global Limited (‘‘Zhong Hui’’);
(iii) the loan purchase and financing agreement dated 2 February 2017 and the loan purchase and financing supplemental deed dated 13 March 2017 entered into among Mr. Li, Glorious Harvest Limited and the Company in respect of the acquisition of the liabilities and debts owing by Zhong Hui and its subsidiaries to Mr. Li and his affiliated companies and the provision of financing by Mr. Li;

V – 6

GENERAL INFORMATION

APPENDIX V

(iv) the letter of intent dated 16 March 2017 entered into between Chinlink Alpha Limited (‘‘Chinlink Alpha’’) and Zhong Jinlv relation to the possible capital injection into the Finance Lease Company;
(v) the financial guarantee cooperation agreement dated 26 April 2017 entered into between Chinlink Alpha Limited and Hanzhong City Hantai District Hanjing Industrial Park Construction Investment Development Company Limited (‘‘Hanjiang’’) in relation to the capital injection into the Financial Guarantee Company;
(vi) the financial lease cooperation agreement dated 26 April 2017 entered into between Chinlink Alpha and Zhong Jinlv in relation to the capital injection into the Finance Lease Company;
(vii) the agreement dated 11 June 2017 and the supplemental deed dated 25 October 2017 entered into among the Company, Trillion Up Limited, Instant Karma Global Holdings Limited, Mr. Rachid Bouzouba and Mr. Adrian Valenzuela in respect of the investments in Alpha Yield Limited and MCM Holdings Limited;
(viii) the placing agreement dated 30 June 2017 entered into between the Company and Emperor Securities Limited in relation to the placing of bonds, on a best effort basis, in an aggregate principal amount of up to HK$200.0 million;
(ix) the placing agreement dated 27 July 2017 entered into between the Company and Emperor Securities Limited in relation to the placing of bonds, on a best effort basis, in an aggregate principal amount of up to HK$150.0 million;
(x) the capital increase agreement dated 26 October 2017 entered into among Chinlink Mega Limited, Zhong Jinlv Investment Holding Company Limited and Chinlink Finance Lease Company Limited in relation to set out the detailed arrangements relating to the capital injection in Chinlink Finance Lease Company Limited;
(xi) the put option agreement dated 26 October 2017 entered into among Chinlink Mega Limited, Zhong Jinlv Investment Holding Company Limited and Chinlink Finance Lease Company Limited in relation to the put option granted Zhong Jinlv Investment Holding Company Limited;
(xii) the subscription agreement dated 1 December 2017 entered into between the Company and an independent third party in relation to the issuance of bonds by the Company in an aggregate principal amount of US$15.0 million;

(xiii) the S&P Agreement;

V – 7

GENERAL INFORMATION

APPENDIX V

(xiv) the loan facility agreement dated 15 February 2018 entered into among the Company, Mr. Li, Xian Chinlink Commercial Operation Management Company Limited, Real King International (Xi’an) Information and Technology Co., Ltd., an independent lender and an independent security agent in relation to a 2-year credit facility in the sum of US$41.0 million to be made available to the Company;
(xv) the new finance guarantee cooperation agreement dated 17 May 2018 and entered into between Chinlink Alpha and 漢中市投資控股集團有限公司 (Hanzhong City Investment Holdings Group Limited[#] ), in relation to the capital injection into the Financial Guarantee Company; and
(xvi) the termination agreement dated 17 May 2018 entered into among Chinlink Alpha, Hanjiang and the Financial Guarantee Company in relation to the termination of material contract (v) above.

10. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given their opinion or advice which are contained in this circular:

Name Qualifications Colliers International (Hong Kong) Ltd. independent professional valuer Deloitte Touche Tohmatsu Certified Public Accountants GFE Law Office PRC legal adviser on the title of the Property

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 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 acquired, disposed of by or leased to, or were proposed to be acquired, disposed of by or leased to any member of the Group since 31 March 2017 (the date to which the latest published audited financial statements of the Group were made up).

V – 8

GENERAL INFORMATION

APPENDIX V

11. MISCELLANEOUS

(i) The secretary of the Company is Ms. Lam Suk Ling, Shirley. She is qualified as a Certified Public Accountant of Hong Kong Institute of Certified Public Accountants and a Certified Practising Accountant of CPA Australia.
(ii) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
(iii) The head office and principal place of business of the Company is situated at Suites 5-6, 40/F, One Exchange Square, 8 Connaught Place, Central, Hong Kong.
(iv) The Hong Kong branch share registrar and transfer office of the Company is Tricor Standard Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(v) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the head office and principal place of business of the Company in Hong Kong at Suites 5-6, 40/F, One Exchange Square, 8 Connaught Place, Central, Hong Kong for 14 days from the date of this circular:

(i) the memorandum of association and the bye-laws of the Company;
(ii) the annual reports of the Company for the two financial years ended 31 March 2016 and 31 March 2017 and the interim report of the Company for the six months ended 30 September 2017;
(iii) the accountants’ report of the Target Companies issued by Deloitte Touche Tohmatsu as set out in Appendix II to this circular;
(iv) the accountants’ report on the unaudited pro forma financial information of the Enlarged Group issued by Deloitte Touche Tohmatsu as set out in Appendix III to this circular;
(v) the valuation report of the Property issued by Colliers International (Hong Kong) Ltd. as set out in Appendix IV to this circular;
(vi) the legal opinion issued by GFE Law Office on the title of the Property;
(vii) the material contracts disclosed in the section headed ‘‘Material Contracts’’ in this appendix;

V – 9

GENERAL INFORMATION

APPENDIX V

(viii) the written consents of the experts referred to in the section headed ‘‘Experts and Consents’’ in this appendix; and
(ix) this circular.

V – 10

AI assistant

Li Ning Company Limited — Proxy Solicitation & Information Statement 2018

50530_rns_2018-06-25_d6e745fd-dc15-4f2b-8dea-bb21e2e9da67.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

CHINLINK INTERNATIONAL HOLDINGS LIMITED 普匯中金國際控股有限公司*

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 26.625% EQUITY INTERESTS IN TWO NON-WHOLLY OWNED PRC SUBSIDIARIES

DEFINITIONS

DEFINITIONS

DEFINITIONS

‘‘SFC’’

CHINLINK INTERNATIONAL HOLDINGS LIMITED 普匯中金國際控股有限公司*

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 26.625% EQUITY INTERESTS IN TWO NONWHOLLY OWNED PRC SUBSIDIARIES

A. INTRODUCTION

LETTER FROM THE BOARD

B. THE ACQUISITION

Date

Parties

Assets to be acquired

Consideration

LETTER FROM THE BOARD

Conditions precedent

Completion

Information on the Target Companies

Business of the Target Companies

Target Company A

Target Company B

Immediately prior to Completion

LETTER FROM THE BOARD

Immediately after Completion and as at the Latest Practicable Date

Financial information of the Target Companies

Management discussion and analysis of the results of the Target Companies

Reasons for and benefits of the Acquisition

LETTER FROM THE BOARD

Financial effect of the Acquisition

LETTER FROM THE BOARD

Listing Rules implication

Recommendation

Additional information

1. FINANCIAL INFORMATION OF THE GROUP

2. STATEMENT OF INDEBTEDNESS AND CONTINGENT LIABILITIES

Bank borrowings and bank overdraft

Other borrowings

Obligation under finance lease

Contingent liabilities or guarantees

Disclaimer

3. WORKING CAPITAL STATEMENT

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Target Companies

1. ACCOUNTANT’S REPORT OF THE TARGET COMPANIES

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF CHINLINK INTERNATIONAL HOLDINGS LIMITED

Introduction

Directors’ responsibility for the Historical Financial Information

Reporting accountants’ responsibility

Opinion

Adjustments

Dividends

Deloitte Touche Tohmatsu

HISTORICAL FINANCIAL INFORMATION OF TANG RONG

Preparation of Historical Financial Information

HISTORICAL FINANCIAL INFORMATION

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANIES

STATEMENTS OF FINANCIAL POSITION

APPENDIX II

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANIES

STATEMENTS OF CHANGES IN EQUITY

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANIES

STATEMENTS OF CASH FLOWS

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANIES

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. General and basis of preparation

Going concern basis

2. Adoption of New and Revised Hong Kong Financial Reporting Standards (‘‘HKFRSs’’)

Li Ning Company Limited Proxy Solicitation & Information Statement 2018