Mei Ah Entertainment Group Limited - Proxy Solicitation & Information Statement 2012

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 Chinney Investments, Limited , you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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(Stock Code: 216)

MAJOR AND CONNECTED TRANSACTION SUBSCRIPTION FOR NEW SHARES IN CHINNEY TRADING COMPANY LIMITED

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board is set out on pages 4 to 12 of this circular and a letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on page 13 of this circular. A letter from Messis Capital Limited containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders in respect of the Subscription is set out on pages 14 to 25 of this circular.

A notice convening an extraordinary general meeting of the Company to be held at Full Moon Shanghai Restaurant, Macau Jockey Club, 4th Floor, East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong on Friday, 9 November 2012 at 4:30 p.m. is set out on page 78 of this circular.

Whether or not you are able to attend the extraordinary general meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the registered office of the Company at 23rd Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong as soon as possible, but in any event not less than 48 hours before the time appointed for the holding of the extraordinary general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the extraordinary general meeting or any adjourned meeting thereof should you so wish.

25 October 2012

			Page(s)
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . .			13
LETTER FROM MESSIS CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			14
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . .	26
APPENDIX II	–	ACCOUNTANTS’ REPORT OF THE TARGET GROUP . . . . .	29
APPENDIX III	–	UNAUDITED PRO FORMA FINANCIAL INFORMATION
		OF THE ENLARGED GROUP. . . . . . . . . . . . . . . . . . . . . . .	59
APPENDIX IV	–	MANAGEMENT DISCUSSION AND ANALYSIS
		OF THE TARGET GROUP. . . . . . . . . . . . . . . . . . . . . . . . . .	65
APPENDIX V	–	VALUATION REPORT ON THE PROPERTY. . . . . . . . . . . . .	67
APPENDIX VI	–	GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .	71
NOTICE OF EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			78

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the meanings as set out below:

“associate(s)” has the meaning ascribed to it under the Listing Rules
“Bliss Ally” Bliss Ally Investments Limited, a company incorporated in the British Virgin Islands with limited liability and is an indirect wholly-owned subsidiary of Hon Kwok
“Board” the board of directors of the Company
“Chinney Alliance” Chinney Alliance Group Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange
“Chinney Development” Chinney Development Company Limited, a company incorporated in Hong Kong with limited liability and is beneficially owned by Dr. James Sai-Wing Wong
“Chinney Holdings” Chinney Holdings Limited, a company incorporated in Hong Kong with limited liability and is the holding company of the Company holding approximately 58.18% of the issued share capital of the Company as at the Latest Practicable Date
“Company” or “Chinney” Chinney Investments, Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange and is the holding company of Hon Kwok holding approximately 55.77% of the issued share capital of Hon Kwok as at the Latest Practicable Date
“Completion” completion of the Subscription Agreement
“connected person(s)” has the meaning ascribed to it under the Listing Rules
“Directors” the directors of the Company
“EGM”
the extraordinary general meeting of the Company to be convened for approving the Subscription
“Enlarged Group”
the Group as enlarged by the proposed Subscription
“Group”
the Company and its subsidiaries
“Hon Kwok”
Hon Kwok Land Investment Company, Limited, a company incorporated in Hong Kong with limited liability and the shares of which are listed on the Stock Exchange
“Hon Kwok EGM”

the extraordinary general meeting of Hon Kwok to be convened for approving the Subscription

– 1 –

DEFINITIONS

“Hon Kwok Group”

Hon Kwok and its subsidiaries

“Hong Kong”
the Hong Kong Special Administrative Region of the People’s Republic of China
“HK$” Hong Kong dollar(s), the lawful currency of Hong Kong
“Independent Board Committee”
the committee of the Board consisting of all the independent non-executive Directors, namely Messrs. Clement KwokHung Young, Peter Man-Kong Wong and James C. Chen, formed to advise the Independent Shareholders in respect of the Subscription
“Independent Financial Adviser” or “Messis Capital”
Messis Capital Limited, a licensed corporation for type 6 (advising on corporate finance) regulated activity under the SFO and the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Subscription
“Independent Shareholders”
Shareholders (other than Dr. James Sai-Wing Wong together with his associates) who are not required under the Listing Rules to abstain from voting at the EGM to approve the Subscription
“Latest Practicable Date”
19 October 2012, 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
“Lucky Year”
Lucky Year Finance Limited, a company incorporated in the British Virgin Islands with limited liability
“Model Code”
Model Code for Securities Transactions by Directors of Listed Issuers
“PRC”
the People’s Republic of China
“PRC Co”
運泰建業置業(深圳)有限公司 (Wanthai Chinney Real Estate (Shenzhen) Co., Ltd.), a company incorporated in Shenzhen, PRC with limited liability and a wholly-owned subsidiary of the Target Company
“Property” a vacant site of 48,764 square metres situated at 中國深圳市南山區僑香路北側 (Qiaoxiang Road North, Nanshan District, Shenzhen, PRC)
“RMB”

Renminbi, the lawful currency of the PRC

– 2 –

DEFINITIONS

“Savills”

Savills Valuation and Professional Services Limited, being the independent valuer

“SFO”

the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shareholder(s)” shareholders of the Company
“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Subscription”
the subscription of the Subscription Shares by Bliss Ally in accordance with the terms and conditions of the Subscription Agreement
“Subscription Agreement” the subscription agreement dated 18 September 2012 entered into amongst the Target Company, Bliss Ally, Chinney Development and Wan Thai BVI in relation to the Subscription
“Subscription Shares” 2,600 new shares of HK$100 each in the share capital of the Target Company to be subscribed by Bliss Ally, representing 20% of the enlarged total issued share capital of the Target Company upon Completion
“Target Company” Chinney Trading Company Limited, a company incorporated in Hong Kong with limited liability
“Target Group” the Target Company and its wholly-owned subsidiary, the PRC Co
“Wan Thai BVI” Wan Thai Group Limited, a company incorporated in the British Virgin Islands with limited liability
“Wan Thai Group” Wan Thai BVI and its subsidiaries “%” per cent

For illustration purpose, RMB has been translated into HK$ at the exchange rate of HK$1.00 = RMB0.81. Such translation should not be construed as a representation that any amounts in RMB or HK$ have been, could have been, or could be, converted at the above rate or any other rates or at all.

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LETTER FROM THE BOARD

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(Stock Code: 216)

Directors: James Sai-Wing Wong (Chairman) Madeline May-Lung Wong William Chung-Yue Fan Herman Man-Hei Fung (Managing Director) Paul Hon-To Tong Clement Kwok-Hung Young Peter Man-Kong Wong James C. Chen*

Registered Office: 23rd Floor Wing On Centre 111 Connaught Road Central Hong Kong

Independent non-executive directors

25 October 2012

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

SUBSCRIPTION FOR NEW SHARES IN CHINNEY TRADING COMPANY LIMITED

INTRODUCTION

With reference to the joint announcement dated 18 September 2012 as announced by Hon Kwok and the Company, Bliss Ally, as subscriber, entered into the Subscription Agreement dated 18 September 2012 with the Target Company, as issuer, Chinney Development and Wan Thai BVI, as guarantors, pursuant to which Bliss Ally has agreed to subscribe for, and the Target Company has agreed to allot and issue, the Subscription Shares at a cash consideration of HK$368,537,000. The Target Company is currently being held by Chinney Development and Wan Thai BVI as to 75% and 25% respectively. Upon Completion, the Target Company will be held by Chinney Development, Wan Thai BVI and Bliss Ally as to 60%, 20% and 20% respectively.

The Subscription constitutes a major and connected transaction for the Company under the Listing Rules. The purpose of this circular is to provide you with (a) a letter from the Board setting out details of the terms of the Subscription; (b) a letter of recommendation from the Independent Board Committee to the Independent Shareholders; (c) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Subscription; (d) a valuation report on the Property; (e) a notice of the EGM; and (f) other information as required by the Listing Rules.

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LETTER FROM THE BOARD

THE TARGET GROUP AND THE PROPERTY

The Target Company is a company incorporated in Hong Kong on 3 April 1985 with limited liability and was then wholly owned by Chinney Capital Limited which was beneficially owned by Dr. James Sai-Wing Wong. Wan Thai Group has all along been negotiating with the various factory owners to acquire the Property (details of which are set out below). In August 2007 when negotiation was in the final stage, the PRC Co was established and acted as purchaser and the Target Company became its 100% registered shareholder. To recognize the contributions and efforts exerted by Wan Thai Group in the past years for acquisition of the Property and to formalize the respective equity interests in the project for future development, it was mutually agreed between Chinney Capital Limited and Wan Thai Group that their shareholdings in the Target Company should be 75% and 25% respectively. Accordingly, both Chinney Capital Limited and Wan Thai Group’s entitlements in the Target Company were taken up by their respective shareholders, Chinney Development and Wan Thai BVI, in June 2011 at nominal value of the shares whereas their respective loans contribution were approximately HK$213 million and HK$33 million. The ultimate beneficial owners of Wan Thai BVI are independent third parties of the Company and have prior business relationship with the Group. As at the Latest Practicable Date, the authorised and issued share capital of the Target Company is HK$1,000,000 divided into 10,000 shares of HK$100 each which are held by Chinney Development and Wan Thai BVI as to 75% and 25% respectively.

The Target Company is currently an investment holding company and the sole asset of significance held by the Target Group through the PRC Co is the Property which is a vacant site of 48,764 square metres situated at 中國深圳市南山區僑香路北側 (Qiaoxiang Road North, Nanshan District, Shenzhen, PRC).

Wan Thai Group firstly identified the redevelopment potential of the Property in early 2006 and commenced negotiations with the previous owners who were independent third parties and did not

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Location of the Property
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have any business or other relationship with the Group and its connected persons. By that time, the Property comprised a total of eight separate lots of land with eight dilapidated factory buildings erected thereon. After lengthy negotiations, terms of resettlement were reached and the PRC Co was established to enter into the agreements in 2007 with the respective owners to acquire the Property and thereafter, amalgamated the lots into an industrial site for redevelopment. The total consideration for the PRC Co to acquire the eight lots of land was approximately RMB220,399,000 (equivalent to approximately HK$272,098,000). Formal applications to the relevant government authorities for 升級改造 (upgraded redevelopment) of the Property were then submitted by the Target Group which was accepted in 2009 and the Land Use Rights Grant Contract was finally executed in August 2012 after payment of the land premium of RMB272,977,000 (equivalent to HK$337,009,000). The whole process of acquisitions, land amalgamation and upgrading took the Target Group over 5 years to complete conversion of the Property with industrial buildings erected thereon to a vacant site ready for composite development.

Including the acquisition costs and the land premium as described above and other costs such as demolition, design fee and deed tax of about RMB12,342,000 (equivalent to approximately HK$15,237,000), the total costs incurred up to 31 July 2012 by the Target Group relating to the Property amounted to RMB505,718,000 (equivalent to HK$624,343,000) which were financed by funding from its then shareholders and their related companies.

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LETTER FROM THE BOARD

The Property is positioned by 深圳市規劃和國土資源委員會 (Urban Planning, Land and Resources Commission of Shenzhen Municipality) and 深圳市南山區大沙河創新走廊建設辦工室 (Construction Bureau of Da Sha He Innovation Corridor of Nanshan District in Shenzhen) to be developed as 總部基地 (Advance Business Park). Advance Business Park is a property development mode commonly adopted in China aiming at attracting enterprises and corporations to set up Senior officers of Shenzhen government officiated the Foundation Stone their headquarters therein by Laying Ceremony of the Property on 30 August 2012 providing modernized building Source: www.sznews.com design and functions, beautified surrounding environment and comprehensive ancillary facilities. According to such positioning policy and upgraded redevelopment layout plan as approved by the government authorities, the buildings to be erected on the Property, after being upgraded and payment of the required land premium, are to be developed for composite use with a total gross floor area of approximately 224,500 square metres, albeit the land usage remains categorized as industrial. As specified in the Land Use Rights Grant Contract dated 24 August 2012, other than gross floor area of 12,000 square metres which will be retained for local government use, the remaining 212,500 square metres will be developed as 商品房 (commodity housing), of which 158,300 square metres are classified as 產業用房 (Chanye Buildings) for the use of innovative and emerging industries to carry out administrative operation, research and development, or manufacturing activities and 54,200 square metres as 產業配套 (ancillary for Chanye Buildings) for other ancillary facilities such as accommodation. The Target Group intends to sell or lease these Chanye Buildings for office use and ancillary for Chanye Buildings for apartment use. Such type of buildings are intended for composite use by innovative and emerging industries which have been promulgated by the Shenzhen government since 2008 and are not confined to a particular type of usage such as industrial, commercial or as apartments.

Under the current rules and regulations applicable to upgraded redevelopment project in industrial site in Shenzhen, not less than 50% of its gross floor area is to be held for owner’s use whilst the remaining portion can be sold on strata-title upon completion. The Target Group, however, advised that there is no specific definition and restriction as to the meaning of owner’s use property from the related government offices and it is not prohibited to apply such owner’s use property for investment purpose. As such, the Target Group has formulated the development plan of the Property under which, excluding the 12,000 square metres for government use, not less than 50% of its total gross floor area will be held for investment and the remaining is to be developed for sale. The Group has carried out market research and investigation as to the feasibility of such development plan and identified certain similar upgraded redevelopment projects in Shenzhen of which owner’s use properties are being leased for rental purpose. The Group has also consulted with the relevant government authorities and is given to understand that it is not prohibited to apply owner’s use properties for rental in Shenzhen. In addition, the Directors are further confirmed by the Group’s PRC legal adviser that there is no definition and restriction as to owner’s use properties according to prevailing laws and regulations in the PRC. The Directors have taken into account of such restriction when considering the Subscription and believe that the development plan proposed by the Target Group is practically viable based on the above.

In Shenzhen, the Land Use Rights Certificate and Building Ownership Certificate have been consolidated into one single document, being Real Estate Title Certificate. Following the entering

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LETTER FROM THE BOARD

into of the Land Use Rights Grant Contract in August 2012, the Target Group is now in the process of applying the Real Estate Title Certificate which is expected to be obtained before December 2012. As the Land Use Rights Grant Contract was signed and land premium was fully paid, the Target Group does not foresee any obstacle to obtain the Real Estate Title Certificate. The Target Group is also under the process of finalising the buildings design and formulating detailed construction plans. As advised by the Target Group, the Property will be developed by phases and foundation work is expected to commence by the end of 2012 and the whole project is scheduled to be completed in about 5 years. It is currently estimated that the total construction costs for development of the Property to be about RMB1,347 million (equivalent to approximately HK$1,663 million) which will be financed by way of construction loans provided by financial institutions by stages in line with progress of the respective phases of which about RMB460 million (equivalent to approximately HK$568 million) for the first phase of the project and proceeds from sale of the Property for the subsequent phases.

The Directors consider that the Target Group will be able to obtain funding from financial institutions for construction of the Property and thus the Group is currently not intended to contribute further capital to the Target Group, nor have any intention to acquire further equity interest in the Target Group.

Based on the valuation report on the Property as set out in Appendix V to this circular, the Property is valued at RMB1,700,000,000 (equivalent to HK$2,098,765,000) as at 31 July 2012.

The audited net loss before and after tax attributable to the Target Group for the year ended 31 March 2012 were both approximately HK$1,564,000 respectively. The audited net loss before and after tax attributable to the Target Group for the year ended 31 March 2011 were both approximately HK$1,199,000 respectively.

Upon Completion, the authorised and issued share capital of the Target Company will be increased to HK$1,300,000 divided into 13,000 shares of HK$100 each which will be held by Chinney Development, Wan Thai BVI and Bliss Ally as to 60%, 20% and 20% respectively.

THE SUBSCRIPTION AGREEMENT

Pursuant to the Subscription Agreement, Bliss Ally has agreed to subscribe for, and the Target Company has agreed to allot and issue, the Subscription Shares.

The Subscription Shares represent 20% of the enlarged total issued share capital of the Target Company upon Completion.

(a) Date

18 September 2012

(b) Parties

(a) The Target Company, as issuer
(b) Bliss Ally, as subscriber
(c) Chinney Development, as guarantor
(d) Wan Thai BVI, as guarantor

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LETTER FROM THE BOARD

(c) Consideration

		HK$’000
Audited consolidated net assets of the Target Group as at 31 July 2012		34,920
Revaluation surplus of the Property as at 31 July 2012 (Note i)		1,474,422
Capitalisation of all outstanding shareholders’ loans as share capital plus
premium upon Completion (Note ii)		245,888
Subscription monies receivable		368,537
Adjusted consolidated net assets of the Target Group		2,123,767
20% share of the adjusted consolidated net assets of the Target Group		424,753
Cash consideration for the Subscription		(368,537)
Discount on the Subscription (approximately 13.2%)		56,216

Notes:

(i) The amount represents the fair value adjustment of the Property of the Target Group based on the valuation of the Property of RMB1,700,000,000 as at 31 July 2012 less the costs incurred by the Target Group up to 31 July 2012 of RMB505,718,000 at an exchange rate of HK$1.00 = RMB0.81.
(ii) The amounts represent shareholders’ loans from Chinney Development and Wan Thai Group amounted to HK$212,757,000 and HK$33,131,000 respectively which are not proportionate to their existing shareholding interests and thus, pursuant to the Subscription Agreement, will be capitalised upon Completion to conform with the then shareholding interests.
(iii) Owing to the requirement of provision for deferred tax on the fair value adjustment on the Property for consolidation of the accounts of the Target Group according to accounting standards, there shall be a goodwill recognised upon completion of the Subscription. Such provision for deferred tax is a non-cash item and shall not be realised until disposal of the Property. Thus, the deferred tax impact is not taken into account in determination of the above consideration.

It is the current intention of the Hon Kwok Group to finance the Subscription by way of its internal resources. The cash consideration, to be utilized as general working capital of the Target Group, will be payable in the following manners:

(i) Initial Deposit

HK$36,853,700 has been paid to the Target Company upon signing of the Subscription Agreement. Such deposit shall be returned to Bliss Ally as soon as practicable without interest or compensation of any nature if conditions (i) and (ii) as mentioned in paragraph (d) below are not fulfilled;

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LETTER FROM THE BOARD

(ii) Second Deposit

HK$73,707,400 will be paid to the Target Company within five business days after conditions (i) and (ii) as mentioned in paragraph (d) below are fulfilled. Such deposit together with the above initial deposit shall be returned to Bliss Ally as soon as practicable without interest or compensation of any nature if any of the conditions (iii), (iv), (v) and (vi) as mentioned in paragraph (d) below are not fulfilled or waived; and

(iii) the balance of the consideration of HK$257,975,900 will be paid to the Target Company within three months after payment of the above second deposit.

(d) Completion of the Subscription Agreement

Completion is subject to and conditional on the following conditions being fulfilled or waived:

(i) the passing of an ordinary resolution by the Independent Shareholders at the EGM to approve the Subscription;
(ii) the passing of an ordinary resolution by the independent shareholders of Hon Kwok at the Hon Kwok EGM to approve the Subscription;
(iii) all necessary waiver and/or approval regarding the execution of and to give effect to the transactions contemplated under the Subscription Agreement and each of the documents to be executed on or before the Completion have been obtained by the Target Company, Chinney Development, Wan Thai BVI and/or Bliss Ally;
(iv) the warranties given by Chinney Development and Wan Thai BVI remain true and correct in all material respects at all times from the date hereof and up to Completion;
(v) the warranties given by Bliss Ally remain true and correct in all material respects at all times from the date hereof and up to Completion; and
(vi) Bliss Ally being reasonably satisfied with the results of the due diligence review on the Target Group.

Bliss Ally may at any time in writing waive any of the conditions (iii), (iv), (vi) above. Chinney Development and Wan Thai BVI may at any time in writing waive any of the conditions (iii) and (v) above. None of the above conditions has been fulfilled or waived as at the Latest Practicable Date and it is the current intention of Bliss Ally not to waive any of the above conditions up to Completion.

Completion shall take place immediately after payment of the balance of the consideration which shall be payable within three months after payment of the above second deposit (or such other date as the parties may agree in writing).

Upon Completion, Bliss Ally will hold 20% of the enlarged total issued share capital of the Target Company and shall appoint such number of persons as directors of the Target Company and the PRC Co corresponding to its then shareholding interests in these companies. Each of the Target Company and the PRC Co has existing five directors. One of the existing directors from each of these companies shall be replaced by such person as nominated by Bliss Ally whom shall involve in the future management and operation of the Target Group.

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LETTER FROM THE BOARD

REASONS AND BENEFITS FOR THE SUBSCRIPTION

Shenzhen is in the course of rapid transformation from an industrial oriented city decades ago to become a commercial oriented metropolis today. Demand for high quality office buildings with well designed ancillary apartments in serene environment at choice location increases substantially. It is anticipated that such trend of demand is set to continue in the coming years in tandem with the on-going development of Qianhai special pilot zone for financial and modern service industries as well as the steady growth of Mainland China economically.

As a major subsidiary of the Company, the Hon Kwok Group’s business strategy is to maintain a balanced portfolio of development properties for sale and investment properties for rental income. Properties held for sale tend to yield higher return and strengthen the overall financial position of the Hon Kwok Group whilst those held for rental income serve to generate stable cash inflow in the long term.

It is always the intention of the board of directors of Hon Kwok (the “Board of Hon Kwok”) to look for appropriate timing to enlarge the property portfolio in Mainland China. At present, the Hon Kwok Group’s projects in Shenzhen and Chongqing, both completed or in the course of construction, are mainly properties held for rental income whereas those held for sale are mostly in Guangzhou and Foshan Nanhai. After the long and tedious process of land acquisition, demolition and resettlement carried out by the Target Group since early 2007, the Property has now been transformed to a ready-to-develop site at core location in Shenzhen. The Board of Hon Kwok is of the opinion that it is now the most appropriate opportunity to participate and jointly develop the Property, particularly it comprises units partly for sale and partly for rental income which serves to improve the overall balanced property portfolio of the Hon Kwok Group.

In retrospect, the Hon Kwok Group carried out a total of two connected transactions for acquisition of properties in the past five years, namely, (a) two construction sites in Chongqing in June 2007, one of which, a twin tower office buildings on top of a commercial podium, has been completed and known as Chongqing Hon Kwok Centre (重慶漢國中心) with occupancy around 95% and generating satisfactory rental income. The other site comprises a twin tower office apartment and a 5-star hotel on top of a commercial podium, to be named as Chongqing International Finance Centre (重慶國際金融中心), is in the course of construction and (b) a completed commercial building in Guangzhou in March 2010, now known as Ganghui Dasha (港滙大廈), is held as investment property for rental income. At present, its occupancy is approximately 95%. The Board of Hon Kwok is very pleased to report that the fair market value of all these properties as disclosed in the Annual Report 2011/12 of Hon Kwok increased substantially comparing with the respective costs of acquisitions, thus contributed significant surplus to the consolidated total equity of the Hon Kwok Group and the net asset value per share to shareholders of Hon Kwok.

The Directors consider that the Subscription is a rare opportunity for the Hon Kwok Group to replenish its land bank in Shenzhen and believe that the terms of the Subscription are fair and reasonable and in the interests of Hon Kwok and the Company and their Shareholders as a whole.

FINANCIAL EFFECTS OF THE SUBSCRIPTION

Based on the audited accounts of the Target Group as at 31 July 2012, the financial effects of the Subscription on the Group are expected to be (a) an increase in non-current assets of approximately HK$369 million; (b) a decrease in current assets of approximately HK$369 million; and (c) an insignificant effect on the liabilities and earnings of the Group. After Completion, the results of the 20% interests in the Target Group will be equity accounted for in the Group’s financial statements.

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LETTER FROM THE BOARD

INFORMATION ON THE COMPANY AND HON KWOK

The Company is an investment holding company. Its subsidiaries (excluding the Hon Kwok Group) are mainly engaged in garment manufacturing, trading and general investment.

Hon Kwok is an investment holding company. Its subsidiaries are mainly engaged in property development, property investment and property related businesses.

As at the Latest Practicable Date, Chinney Holdings is holding 320,759,324 shares of the Company, representing approximately 58.18% of its issued share capital and the Company is holding 267,846,553 shares of Hon Kwok, representing approximately 55.77% of its issued share capital.

IMPLICATIONS OF THE LISTING RULES

Dr. James Sai-Wing Wong, Chairman and substantial shareholder of the Company, had material interest in the Subscription and abstained from voting on the relevant board resolution approving the Subscription.

Chinney Development is a connected person of both Hon Kwok and the Company by virtue of the fact that it is a company controlled by Dr. James Sai-Wing Wong, Chairman and substantial shareholder of both Hon Kwok and the Company. Accordingly, the Subscription constitutes a connected transaction for both Hon Kwok and the Company under Chapter 14A of the Listing Rules. As the consideration exceeds HK$10 million, the Subscription is subject to the approval of the Independent Shareholders of Hon Kwok and the Company at their respective general meetings.

As the applicable percentage ratios of the Subscription exceed 25% but less than 100% for the Company, the Subscription also constitutes a major transaction for the Company under Rule 14.06(3) of the Listing Rules.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising all the independent non-executive Directors has been formed to advise the Independent Shareholders regarding the fairness and reasonableness of the terms of the Subscription.

Messis Capital has been appointed as Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the same.

EGM

The Company will convene the EGM at Full Moon Shanghai Restaurant, Macau Jockey Club, 4th Floor, East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong on Friday, 9 November 2012 at 4:30 p.m. for the purpose of considering, and if thought fit, approving the Subscription. A notice of the EGM is set out on page 78 of this circular.

Pursuant to the Listing Rules, the votes to be taken in respect of the ordinary resolution to approve the Subscription must be taken by poll. As at the Latest Practicable Date, Dr. James Sai-Wing Wong (through his beneficial interest in Chinney Holdings) together with his associates (if any), holding 320,759,324 shares of the Company (representing approximately 58.18% of its issued share capital), will abstain from voting at the EGM in respect of the resolution to be proposed to approve the Subscription.

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LETTER FROM THE BOARD

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to the registered office of the Company at 23rd Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong as soon as possible, but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof, completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof should you so wish.

RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that the Subscription is a rare opportunity for the Hon Kwok Group to replenish its land bank in Shenzhen and believe that the terms of the Subscription are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors (including the independent non-executive Directors) therefore recommend the Independent Shareholders to vote in favour of the ordinary resolution for approving the Subscription as set out in the notice of the EGM.

Your attention is drawn to the “Letter from the Independent Board Committee” and the “Letter from Messis Capital” as set out in this circular which contains the recommendation of the Independent Board Committee to the Independent Shareholders and the advice of Messis Capital to the Independent Board Committee and the Independent Shareholders, respectively. Your attention is also drawn to the information as set out in the appendices to this circular.

Yours faithfully, By Order of the Board Herman Man-Hei Fung Managing Director

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Stock Code: 216)

25 October 2012

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

SUBSCRIPTION FOR NEW SHARES IN CHINNEY TRADING COMPANY LIMITED

We refer to the letter from the Board as set out in the circular issued by the Company to the Shareholders dated 25 October 2012 (the “Circular”) of which this letter forms part. Capitalised terms defined in the Circular have the same meanings when used herein unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders as to whether, in our opinion, the terms and conditions of the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned and whether the Subscription is in the interests of the Company and the Shareholders as a whole. Messis Capital has been appointed by the Company as the Independent Financial Adviser to advise us and the Independent Shareholders in this respect.

We wish to draw your attention to the letter from the Board and the letter from Messis Capital to us and the Independent Shareholders which contains its advice to us in relation to the Subscription as set out in the Circular.

Having considered the principal factors and reasons stated and the opinion of Messis Capital as set out in its letter of advice, we consider the terms and conditions of the Subscription Agreement to be fair and reasonable so far as the interests of the Independent Shareholders are concerned and that the Subscription is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution for approving the Subscription to be proposed at the EGM.

Yours faithfully, For and on behalf of Independent Board Committee of Chinney Investments, Limited

Clement Kwok-Hung Young

James C. Chen

Peter Man-Kong Wong

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LETTER FROM MESSIS CAPITAL

The following is the text of a letter from Messis Capital in connection with the advice to the Independent Board Committee and the Independent Shareholders on the Subscription, which has been prepared for the purpose of inclusion in this circular:

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25 October 2012

To the Independent Board Committee and the Independent Shareholders of the Company

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION

SUBSCRIPTION FOR NEW SHARES IN CHINNEY TRADING COMPANY LIMITED

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of whether the Subscription is in the interests of the Company and the Shareholders as a whole and whether the terms of the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned, details of which are set out in the letter from the Board (the “Board Letter”) contained in the circular of the Company dated 25 October 2012 (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context of this letter otherwise requires.

With reference to the joint announcement dated 18 September 2012 as announced by the Company and Hon Kwok, Bliss Ally, as subscriber, entered into the Subscription Agreement dated 18 September 2012 with the Target Company, as issuer, Chinney Development and Wan Thai BVI, as guarantors, pursuant to which Bliss Ally has agreed to subscribe for, and the Target Company has agreed to allot and issue, the Subscription Shares at a cash consideration of HK$368,537,000. The Target Company is currently being held by Chinney Development and Wan Thai BVI as to 75% and 25% respectively. Upon Completion, the Target Company will be held by Chinney Development, Wan Thai BVI and Bliss Ally as to 60%, 20% and 20% respectively.

The Subscription constitutes a major and connected transaction for the Company under the Listing Rules. Chinney Development is a connected person of both Hon Kwok and the Company by virtue of the fact that it is a company controlled by Dr. James Sai-Wing Wong, Chairman and substantial shareholder of both Hon Kwok and the Company. Accordingly, the Subscription constitutes a connected transaction for both Hon Kwok and the Company under the Listing Rules. As the consideration exceeds HK$10 million, the Subscription is subject to the approval of independent shareholders of Hon Kwok at Hon Kwok EGM and the Independent Shareholders at the EGM.

An independent committee of the Board comprising Dr. Clement Kwok-Hung Young, Mr. Peter Man-Kong Wong and Mr. James C. Chen, all being independent non-executive Directors, has been formed to advise the Independent Shareholders regarding the fairness and reasonableness of the terms of the Subscription.

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LETTER FROM MESSIS CAPITAL

In formulating our opinion, we have relied on the accuracy of statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company and which the Directors consider to be complete and relevant, and have assumed that the statements made were true, accurate and complete at the time they were made and continue to be true on the date of the Circular. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Company are true at the time they were made and will continue to be true at the date of the despatch of the Circular.

We consider that we have received sufficient information to enable us to reach an informed view and to justify our reliance on the accuracy of the information and representations contained in the Circular and to provide a reasonable basis for our view and recommendation. We have no reason to suspect that any material information has been withheld by the Company or by the Directors. We have not, however, carried out any independent investigation into the business and affairs of the Company. However, we have taken all reasonable steps pursuant to Rule 13.80 the Listing Rules which include the following:

(a) obtained the information and documents relevant to an assessment of the fairness and reasonableness of the Subscription, including but not limited to, the Board Letter, the Subscription Agreement, the legal advice of the Company’s legal counsel on the Real Estate Title Certificate and the relevant ownership of the Property under development; the audited financial information of the Target Group as at 31 March 2010, 2011 and 2012 and 31 July 2012, the valuation report prepared by Savills Valuation and Professional Services Limited (the “Independent Valuer”) dated 25 October 2012 (the “Valuation Report”) and the annual reports of the Company for the financial years ended 31 March 2011 and 2012;
(b) researched the property market in Nanshan District, Shenzhen and the government policies relevant to the Subscription;
(c) reviewed the performance and financial situation of the Company as well as the reasons and background of the Subscription;
(d) reviewed the fairness, reasonableness and completeness of the assumptions stated in the Valuation Report; and
(e) without limiting the generality of paragraph (c) above, in relation to the Independent Valuer providing an opinion and valuation relevant to the Subscription:
(i) reviewed the statements set out in the Valuation Report by the Independent Valuer in relation to their experience and the professional qualifications to fit as the experts to provide opinions related to the Subscription;
(ii) confirmed the independence of the Independent Valuer including the current or prior relationships with the Company, other parties to the Subscription and connected persons of either the Company or another party to the Subscription;
(iii) reviewed the terms of engagements of the Independent Valuer (having particular regard to the scope of work, whether the scope of work is appropriate to the opinion required to be given and any limitations on the scope of work which might adversely impact on the degree of assurance given by the Valuation Report, opinion or statement); and
(iv) confirmed that we are not aware the Company or another party to the Subscription has made formal or informal representations to the Independent Valuer.

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LETTER FROM MESSIS CAPITAL

PRINCIPAL FACTORS TAKEN INTO ACCOUNT

In arriving at our opinion and recommendations to the Independent Board Committee and the Independent Shareholders in respect of whether the terms of the Subscription Agreement are fair and reasonable and whether entering into of the Subscription Agreement is in the interests of the Company and the Shareholders as a whole, we have considered the principal factors and reasons set out below:

I. Background and reasons of the Subscription

Being set out in the Board Letter, Shenzhen is in the course of rapid transformation from an industrial oriented city decades ago to become a commercial oriented metropolis today. Demand for high quality office buildings with well designed ancillary apartments in serene environment at choice location increases substantially. It is anticipated that such trend of demand is set to continue in the coming years in tandem with the on-going development of Qianhai special pilot zone for financial and modern service industries as well as the steady growth of Mainland China economically.

The Hon Kwok Group’s business strategy is to maintain a balanced portfolio of development properties for sale and investment properties for rental income. Properties held for sale tend to yield higher return and strengthen the overall financial position of the Hon Kwok Group whilst those held for rental income serve to generate stable cash inflow in the long term.

It is the intention of the Board of Hon Kwok to look for appropriate timing to enlarge the property portfolio in Mainland China. At present, the Hon Kwok Group’s projects in Shenzhen and Chongqing, both completed or in the course of construction, are mainly properties held for rental income whereas those held for sale are mostly in Guangzhou and Foshan Nanhai. After the long and tedious process of land acquisition, demolition and resettlement carried out by the Target Group since early 2007, the Property has now been transformed to a ready-to-develop site at core location in Shenzhen. The Board of Hon Kwok is of the opinion that it is now the most appropriate opportunity to participate and jointly develop the Property, particularly it comprises units partly for sale and partly for rental income which serves to improve the overall balanced property portfolio of the Hon Kwok Group.

In retrospect, the Hon Kwok Group carried out a total of two connected transactions for acquisition of properties in the past five years, namely, (a) two construction sites in Chongqing in June 2007, one of which, a twin tower office buildings on top of a commercial podium, has been completed and known as Chongqing Hon Kwok Centre with occupancy around 95% and generating satisfactory rental income. The other site comprises a twin tower office apartment and a 5-star hotel on top of a commercial podium, to be named as Chongqing International Finance Centre, is in the course of construction and (b) a completed commercial building in Guangzhou in March 2010, now known as Ganghui Dasha, is held as investment property for rental income. At present, its occupancy is approximately 95%. The fair market value of all these properties as disclosed in the Annual Report 2011/12 of Hon Kwok increased substantially comparing with the respective costs of acquisitions, thus contributed significant surplus to the consolidated total equity of the Hon Kwok Group and the net asset value per share to shareholders of Hon Kwok.

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LETTER FROM MESSIS CAPITAL

THE TARGET GROUP AND THE PROPERTY

Wan Thai Group firstly identified the redevelopment potential of the Property in early 2006 and commenced negotiations with the previous owners who were independent third parties and did not have any business or other relationship with the Group and its connected persons. By that time, the Property comprised a total of eight separate lots of land with eight dilapidated factory buildings erected thereon. After lengthy negotiations, terms of resettlement were reached and the PRC Co was established to enter into the agreements in 2007 with the respective owners to acquire the Property and thereafter, amalgamated the lots into an industrial site for redevelopment. The total consideration for the PRC Co to acquire the eight lots of land was approximately RMB220,399,000 (equivalent to approximately HK$272,098,000). Formal applications to the relevant government authorities for 升級改造 (upgraded redevelopment) of the Property were then submitted by the Target Group which was accepted in 2009 and the Land Use Rights Grant Contract was finally executed in August 2012 after payment of the land premium of RMB272,977,000 (equivalent to HK$337,009,000). The whole process of acquisitions, land amalgamation and upgrading took the Target Group over 5 years to complete conversion of the Property with industrial buildings erected thereon to a vacant site ready for composite development.

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LETTER FROM MESSIS CAPITAL

premium, are to be developed for composite use with a total gross floor area of approximately 224,500 square metres, albeit the land usage remains categorized as industrial. As specified in the Land Use Rights Grant Contract dated 24 August 2012, other than gross floor area of 12,000 square metres which will be retained for local government use, the remaining 212,500 square metres will be developed as 商品房 (commodity housing), of which 158,300 square metres are classified as 產業用房 (Chanye Buildings) for the use of innovative and emerging industries to carry out administrative operation, research and development, or manufacturing activities and 54,200 square metres as 產業配套 (ancillary for Chanye Buildings) for other ancillary facilities such as accommodation. The Target Group intends to sell or lease these Chanye Buildings for office use and ancillary for Chanye Buildings for apartment use. Such type of buildings are intended for composite use by innovative and emerging industries which have been promulgated by the Shenzhen government since 2008 and are not confined to a particular type of usage such as industrial, commercial or as apartments.

Under the current rules and regulations applicable to upgraded redevelopment project in industrial site in Shenzhen, not less than 50% of its gross floor area is to be held for owner’s use whilst the remaining portion can be sold on strata-title upon completion. The Target Group, however, advised that there is no specific definition and restriction as to the meaning of owner’s use property from the related government offices and it is not prohibited to apply such owner’s use property for investment purpose. As such, the Target Group has formulated the development plan of the Property under which, excluding the 12,000 square meters for government use, not less than 50% of its total gross floor area will be held for investment and the remaining is to be developed for sale. The Group has carried out market research and investigation as to the feasibility of such development plan and identified certain similar upgraded redevelopment projects in Shenzhen of which owner’s use properties are being leased for rental purpose. The Group has also consulted with the relevant government authorities and is given to understand that it is not prohibited to apply owner’s use properties for rental in Shenzhen. In addition, the Directors are further confirmed by the Group’s PRC legal adviser that there is no definition and restriction as to owner’s use properties according to prevailing laws and regulations in the PRC. The Directors have taken into account of such restriction when considering the Subscription and believe that the development plan proposed by the Target Group is practically viable based on the above.

In Shenzhen, the Land Use Rights Certificate and Building Ownership Certificate have been consolidated into one single document, being Real Estate Title Certificate. Following the entering into of the Land Use Rights Grant Contract in August 2012, the Target Group is now in the process of applying the Real Estate Title Certificate which is expected to be obtained before December 2012. As the Land Use Rights Grant Contract was signed and land premium was fully paid, the Target Group does not foresee any obstacle to obtain the Real Estate Title Certificate. The Target Group is also under the process of finalising the buildings design and formulating detailed construction plans. As advised by the Target Group, the Property will be developed by phases and foundation work is expected to commence by the end of 2012 and the whole project is scheduled to be completed in about 5 years. It is currently estimated that the total construction costs for development of the Property to be about RMB1,347 million (equivalent to approximately HK$1,663 million) which will be financed by way of construction loans provided by financial institutions by stages in line with progress of the respective phases of which about RMB460 million (equivalent to approximately HK$568 million) for the first phase of the project and proceeds from sale of the Property for the subsequent phases.

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LETTER FROM MESSIS CAPITAL

We have researched the property market in Nanshan District, Shenzhen and the government policies relevant to the Subscription. According to the transaction prices of individual units of commodity housing completed in 2012, the unit rate of the commodity housing on Qiaoxiang Road or Xiangshan Road, Nanshan District are in the range of RMB32,000 to RMB35,000 per square metre which is at the upper quartile of commodity housing in Shenzhen. According to the Twelve Five-Year Plan announced by both the Shenzhen Government and the Nanshan District Government in 2012, Nanshan District will be continuously positioned as the financial centre, the information technology centre and the education and culture centre of Shenzhen with most of the old industrial sites to be upgraded and redeveloped into modernized commercial and residential complex, including the mode of Advanced Business Park which the Property is planned to be.

Based on the valuation report on the Property as set out in Appendix V to this circular, the Property is valued at RMB1,700,000,000 (equivalent to HK$2,098,765,000) as at 31 July 2012.

We are provided with (i) the legal advice of Hon Kwok’s legal counsel, Grandall Legal Group (Shenzhen), on the Real Estate Title Certificate and the relevant ownership of the Property under development; (ii) the Land Use Rights Grant Contract; and (iii) the Construction Land Planning Permit. According to the legal advice, upon Completion, the Group will hold indirectly 20% of the Target Group which is legal owner of the Property and the formal applications to the relevant government authorities for upgrading redevelopment of the Property was accepted.

We are of the view that the Subscription is an opportunity for the Hon Kwok Group to replenish its land bank of commodity housing to be sold or leased for office/apartment use in the mode of Advanced Business Park and is (i) in the ordinary course of business of the Hon Kwok Group; (ii) in line with the business strategy of the Hon Kwok Group of maintaining a balanced portfolio of development properties for sale and investment properties for rental income; and (iii) in the interests of Hon Kwok and its shareholders as a whole.

THE SUBSCRIPTION AGREEMENT

Pursuant to the Subscription Agreement, Bliss Ally has agreed to subscribe for, and the Target Company has agreed to allot and issue, the Subscription Shares.

The Subscription Shares represent 20% of the enlarged total issued share capital of the Target Company upon Completion.

1. Date

18 September 2012

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LETTER FROM MESSIS CAPITAL

2. Parties

(a) The Target Company, as issuer
(b) Bliss Ally, as subscriber
(c) Chinney Development, as guarantor
(d) Wan Thai BVI, as guarantor

3. Consideration

The cash consideration of HK$368,537,000, representing the sum payable for the Subscription Shares, was determined by reference to the consolidated net assets of the Target Group as at 31 July 2012 after adjusting for the revaluation of the Property and shareholders’ loans together with the Subscription monies receivable and was agreed at after arm’s length negotiation amongst the parties. It is the current intention of the Hon Kwok Group to finance the Subscription by way of its internal resources. The cash consideration, to be utilized as general working capital of the Target Group, will be payable in the following manners:

(a) Initial Deposit

HK$36,853,700 has been paid to the Target Company upon signing of the Subscription Agreement. Such deposit shall be returned to Bliss Ally as soon as practicable without interest or compensation of any nature if conditions (a) and (b) as mentioned in paragraph 4 below are not fulfilled;

(b) Second Deposit

HK$73,707,400 will be paid to the Target Company within five business days after conditions (a) and (b) as mentioned in paragraph 4 below are fulfilled. Such deposit together with the above initial deposit shall be returned to Bliss Ally as soon as practicable without interest or compensation of any nature if any of the conditions (c), (d), (e) and (f) as mentioned in paragraph 4 below are not fulfilled or waived; and

(c) the balance of the consideration of HK$257,975,900 will be paid to the Target Company within three months after payment of the above second deposit.

The consideration of HK$368,537,000, representing the sum payable for the Subscription Shares of 20% of the enlarged total issued share capital of the Target Company upon Completion, which is determined by reference to the consolidated net assets of the Target Group as at 31 July 2012 after adjusting for the revaluation of the Property and shareholders’ loans together with the Subscription monies receivable.

According to the unaudited pro forma financial information of the Enlarged Group in Appendix III of the Circular, due to the requirement of provision for deferred tax on the fair value adjustment on the Property for consolidation of the accounts of the Target Group according to accounting standards, there shall be a goodwill recognised upon completion of the Subscription. Such provision for deferred tax is a non-cash item and shall not be realised until disposal of the Property. Thus, the Group’s proposed share of 20% of the adjusted net identifiable assets of the Target Group before the above deferred tax impact is approximately HK$424.8 million. The results of the 20% interests in the Target Group will be equity accounted for in the Group’s accounts after Completion. The consideration of approximately HK$368.5 million is a discount of approximately 13.2% to the adjusted net identifiable assets of the Target Group before the deferred tax impact of HK$424.8 million. We are of the view that the consideration is fair and reasonable so far as the interests of the Company and the Independent Shareholders are concerned.

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LETTER FROM MESSIS CAPITAL

4. Completion of the Subscription Agreement

Completion is subject to and conditional on the following conditions being fulfilled or waived:

(a) the passing of an ordinary resolution by the Independent Shareholders at the EGM to approve the Subscription;
(b) the passing of an ordinary resolution by the independent shareholders of Hon Kwok at the Hon Kwok EGM to approve the Subscription;
(c) all necessary waiver and/or approval regarding the execution of and to give effect to the transactions contemplated under the Subscription Agreement and each of the documents to be executed on or before the Completion have been obtained by the Target Company, Chinney Development, Wan Thai BVI and/or Bliss Ally;
(d) the warranties given by Chinney Development and Wan Thai BVI remain true and correct in all material respects at all times from the date hereof and up to Completion;
(e) the warranties given by Bliss Ally remain true and correct in all material respects at all times from the date hereof and up to Completion; and
(f) Bliss Ally being reasonably satisfied with the results of the due diligence review on the Target Group.

We have reviewed all the terms of the Subscription Agreement and note that there is no extra-ordinary terms or less favourable terms to Hon Kwok. We are of the view that the entering into the Subscription Agreement are on normal commercial terms.

VALUATION

The Independent Valuer stated in the Valuation Report that the valuation was prepared in compliance with the requirements set out in Chapter 5 and Practice Note 12 of the Listing Rules, and in accordance with the Valuation Standards on Properties (First Edition) published by The Hong Kong Institute of Surveyors and the International Valuation Standards published by the International Valuation Standards Council as set out in Appendix V of the Circular.

1. Valuation approaches

The Independent Valuer stated in the Valuation Report that:

The Property is categorized as an upgraded redevelopment project in an old industrial district of Shenzhen. Pursuant to the Provisional Measures for Transfer of Industrial Buildings in Shenzhen, not less than 50% of the total gross floor area of an upgraded redevelopment project is to be held for owner’s use whilst the remaining portion can be sold on strata-title upon completion. As advised by the Target Group, there is no specific definition and restriction as to the meaning of owner’s use property from the related government offices and it is not prohibited to apply such owner’s use property for investment purpose. As such, the Target Group has formulated the development plan of the Property under which not less than

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LETTER FROM MESSIS CAPITAL

50% of the gross floor area will be held for investment and the remaining of which is to be developed for sale. The Directors of both Chinney and Hon Kwok believe that the development plan proposed by the Target Group is practically viable based on their due diligence work done for said development plan. For the purpose of this valuation, we have adopted the aforesaid development plan in undertaking our valuation. Our valuation of the Property thus represents our opinion of its Investment Value which in accordance with the International Valuation Standards is defined as “the value of an asset to the owner or a prospective owner for individual investment or operational objectives”. This is an entity-specific basis of value. Although the value of an asset to the owner may be the same as the amount that could be realised from its sale to another party, this basis of value reflects the benefits received by an entity from holding the asset and, therefore, does not necessarily involve a hypothetical exchange. We consider that although portion of the Property is subject to sales restriction, Wanthai Chinney Real Estate, being the owner of the Property, is entitled to receive the benefit such as rental income from the Property. Therefore, we consider that adopting the basis of Investment Value instead of market value is more appropriate in valuing the Property.

In arriving at the Investment Value of the Property, we have analyzed the comparable market transactions and made adjustments to reflect the differences between the Property and the comparables in terms of, among others, sales restrictions, location, size, usage, density and provision of services.

We have been provided with copies of title documents relating to the Property and have inspected the original documents including the Land Use Rights Grant Contract and Construction Land Planning Permit. However, we have not caused searches to be made at the relevant government authority to ascertain the existence of any amendments which may not appear on the copies handed to us. We have relied to a very considerable extent on information given by Hon Kwok and its PRC legal adviser, Grandall Legal Group (Shenzhen), regarding to the title to the Property. We have also accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, particulars of occupancy, site and floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore only approximations. No on-site measurements have been made. We have had no reason to doubt the truth and accuracy of the information provided to us by Hon Kwok, which is material to our valuation. We have also advised by Hon Kwok that no material facts have been omitted from the information provided.

The site inspection was carried out on 17 August 2012 by our professional valuers.

2. Basis of valuation and assumptions

As set out in Appendix V of the Circular, the Valuation Report stated that the Independent Valuer had inspected the Property. The Independent Valuer had not carried out investigations on site to determine the suitability of the ground conditions and the services for future development. The valuation was prepared on the assumption that these aspects were satisfactory and no extraordinary expenses or delay would be incurred during the development period.

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

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LETTER FROM MESSIS CAPITAL

We have reviewed the legal advice of Hon Kwok’s PRC legal adviser and we have also reviewed the rules and regulations applicable to upgraded redevelopment project in industrial site in Shenzhen. We note that under the above rules and regulations, not less than 50% of the gross floor area of an upgraded redevelopment project should be held for owner’s use. According to the above legal advice that there is no clear definition of the “owner’s use” under the rules and regulations, we are of the view that not less than 50% of its total gross floor area to be held for investment and rental income and the remaining to be developed for sale is appropriate under the current status.

We have also researched the rental market in Nanshan District, Shenzhen. The latest rental of individual units of commodity housing on Qiaoxiang Road or Xiangshan Road, Nanshan District are in the range of RMB75 to RMB123 per square metre per month which is approximately equivalent to an annual return of 2.8% to 4.2% as compared with the unit transaction prices of the commodity housing in this area where the Property is located of RMB32,000 to RMB35,000 per square metre. We are of the view that the above rate of return is within the range of the rate of return of the Shenzhen’s commodity housing of 2.5% to 5%. Based on the valuation by the Independent Valuer, the Property is valued at RMB1,700,000,000 (equivalent to HK$2,098,765,000) as at 31 July 2012. The valuation by the Independent Valuer has already taken into consideration of the sale restrictions and the above planned usage of the Property.

We have reviewed the supporting documents and assumptions of the Valuation Report, including the land comparables in Nanshan District, the workings with calculation and the assumptions provided by the Independent Valuer, including:

the assumptions of:

(i) the suitability of the ground conditions and the gas, electricity, water, drainage, telecommunication services etc. for future development; and
(ii) no extraordinary expenses or delay would be incurred during the development period; and

the bases of calculation adopted of:

(i) the downward adjustment to the value of the Property as compared with the sales prices of the land comparables due to:
(a) the sale restriction of not less than 50% of the gross floor area to be held for owner’s use;
(b) the usage of the Property remains categorized as an industrial site; and
(c) the size of the Property.
(ii) the upward adjustment to the value of the Property as compared with the sales prices of the land comparables due to:
(a) the land status of the Property with the availability of the gas, electricity, water, drainage, telecommunication services; and
(b) the lower density of the Property.

Having taken into account of the sale restrictions and the planned usage of the Property as stated above, we are of the view that the above assumptions and bases of calculation adopted in the Valuation Report to generate the valuation amount of the Property are fair and reasonable.

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LETTER FROM MESSIS CAPITAL

POSSIBLE FINANCIAL EFFECTS OF THE SUBSCRIPTION

The cash consideration of HK$368,537,000, representing the sum payable for the Subscription Shares, is determined by reference to the consolidated net assets of the Target Group as at 31 July 2012 after adjusting for the revaluation of the Property and shareholders’ loans together with the Subscription monies receivable and was agreed at after arm’s length negotiation amongst the parties. It is the current intention of the Hon Kwok Group to finance the Subscription by way of its internal resources.

(i) Assets and liabilities

As stated in the annual report of the Company for the year ended 31 March 2012, the consolidated total non-current assets and total current assets of the Group as at 31 March 2012 were approximately HK$5,490 million and approximately HK$3,016 million (including cash and cash equivalents approximately HK$979 million) respectively. The total assets was approximately HK$8,506 million.

According to the unaudited pro forma financial information of the Enlarged Group as contained in Appendix III to the Circular, the unaudited pro forma non-current assets and total current assets of the Enlarged Group are approximately HK$5,859 million and approximately HK$2,647 million, respectively upon Completion, as calculated based on the payment of cash consideration of approximately HK$369 million for the Subscription. The total assets remains unchanged.

According to the unaudited pro forma financial information of the Enlarged Group, the liabilities attributable to the Subscription remains unchanged.

(ii) Net assets value

According to the unaudited pro forma financial information of the Enlarged Group, the unaudited pro forma net assets of the Enlarged Group are approximately HK$4,731 million which remains unchanged.

(iii) Gearing ratio

According to the unaudited pro forma financial information of the Enlarged Group, the gearing ratio of the Enlarged Group (calculated as total liabilities divided by total assets) remains unchanged attributable to the Subscription.

(iv) Current ratio

According to the unaudited pro forma financial information of the Enlarged Group, the current ratio of the Enlarged Group (calculated as current assets divided by current liabilities) will be reduced from 2.34 to 2.05 attributable to the Subscription.

(v) Liquidity

It is the intention of the Hon Kwok Group to finance the Subscription by way of its internal resources. Based on the unaudited pro forma financial information of the Enlarged Group, the cash and cash equivalents will decrease by approximately HK$369 million and is affordable to the Group.

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LETTER FROM MESSIS CAPITAL

According to the unaudited pro forma financial information of the Enlarged Group, the total assets, total liabilities, net assets and gearing ratio remains unchanged while the current ratio and liquidity is reduced attributable to the Subscription. We are of the view that the financial impact of the Subscription on the Group is mild as compared with the financial position of the Group.

OPINION

To arrive into our recommendation to the Independent Board Committee and the Independent Shareholders, we have reviewed factors and the reasons summarized as follows:

the Subscription is in the interests of the Company and the Shareholders as a whole and is in the ordinary course of business of the Group;
the consideration is fair and reasonable so far as the interests of the Company and the Independent Shareholders are concerned;
the assumptions and bases adopted in the Valuation Report to generate the valuation amount of the Property are fair and reasonable;
the entering into the Subscription Agreement are on normal commercial terms; and
the financial impact of the Subscription on the Group is mild as compared with the financial position of the Group.

RECOMMENDATION

Having reviewed all the reasons and factors, as set out above, we are of the view that the Subscription is in the interests of the Company and the Shareholders as a whole and in the ordinary course of business of the Group as well as the terms of the Subscription Agreement on normal commercial terms and are fair and reasonable so far as the interests of the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Subscription.

Yours faithfully, For and on behalf of

Messis Capital Limited Michael Leung Executive Director

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY OF THE GROUP

The published audited consolidated financial statements of the Group for each of the three years ended 31 March 2010, 2011 and 2012 are disclosed in the Company’s annual reports for each of the three years ended 31 March 2010, 2011 and 2012, which can be accessed on the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (www.chinney.com.hk).

2. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2012, being the date to which the latest published audited financial statements of the Group were made up.

3. WORKING CAPITAL

The Directors, after due and careful enquiry, are of the opinion that in the absence of unforeseen circumstances, upon Completion and after taking into account the financial resources available to the Enlarged Group, including internal resources and present available banking facilities, the Enlarged Group has sufficient working capital for its present requirements for the next twelve months from the date of this circular.

4. INDEBTEDNESS

At the close of business on 31 August 2012, the Enlarged Group had outstanding borrowings of approximately HK$2,855 million comprising:

(a) secured bank loans of approximately HK$2,375 million; and
(b) unsecured bank loans of approximately HK$480 million.

All of the above outstanding borrowings of the Enlarged Group are unguaranteed.

The Enlarged Group’s secured bank borrowings as at 31 August 2012 were secured by shares in certain subsidiaries, charges over certain securities, fixed charges on certain investment properties, certain bank balances, and assignment of rental income from leases of certain properties of the Group.

Save as aforesaid or as otherwise mentioned herein and apart from intra-group liabilities and normal accounts payable and bills payable in the ordinary course of business, the Enlarged Group did not have any outstanding mortgages, charges, debentures, loan capital, debt securities, bank loans and overdrafts or other similar indebtedness, finance leases or hire purchase commitment, liabilities under acceptances (other than normal trade bills) or acceptance credits as at the close of business on 31 August 2012.

For the purpose of this indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the approximate exchange rates prevailing as at the close of business on 31 August 2012.

The Directors are not aware of any material adverse changes in the Enlarged Group’s indebtedness position since 31 August 2012.

5. CONTINGENT LIABILITIES

As at 31 August 2012, the Group has given guarantees of HK$143,136,000 to banks for housing loans extended by the banks to the purchasers of the Group’s properties for a period from the date the loans are granted to the purchasers up to the date of issuance of property title certificates to the purchasers.

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

As at 31 March 2012, being the date to which the Group’s latest published audited financial statements were made up, the Group had a total shareholders’ funds of approximately HK$2,582 million. The gearing ratio of the Group, as measured by the consolidated net borrowings of approximately HK$1,890 million over the total shareholders’ fund plus non-controlling interests of approximately HK$4,731 million, was 40% as at 31 March 2012. The Group had cash and bank balances including time deposits of approximately HK$1,100 million as at 31 March 2012. The Directors expect that the Group will continue to maintain a healthy financial position to support the business operations.

The principal activities of the Group are property development, property investment and property related activities through the Hon Kwok Group and garment manufacturing and trading through J.L. Chinney (Holdings) Company Limited and its subsidiaries. Apart from these, the Company has investment in Chinney Alliance, a 29.10% owned associate, and other marketable securities.

Foundation works of Botanica Phase 3 in Guangzhou comprising 12 blocks of about 550 units have been commenced. In Nanhai, 71 units of completed 3-storey town houses under Phase 1 of Metropolitan Oasis are expected to launch for sale in the market by the end of this year and construction works of the high-rise apartments of about 121,000 sq.m. under the same phase are in progress. Construction works of the Group’s future investment properties, namely an 80-storey Hon Kwok City Commercial Centre in Shenzhen and a twin-tower Chongqing International Finance Centre in Chongqing are in progress and expected to be completed by early 2015 and end of 2013 respectively.

Majority of the Group’s investment properties in both Hong Kong and Mainland China currently enjoy occupancy of over 90% whilst the Group’s hotels operating under the brand name of “The Bauhinia” maintain a satisfactory average occupancy and room rates. Renovation works of an additional 45 hotel rooms at Knutsford Place, Tsimshatsui are expected to be commenced upon obtaining approval from the relevant authority.

The recent launch of the third round of quantitative easing by the U.S. dubbed QE3 and the pledge of European Central Bank for an unlimited purchase of bonds to reduce the long-term borrowing costs are expected to have a positive impact on the global economic recovery.

On the other hand, Mainland China’s GDP growth in the third quarter of 2012 further eased to 7.4% against same period of last year. In anticipation of this slowdown and to bolster the economy, the People’s Bank of China lowered the benchmark lending rates in early July for the second time within a month. Consumer inflation rate, nevertheless, slightly rose to 1.9% in September against July’s trough of 1.8%.

With the support of Central Government to invest in infrastructure projects and encourage lending policy for first-time home purchasers coupled with a reduction in the lending rates, barring further administrative measures to be imposed on residential property market, the momentum of enormous domestic demand, in particular, for the non-luxury units, will be sustained in the coming years. In Hong Kong, the persisting low interest rate environment and the launch of QE3 will provide continuous support to the residential and commercial property markets there. The Group is closely monitoring the property markets in Mainland China and Hong Kong and intends to replenish its land bank and/or enlarges its investment property portfolios at opportune times.

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Our garment group, which produced fashionable garment in Mainland China for export mainly to European market, has encountered an extremely tough business condition. The European and U.S. consumer markets remained weak. As customers have become more cautious, sales orders have dropped significantly. Although the U.S. government has implemented in last month the third round of Quantitative Easing measures to stimulate the U.S. economy, it is anticipated that the retail market may not be revived in the short run. Under the present highly competitive market, our garment group will continue to implement tight control and stringent measures in order to improve its profitability.

In view of the above and barring unforeseen circumstances, the Directors remain optimistic on the financial and trading prospects of the Group for the current financial year.

– 28 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

The following is a text of a report prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong. Terms defined herein apply to this report only.

==> picture [152 x 38] intentionally omitted <==

The Board of Directors Chinney Investments, Limited

Dear Sirs,

We set out below our report on the financial information of Chinney Trading Company Limited (the “Company”) and its subsidiary (hereinafter collectively referred to as the “Group”) comprising the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows of the Group for each of the three years ended 31 March 2010, 2011 and 2012 and the four months ended 31 July 2012 (the “Relevant Periods”), and the consolidated statements of financial position of the Group as at 31 March 2010, 2011 and 2012 and 31 July 2012, and the statements of financial position of the Company as at 31 March 2010, 2011 and 2012 and 31 July 2012, together with the notes thereto (the “Financial Information”), and the comparative consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows of the Group for the four months ended 31 July 2011 (the “31 July 2011 Financial Information”), prepared on the basis of presentation set out in note 2.1 of Section II below, for inclusion in the circular of Chinney Investments, Limited (“Chinney”) dated 25 October 2012 (the “Circular”) in connection with a major and connected transaction in relation to the proposed subscription for 2,600 new shares in the Company, which representing 20% of the enlarged total issued share capital of the Company at a cash consideration of HK$368,537,000 (the “Subscription”).

The Company was incorporated in Hong Kong with limited liability on 3 April 1985. The principal activity of the Company is investment holding.

The consolidated financial statements of the Group for the years ended 31 March 2010 and 2011 were prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) and were audited by RSM Nelson Wheeler (the “HKFRS Financial Statements”). No statutory consolidated financial statements of the Group for the year ended 31 March 2012 were prepared up to the date of this report.

The audit opinions of consolidated financial statements of the Group for the years ended 31 March 2010 and 2011 were qualified in respect of the failure to obtain sufficient appropriate audit evidence to satisfy RSM Nelson Wheeler as to the carrying amount of the properties under development stated in the consolidated statements of financial position as at 31 March 2010 and 2011. In addition, without qualifying the audit opinions, the audit opinions of consolidated financial statements of the Group for the years ended 31 March 2010 and 2011 were modified in respect of the existence of material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern.

– 29 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

We have performed additional audit procedures on the HKFRS Financial Statements and have satisfied ourselves that the matters as mentioned in the preceding paragraph give no material financial impact on the Financial Information.

As at the date of this report, the Company has direct interest in a subsidiary as set out in note 1 of Section II below. The Group adopts 31 March as its financial year end date. The financial statements of the subsidiary were prepared in accordance with the People’s Republic of China Generally Accepted Accounting Principles (“PRC GAAP”). Details of the statutory auditors of the subsidiary during the Relevant Periods are set out in note 1 of Section II below.

For the purpose of this report, the directors of the Company have prepared the consolidated financial statements of the Group for the year ended 31 March 2012, and the four months ended 31 July 2012 in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”). The Underlying Financial Statements were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information set out in this report has been prepared based on the HKFRS Financial Statements and the Underlying Financial Statements with no adjustments made thereon.

DIRECTORS’ RESPONSIBILITY

The directors of the Company are responsible for the preparation of the Underlying Financial Statements, the HKFRS Financial Statements, the Financial Information and the 31 July 2011 Financial Information that give a true and fair view in accordance with HKFRSs issued by the HKICPA, and for such internal control as the directors of the Company determine is necessary to enable the preparation of the Underlying Financial Statements, the HKFRS Financial Statements, the Financial Information and the 31 July 2011 Financial Information that are free from material misstatement, whether due to fraud or error.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

It is our responsibility to form an independent opinion and a review conclusion on the Financial Information and the 31 July 2011 Financial Information, respectively, and to report our opinion and review conclusion thereon to you.

For the purpose of this report, we have examined the HKFRS Financial Statements and have carried out procedures as we consider necessary on the Financial Information in accordance with Auditing Guideline 3.340 Prospectuses and the Reporting Accountant issued by the HKICPA.

We have also performed a review of the 31 July 2011 Financial Information in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an opinion on the 31 July 2011 Financial Information.

– 30 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

OPINION IN RESPECT OF THE FINANCIAL INFORMATION

In our opinion, for the purpose of this report, the Financial Information gives a true and fair view of the state of affairs of the Group and the Company as at 31 March 2010, 2011 and 2012 and 31 July 2012 and the consolidated results and cash flows of the Group for each of the Relevant Periods.

REVIEW CONCLUSION IN RESPECT OF THE 31 JULY 2011 FINANCIAL INFORMATION

Based on our review which does not constitute an audit, for the purpose of this report, nothing has come to our attention that causes us to believe that the 31 July 2011 Financial Information is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information.

– 31 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

I. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

								Four months	Four months	Four months	ended
		Year	ended 31 March					31	July
	Notes	2010		2011		2012		2011			2012
		HK$		HK$		HK$		HK$			HK$
							(unaudited)
REVENUE	5	–		–		–		–			–
Other income	5	3,136		5,915	16,033			6,152		992,697
Administrative expenses		(73,585)	(1,014,401) (1,571,549)					(419,908)		(578,189)
Other operating expenses		(32,585)		(190,685)	(8,794)			(236)			(7,489)
Finance costs	6	–		–		–		–		(791,803)
LOSS BEFORE TAX	7	(103,034)	(1,199,171) (1,564,310)					(413,992)		(384,784)
Income tax expense	10	–		–		–		–			–
LOSS FOR THE
YEAR/PERIOD	11	(103,034)	(1,199,171) (1,564,310)					(413,992)		(384,784)
OTHER
COMPREHENSIVE
INCOME
Exchange differences on
translation of foreign
operation		1,238,972		9,317,375	9,136,958			4,667,794		4,470,073
OTHER
COMPREHENSIVE
INCOME FOR THE
YEAR/PERIOD, NET OF
TAX		1,238,972		9,317,375	9,136,958			4,667,794		4,470,073

TOTAL COMPREHENSIVE
INCOME FOR THE
YEAR/PERIOD		1,135,938		8,118,204	7,572,648			4,253,802		4,085,289

Details of the dividend paid for the year are disclosed in note 12 to the Financial Information.

– 32 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

						As at
			As at 31 March			31 July
	Notes	2010		2011	2012	2012
		HK$		HK$	HK$	HK$
NON-CURRENT ASSETS
Property, plant and equipment	14	–		–	16,390	15,278
Properties under development	15	206,453,019		262,758,885	274,991,112	624,343,411
Total non-current assets		206,453,019		262,758,885	275,007,502	624,358,689

CURRENT ASSETS
Due from a related company	17	4,175		–	–	3,414
Prepayments and deposits	18	527		611	32,622	44,935
Cash and bank balances	19	951,140		5,210,282	1,786,829	12,610,312

Total current assets		955,842		5,210,893	1,819,451	12,658,661

CURRENT LIABILITIES
Due to the ultimate holding
company	24(b)	153,583,181		212,684,598	212,756,579	212,756,579
Due to a related company	17	30,641,922		31,868,351	33,102,830	33,131,489
Loan from a related company	20	–		–	–	345,791,803
Accruals		39,500		154,962	133,029	10,417,675

Total current liabilities		184,264,603		244,707,911	245,992,438	602,097,546

NET CURRENT LIABILITIES		(183,308,761)		(239,497,018)	(244,172,987)	(589,438,885)
Net assets		23,144,258		23,261,867	30,834,515	34,919,804


EQUITY
Issued capital	21	1,000,000		1,000,000	1,000,000	1,000,000
Reserves	22(a)	22,144,258		22,261,867	29,834,515	33,919,804
Total equity		23,144,258		23,261,867	30,834,515	34,919,804

– 33 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

				Retained
			Exchange	profits/
		Issued	fluctuation	(accumulated
		capital	reserve	losses)	Total equity
	Note	HK$	HK$	HK$	HK$
At 1 April 2009		1,000,000	13,328,301	7,680,019	22,008,320
Loss for the year		–	–	(103,034)	(103,034)
Other comprehensive income for the
year:
Exchange differences on
translation of foreign operation		–	1,238,972	–	1,238,972
Total comprehensive income for the
year		–	1,238,972	(103,034)	1,135,938
At 31 March 2010 and
1 April 2010		1,000,000	14,567,273*	7,576,985*	23,144,258
Loss for the year		–	–	(1,199,171)	(1,199,171)
Other comprehensive income for the
year:
Exchange differences on
translation of foreign operation		–	9,317,375	–	9,317,375
Total comprehensive income for the
year		–	9,317,375	(1,199,171)	8,118,204
Interim dividend	12	–	–	(8,000,595)	(8,000,595)
At 31 March 2011 and
1 April 2011		1,000,000	23,884,648*	(1,622,781)*	23,261,867
Loss for the year		–	–	(1,564,310)	(1,564,310)
Other comprehensive income for the
year:
Exchange differences on
translation of foreign operation		–	9,136,958	–	9,136,958
Total comprehensive income for the
year		–	9,136,958	(1,564,310)	7,572,648
At 31 March 2012 and
1 April 2012		1,000,000	33,021,606*	(3,187,091)*	30,834,515
Loss for the period from
1 April 2012 to 31 July 2012		–	–	(384,784)	(384,784)
Other comprehensive income for the
period from 1 April 2012 to
31 July 2012:
Exchange differences on
translation of foreign operation		–	4,470,073	–	4,470,073
Total comprehensive income for the
period		–	4,470,073	(384,784)	4,085,289
As at 31 July 2012		1,000,000	37,491,679*	(3,571,875)*	34,919,804

– 34 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

			Retained
		Exchange	profits/
	Issued	fluctuation	(accumulated
	capital	reserve	losses)	Total equity
	HK$	HK$	HK$	HK$
(Unaudited)
At 31 March 2011 and 1 April 2011	1,000,000	23,884,648	(1,622,781)	23,261,867
Loss for the period from 1 April 2011
to 31 July 2011	–	–	(413,992)	(413,992)
Other comprehensive income for the
period from 1 April 2011 to
31 July 2011:
Exchange differences on
translation of foreign operation	–	4,667,794	–	4,667,794
Total comprehensive income for the
period	–	4,667,794	(413,992)	4,253,802
At 31 July 2011	1,000,000	28,552,442	(2,036,773)	27,515,669

* These reserve accounts comprise the consolidated reserves of HK$22,144,258, HK$22,261,867, HK$29,834,515 and HK$33,919,804 in the consolidated statements of financial position as at 31 March 2010, 2011 and 2012, and 31 July 2012, respectively.

– 35 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF CASH FLOWS

							Four months	Four months	Four months	ended
		Year ended 31 March					31 July
	Notes	2010		2011		2012	2011			2012
		HK$		HK$		HK$	HK$			HK$
							(unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Adjustments for:
Loss before tax		(103,034)		(1,199,171)	(1,564,310)		(413,992)			(384,784)
Finance costs	6	–		–		–	–			791,803
Interest income	5	(3,136)		(5,915)		(16,033)	(6,152)			(1,907)
Depreciation	7	–		–		1,369	–			1,125
		(106,170)		(1,205,086)	(1,578,974)		(420,144)			406,237
Increase in properties under
development		(30,836,029)	(48,042,683)		(2,053,778)		(36,330)	(349,114,226)
Increase in prepayments and deposits		(298)		(84)		(32,011)	(42)			(12,285)
Decrease/(increase) in amount due
from a related company		(4,175)		4,175		–	(4,240,022)			(3,414)
Increase in amount due to the ultimate
holding company		22,641,284		59,101,417		71,981	–			–
Increase in amount due to a related
company		7,795,792		–		–	–			–
Increase/(decrease) in accruals		(7,500)		115,462		(25,090)	727		10,284,567
Cash generated from/(used in)
operations		(517,096)		9,973,201	(3,617,872)		(4,695,811)(338,439,121)
Interest received		3,136		5,915		16,033	6,152			1,907

Net cash flows from/(used in)
operating activities		(513,960)		9,979,116	(3,601,839)		(4,689,659)(338,437,214)
CASH FLOWS FROM AN
INVESTING ACTIVITY
Purchase of items of property, plant
and equipment and cash flows used
in an investing activity	14	–		–		(17,759)	–			–
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase in loan from a related
company		–		–		–	–	345,000,000
Dividend paid		–		(8,000,595)		–	–			–
Net cash flows from/(used in)
financing activities		–		(8,000,595)		–	–	345,000,000
NET INCREASE/(DECREASE) IN
CASH AND CASH EQUIVALENTS		(513,960)		1,978,521	(3,619,598)		(4,689,659)		6,562,786
Cash and cash equivalents at
beginning of year		1,336,655		951,140	5,210,282		5,210,282		1,786,829
Effect of foreign exchange rate
changes, net		128,445		2,280,621		196,145	100,203		4,260,697
CASH AND CASH EQUIVALENTS
AT END OF YEAR/PERIOD		951,140		5,210,282	1,786,829		620,826		12,610,312


ANALYSIS OF BALANCE OF CASH
AND CASH EQUIVALENTS
Cash and bank balances		951,140		5,210,282	1,786,829		620,826		12,610,312

– 36 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

STATEMENTS OF FINANCIAL POSITION

						As at
			As at 31 March			31 July
	Notes	2010		2011	2012	2012
		HK$		HK$	HK$	HK$
NON-CURRENT ASSET
Investment in a subsidiary	16	162,560,700		213,610,700	213,610,700	558,610,700
CURRENT ASSETS
Prepayments	18	527		611	551	490
Due from a related company	17	4,175		–	–	3,414
Cash and bank balances	19	94,356		146,787	129,636	121,913

Total current assets		99,058		147,398	130,187	125,817

CURRENT LIABILITIES
Due to the ultimate holding company	24(b)	153,583,181		212,684,598	212,756,579	212,756,579
Loan from a related company	20	–		–	–	345,791,803
Accruals		39,500		73,500	41,500	41,500

Total current liabilities		153,622,681		212,758,098	212,798,079	558,589,882

NET CURRENT LIABILITIES		(153,523,623)		(212,610,700)	(212,667,892)	(558,464,065)
Net assets		9,037,077		1,000,000	942,808	146,635


EQUITY
Issued capital	21	1,000,000		1,000,000	1,000,000	1,000,000
Reserves	22(b)	8,037,077		–	(57,192)	(853,365)
Total equity		9,037,077		1,000,000	942,808	146,635

– 37 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

II. NOTES TO FINANCIAL INFORMATION

1. CORPORATE INFORMATION

The Company was incorporated as a company with limited liability in Hong Kong on 3 April 1985. The registered office of the Company is located at Room 2308, 23/F, Wing On Centre, 111 Connaught Road Central, Hong Kong.

The Group’s principal activities consisted of investment holding and property development in the People’s Republic of China (“PRC”).

As at 31 March 2010 and 2011, in the opinion of the directors of the Company, Chinney Capital Limited, a company incorporated in Hong Kong, is the immediate holding company and Chinney Development Company Limited, a company incorporated in Hong Kong, is the ultimate holding company of the Company. On 28 June 2011 and 12 July 2011, Chinney Capital Limited sold its 75% equity interest in the Company to Chinney Development Company Limited, a company incorporated in Hong Kong, and 25% equity interest to Wan Thai Group Limited, a company incorporated in British Virgin Islands, respectively, Chinney Development Company Limited has become the Company’s immediate and ultimate holding company thereafter.

As at the date of this report, the Company had direct interest in its subsidiary, which is a private limited liability company registered outside Hong Kong, the particulars of which are set out below:

	Place and date			Percentage of	Percentage of
	of registration	Registered	Paid-up	equity attributable		Principal
Name	and operations	capital	capital	to the	Company	activities
				Direct	Indirect
Wanthai Chinney	Mainland China	Renminbi	RMB	100	–	Property
Real Estate (Shenzhen) Co., Ltd	21 August 2007	(“RMB”)	480,998,000			development
(運泰建業置業(深圳)有限公司)		500,000,000
(“Wanthai Chinney Real
Estate”)1

1 Wanthai Chinney Real Estate is registered as a wholly-foreign-owned enterprise under the PRC Law. The statutory financial statements for the years ended 31 December 2009, 2010 and 2011 prepared under PRC GAAP were audited by 深圳泓興會計師事務所 (“Shenzhen Hongxing Certified Public Accountants”), certified public accountants registered in the PRC.

2.1 BASIS OF PRESENTATION

The Financial Information has been prepared in accordance with HKFRSs (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA and accounting principles generally accepted in Hong Kong.

The Financial Information has been prepared under the historical cost convention. The Financial Information is presented in Hong Kong dollars (“HK$”).

2.2 NET CURRENT LIABILITIES

As at 31 July 2012, the current liabilities of the Group exceeded its current assets by approximately HK$589 million. The directors have prepared the Financial Information on a going concern basis notwithstanding the net current liability position because the shareholders of the Company, Chinney Development Company Limited and Wan Thai Group Limited, have agreed not to demand repayment of balances due to them until the Company is in a liquid financial position to do so and to provide adequate funds for the Company and the Group to meet their liabilities as and when they fall due; and the related companies of the Company have agreed not to demand repayment of balances due to them until the Company/Group is in a liquid financial position to do so.

– 38 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these Financial Information.

HKFRS 1 Amendments Amendments to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards – Government Loans[2] HKFRS 7 Amendments Amendments to HKFRS 7 Financial Instruments: Disclosures Offsetting Financial Assets and Financial Liabilities[2] HKFRS 9 Financial Instrument[4] HKFRS 10 Consolidated Financial Statements[2] HKFRS 11 Joint Arrangements[2] HKFRS 12 Disclosure of Interests in Other Entities[2] HKFRS 13 Fair Value Measurement[2] HKFRS 10, HKFRS 11 and HKFRS 12 Amendments to HKFRS 10, HKFRS 11 and HKFRS 12: Transition Amendments Guidance[2] HKAS 1 Amendments Amendments to HKAS 1 Presentation of Financial Statements – Presentation of Items of Other Comprehensive Income[1] HKAS 19 (2011) Employee Benefits[2] HKAS 27 (2011) Separate Financial Statements[2] HKAS 28 (2011) Investments in Associates and Joint Ventures[2] HKAS 32 Amendments Amendments to HKAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities[3] HK(IFRIC)-Int 20 Stripping Costs in the Production Phase of a Surface Mine[2] Annual Improvements Project Annual Improvements to HKFRSs 2009-2011 Cycle[2]

1 Effective for annual periods beginning on or after 1 July 2012
2 Effective for annual periods beginning on or after 1 January 2013
3 Effective for annual periods beginning on or after 1 January 2014
4 Effective for annual periods beginning on or after 1 January 2015

Further information about those changes that are expected to significantly affect the Group is as follows:

HKFRS 9 issued in November 2009 is the first part of phase 1 of a comprehensive project to entirely replace HKAS 39 Financial Instruments: Recognition and Measurement. This phase focuses on the classification and measurement of financial assets. Instead of classifying financial assets into four categories, an entity shall classify financial assets as subsequently measured at either amortised cost or fair value, on the basis of both the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. This aims to improve and simplify the approach for the classification and measurement of financial assets compared with the requirements of HKAS 39.

In November 2010, the HKICPA issued additions to HKFRS 9 to address financial liabilities (the “Additions”) and incorporated in HKFRS 9 the current derecognition principles of financial instruments of HKAS 39. Most of the Additions were carried forward unchanged from HKAS 39, while changes were made to the measurement of financial liabilities designated at fair value through profit or loss using the fair value option (“FVO”). For these FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in other comprehensive income (“OCI”). The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. However, loan commitments and financial guarantee contracts which have been designated under the FVO are scoped out of the Additions.

HKAS 39 is aimed to be replaced by HKFRS 9 in its entirety. Before this entire replacement, the guidance in HKAS 39 on hedge accounting and impairment of financial assets continues to apply. The Group expects to adopt HKFRS 9 from 1 April 2015.

HKFRS 10 establishes a single control model that applies to all entities including special purpose entities or structured entities. It includes a new definition of control which is used to determine which entities are consolidated. The changes introduced by HKFRS 10 require management of the Group to exercise significant judgement to determine which entities are controlled, compared with the requirements in HKAS 27 and HK(SIC)-Int 12 Consolidation – Special Purpose Entities . HKFRS 10 replaces the portion of HKAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in HK(SIC)-Int 12.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

HKFRS 11 replaces HKAS 31 Interests in Joint Ventures and HK(SIC)-Int 13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers . It describes the accounting for joint arrangements with joint control. It addresses only two forms of joint arrangements, i.e., joint operations and joint ventures, and removes the option to account for joint ventures using proportionate consolidation.

HKFRS 12 includes the disclosure requirements for subsidiaries, joint arrangements, associates and structured entities that are previously included in HKAS 27 Consolidated and Separate Financial Statements , HKAS 31 Interests in Joint Ventures and HKAS 28 Investments in Associates . It also introduces a number of new disclosure requirements for these entities.

Consequential amendments were made to HKAS 27 and HKAS 28 as a result of the issuance of HKFRS 10, HKFRS 11 and HKFRS 12. The Group expects to adopt HKFRS 10, HKFRS 11, HKFRS 12, and the consequential amendments to HKAS 27 and HKAS 28 from 1 April 2013.

HKFRS 13 provides a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across HKFRSs. The standard does not change the circumstances in which the Group is required to use fair value, but provides guidance on how fair value should be applied where its use is already required or permitted under other HKFRSs. The Group expects to adopt HKFRS 13 prospectively from 1 April 2013.

Amendments to HKAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or recycled) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items which will never be reclassified. The Group expects to adopt the amendments from 1 April 2013.

HKAS 19 (2011) includes a number of amendments that range from fundamental changes to simple clarifications and re-wording. The revised standard introduces significant changes in the accounting for defined benefit pension plans including removing the choice to defer the recognition of actuarial gains and losses. Other changes include modifications to the timing of recognition for termination benefits, the classification of short-term employee benefits and disclosures of defined benefit plans. The Group expects to adopt HKAS 19 (2011) from 1 April 2013.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The Financial Information include the financial statements of the Company and its subsidiary for the Relevant Periods. The financial statements of the subsidiary are prepared for the same reporting period as the Company, using consistent accounting policies. The results of the subsidiary are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated on consolidation in full.

Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if that results in a deficit balance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate.

Subsidiaries

A subsidiary is an entity in which the Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors; or over which the Company has a contractual right to exercise a dominant influence with respect to that entity’s financial and operating policies.

The results of the subsidiary are included in the Company’s profit or loss to the extent of dividends received and receivable. The Company’s investment in a subsidiary is stated at cost less any impairment losses.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than financial assets and properties under development), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. 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. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each reporting period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill and certain financial assets is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises.

Related parties

A party is considered to be related to the Company if:

(a) the party is a person or a close member of that person’s family and that person
(i) has control or joint control over the Company;
(ii) has significant influence over the Company; or
(iii) is a member of the key management personnel of the Company or of a parent of the Company;

(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Company are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Company are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company;
(vi) the entity is controlled or jointly controlled by a person identified in (a); and
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rate used for this purpose is as follows:

Office equipment

20%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end date.

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Properties under development

Properties under development are stated at cost less impairment and include the cost of land, construction, financing and other related expenses, less any impairment losses. Impairment is assessed by the directors with reference to prevailing market prices, on an individual property basis.

Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the profit or loss on the straight-line basis over the lease terms.

Financial assets

Initial recognition and measurement

Financial assets within the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are measured at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place.

The Group’s financial assets include cash and bank balances, amount due from a related party, and deposits.

Subsequent measurement

The subsequent measurement of financial assets depends on the classification as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance income in profit or loss. The loss arising from impairment is recognised in profit or loss in finance costs.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

the rights to receive cash flows from the asset have expired;
the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Financial liabilities

Financial liabilities include amounts due to shareholders and a related company, loan from a related company and certain accrued liabilities. All financial liabilities are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. The related interest expense is recognised within finance costs in profit or loss.

Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

– 43 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

where the deferred tax liability arises from an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised, except:

where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

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

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of returns and discounts. Interest income is recognised using the effective interest rate method.

Dividends

Interim dividends are recognised directly as a liability when they are proposed and declared by the directors.

Foreign currencies

The Financial Information is presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the Financial Information of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the end of the reporting period. All differences arising on settlement or translation of monetary items are taken to profit or loss.

– 44 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The gain or loss arising on retranslation of a non-monetary item is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation differences on an item whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively).

The functional currency of an overseas subsidiary is a currency other than the Hong Kong dollar. As at the end of the reporting period, the assets and liabilities of this entity are translated into the presentation currency of the Company at the exchange rates ruling at the end of the reporting period, and its profit or loss is translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss.

For the purpose of the consolidated statement of cash flows, the cash flows of the overseas subsidiary are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of the overseas subsidiary which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

3. SIGNIFICANT ACCOUNTING ESTIMATES

The key assumptions concerning the future and other key sources 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, are described below.

Estimation of recoverable amounts of properties under development

The Group considers information from a variety of sources, including recent prices of similar properties in the same location and condition, with adjustments to reflect any changes in economic conditions since the date of transactions that occurred at those prices.

Estimation of total budgeted costs and costs to completion for properties under development

Total budgeted costs for properties under development comprise (i) prepaid land lease payments; (ii) building costs; and (iii) any other direct costs attributable to the development of the properties. In estimating the total budgeted costs for properties under development, management makes reference to information such as (i) current offers from contractors and suppliers; (ii) recent offers agreed with contractors and suppliers; and (iii) professional estimation on construction and material costs.

4. SEGMENT INFORMATION

The Group did not generate any revenue for the Relevant Periods. In the opinion of the management, the Group has only one operating segment which is property development.

No geographical information is presented as almost all of the Group’s assets are located in the PRC.

– 45 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

5. REVENUE AND OTHER INCOME

The Group did not generate any revenue during the Relevant Periods. An analysis of other income is as follows:

	Year ended 31 March	Year ended 31 March	Year ended 31 March	Four months	ended 31 July
	2010	2011	2012	2011	2012
	HK$	HK$	HK$	HK$	HK$
				(unaudited)
Other income
Bank interest income	3,136	5,915	16,033	6,152	1,907
Exchange gain	–	–	–	–	990,790

	3,136	5,915	16,033	6,152	992,697

6. FINANCE COSTS

An analysis of finance costs is as follows:

	Year ended 31 March	Year ended 31 March		Four months	ended 31 July
	2010	2011	2012	2011	2012
	HK$	HK$	HK$	HK$	HK$
				(unaudited)
Interest on loan from a
related company	–	–	–	–	791,803

7. LOSS BEFORE TAX

Loss before tax is arrived at after charging/(crediting):

	Year	ended 31 March		Four months	ended 31 July
	2010	2011	2012	2011	2012
	HK$	HK$	HK$	HK$	HK$
				(unaudited)
Auditors’ remuneration	39,500	34,000	49,000	–	–
Depreciation (note 14)	–	–	1,369	–	1,125
Employee benefit expense
(including directors’
remuneration (note 8)):
Wages and salaries	–	632,700	1,083,136	324,790	345,432
Foreign exchange difference,
net	19,950	185,522	2,345	–	(990,790)

– 46 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

8. DIRECTORS’ REMUNERATION

Directors’ remuneration disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance is as follows:

		Year ended 31	Year ended 31	Year ended 31	March	March					Four months	ended 31 July
	2010		2011					2012			2011	2012
	HK$			HK$				HK$			HK$	HK$
											(unaudited)
Fees		–			–				–		–	–
Other emoluments:
Salaries, allowances and
benefits in kind		–	364,800					623,904			187,100	198,642

		–	364,800					623,904			187,100	198,642


							Salaries,				Retirement
						allowances					benefit
						and	benefits				scheme
			Fees				in kind			contributions		Total
			HK$					HK$			HK$	HK$
Year ended 31 March 2010
Fu Lam Wu			–					–			–	–
Ling Wai Hong			–					–			–	–
Wong Chim Man			–					–			–	–
Wong Sai Wing, James			–					–			–	–
Yu Sek Kee			–					–			–	–


Year ended 31 March 2011
Fu Lam Wu			–				182,400				–	182,400
Ling Wai Hong			–					–			–	–
Wong Chim Man			–				182,400				–	182,400
Wong Sai Wing, James			–					–			–	–
Yu Sek Kee			–					–			–	–

			–				364,800				–	364,800


Year ended 31 March 2012
Fu Lam Wu			–				311,952				–	311,952
Ling Wai Hong			–					–			–	–
Wong Chim Man			–				311,952				–	311,952
Wong Sai Wing, James			–					–			–	–
Yu Sek Kee			–					–			–	–

			–				623,904				–	623,904

– 47 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

		Salaries,	Retirement
		allowances	benefit
		and benefits	scheme
	Fees	in kind	contributions	Total
	HK$	HK$	HK$	HK$
Year ended 31 July 2011 (unaudited)
Fu Lam Wu	–	93,550	–	93,550
Ling Wai Hong	–	–	–	–
Wong Chim Man	–	93,550	–	93,550
Wong Sai Wing, James	–	–	–	–
Yu Sek Kee	–	–	–	–

	–	187,100	–	187,100


Year ended 31 July 2012
Fu Lam Wu	–	99,321	–	99,321
Ling Wai Hong	–	–	–	–
Wong Chim Man	–	99,321	–	99,321
Wong Sai Wing, James	–	–	–	–
Yu Sek Kee	–	–	–	–

	–	198,642	–	198,642

9. FIVE HIGHEST PAID EMPLOYEES

The Group has four employees including directors receiving remuneration. During the years ended 31 March 2011 and 2012 and the four months ended 31 July 2012, two of the highest paid individuals were directors of the Company.

Details of the remuneration of the remaining two non-director, highest paid employees during the years ended 31 March 2011 and 2012 and the four months ended 31 July 2012 are analysed as follows:

	Year	ended 31 March		Four months	ended 31 July
	2010	2011	2012	2011	2012
	HK$	HK$	HK$	HK$	HK$
				(unaudited)
Salaries, allowances and
benefits in kind	–	267,900	459,232	137,690	146,790

The number of these non-director, highest paid employees whose remuneration fell within the following band is as follows:

					Number of employees	Number of employees	Number of employees
			Year	ended	31 March		Four months	ended 31 July
			2010		2011	2012	2011		2012
							(unaudited)
Nil	to	HK$1,000,000	–		2	2	2		2

– 48 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

10. INCOME TAX

No provision for Hong Kong profits tax has been made as the Group did not generate any assessable profits arising in Hong Kong during the Relevant Periods. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates.

Wanthai Chinney Real Estate did not generate any assessable profits for the years ended 31 March 2010, 2011 and 2012 and was not subject to PRC corporate income tax. No provision for PRC corporate income tax has been made as Wanthai Chinney Real Estate has available tax losses brought forward from prior years to offset the assessable profits generated for the four months ended 31 July 2012.

A reconciliation of the tax credit applicable to loss before tax at the Hong Kong statutory rate to the tax position, and a reconciliation of the applicable rate (i.e., the statutory tax rate) to the effective tax rate, are as follows:

			Year ended	Year ended	March					Four	months	ended 31 July
	2010			2011			2012			2011		2012
	HK$	%		HK$	%		HK$	%		HK$	%	HK$	%
									(unaudited)
Loss before tax	(103,034)		(1,199,171)			(1,564,310)				(413,992)		(384,784)

Tax at the statutory tax
rate of 16.5%	(17,001)	16.5		(197,864)	16.5		(258,111)	16.5		(68,309)	16.5	(63,489)	16.5
Income not subject to tax	(3)	–		–	–		–	–		–	–	–	–
Expenses not deductible
for tax	7,796	(7.6)		6,020	(0.5)		9,437	(0.6)		–	–	131,369	(34.1)
Tax losses utilised from
previous periods	–	–		–	–		–	–		–	–	(102,847)	26.7
Tax losses not recognised	13,951	(13.5)		290,672	(24.2)		376,778	(24.1)		103,498	(25.0)	–	–
Others	(4,743)	4.6		(98,828)	8.2		(128,104)	8.2		(35,189)	8.5	34,967	(9.1)

Tax position	–	–		–	–		–	–		–	–	–	–

At the end of the reporting period, the Group had temporary differences for which deferred tax assets had not been provided as follows:

		Year	ended 31 March		Four months	ended 31 July
		2010	2011	2012	2011	2012
		HK$	HK$	HK$	HK$	HK$
					(unaudited)
Tax	losses	2,377,000	3,559,000	5,146,000	4,006,000	4,737,000

Deferred tax asset for these tax losses has not been recognised as it is not considered probable that taxable profits will be available against which the tax losses can be utilised.

11. LOSS FOR THE YEAR/PERIOD

The loss of the Group included a loss of HK$47,229, HK$36,482, HK$57,192 and HK$796,173 for the years ended 31 March 2010, 2011 and 2012, and the four months ended 31 July 2012, respectively, which have been dealt with in the financial statements of the Company (note 22(b)).

– 49 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

12. INTERIM DIVIDEND

Year ended 31 March Four months ended 31 July 2010 2011 2012 2011 2012 HK$ HK$ HK$ HK$ HK$ (unaudited) Interim – approximately HK$800 per ordinary share – 8,000,595 – – –

13. EARNINGS PER SHARE

Earnings per share has not been presented as such information is not considered meaningful for the purpose of this report.

14. PROPERTY, PLANT AND EQUIPMENT

Group	Office equipment
	HK$
31 March 2012
At 31 March 2011 and 1 April 2011	–
Additions	17,759
Depreciation provided during the year	(1,369)

At 31 March 2012, net of accumulated depreciation	16,390

At 31 March 2012:
Cost	17,759
Accumulated depreciation	(1,369)

Net carrying amount	16,390

31 July 2012
At 31 March 2012 and 1 April 2012:
Cost	17,759
Accumulated depreciation	(1,369)

Net carrying amount	16,390

At 1 April 2012, net of accumulated depreciation	16,390
Depreciation provided during the period	(1,125)
Exchange realignment	13

At 31 July 2012, net of accumulated depreciation	15,278

At 31 July 2012:
Cost	17,759
Accumulated depreciation	(2,481)

Net carrying amount	15,278

– 50 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

15. PROPERTIES UNDER DEVELOPMENT

Group

		As at 31 March	As at 31 March	As at 31 July
	2010	2011	2012	2012
	HK$	HK$	HK$	HK$
At 1 April	174,340,391	206,453,019	262,758,885	274,991,112
Additions	30,836,029	48,042,683	2,053,778	349,114,226
Exchange realignment	1,276,599	8,263,183	10,178,449	238,073

	206,453,019	262,758,885	274,991,112	624,343,411


Details of the properties under development are as follows:
		As at 31 March		As at 31 July
	2010	2011	2012	2012
	HK$	HK$	HK$	HK$
Cost of the land	205,805,618	261,723,979	271,862,339	619,216,868
Development expenditures	647,401	1,034,906	3,128,773	5,126,543

	206,453,019	262,758,885	274,991,112	624,343,411

Medium term lease:
Mainland China	206,453,019	262,758,885	274,991,112	624,343,411

The properties under development for the Relevant Periods represent the acquisition, demolition and resettlement costs, the additional land premium and other development costs of properties at Qiaoxiang Road North, Nanshan District, Shenzhen, the PRC. The Group has paid the additional land premium to 2nd Subordinate Administrative Bureau of Shenzhen Planning and State-owned Land Resources Committee (深圳市規劃和國土資源委員會第二直屬管理局) (the “Bureau”) and entered into the Land Use Rights Grant Contract with the Bureau. The Group is in the process of applying for the Real Estate Title Certificate subject to the approval of the relevant government authority in the PRC. In the opinion of the directors, the Group will be able to obtain the Real Estate Title Certificate and has the relevant ownership of the properties under development.

16. INVESTMENT IN A SUBSIDIARY

Company

					As	at 31 March		As at 31 July
				2010		2011	2012	2012
				HK$		HK$	HK$	HK$
Unlisted	shares,	at	cost	162,560,700	213,610,700		213,610,700	558,610,700

Particulars of the subsidiary are as follows:

==> picture [403 x 148] intentionally omitted <==

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

Percentage
of equity
attributable
Place of to the
registration/ Company Principal
Name operations Registered capital Paid-up capital Direct activities
As at As at
As at 31 March 31 July As at 31 March 31 July
2010 2011 2012 2012 2010 2011 2012 2012
RMB RMB RMB RMB RMB RMB RMB RMB
Wanthai
Chinney
Real PRC/ Property
Estate Mainland China 200,000,000 200,000,000 200,000,000 500,000,000 155,139,945 200,000,000 200,000,000 480,998,000 100 development
----- End of picture text -----

This subsidiary is registered as a wholly-foreign-owned enterprise under the PRC laws and is not audited by Ernst & Young, Hong Kong or another member firm of the Ernst & Young global network.

– 51 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

17. BALANCES WITH RELATED COMPANIES

Group and Company

Particulars of the amount due from a related company, disclosed pursuant to Section 161B of the Hong Kong Companies Ordinance, are as follows:

As at 31 July 2012

		Maximum
		amount
		outstanding
		during the
Name	31 July 2012	period	31 March 2012
	HK$	HK$	HK$
Wan Thai Development Limited
(“Wan Thai Development”)	3,414	3,414	–


As at 31 March 2012
		Maximum
		amount
		outstanding
Name	31 March 2012	during the year	31 March 2011
	HK$	HK$	HK$
Wan Thai Development	–	24,375	–


As at 31 March 2011
		Maximum
		amount
		outstanding
Name	31 March 2011	during the year	31 March 2010
	HK$	HK$	HK$
Wan Thai Development	–	18,843	4,175


As at 31 March 2010
		Maximum
		amount
		outstanding
Name	31 March 2010	during the year	31 March 2009
	HK$	HK$	HK$
Wan Thai Development	4,175	18,843	–

The above related company and a shareholder of the Company are under common control of shareholders. The balances due from the related companies are unsecured, interest-free and repayable on demand.

Group

The amount due to a related company is unsecured, interest-free, and not repayable until the Group is in a liquid financial position to do so. The carrying amount of the balance approximates to its fair value. The related company and a shareholder of the Company are under common control of shareholders.

– 52 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

18. PREPAYMENTS AND DEPOSITS

Group

		As	at	31 March	31 March	As	at 31 July
	2010			2011	2012		2012
	HK$			HK$	HK$		HK$
Prepayments	527			611	551		490
Deposits	–			–	32,071		44,445

	527			611	32,622		44,935


Company
		As	at	31 March		As	at 31 July
	2010			2011	2012		2012
	HK$			HK$	HK$		HK$
Prepayments	527			611	551		490

None of the assets included in the prepayments and deposits is either past due or impaired. The financial assets included in the prepayments and deposits relate to receivables for which there was no recent history of default.

19. CASH AND BANK BALANCES

At 31 March 2010, 2011 and 2012, and 31 July 2012, the cash and bank balances of the Group denominated in RMB amounted to HK$854,875, HK$5,063,500, HK$1,657,194 and HK$1,749,436 respectively. The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Statement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

The Group’s and the Company’s cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default. The carrying amounts of the cash and bank balances approximate to their fair values.

20. LOAN FROM A RELATED COMPANY

The balance represents loan from a related company, which is under significant influence of an individual who has control over the holding company of the Company.

The loan from a related company is unsecured, bears interest at 4% per annum and is not repayable until the Company is in a liquid financial position to do so. The carrying amount of the loan from a related company approximates to its fair value.

21. SHARE CAPITAL

		As at 31 March		As at 31 July
	2010	2011	2012	2012
	HK$	HK$	HK$	HK$
Authorised, issued and fully paid:
10,000 ordinary shares
of HK$100 each	1,000,000	1,000,000	1,000,000	1,000,000

– 53 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

22. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the Relevant Periods are presented in the consolidated statement of changes in equity.

(b) Company

	Retained profits/
	(accumulated losses)
	HK$
At 1 April 2009	8,084,306
Total comprehensive loss for the year	(47,229)

At 31 March 2010 and 1 April 2010	8,037,077
Total comprehensive loss for the year	(36,482)
Interim dividend	(8,000,595)

At 31 March 2011 and 1 April 2011	–
Total comprehensive loss for the year	(57,192)

At 31 March 2012 and 1 April 2012	(57,192)
Total comprehensive loss for the period from 1 April 2012 to 31 July 2012	(796,173)

At 31 July 2012	(853,365)

23. CAPITAL COMMITMENTS

The Group had the following capital commitments in respect of property development expenditure at the end of the reporting period:

			As at 31 March		As at 31 July
		2010	2011	2012	2012
		HK$	HK$	HK$	HK$
Contracted,	but not provided for:
Property	development expenditure	45,846,120	–	20,223,233	18,245,679

– 54 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

24. RELATED PARTY TRANSACTIONS

(a) In addition to those transactions disclosed elsewhere in the Financial Information, the Group had the following related party transaction during the Relevant Periods:

	Year ended 31 March	Year ended 31 March		Four months	ended 31 July
	2010	2011	2012	2011	2012
	HK$	HK$	HK$	HK$	HK$
				(unaudited)
Interest expense to a
related company	–	–	–	–	791,803

The interest expense paid to a related company was charged at 4.0% per annum on the loan from the related company.

(b) Outstanding balances with related companies:

As disclosed in the consolidated statement of financial position, the Group had outstanding balances with the ultimate holding company and related companies. Particulars of the balances with related parties are set out in notes 17 and 20 to the Financial Information, the balance with the ultimate holding company is unsecured, interest-free and not repayable until the Group is in a liquid financial position to do so. The carrying amounts of the balances approximate to their fair values.

		Year ended 31	March	Four months	ended 31 July
	2010	2011	2012	2011	2012
	HK$	HK$	HK$	HK$	HK$
				(unaudited)
Short term employee
benefits	–	364,800	623,904	187,100	198,642

Further details of directors’ emoluments are included in note 8 to the Financial Information.

(d) Other transaction with a related party:

At 31 March 2010, 2011 and 2012, and 31 July 2012, the Group had available undrawn borrowing facilities of HK$3 million which was guaranteed by a related company in an amount of US$1.5 million.

– 55 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

25. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each category of financial instruments as at the end of the reporting period are as follows:

Group

Financial assets

		Loans and receivables	Loans and receivables	Loans and receivables
		As at 31 March			As at 31 July
	2010		2011	2012		2012
	HK$		HK$	HK$		HK$
Due from a related company	4,175		–	–		3,414
Financial assets included in
prepayments and deposits	–		–	32,071		44,445
Cash and bank balances	951,140	5,210,282		1,786,829	12,610,312

	955,315	5,210,282		1,818,900	12,658,171

Financial liabilities

		Financial liabilities	at amortised cost
		As at 31 March		As at 31 July
	2010	2011	2012	2012
	HK$	HK$	HK$	HK$
Due to the ultimate holding company	153,583,181	212,684,598	212,756,579	212,756,579
Due to a related company	30,641,922	31,868,351	33,102,830	33,131,489
Loan from a related company	–	–	–	345,791,803
Financial liabilities included in
accruals	39,500	154,962	133,029	10,417,675

	184,264,603	244,707,911	245,992,438	602,097,546

Company

Financial assets

				Loans and receivables	Loans and receivables
				As at 31 March		As at 31 July
			2010	2011	2012	2012
			HK$	HK$	HK$	HK$
Due	from	a related company	4,175	–	–	3,414
Cash	and	bank balances	94,356	146,787	129,636	121,913

			98,531	146,787	129,636	125,327

Financial liabilities

		Financial liabilities	at amortised cost
		As at 31 March		As at 31 July
	2010	2011	2012	2012
	HK$	HK$	HK$	HK$
Due to the ultimate holding company	153,583,181	212,684,598	212,756,579	212,756,579
Loan from a related company	–	–	–	345,791,803
Financial liabilities included in
accruals	39,500	73,500	41,500	41,500

	153,622,681	212,758,098	212,798,079	558,589,882

– 56 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise balances with the ultimate holding company and related companies, and cash and bank balances. The main purpose of these financial instruments is to provide finance for the Group’s operations.

It is, and has been, throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are credit risk and liquidity risk. The management reviews and agrees policies for managing each of these risks and they are summarised below.

Credit risk

The amount due from a related company is monitored on an ongoing basis and the Group’s exposure to bad debts is not significant.

With respect to credit risk arising from cash and bank balances, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of the cash and bank balances.

Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets and projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the continuous financial support from the shareholders of the Company, Chinney Development Company Limited and Wan Thai Group Limited. The Group will consistently maintain a prudent financing policy and ensure that it maintains sufficient liquid funds to meet its liquidity requirements.

The maturity profile of the financial liabilities of the Group and the Company as at the end of the reporting period, based on the contractual undiscounted payments, was as follows:

Group

		As at 31 March	As at 31 March	As at 31 July
	2010	2011	2012	2012
	Less than	Less than	Less than	Less than
	12 months	12 months	12 months	12 months
	HK$	HK$	HK$	HK$
Due to the ultimate holding company	153,583,181	212,684,598	212,756,579	212,756,579
Due to a related company	30,641,922	31,868,351	33,102,830	33,131,489
Loan from a related company	–	–	–	345,791,803
Accruals	39,500	154,962	133,029	10,417,675

	184,264,603	244,707,911	245,992,438	602,097,546


Company
		As at 31 March		As at 31 July
	2010	2011	2012	2012
	Less than	Less than	Less than	Less than
	12 months	12 months	12 months	12 months
	HK$	HK$	HK$	HK$
Due to the ultimate holding company	153,583,181	212,684,598	212,756,579	212,756,579
Loan from a related company	–	–	–	345,791,803
Accruals	39,500	73,500	41,500	41,500

	153,622,681	212,758,098	212,798,079	558,589,882

Capital management

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern. As detailed in note 2.2 to the Financial Information, the shareholders of the Company, Chinney Development Company Limited and Wan Thai Group Limited, have agreed to provide adequate funds for the Group to maintain its liquidity position.

– 57 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

27. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Group or its subsidiary in respect of any period subsequent to 31 July 2012.

Yours faithfully, Ernst & Young Certified Public Accountants

22nd Floor

CITIC Tower 1 Tim Mei Avenue Central Hong Kong 25 October 2012

– 58 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1. INTRODUCTION TO THE UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The unaudited pro forma statement of assets and liabilities of the Enlarged Group (the “Unaudited Pro Forma Financial Information”) has been prepared by the directors of the Company in accordance with Rule 14.67 of the Listing Rules, for illustrative purposes only, to provide information about how the Subscription as detailed in the section headed “Letter from the Board” in this circular might have affected the financial position of the Group as if the Subscription had been completed on 31 July 2012.

The accompanying Unaudited Pro Forma Financial Information has been prepared based upon the historical consolidated statements of financial position of the Group and the Target Group as extracted from the published annual report of the Group for the year ended 31 March 2012, and the Financial Information for the four months ended 31 July 2012, as set out in Appendix II to the Circular, respectively. A narrative description of the pro forma adjustments of the Subscription that are (i) directly attributable to the transactions; (ii) expected to have a continuing impact on the Group; and (iii) factually supportable, are summarised in the accompany notes.

The accompanying Unaudited Pro Forma Financial Information is prepared based on a number of assumptions, estimates, uncertainties and currently available information. As a result of these assumptions, estimates and uncertainties, the accompanying Unaudited Pro Forma Financial Information does not purport to describe the financial position that would have been presented had the Subscription been completed. Further, the accompanying Unaudited Pro Forma Financial Information does not purport to predict the Enlarged Group’s future financial position.

The accompanying Unaudited Pro Forma Financial Information should be read in conjunction with the audited financial statements of the Group as set out in other financial information elsewhere in the Circular.

– 59 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

NON-CURRENT ASSETS Property, plant and equipment Prepaid land lease payments Investment properties Investments in associates Investments in jointly-controlled entities Deferred tax assets Loan receivables Total non-current assets CURRENT ASSETS Inventories Properties held for sale under development and properties held for sale Prepaid land lease payments Equity investments at fair value through profit or loss Trade and bills receivables Prepayments, deposits and other receivables Amount due from a related company Tax recoverable Pledged deposits Cash and cash equivalents Total current assets	The Group 31 March 2012 Pro forma adjustments (audited) HK$’000 HK$’000 (Note a) (Note b) 110,772 13,857 5,245,546 114,045 368,537 3,433 199 2,510 5,490,362 7,031 1,792,288 1,243 54,039 13,144 47,778 417 387 120,371 979,176 (368,537) 3,015,874	Pro forma Enlarged Group HK$’000 110,772 13,857 5,245,546 482,582 3,433 199 2,510 5,858,899 7,031 1,792,288 1,243 54,039 13,144 47,778 417 387 120,371 610,639 2,647,337

– 60 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

	The Group		Pro forma
	31 March	Pro forma	Enlarged
	2012	adjustments	Group
	(audited)
	HK$’000	HK$’000	HK$’000
	(Note a)	(Note b)
CURRENT LIABILITIES
Trade payables and accrued liabilities	169,530		169,530
Customer deposits	23,612		23,612
Tax payable	87,641		87,641
Interest-bearing bank borrowings	1,009,265		1,009,265
Total current liabilities	1,290,048		1,290,048

NET CURRENT ASSETS	1,725,826		1,357,289

TOTAL ASSETS LESS CURRENT
LIABILITIES	7,216,188		7,216,188

NON-CURRENT LIABILITIES
Interest-bearing bank borrowings	1,980,897		1,980,897
Deferred tax liabilities	504,481		504,481

Total non-current liabilities	2,485,378		2,485,378

Net assets	4,730,810		4,730,810

EQUITY
Equity attributable to owners of the
Company
Issued capital	137,842		137,842
Reserves	2,417,015		2,417,015
Proposed final dividend	27,568		27,568
	2,582,425		2,582,425

Non-controlling interests	2,148,385		2,148,385
Total equity	4,730,810		4,730,810

Notes:

(a) The balances are extracted from the audited consolidated statement of financial position of the Group as at 31 March 2012 included in the published annual report of the Group for the year ended 31 March 2012.

– 61 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(b) The adjustment represents the Hon Kwok Group’s 20% equity investment in the Target Group for a cash consideration of HK$368,537,000. The interests in the associate consists of the Group’s share of net assets of the Target Group and goodwill arising on the Subscription. For illustration purpose, goodwill amount included in the interests in the associate is calculated based on excess of cost of investment over the Group’s share of the adjusted net identifiable assets and liabilities of the Target Group, based on the available information and the latest valuation of the Property held by the Target Group, as follows:

	HK$’000	HK$’000
Cash consideration		368,537
Less: Adjusted net identifiable assets of the Target Group
to be acquired:
Net assets of the Target Group	34,920		(Note i)
Fair value adjustment on the Property held by the Target Group	1,474,422		(Note ii)
Less: Deferred tax impact on the fair value adjustment	(368,606)		(Note iii)
Add: Cash injection to the Target Company	368,537		(Note iv)
Add: Capitalisation of shareholders’ loans	245,888		(Note v)

Adjusted net identifiable assets and liabilities of the Target Group	1,755,161
20% of the adjusted net identifiable assets and liabilities
of the Target Group		(351,032)

Goodwill amount included in the interests in an associate		17,505

(i) The balance is extracted from the accountants’ report of the Target Group as at 31 July 2012 included in this Circular.
(ii) The adjustment represents the fair value adjustment of the Property of the Target Group based on the valuation of the Property of RMB1,700,000,000 as at 31 July 2012 less the costs incurred by the Target Group up to 31 July 2012 of RMB505,718,000 at an exchange rate of HK$1.00 = RMB0.81.
(iii) Deferred tax has been calculated at 25%, represented the corporate income tax rate prevailing in the jurisdiction in which the PRC Co operates, on the fair value adjustment of HK$1,474,422,000.
(iv) Pursuant to the Subscription Agreement, the Target Company shall issue 2,600 new shares of the Target Company to the Group for a cash consideration of HK$368,537,000.
(v) Pursuant to the Subscription Agreement, the shareholders’ loans of HK$245,888,000 shall be capitalised as at the date of Completion.
(vi) The above calculation has not considered the legal and professional costs directly attributable to the Subscription as the Directors estimated that such costs are insignificant.
(vii) Upon completion of the Subscription, the goodwill amount and the Group’s share of net asset of the Target Group will need to be recalculated based on the fair values on identifiable assets and liabilities of the Target Group at the date of completion of the Subscription. The actual financial effects are expected to be different from the amounts shown in this Appendix.

– 62 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

2. LETTER FROM THE REPORTING ACCOUNTANTS

The following is the text of the report dated 25 October 2012, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Ernst & Young, in respect of the unaudited pro forma financial information of the Enlarged Group.

==> picture [153 x 39] intentionally omitted <==

The Board of Directors Chinney Investments, Limited

Dear Sirs,

We report on the unaudited pro forma statement of assets and liabilities (the “Unaudited Pro Forma Financial Information”) of Chinney Investments, Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), and Chinney Trading Company Limited and its subsidiary (collectively, the “Enlarged Group”) upon the completion of the Subscription as defined in the circular dated 25 October 2012 issued by the Company (the “Circular”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the Subscription might have affected the financial information presented, for inclusion in Appendix III to the Circular. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in Appendix III to the Circular.

Respective Responsibilities of Directors of the Company and the Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare 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” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form 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.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments, and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

– 63 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Our work did not constitute an audit or review made in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Enlarged Group as at 31 July 2012 had the transaction actually been completed on that date or any future dates.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company 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.

Yours faithfully, Ernst & Young Certified Public Accountants 22nd Floor CITIC Tower 1 Tim Mei Avenue Central Hong Kong 25 October 2012

– 64 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX IV

Set out below is the management discussion and analysis of the results of the Target Group, which should be read in conjunction with the accountants’ report of the Target Group set out in Appendix II to this circular.

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

Financial results for the four months ended 31 July 2012

For the four months ended 31 July 2012, the Target Group did not record any turnover (2011: nil) as the Property was still a vacant site and in the preliminary stage of development. It had incurred a loss of HK$0.4 million (2011: HK$0.4 million) which was mainly resulted from an exchange gain less staff cost and interest expenses.

Financial results for the year ended 31 March 2012

For the year ended 31 March 2012, the Target Group did not record any turnover (2011: nil) as the Property was still in the preliminary stage of development. It had incurred a loss of HK$1.6 million (2011: HK$1.2 million) which was attributable to the staff cost and general expenses for that year.

Financial results for the year ended 31 March 2011

For the year ended 31 March 2011, the Target Group did not record any turnover (2010: nil) as the Property was in the preliminary stage of development. It had incurred a loss of HK$1.2 million (2010: HK$0.1 million) which was attributable to the staff cost and general expenses for that year.

Financial results for the year ended 31 March 2010

For the year ended 31 March 2010, the Target Group did not record any turnover as the Property was in the preliminary stage of development. It had incurred a loss of HK$0.1 million which mainly included audit fee and other general expenses for that year.

Capital structure, financial resources and liquidity

As at 31 July 2012, the Target Group had amount due to a shareholder of HK$212.8 million, amount to a related company of HK$33.1 million and loan from a related company of HK$345.8 million. The amounts due to shareholder and related company were unsecured and interest-free whereas the loan from a related company was unsecured and bore interests at 4% per annum. These outstanding balances are not repayable until the Target Group is in a liquid financial position to do so. Total cash and cash equivalents were HK$12.6 million. The gearing ratio (as defined as combined interest-bearing borrowings of HK$345.8 million divided by total assets of HK$637.0 million) was 54% as at 31 July 2012.

As at 31 March 2012, the Target Group had amounts due to shareholder and related company of HK$212.8 million and HK$33.1 million respectively which were unsecured, interest-free and not repayable until the Target Group is in a liquid financial position to do so. Total cash and cash equivalents were HK$1.8 million. There were no interest-bearing borrowings and therefore gearing ratio was not applicable as at 31 March 2012.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX IV

As at 31 March 2011, the Target Group had amounts due to shareholder and related company of HK$212.7 million and HK$31.9 million respectively which were unsecured, interest-free and not repayable until the Target Group is in a liquid financial position to do so. Total cash and cash equivalents were HK$5.2 million. There were no interest-bearing borrowings and therefore gearing ratio was not applicable as at 31 March 2011.

As at 31 March 2010, the Target Group had amounts due to shareholder and related company of HK$153.6 million and HK$30.6 million respectively which were unsecured, interest-free and not repayable until the Target Group is in a liquid financial position to do so. Total cash and cash equivalents were HK$1.0 million. There were no interest-bearing borrowings and therefore gearing ratio was not applicable as at 31 March 2010.

The Target Group had HK$3 million committed but undrawn banking facilities at 31 July 2012, 31 March 2012, 2011 and 2010 available for its working capital purpose.

Acquisition of properties is financed by internal resources whereas the development of properties will be financed by bank loans, mainly denominated in Renminbi. Repayments of bank loans will be scheduled to match asset lives and project completion dates. As the majority of the transactions of the Target Group were denominated in RMB, there is no significant exposure to foreign currency fluctuation and hence no related hedges.

Pledge of assets

As at 31 July 2012, 31 March 2012, 2011 and 2010, none of the assets of the Target Group was pledged.

Staff

The Target Group employed 7 staff as at 31 July 2012, 31 March 2012 and 2011, and 5 staff as at 31 March 2010. Remuneration is determined by reference to market terms and qualifications and experience of the staff concerned. Salaries are reviewed on annual basis. Other benefits including retirement benefits scheme, medical insurance are provided to all eligible staff.

Others

There were capital commitments for the Target Group in respect of property development expenditure of HK$18.2 million, HK$20.2 million, HK$Nil and HK$45.8 million as at 31 July 2012, 31 March 2012, 2011 and 2010 respectively. There was no other contingent liability for the Target Group as at 31 July 2012, 31 March 2012, 2011 and 2010 respectively, nor any material acquisitions or disposals of subsidiaries, nor future plans for material investments or capital assets as at 31 July 2012.

– 66 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

The following is the text of a letter and valuation certificate prepared for the purpose of incorporation in this circular received from Savills Valuation and Professional Services Limited, an independent property valuer, in connection with their valuation as of 31 July 2012 of the Property.

==> picture [84 x 83] intentionally omitted <==

==> picture [107 x 101] intentionally omitted <==

The Directors Chinney Investments, Limited Hon Kwok Land Investment Company, Limited 23rd Floor, Wing On Centre 111 Connaught Road Central Hong Kong

25 October 2012

Dear Sirs,

RE: LAND LOT NO. T405-0001 LOCATED AT QIAOCHENG NORTH INDUSTRIAL ZONE, NANSHAN DISTRICT, SHENZHEN, GUANGDONG PROVINCE, THE PEOPLE’S REPUBLIC OF CHINA (THE “PROPERTY”)

In accordance with the instructions from Chinney Investments, Limited (“Chinney”) and Hon Kwok Land Investment Company, Limited (“Hon Kwok”) for us to value the Property held by Wanthai Chinney Real Estate (Shenzhen) Co., Ltd. (運泰建業置業 (深圳)有限公司) (“Wanthai Chinney Real Estate”) (a wholly-owned subsidiary of the Target Company) in the People’s Republic of China (the “PRC”), we confirm that we have carried out an inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of value of the Property as at 31 July 2012 (“Valuation Date”) for public circular purpose.

– 67 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

Kwok believe that the development plan proposed by the Target Group is practically viable based on their due diligence work done for the said development plan. For the purpose of this valuation, we have adopted the aforesaid development plan in undertaking our valuation. Our valuation of the Property thus represents our opinion of its Investment Value which in accordance with the International Valuation Standards is defined as “the value of an asset to the owner or a prospective owner for individual investment or operational objectives”. This is an entity-specific basis of value. Although the value of an asset to the owner may be the same as the amount that could be realised from its sale to another party, this basis of value reflects the benefits received by an entity from holding the asset and, therefore, does not necessarily involve a hypothetical exchange. We consider that although portion of the Property is subject to sales restriction, Wanthai Chinney Real Estate, being the owner of the Property, is entitled to receive the benefit such as rental income from the Property. Therefore, we consider that adopting the basis of Investment Value instead of market value is more appropriate in valuing the Property.

We have inspected the Property. We have not carried out investigations on site to determine the suitability of the ground conditions and the services for future development. Our valuation is prepared on the assumption that these aspects are satisfactory and no extraordinary expenses or delay will be incurred during the development period.

No allowance has been made in our valuation for any charges, mortgages or amounts owing neither on the Property nor for any expenses or taxation which maybe 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.

The site inspection was carried out on 17 August 2012 by our professional valuers.

– 68 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

Our valuation is prepared in compliance with 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, and in accordance with the Valuation Standards on Properties (First Edition) published by The Hong Kong Institute of Surveyors and the International Valuation Standards published by the International Valuation Standards Council.

Unless otherwise stated, all monetary amounts stated in this report are in Renminbi (“RMB”).

Our valuation certificate is attached.

Yours faithfully, For and on behalf of

Savills Valuation and Professional Services Limited Anthony C K Lau MHKIS MRICS RPS(GP)

Director

Note: Mr. Anthony C K Lau is a qualified surveyor and has over 19 years’ post qualification experience of valuing properties in both Hong Kong and the PRC.

– 69 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

VALUATION CERTIFICATE

Particulars of Investment value as at Property Description and tenure occupancy 31 July 2012 Land Lot No. T405-0001 The Property comprises a parcel of The Property is vacant RMB1,700,000,000 located at Qiaocheng land with a site area of pending for future North Industrial Zone, approximately 48,764.42 sq m development. Nanshan District, (524,900 sq ft). Shenzhen, Guangdong Province, The Property is planned to be PRC developed into a mixed development with a total planned gross floor area of approximately 224,500.00 sq m (2,416,518 sq ft) including the provision of 2,000 sq m (21,528 sq ft) for public ancillary facilities such as local culture room, community service station, public toilet and garbage collection station. The land use rights of the Property have been granted for a term of 50 years from 3 August 2012.

Notes:

1. Pursuant to the Land Use Rights Grant Contract No. Shen Di He Zi (2011) 8041 entered into between 2nd Subordinate Administrative Bureau of Shenzhen Planning and State-owned Land Resources Committee ( 深圳市規劃和國土資源委員會第二直屬管理局 ) (“Grantor”) and Wanthai Chinney Real Estate on 24 August 2012 (the “Contract”), the Grantor has agreed to grant the land use rights of a parcel of land (Lot No. T405-0001) with a site area of 48,764.42 sq m to Wanthai Chinney Real Estate. The salient terms of the said Contract are, inter-alia, as follows:

Site area : 48,764.42 sq m Land use term : 50 years Land usage : industrial Nature of land : commodity housing Permitted plot ratio : not exceeding 4.6 Permitted gross floor area : not exceeding 224,500 sq m (inclusive of 12,000 sq m to be retained for government use) Site coverage : not exceeding 30% Land grant fee : RMB272,977,207 Time limit for completion : not later than 3 August 2017

2. Pursuant to the Construction Land Planning Permit ( 深圳市建設用地規劃許可證 ) – Shen Gui Tu Xu No. ZG-2011-0031 ( 深規土許 ZG-2011-0031 號 ) dated 15 June 2011, the land parcel of the Property with a site area of approximately 48,752.42 sq m and a construction scale of 224,500 sq m are in compliance with the requirements of the urban planning.

3. We have been provided with a legal opinion on the title to the Property issued by Hon Kwok’s legal adviser, which contains, inter alia, the following information:

(i) Wanthai Chinney Real Estate has signed a valid Land Use Rights Grant Contract with the relevant government departments and paid the land grant fee;
(ii) after the submission of the relevant documents, Wanthai Chinney Real Estate can apply for the Real Estate Title Certificate of the Property; and
(iii) pursuant to Item 5 of the Provisional Measures for Transfer of Industrial Buildings in Shenzhen, Wanthai Chinney Real Estate is entitled to sell not more than 50% of the gross floor area of the Property upon completion.

4. Our assessment is on the basis of Investment Value which does not represent the market value of the Property.

– 70 –

GENERAL INFORMATION

APPENDIX VI

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. DISCLOSURE OF INTERESTS

Directors’ interests and short positions in the shares and underlying shares of the Company

As at the Latest Practicable Date, the interests and short positions held by the Directors in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required 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 which they are taken or deemed to have under such provisions of the SFO), or which were required pursuant to Section 352 of the SFO, to be entered into the register referred to therein, or which were required pursuant to the Model Code to be notified to the Company and the Stock Exchange, were as follows:

(a) Long positions in the ordinary shares of the Company

				Percentage of
			Number of	the Company’s
		Capacity and	ordinary	issued share
Name of director	Note	nature of interest	shares held	capital
James Sai-Wing Wong	1	Through controlled	320,759,324	58.18
		corporation
Madeline May-Lung Wong	1	Through controlled	320,759,324	58.18
		corporation
William Chung-Yue Fan		Beneficially owned	1,882,285	0.34

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GENERAL INFORMATION

APPENDIX VI

(b) Long positions in the ordinary shares of associated corporations of the Company

					Percentage of
				Number of	the associated
				ordinary	corporation’s
			Capacity and	shares/amount of	issued share
		Name of associated	nature of	paid-up registered	capital/paid-up
Name of director	Notes	corporation	interest	capital held	registered capital
James Sai-Wing Wong	2	Hon Kwok	Through	267,846,553	55.77
			controlled
			corporation
	3	Guangzhou Honkwok	Through	RMB185,000,000	100.00
		Fuqiang Land	controlled
		Development Ltd.	corporation
	4	Chinney Alliance	Through	433,500,216	72.87
			controlled
			corporation
	5	Chinney Holdings	Through	9,900,000	99.00
			controlled
			corporation
		Chinney Holdings	Beneficially	100,000	1.00
			owned
		Lucky Year	Beneficially	10,000	50.00
			owned
Madeline May-Lung	2	Hon Kwok	Through	267,846,553	55.77
Wong			controlled
			corporation
	4	Chinney Alliance	Through	173,093,695	29.10
			controlled
			corporation
	5	Chinney Holdings	Through	9,900,000	99.00
			controlled
			corporation
		Lucky Year	Beneficially	10,000	50.00
			owned
Herman Man-Hei Fung		Hon Kwok	Beneficially	220,000	0.05
			owned

– 72 –

GENERAL INFORMATION

APPENDIX VI

Notes:

1. These shares are beneficially held by Chinney Holdings, which is a subsidiary of Lucky Year. James Sai-Wing Wong and Madeline May-Lung Wong are directors of Lucky Year and beneficially own more than one-third of the equity capital of Lucky Year.

2. These shares are beneficially held by the Company or its wholly-owned subsidiary. By virtue of note 1, James Sai-Wing Wong and Madeline May-Lung Wong are deemed to be interested in these shares.

3. Out of the RMB185,000,000 paid-up registered capital, RMB111,000,000 is held by a wholly-owned subsidiary of Hon Kwok and RMB74,000,000 is held by a company controlled by James Sai-Wing Wong. By virtue of note 2, James Sai-Wing Wong is deemed to be interested in this company.

4. Out of the 433,500,216 shares, 173,093,695 shares are held by a wholly-owned subsidiary of the Company and the remaining 260,406,521 shares are held by companies controlled by James Sai-Wing Wong. By virtue of note 1, James Sai-Wing Wong is deemed to be interested in these shares.

5. These shares are beneficially held by Lucky Year. By virtue of note 1, James Sai-Wing Wong and Madeline May-Lung Wong are deemed to be interested in these shares.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were required 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 which they are taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register kept by the Company under Section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

Other persons’ interests and short positions in shares and underlying shares of the Company and other members of the Group

As at the Latest Practicable Date and so far as is known to the Directors, the following persons (not being the Directors) had or were deemed or taken to have interests or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

			Percentage of
		Number of	the Company’s
	Capacity and	ordinary	issued share
Name	nature of interest	shares held	capital
Chinney Holdings	Directly beneficially owned	320,759,324	58.18
Lucky Year	Through controlled corporation	320,759,324	58.18
Yu Cheuk Yi	Directly beneficially owned	27,684,000	5.02
Yu Siu Yuk	Directly beneficially owned	27,684,000	5.02

All the interests stated above represent long positions. Chinney Holdings and Lucky Year are deemed to be interested in the same parcel of shares by virtue of Section 316 of the SFO. Yu Cheuk Yi and Yu Siu Yuk were both taken to be interested in the same 27,684,000 shares of the Company, which were held jointly by them.

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GENERAL INFORMATION

APPENDIX VI

As at the Latest Practicable Date and so far as is known to the Directors, the following persons (not being the Directors) who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital:

		Approximate
	Name of member of the Group	percentage of
Name of shareholder	in which interest held	equity interested
Sharp Billion Development Limited	Guangzhou Honkwok Fuqiang Land	40
	Development Ltd.
Guangzhou Hengsheng Group Co., Ltd.	Guangzhou Honkwok Hengsheng	25
	Land Development Ltd.

Save as disclosed herein and as at the Latest Practicable Date, none of the Directors was aware of any person (not being the Directors) had or was deemed or taken to have interests or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital.

3. DIRECTORS’ INTERESTS IN ASSETS, CONTRACTS AND IN COMPETING BUSINESSES

The Company has entered into a management contract with Hon Kwok for the provision of general corporate management services. The contract is for an unspecified duration and may be terminated by either party by giving the other party two-month written notice. A management fee of HK$9,000,000 was received from Hon Kwok for the year ended 31 March 2012. Dr. James Sai-Wing Wong and Madam Madeline May-Lung Wong are directors of and have beneficial interests in Hon Kwok through their interests in the Company. Mr. Herman Man-Hei Fung is also a director of and has beneficial interests in Hon Kwok.

The Company, through providing administration and general services, received a management fee of HK$3,000,000 from Chinney Alliance for the year ended 31 March 2012. Dr. James Sai-Wing Wong and Mr. Herman Man-Hei Fung are directors of Chinney Alliance. Dr. James Sai-Wing Wong and Madam Madeline May-Lung Wong have beneficial interests in Chinney Alliance.

Mr. William Chung-Yue Fan is the consultant to Fan & Fan, Solicitors which provides legal and professional services to the Group and receives normal professional fees for such services. Total fees paid by the Group for the year ended 31 March 2012 was approximately HK$9,000.

Dr. James Sai-Wing Wong, Chairman of the Company, has deemed interests and holds directorships in companies engaged in the businesses of property investment and garment merchandising and trading. Madam Madeline May-Lung Wong is a director of HKR International Limited, whose group’s businesses consist of property development and property investment. In this respect, Dr. James Sai-Wing Wong and Madam Madeline May-Lung Wong are regarded as being interested in businesses which might compete with the Group.

– 74 –

GENERAL INFORMATION

APPENDIX VI

So far as the Directors are aware and, save as disclosed as aforesaid, as at the Latest Practicable Date:

(a) none of the Directors or their associates had any direct or indirect interest in any assets which have been, since 31 March 2012 (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 or are proposed to be acquired or disposed of by or leased to any member of the Group;
(b) none of the Directors or their associates was materially interested in any contract or arrangement entered into by any member of the Group and subsisting at the date of this circular which was significant in relation to the business of the Group; and
(c) none of the Directors or their associates had interests in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which will not expire or is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

5. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given their opinions and advice which are included in this circular:

Name Qualification Messis Capital a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO Ernst & Young Certified Public Accountants Savills a property valuer Grandall Legal Group (Shenzhen) PRC legal adviser (“Grandall”)

(a) As at the Latest Practicable Date, none of Messis Capital, Ernst & Young, Savills or Grandall has any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(b) Each of Messis Capital, Ernst & Young, Savills and Grandall has given and has not withdrawn its written consent to the issue of this circular, with the inclusion of its letter or references to its name in the form and context in which they are included.
(c) None of Messis Capital, Ernst & Young, Savills or Grandall has any direct or indirect interest in any assets which have been, since 31 March 2012 (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 or are proposed to be acquired or disposed of by or leased to any member of the Group.

– 75 –

GENERAL INFORMATION

APPENDIX VI

6. LITIGATION

So far as the Directors are aware and save as disclosed in the latest published audited financial statements of the Group, there are no litigation or claims of material importance pending or threatened against any member of the Enlarged Group as at the Latest Practicable Date.

7. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by the Enlarged Group within two years immediately preceding the Latest Practicable Date which are or may be material:

(a) the Subscription Agreement; and
(b) Agreement dated 18 June 2012 entered into between Hon Kwok Treasury Limited and a syndicate of banks in relation to a HK$600,000,000 transferable term and revolving loan facilities.

8. GENERAL

(a) The company secretary of the Company is Ms. Louisa Kai-Nor Siu. She is a fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.
(b) The registered office of the Company is at 23rd Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong.
(c) The Company’s share registrar is Tricor Tengis Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.
(d) The English language text of this circular shall prevail over the Chinese language text.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the registered office of the Company at 23rd Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong from the date of this circular up to and including the date of the EGM:

(a) the Subscription Agreement;
(b) the memorandum and articles of association of the Company;
(c) the annual report of the Group for each of the two financial years ended 31 March 2011 and 2012;
(d) the letter from the Independent Board Committee as set out on page 13 of this circular;
(e) the letter of advice from Messis Capital as set out on pages 14 to 25 of this circular;
(f) the accountants’ report of the Target Group as set out in Appendix II to this circular;

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GENERAL INFORMATION

APPENDIX VI

(g) the unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to this circular;
(h) the valuation report on the Property from Savills as set out in Appendix V to this circular;
(i) the written consents referred to under the section headed “Experts and Consents” in Appendix VI to this circular;
(j) each of the material contracts referred to under the section headed “Material Contracts” in Appendix VI to this circular; and
(k) this circular.

– 77 –

NOTICE OF EGM

==> picture [38 x 70] intentionally omitted <==

==> picture [218 x 62] intentionally omitted <==

(Stock Code: 216)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Chinney Investments, Limited (the “Company”) will be held at Full Moon Shanghai Restaurant, Macau Jockey Club, 4th Floor, East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong on Friday, 9 November 2012 at 4:30 p.m. for considering and if thought fit passing the following resolution as ordinary resolution:

ORDINARY RESOLUTION

“ THAT (i) the subscription agreement dated 18 September 2012 (the “Subscription Agreement”) entered into amongst Bliss Ally Investments Limited as subscriber, Chinney Trading Company Limited (the “Target Company”) as issuer and Chinney Development Company Limited and Wan Thai Group Limited, as guarantors, in relation to the subscription of 2,600 new shares of HK$100 each in the share capital of the Target Company, representing 20% of the enlarged total issued share capital of the Target Company at a cash consideration of HK$368,537,000 (a copy of which has been produced to the meeting and marked “A” and initialled by the Chairman of the meeting for identification purpose) be and is hereby approved, ratified and confirmed; and (ii) any director of the Company be and is hereby authorised for and on behalf of the Company to execute (whether under the seal or under hand) all such other documents, instruments and agreements and to do all such acts or things deemed by him to be incidental to, ancillary to or in connection with the matters contemplated therein or relating to the Subscription Agreement and completion thereof as he may consider necessary, desirable or expedient to give effect to the Subscription Agreement and the transactions contemplated thereunder.”

By Order of the Board Louisa Kai-Nor Siu Company Secretary

Hong Kong, 25 October 2012

Notes:

1. Any member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote instead of such member in accordance with the articles of association of the Company. A proxy need not be a member of the Company.

2. To be valid, a proxy form, together with any power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof must be completed and deposited at the registered office of the Company at 23rd Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

3. In the case of joint holders of a share, any one of such holders may vote at the meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such holders be present at the above meeting personally or by proxy, that one of such holders so present whose name stands first on the register of members in respect of such share shall alone be entitled to vote in respect thereof.

– 78 –

AI assistant

Mei Ah Entertainment Group Limited — Proxy Solicitation & Information Statement 2012

49186_rns_2012-10-24_eda6585a-d745-4899-b33a-3c16f504da39.pdf

MAJOR AND CONNECTED TRANSACTION SUBSCRIPTION FOR NEW SHARES IN CHINNEY TRADING COMPANY LIMITED

CONTENTS

DEFINITIONS

(Stock Code: 216)

MAJOR AND CONNECTED TRANSACTION

SUBSCRIPTION FOR NEW SHARES IN CHINNEY TRADING COMPANY LIMITED

INTRODUCTION

THE TARGET GROUP AND THE PROPERTY

THE SUBSCRIPTION AGREEMENT

(a) Date

(b) Parties

(c) Consideration

(i) Initial Deposit

(ii) Second Deposit

(d) Completion of the Subscription Agreement

REASONS AND BENEFITS FOR THE SUBSCRIPTION

FINANCIAL EFFECTS OF THE SUBSCRIPTION

INFORMATION ON THE COMPANY AND HON KWOK

IMPLICATIONS OF THE LISTING RULES

INDEPENDENT BOARD COMMITTEE

EGM

LETTER FROM THE BOARD

RECOMMENDATION

(Stock Code: 216)

MAJOR AND CONNECTED TRANSACTION

SUBSCRIPTION FOR NEW SHARES IN CHINNEY TRADING COMPANY LIMITED

MAJOR AND CONNECTED TRANSACTION

SUBSCRIPTION FOR NEW SHARES IN CHINNEY TRADING COMPANY LIMITED

PRINCIPAL FACTORS TAKEN INTO ACCOUNT

I. Background and reasons of the Subscription

THE TARGET GROUP AND THE PROPERTY

THE SUBSCRIPTION AGREEMENT

1. Date

2. Parties

3. Consideration

(a) Initial Deposit

(b) Second Deposit

4. Completion of the Subscription Agreement

VALUATION

1. Valuation approaches

2. Basis of valuation and assumptions

POSSIBLE FINANCIAL EFFECTS OF THE SUBSCRIPTION

(i) Assets and liabilities

(ii) Net assets value

(iii) Gearing ratio

(iv) Current ratio

(v) Liquidity

OPINION

RECOMMENDATION

1. FINANCIAL SUMMARY OF THE GROUP

2. MATERIAL ADVERSE CHANGE

3. WORKING CAPITAL

4. INDEBTEDNESS

5. CONTINGENT LIABILITIES

6. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Dear Sirs,

DIRECTORS’ RESPONSIBILITY

REPORTING ACCOUNTANTS’ RESPONSIBILITY

OPINION IN RESPECT OF THE FINANCIAL INFORMATION

REVIEW CONCLUSION IN RESPECT OF THE 31 JULY 2011 FINANCIAL INFORMATION

I. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

STATEMENTS OF FINANCIAL POSITION

II. NOTES TO FINANCIAL INFORMATION

1. CORPORATE INFORMATION

2.1 BASIS OF PRESENTATION

2.2 NET CURRENT LIABILITIES

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

Subsidiaries

Impairment of non-financial assets

Related parties

Property, plant and equipment and depreciation

Mei Ah Entertainment Group Limited Proxy Solicitation & Information Statement 2012