Rykadan Capital Limited — Proxy Solicitation & Information Statement 2019

Aug 23, 2019

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Rykadan Capital Limited 宏基資本有限公司 , you should at once hand this circular together with the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker 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.

RYKADAN CAPITAL LIMITED 宏基資本有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2288)

(1) VERY SUBSTANTIAL DISPOSAL NEW FRAMEWORK AGREEMENT IN RELATION TO SALE OF THE PROPERTY BY WAY OF THE NEW DISPOSAL AND

(2) VERY SUBSTANTIAL ACQUISITION GRANT OF THE NEW OPTION AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Unless the context otherwise requires, all capitalised terms used in this circular have the meanings set out in the section headed “Definitions” of this circular. A letter from the Board is set out on pages 7 to 30 of this circular.

A notice convening the extraordinary general meeting of the Company is set out on pages EGM-1 to EGM-3 of this circular. Whether or not you intend to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions stated thereon and return it to the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, 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 meeting or any adjournment thereof should you so wish. In such event, the form of proxy shall be deemed to be revoked.

23 August 2019

CONTENTS

			Page
Definitions . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			7
Appendix I	–	Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II	–	Accountants’ Report of the Target Company. . . . . . . . . . . . . . . .	II-1
Appendix III	–	Management Discussion and Analysis of the Target Company . .	III-1
Appendix IV	–	Pro Forma Financial Information of the Remaining Group . . . .	IV-1
Appendix V	–	Valuation Report on the Property . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Appendix VI	–	General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
Notice of Extraordinary General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .EGM-1

– i –

DEFINITIONS

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

• “Block 4”

• Block 4 of the Property with a total gross floor area of 7,088.24 sq.m. which forms part of the Property

• “Board” the board of Directors

• “BVI”

British Virgin Islands

• “Company”

• Rykadan Capital Limited 宏基資本有限公司, an exempt company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 2288)

• “Completion”

• the procedures for registration modification with the administration for industry and commerce under the New Framework Agreement having been completed, all the Consideration (i.e. the Share Consideration and all the shareholder’s loan and other liabilities owing by the Target Company to Power City as at the Reference Date but before the Post-Completion Adjustment) having been paid off as agreed, and the transacting parties having signed the list of assets to be transferred

• “Completion Date”

the date of Completion

• “Completion Date Audit Report”

• has the meaning ascribed to it in the section headed “ New Framework Agreement – Post-Completion audit ” in the “Letter from the Board” of this circular

• “Consideration”

• the consideration for the New Disposal payable to Power City, which comprises the Share Consideration and the Loan Repayment

• “Controlling Shareholder(s)”

• has the meaning ascribed thereto under the Listing Rules, and in the context of the Company, means Rykadan Holdings, Tiger Crown, Mr. Chan, Scenemay, Mr. Li and Ms. Li

• “Debt Difference”

• has the meaning ascribed to it in the section headed “ New Framework Agreement – Other principle terms – Undertakings ” in the “Letter from the Board” of this circular

– 1 –

DEFINITIONS

“Deposits” the deposits in the aggregate amount of RMB30,264,720 payable by the Purchaser as disclosed in the section headed “ New Framework Agreement – Deposits ” in the “Letter from the Board” of this circular, comprising the first Deposit, the second Deposit and the third Deposit “Director(s)” the directors of the Company “EGM” the extraordinary general meeting of the Company to be convened and held to consider and, if thought fit, approve the resolution(s) relating to the New Disposal and the New Option

• “EUR” or “Euro” Euro, the lawful currency of the member states of the European Union

• “Group” the Company and its subsidiaries

• “HK$” or “HKD” Hong Kong dollars, the lawful currency of Hong Kong

• “Hong Kong” the Hong Kong Special Administrative Region of the PRC

• “Land” the land located at No. 2300 Xuanhuang Road, Huinan County, Shanghai, PRC（中國上海市惠南鎮宣黃公路2300 號）with a site area of 34,760 sq.m. where the Property is erected thereon

• “Latest Practicable Date” 20 August 2019, being the latest practicable date prior to the printing of this circular for ascertaining information in this circular

• “Lease Agreement” the lease agreement dated 13 June 2019 entered into between the Target Company as lessor and the Purchaser as lessee, at the same time of the entering into of the New Framework Agreement, for the leasing of Block 4

• “Lease Effective Date” has the meaning ascribed to it in the section headed “ Lease Agreement – Term ” in the “Letter from the Board” of this circular

• “Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange

– 2 –

DEFINITIONS

• “Loan Repayment” the repayment of the loan owed by the Target Company to Power City, including shareholder’s loan and other liabilities

• “MCJQEDZ” the Management Committee of Shanghai Jinqiao

• the Management Committee of Shanghai Jinqiao Economic Development Zone*（上海金橋經濟技術開發區 管理委員會）

• “Memorandum” the memorandum entered into between Power City, the Target Company and the Purchaser dated 13 June 2019 to supplement the New Framework Agreement

• “Mr. Chan” Mr. Chan William, an executive Director, Chairman, Chief Executive Officer and one of the Controlling Shareholders

• “Mr. Li” Mr. Li Chu Kwan, one of the Controlling Shareholders and Ms. Li’s brother

• “Mr. Ng” Mr. Ng Tak Kwan, a non-executive Director and a substantial Shareholder

• “Ms. Li” Ms. Li Wing Yin, one of the Controlling Shareholders and Mr. Li’s sister

• “Mr. Lo” Mr. Lo Hoi Wah, Heywood, the Chief Financial Officer of the Company

• “NBPIDL” Shanghai Nanhui Business Park Investment and Development Co., Limited* （上海南匯工業園區投資開發 有限公司）

• “New Business Licence” the new business licence of the Target Company to be issued by the relevant industries and commence authority（工商主管機關）showing the Purchaser as the sole shareholder of the Target Company

• “New Disposal” the disposal by Power City of its 100% equity interest in the Target Company pursuant to the New Framework Agreement and the Target Company SPA

• “New Framework Agreement”

the framework agreement dated 13 June 2019 entered into among Power City, the Target Company and the Purchaser in relation to, among other things, the termination of the Original Framework Agreement and the Original Property SPA, the New Disposal and the New Option

– 3 –

DEFINITIONS

• “New Option”

the right granted to the Purchaser to terminate the New Framework Agreement and the Target Company SPA and demand Power City to return any of the Consideration paid and pay the Purchaser an amount equal to ten times of the undisclosed debts, and subject to Power City making the aforesaid payment, to transfer the shares in the Target Company back to Power City, as further described in the section headed “ New Framework Agreement – Other principal terms – Undertakings ” in the “Letter from the Board” of this circular

• “Original Company Disposal”

• the disposal by Power City of its 100% equity interest in the Target Company to the Purchaser, which would be conducted following the Original Property Disposal where the Target Company would be holding only the Remaining Blocks, as originally contemplated under the Original Framework Agreement

• “Original Disposals” the Original Property Disposal, followed by the Original Company Disposal

• “Original Property Disposal” the disposal of Block 4 by the Target Company to the Purchaser, as originally contemplated under the Original Framework Agreement and the Original Property SPA

• “Original Framework Agreement” the framework agreement dated 5 July 2017 entered into among Power City, the Target Company and the Purchaser in relation to the Original Disposals

• “Original Property SPA”

• the property sale and purchase agreement dated 5 July 2017 entered into between the Purchaser and the Target Company for the Original Property Disposal

• “Post-Completion Adjustment”

• the adjustment of the Consideration as described under the section headed “ New Framework Agreement – Post-Completion audit ” in the “Letter from the Board” of this circular

• “Power City”

• Power City Investments Limited, a company incorporated in Hong Kong, and a 59%-owned indirect subsidiary of the Company

• “PRC”

• the People’s Republic of China

– 4 –

DEFINITIONS

• “Property” Kailong Nanhui Business Park （凱龍南匯商務園）, an industrial complex comprises of five blocks of buildings, canteen and other facilities, with a total gross floor area of 52,304.07 sq.m., erected on the Land

• “Purchaser” 上海美迪西生物醫藥股份有限公司 (Shanghai Medicilon Inc.), a limited liability company established in the PRC

• “QHL” Quarella Holdings Limited, a joint venture of the Group

• “Reference Date” the last day of the preceding month of the date on which the Purchaser gives written notice to Power City for the signing of the Target Company SPA, or such other date as may be determined and agreed by the Purchaser and Power City in writing, which should be a date between the date on which the New Framework Agreement becomes effective and the actual date of the signing of the Target Company SPA, and should not be later than 31 October 2020

• “Reference Date Audit Report” has the meaning ascribed to it in the section headed “ New Framework Agreement – Pre-Completion Audit ” in the “Letter from the Board” of this circular

• “Remaining Blocks” the Property excluding Block 4

• “Remaining Group” the Group excluding the Target Company

• “RMB” Renminbi, the lawful currency of the PRC

• “Rykadan Holdings” Rykadan Holdings Limited, a company incorporated in the BVI with limited liability, the entire issued share capital of which is the trust asset of Rykadan Trust, a discretionary trust founded by Mr. Chan and managed by HSBC International Trustee Limited as trustee of Rykadan Trust

• “Scenemay” Scenemay Holdings Limited, a company incorporated in the BVI with limited liability, the entire issued share capital of which is owned by Mr. Li and Ms. Li in equal shares

• “SFO” the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong, as amended, supplemented or otherwise modified from time to time

– 5 –

DEFINITIONS

• “Share(s)”

• “Share Consideration”

• “Shareholder(s)”

• “SPREEC”

• “sq.m.”

• “Stock Exchange”

• “Target Company”

• “Target Company SPA”

• “Tiger Crown”

• “U.K.”

• “U.S.A.”

• “%”

share(s) of the Company

the consideration for the sale and purchase of the entire equity interest of the Target Company

holders of Share(s)

• Shanghai Pudong Real Estate Exchange Center*（上海 市浦東新區房地產交易中心）

• square metre

• The Stock Exchange of Hong Kong Limited

美邦啓立光電科技（上海）有限公司 (Bestlinkage NHI Co., Ltd.), an enterprise with investment of Taiwan, Hong Kong, Macau and Overseas Chinese in the PRC established in Shanghai, PRC with limited liability directly and wholly-owned by Power City, and, as at the Latest Practicable Date and immediately prior to the transfer of the shares of Target Company to the Purchaser under the Target Company SPA, an indirect non wholly-owned subsidiary of the Company

the formal agreement to be entered into between Power City as vendor, the Purchaser as purchaser, and the Target Company pursuant to the New Framework Agreement, for conducting the New Disposal

• Tiger Crown Limited, a company incorporated in the BVI with limited liability and a substantial Shareholder, and a controlled corporation of Mr. Chan under the SFO

• the United Kingdom

• the United States of America

per cent.

– 6 –

LETTER FROM THE BOARD

RYKADAN CAPITAL LIMITED 宏基資本有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2288)

Executive Directors:

Mr. Chan William（陳偉倫）

(Chairman and Chief Executive Officer)

Mr. Yip Chun Kwok（葉振國）

(Chief Operating Officer)

Registered Office:

Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman, KY1-1111 Cayman Islands

Non-executive Director:

Mr. Ng Tak Kwan（吳德坤）

Independent Non-executive Directors:

Mr. Ho Kwok Wah, George（何國華） Mr. To King Yan, Adam（杜景仁） Mr. Wong Hoi Ki（黃開基）

Principal Place of Business in Hong Kong:

Rooms 2701 & 2801 Rykadan Capital Tower 135 Hoi Bun Road Kwun Tong, Kowloon Hong Kong

23 August 2019

To the Shareholders

Dear Sir/Madam,

(1) VERY SUBSTANTIAL DISPOSAL NEW FRAMEWORK AGREEMENT IN RELATION TO SALE OF THE PROPERTY BY WAY OF THE NEW DISPOSAL AND

(2) VERY SUBSTANTIAL ACQUISITION GRANT OF THE NEW OPTION

INTRODUCTION

Reference is made to the circular of the Company dated 22 September 2017 in relation to, among other things, the Original Framework Agreement and the Original Property SPA. Pursuant to the terms of the Original Framework Agreement and the Original Property SPA, it was originally contemplated that the Property would be sold, directly or indirectly, to the

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LETTER FROM THE BOARD

Purchaser in two stages, namely through (1) the disposal of Block 4 by the Target Company to the Purchaser, followed by (2) the disposal by Power City of its 100% equity interest in the Target Company (which would by then be holding only the Remaining Blocks) to the Purchaser.

Reference is also made to the announcement of the Company dated 13 June 2019, in which it was announced that due to the difficulties encountered in obtaining approval from the authorities for the Original Disposals which were structured to effectively dispose the Property in two stages, the Group and the Purchaser had re-assessed and further negotiated on the deal structure for the disposal of the Property, in order to complete such disposal. After arm’s length negotiations, Power City and the Target Company entered into the New Framework Agreement with the Purchaser on 13 June 2019 in relation to the disposal of the Property by way of the New Disposal, which will replace the Original Framework Agreement and the Original Property SPA. At the same time of the New Framework Agreement being entered into:

• (i) the Target Company and the Purchaser also entered into the Lease Agreement which will supersede the previous leasing arrangement in respect of Block 4 entered into between them upon the Lease Agreement becoming effective; and

• (ii) Power City, the Target Company and the Purchaser also entered into the Memorandum to supplement the New Framework Agreement.

The purpose of this circular is to provide you with, among other things, (i) further details of the New Disposal and the grant of the New Option, (ii) the notice of the EGM and (iii) other information as required under the Listing Rules.

NEW FRAMEWORK AGREEMENT

The principal terms of the New Framework Agreement are summarised below:

Date

13 June 2019

Parties

• (1) Power City, an indirect subsidiary of the Company;

• (2) the Target Company, a direct wholly-owned subsidiary of Power City; and

• (3) the Purchaser.

Termination of the original agreements

The Original Framework Agreement and the Original Property SPA will be automatically terminated upon the New Framework Agreement becoming effective.

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LETTER FROM THE BOARD

Assets to be disposed of

The Target Company owns the Property (which comprises Block 4 and the Remaining Blocks).

Power City has agreed to sell, and the Purchaser has agreed to purchase, the entire equity interest in the Target Company. After Completion, the Target Company will cease to be a subsidiary of the Group and the Company will cease to have any interest in the Property. Under the New Disposal, there will be no separate direct disposal of Block 4 to the Purchaser as originally contemplated under the Original Property SPA.

Conditions precedent

Completion is conditional upon:

• (1) the New Framework Agreement and the transactions contemplated thereunder having been approved by the Shareholders in accordance with the Listing Rules on or before 30 September 2019;

• (2) the New Framework Agreement and the transactions contemplated thereunder having been approved at the shareholders’ meeting of the Purchaser on or before 30 September 2019; and

• (3) if the New Framework Agreement is entered into after the listing of the shares of the Purchaser on a domestic stock exchange in the PRC, the shareholders of the Purchaser having performed such decision-making processes as may be required by the China Securities Regulatory Commission.

The Company is informed by the Purchaser that condition (2) has been satisfied. Meanwhile, since the shares of the Purchaser were not listed on a domestic stock exchange in the PRC when the New Framework Agreement was entered into, condition (3) is not applicable.

Effectiveness

The New Framework Agreement, which is legally binding on the parties thereto, shall become effective upon (a) it being signed by, and chopped with the official seals of the signing parties and (b) the conditions in the sub-section headed “ Conditions precedent ” above having been satisfied.

Consideration

The Consideration is comprised of the Share Consideration and the Loan Repayment.

Subject to the Post-Completion Adjustment (if any), the Share Consideration should be determined with reference to the Reference Date Audit Report, and is to be calculated as follows:

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LETTER FROM THE BOARD

• (1) the agreed total price of the Property of RMB363,738,488, being the agreed unit price of the Property (i.e. approximately RMB6,954 per sq.m.) multiplied by the gross floor area of the Property (i.e. 52,304.07 sq.m.); plus

• (2) the amount of the assets of the Target Company (other than the Property) as at the Reference Date as shown in the Reference Date Audit Report, which should only comprise bank deposit, accounts receivables, accounts prepayment and other receivables; minus

• (3) the total liabilities of the Target Company as at the Reference Date as shown in the Reference Date Audit Report.

Based on the latest unaudited management accounts of the Target Company dated 31 March 2019 prepared in accordance with the Chinese Accounting Standards, the amount of the assets of the Target Company (other than the Property) was approximately RMB8 million, whereas the total liabilities of the Target Company was approximately RMB120 million, as at 31 March 2019[1] . For illustration purpose only, the Share Consideration would be approximately RMB252 million assuming the Reference Date was 31 March 2019.

The Purchaser is also required to make the Loan Repayment to Power City. The amount of the Loan Repayment is to be calculated as the amount of the loan owing by the Target Company to Power City, including shareholder’s loan and other liabilities. As at the Latest Practicable Date, (i) the shareholder’s loan was approximately RMB88,304,000, being an interest-free loan provided by Power City to the Target Company in connection with the acquisition of the Property and as general working capital of the Target Company, and (ii) the Target Company does not owe any other liabilities to Power City, save that the Deposits will be regarded as liabilities owing to Power City by the Target Company, as mentioned in the sub-section headed “Deposits” below.

As elaborated in the section headed “ Reasons for and benefits of the New Disposal ” below, the parties have been facing difficulties in implementing the Original Disposals in the way they were originally structured. Had there not been such difficulties, the disposal of the Property would have proceeded to completion according to the terms of the Original Framework Agreement. Considering that it would be the only available opportunity for the investors of Power City to exit from the investment in the Property, the Original Framework Agreement and the Original Property SPA are contracts which are legally binding on the parties, and the parties intend to overcome such difficulties so as to give effect to the spirit and intent of the Original Framework Agreement and the Original Property SPA, Power City and the Target Company therefore worked with the Purchaser and came up with a modified structure to implement the transactions contemplated under the Original Framework Agreement and the Original Property SPA. It was against such backdrop that the terms of

1 These figures are different from those appearing in the Accountants’ Report of the Target Company set out on page II-4 of Appendix II to the Circular as the latter were prepared in accordance with the Hong Kong Financial Reporting Standards as opposed to the Chinese Accounting Standards. The major reasons of such differences are the recognition of the deferred tax liabilities derived from the Property which are carried at their fair values under the Hong Kong Financial Reporting Standards whereas the Property is stated at cost less accumulated depreciation and impairment losses under the Chinese Accounting Standards, and the exclusion of effective rent receivable arising from the rent-free arrangement with the Purchaser.

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LETTER FROM THE BOARD

the New Framework Agreement were negotiated and agreed after arm’s length negotiations between the parties. That also helps to explain why it was agreed that the Consideration shall be determined with reference to the agreed consideration for the Original Disposals. The Purchaser had bargained that the difference between (i) the transaction costs (in terms of tax and other administrative expenses) that are expected to be borne by the respective parties under the New Disposal, and (ii) the transaction costs (in terms of tax and other administrative expenses) that would have been borne by the respective parties had the Original Disposals proceeded to completion should be taken into account and reflected in the Consideration, as it is anticipated that under the New Disposal, lower transaction costs would be payable by Power City due to the change in deal structure. It was agreed between the parties that an amount of RMB8,550,000, which was arrived at after arm’s length negotiation between the parties, shall be deducted from the Consideration, to reflect the above. To give a clearer picture of how the Consideration is arrived at, calculation method of the total price of the Property under the New Disposal is set out as follows:–

plus minus	the agreed price of Block 4 under the Original Property Disposal (RMB6,000 per sq.m., with a gross floor area of 7,088.24 sq.m.) the agreed total price of the Remaining Blocks under the Original Company Disposal applicable to the case where the date of signing of the agreement for the sale and purchase of the entire equity interest of the Target Company pursuant to the Original Framework Agreement is between 1 January 2020 to 30 June 2020 (RMB7,293 per sq.m., with a gross floor area of 45,215.83 sq.m.) the combined agreed total price of the Property under the Original Disposals an amount agreed to be deducted as elaborated above total price of the Property under the New Disposal	(RMB’000) 42,529 329,759
		372,288 8,550
		363,738

The Company has been advised by the independent valuer that two valuation approaches have been considered in assessing the market value of the Property namely, (I) Income Approach – Discounted Cash Flow Method and (II) Market Approach.

The Discounted Cash Flow Method reflects the property specific characteristics of income-producing property such as potential rental income growth, renewal rate, vacancy rates and all outgoings. As advised by the independent valuer, this method to a greater extent reflects the characteristics of the Property. In this regard, the primary valuation method adopted to arrive at its opinion of value is the Discounted Cash Flow Method. This approach takes into account the current and expected future operation of the Property.

The valuation derived from the Discounted Cash Flow Method has in turn been cross-checked with the Market Approach. Given that the Property will be sold as a whole through disposal of shares in the holding company, en-bloc transactions should be used as comparable evidence for the Market Approach. However there are no suitable en-bloc transactions that could be identified for use as comparable. The three comparables chosen were strata-title sales involving much smaller gross floor area (i.e. ranging from approximately 638 sq.m. to 2,000 sq.m., whereas the Property has a gross floor area of

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LETTER FROM THE BOARD

approximately 52,304.07 sq.m.). In the cases of strata title sales, unit owners may sell off a smaller part of the business park much more easily, and the unit market price could be much higher than that of selling the entire business park. For such reason, strata-title sales prices are less reliable. In view of the nature of the Property and market information available, the valuation derived from the Discounted Cash Flow Method is considered by the independent valuer to be more reliable and therefore of higher relevance, and hence in arriving at the valuation of the Property, 100% weight has been given to the Discounted Cash Flow Method.

Having regard to, among others, the principle to give effect to the spirit and intent of the Original Framework Agreement and the prevailing market price of the Property, the Directors believe that the basis of determining the Consideration is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Terms of payment

The Purchaser is required to pay 50% of the Share Consideration (subject to deduction of withholding tax) to Power City as first instalment within 10 working days after the Target Company SPA becoming effective (for more details of the Target Company SPA, please refer to the section headed “ Other principal terms – The Target Company SPA and its timing of signing ” below).

The Purchaser and Power City are required to open a bank account within 5 working days after the receipt of the first instalment by Power City. The Purchaser is required to deposit the second instalment (being the balance of the Share Consideration less Deposits already paid by the Purchaser plus the amount of shareholders’ loan and other liabilities owing to Power City as at the Reference Date as shown in the Reference Date Audit Report) into such bank account within 60 days after such bank account is opened. Such bank account is to be opened in the name of the Target Company with a bank in Shanghai designated by the Purchaser and jointly managed by Power City and the Purchaser. If the Purchaser requires financing for the purpose of the transactions contemplated under the New Framework Agreement, Power City and the Target Company should cooperate accordingly provided that it would not constitute the violation of any laws or regulations (including the Listing Rules) applicable to Power City or to the Target Company or constitute a breach of the New Framework Agreement by Power City or the Target Company, and any costs or loss incurred as a result thereof by Power City and the Target Company should be borne or compensated by the Purchaser.

The Purchaser and Power City are required to apply to the relevant authorities for registration of transfer of 100% of the equity interest in the Target Company within 5 working days after the Purchaser has deposited the second instalment into the bank account mentioned above. If the Purchaser requires financing for the purpose of the transactions contemplated under the New Framework Agreement, the Purchaser should within 30 working days of the issuance of the New Business Licence complete the procedures for pledging the shares of the Target Company and the mortgage of the Property, and provide Power City with the relevant tax payment certificate and business registration certificate for foreign exchange payment. After receiving the aforesaid certificates, (a) Power City should cooperate with the Purchaser to release the balance of the Share Consideration from such

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LETTER FROM THE BOARD

jointly managed account to the Purchaser to facilitate the payment of such balance by the Purchaser to an account in Hong Kong designated by Power City; and (b) the Purchaser should cooperate with Power City to release the balance of the second instalment to Power City from such jointly managed account to repay the shareholders’ loan owing to Power City. Thereafter any amount remaining in the jointly managed bank account should be released and paid to the Purchaser.

Pre-Completion audit

The Purchaser will at its own cost appoint an auditing institution acceptable to both the Purchaser and Power City, to prepare an audit report in accordance with the Chinese Accounting Standards in respect of the Target Company as at the Reference Date (the “ Reference Date Audit Report ”). The Reference Date Audit Report will be used for the calculation of the initial amount of the Consideration.

Post-Completion audit

The Purchaser will within 30 days after the Completion Date and at its own cost appoint an auditing institution acceptable to both the Purchaser and Power City, to audit the net asset value of the Target Company as at the Completion Date, and to issue the post-Completion audit report in accordance with the Chinese Accounting Standards (the “ Completion Date Audit Report ”). If the Completion Date Audit Report shows that the net asset value of the Target Company as at the Completion Date is lower than its net asset value as at the Reference Date, then Power City should refund the corresponding difference in amount to the Purchaser or the Target Company. On the contrary, the Purchaser should pay an amount equal to the difference to Power City.

Such refund or additional payment (as the case may be) should be settled by no later than 30 days after the issuance of the Completion Date Audit Report. If there is any delay in payment, a daily interest of 0.05% of the outstanding amount is payable until all refund or payment is made.

Within 90 days of the Completion Date, the Purchaser should procure that the Target Company repays to Power City any additional shareholders’ loan obtained from Power City after the Reference Date, determined based on the Completion Date Audit Report. In case of any delay in such repayment due to the relevant requirements or time for approval required by government, banks (which specifically refers to the scenario where the tax payment certificate has been obtained and the information required for business registration certificate for foreign exchange payment has been provided as per the relevant banks’ requirements, but the relevant bank refuses to provide the business registration certificate) or regulatory authorities, Power City and the Purchaser should negotiate and agree on a new deadline or come up with alternative method.

Deposits

The payments made on 27 July 2017 and 3 November 2017 respectively in the total amount of RMB23,264,720 by the Purchaser to the Target Company are deemed to be the payments of the first two out of the three Deposits.

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LETTER FROM THE BOARD

Within 7 working days of the New Framework Agreement becoming effective, the Purchaser is required to pay the Target Company the last of the three Deposits in the amount of RMB7 million.

The Deposits were/will be received by the Target Company on behalf of Power City, and will be regarded as liabilities owing to Power City by the Target Company.

Other principal terms

Lease Agreement in relation to Block 4

At the same time of entering into the New Framework Agreement, the Purchaser and the Target Company will enter into the Lease Agreement for the leasing of Block 4. Please refer to the section headed “ Lease Agreement ” below for a summary of the principal terms of the Lease Agreement.

The Target Company SPA and its timing of signing

Power City and the Purchaser will enter into the Target Company SPA, the formal agreement for conducting the New Disposal. The terms of the Target Company SPA will reflect, and in substance will be the same as, those agreed under the New Framework Agreement.

The Target Company SPA should be entered into: (i) after the Purchaser having given written notice to Power City for the signing of the Target Company SPA; (ii) after the Reference Date having been agreed; and (iii) within 7 working days of the Reference Date Audit Report having been issued. The Target Company SPA should be signed and should become effective on or before 31 December 2020, while Completion should take place on or before 30 September 2021. In case of delay due to the relevant requirements or time for approval required by government, banks (which specifically refers to the scenario where the tax payment certificate has been obtained and the information required for business registration certificate for foreign exchange payment has been provided as per the relevant banks’ requirements, but the relevant bank refuses to provide the business registration certificate) or regulatory authorities, Power City and the Purchaser should negotiate and agree on a new deadline.

Failure to sign or complete the Target Company SPA

If the Target Company SPA fails to be signed and to become effective on or before 31 December 2020 or Completion fails to occur on or before 30 September 2021 due to the fault of the Purchaser, Power City may terminate the New Framework Agreement or the Target Company SPA, and is entitled to forfeit the Deposits, whilst the Purchaser should pay the Target Company RMB7,600,000 as one-off compensation, but Power City should refund the Consideration paid by the Purchaser (after deducting the Deposits). The one-off compensation is determined after arm’s length negotiation, which is roughly equivalent to the notional amount of rent for Block 4 for the period from 1 February 2019 to 30 September 2021 which would have been payable by the Purchaser if rent was payable on the basis mentioned in the section headed “ Lease Agreement – Rent ” below:–

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LETTER FROM THE BOARD

	Notional amount of rent
Period	payable for the relevant period
	(RMB’000)
From 1 February 2019 to 31 December 2019	2,486
From 1 January 2020 to 31 December 2020	2,854
From 1 January 2021 to 30 September 2021	2,245
TOTAL	7,585

If the Target Company SPA fails to be signed and to become effective on or before 31 December 2020 or Completion fails to occur on or before 30 September 2021 due to the fault of Power City, the Purchaser may elect to either (i) terminate the New Framework Agreement (and the Target Company SPA, if signed) whereupon Power City is required to pay an amount equal to 200% of the Deposits (i.e. RMB60,529,440) to the Purchaser and refund the Consideration paid by the Purchaser (after deducting the Deposits); or (ii) demand Power City to proceed to perform the New Framework Agreement or the Target Company SPA for the New Disposal, and all expenses incurred as a result thereof (including litigation expenses, legal costs and investigation expenses) will be borne solely by Power City.

If the registration of the transfer of 100% of the equity interest in the Target Company has been completed, but Completion does not proceed due to default by any one party, the parties to the New Framework Agreement should after the receipt of notice to terminate the New Framework Agreement and within 30 days following the payment obligations in the preceding two paragraphs having been performed, complete the procedures for restoring the transfer of 100% equity interest in the Target Company, such that the equity interest in the Target Company would again be registered under the name of Power City. If the procedures for pledging the shares of the Target Company and the mortgage of the Property have been completed at the request of the Purchaser, the Purchaser should take all necessary actions to release the relevant share pledge and mortgage at the cost of the defaulting party.

Notwithstanding the aforesaid, in case the deadlines of 31 December 2020 or 30 September 2021 could not be met due to relevant requirements or time for approval required by government, banks (which specifically refers to the scenario where the tax payment certificate has been obtained and the information required for business registration certificate for foreign exchange payment has been provided as per the relevant bank’s requirements, but the relevant bank refuses to provide the business registration certificate) or regulatory authorities, Power City and the Purchaser should negotiate and agree on a new deadline.

Prior to the registration of the transfer of 100% of the equity interest in the Target Company, the Target Company owes an irrevocable and joint liability with Power City for the above obligations of Power City.

Undertakings

Power City has agreed to disclose the debt of the Target Company at the time of signing of the New Framework Agreement. The amount of the debt so disclosed is RMB120 million (being the debt of the Target Company as at 31 May 2019 based on the management

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LETTER FROM THE BOARD

account of the Target Company prepared in accordance with Chinese Accounting Standard). Save with the prior consent of the Purchaser (which should not be unreasonably withheld), the difference between (i) the amount of debt of the Target Company on the Reference Date as disclosed in the Reference Date Audit Report and (ii) the amount of debt of the Target Company as disclosed in the New Framework Agreement (the “ Debt Difference ”) should not be greater than RMB15 million, and the types of the Target Company’s debt must not fall outside the scope of its business operations. The Target Company is also not allowed to provide external guarantee. If without the prior consent of the Purchaser, the Debt Difference is more than RMB15 million, then apart from the Post-Completion Adjustment, the Purchaser is entitled to deduct a sum representing 5% of such part of the Debt Difference which is over and above RMB15 million from the Consideration. Any additional shareholders’ loan and any additional liability owing to the Purchaser by the Target Company between the Reference Date and the Completion Date is excluded for the purpose of determining if there is any such difference.

If within 18 months after Completion, the Purchaser discovers that there was any undisclosed debt of the Target Company before the Completion Date, Power City is required to settle such undisclosed debt or pay an amount representing such undisclosed debt to the Purchaser within 30 days of receiving the notice and evidence of such debt from the Purchaser. Based on arm’s length negotiation, it was agreed that should there be any undisclosed debt of the Target Company before the Completion Date or any defect in Power City’s title over the equity interest in the Target Company, the Purchaser is entitled to demand Power City to pay off such undisclosed debt or to rectify such defect (as the case may be) within 30 days after receiving the Purchaser’s demand and evidence of such debt or defect. If after the expiry of such 30-day period, Power City still fails to settle such undisclosed debts and the amount of such unsettled debts is over RMB200,000, or to rectify such defect (as the case may be), (i) the Purchaser is entitled to terminate the New Framework Agreement and the Target Company SPA, and demand Power City to return any of the Consideration paid and to pay the Purchaser an amount equal to ten times of the undisclosed debts, and subject to Power City making the aforesaid payment, to transfer the shares in the Target Company back to Power City (the “New Option”); or (ii) the Purchaser is entitled to continue to perform the New Framework Agreement and the Target Company SPA, and demand Power City to pay the Purchaser an amount equal to ten times of the undisclosed debts. If the Purchaser discovers any material undisclosed debt of the Target Company or any defect in Power City’s title over the equity interest in the Target Company during the aforesaid period, and demands Power City to pay off such undisclosed debt or to rectify such defect, the Company will make such necessary disclosure or take such necessary action in compliance with the Listing Rules.

Power City irrevocability guarantees the obligations of the Target Company incurred on or before the Completion Date and assumes joint and several liability. The Purchaser irrevocability guarantees the obligations of the Target Company incurred after the Completion Date and assumes joint and several liability.

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LETTER FROM THE BOARD

Default

In addition to liabilities arising from any breach of obligations mentioned in the sub-sections headed “Failure to sign or complete the Target Company SPA” and “Post-Completion audit” above, the parties agree that, in the event of non-performance of any other obligation under the New Framework Agreement or performance not in accordance with the agreements under the New Framework Agreement, or in breach of any guarantee or undertaking of the New Framework Agreement, the defaulting party should (1) rectify such default within reasonable time as requested by the non-defaulting party; and (2) pay to the non-defaulting party direct economic loss incurred by the non-defaulting party, and all expenses incurred therefrom (including litigation expenses, legal costs and investigation expenses).

LEASE AGREEMENT

On 13 June 2019, at the same time of the New Framework Agreement being entered into, the Target Company and the Purchaser also entered into the Lease Agreement which will supersede the previous leasing arrangement in respect of Block 4 entered into between them upon the Lease Agreement becoming effective. The principal terms of the Lease Agreement are set out below:–

Parties: the Target Company, as lessor; and the Purchaser, as lessee Property: Block 4, with an area of 7,088.24 sq.m. Term: From the date on which the Lease Agreement becomes effective (the “ Lease Effective Date ”) to 31 December 2022 Effectiveness: The Lease Agreement will become effective at the same time of the New Framework Agreement becoming effective. Renewal: If the Target Company SPA fails to be signed and to become effective on or before 31 December 2020 or Completion fails to take place on or before 30 September 2021, the Purchaser may renew the Lease Agreement for three more terms, each of which should not be more than 5 years, and the rent payable for any term commencing on or after 1 January 2023 should be agreed by the parties with reference to the prevailing market rent.

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LETTER FROM THE BOARD

In order to renew the Lease Agreement, the Purchaser should give written notice six months prior to the date of expiry of the relevant lease term, and the parties should enter into an agreement for such renewal within 30 days after the Target Company having received such notice from the Purchaser. If the Purchaser fails to give a written notice within the above period, or the parties fail to enter into an agreement for renewal within such 30-day period, the Purchaser will be regarded as having given up on the renewal, and Target Company has the right to lease Block 4 to any third party following the expiry of the relevant lease term without giving prior notice to the Purchaser.

Rent:

The rent payable is to be calculated on the following basis:

For the period between RMB1.05 per sq.m. the Lease Effective Date per day and 31 December 2019 For the period between RMB1.1 per sq.m. 1 January 2020 and per day 31 December 2020 For the period between RMB1.16 per sq.m. 1 January 2021 and per day 31 December 2021 For the period between RMB1.22 per sq.m. 1 January 2022 and per day 31 December 2022

The above bases of rent are determined with reference to the prevailing market rent and applying an estimated annual inflation rate of approximately 5%.

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LETTER FROM THE BOARD

During the period between the Lease Effective Date and 30 September 2021, the Purchaser is not required to pay any rent, but is required to pay management fees and other fees. For illustration purposes only, the notional amount of rent which would have been payable by the Purchaser had there been no rent-free arrangement and assuming that the Lease Effective Date would be 1 October 2019, is as follows:

Notional amount of rent payable for Period the relevant period (RMB’000) From 1 October 2019 to 31 December 2019 685 From 1 January 2020 to 31 December 2020 2,854 From 1 January 2021 to 30 September 2021 2,245 TOTAL 5,784 Notwithstanding the above agreement on rent-free period, if the taking effect and Completion of the Target Company SPA is delayed beyond 30 September 2021 due to the need for approval by Power City and the Target Company, or due to the need for compliance with legal and regulatory requirement (including the Listing Rules) by Power City and the Target Company, the above-mentioned rent-free period shall be extended to the date on which the Target Company SPA has become effective and completed or to the specified date of termination of the Lease Agreement as agreed by the Purchaser and the Target Company.

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LETTER FROM THE BOARD

After the signing of the Target Company SPA pursuant to the New Framework Agreement (inclusive of such date), if the Target Company SPA fails to be signed and to become effective on or before 31 December 2020, or the Target Company SPA is signed on or before 31 December 2020 but Completion fails to occur on or before 30 September 2021 due to the fault of the Purchaser, and Power City decides to terminate the New Framework Agreement and the Target Company SPA, then starting from 1 October 2021, the Purchaser is required to pay rent to the Target Company.

The Target Company and the Purchaser agree that in case of delay due to the relevant requirements or time for approval required by government, banks (which specifically refers to the scenario where the tax payment certificate has been obtained and the information required for business registration certificate for foreign exchange payment has been provided as per the relevant bank’ requirements, but the relevant bank refuses to provide the business registration certificate) or regulatory authorities, the rent-free period mentioned above should be extended to the date on which the Target Company SPA has become effective and completed or to the specified date of termination as agreed by the Purchaser and the Target Company.

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LETTER FROM THE BOARD

The rent-free arrangement mentioned above was put in place after arm’s length negotiation between the Group and the Purchaser, and after taking into account the fact that:

• (i) the Purchaser had already paid a total of RMB23,264,720 (being the RMB2,000,000 million deposit paid in July 2017 pursuant to the Original Framework Agreement and the first instalment of (representing 50% of) the consideration for Block 4 paid in November 2017 pursuant to the Original Property SPA) and such amount has been retained by Power City since then and such amount would continue to be retained by Power City. Together with its internal resources, the Group had fully utilised the said sum to pay off the mortgage loan on the Property which amounted to approximately RMB27,300,000 million; and

• (ii) a one-off compensation of RMB7,600,000 would be payable by the Purchaser if Completion fails to occur in accordance with the New Framework Agreement due to the fault of the Purchaser, the Directors considered that such arrangement is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Lease of additional space:

It is the Purchaser’s plan to lease additional space with a gross floor area of 43,000 sq.m.. During the term of the Lease Agreement, the Purchaser may give 3-month prior written notice to the Target Company for leasing additional space. The Target Company should use its best effort to meet the Purchaser’s additional leasing requirement, but does not guarantee that such requirement could be fully met. Prior to leasing out any units of the Remaining Blocks, the Target Company should give notice to the Purchaser, who should provide its reply as to whether it agrees to lease the relevant units on the same terms and conditions within 7 days of such notice. In case of the Purchaser’s failure to reply, the Target Company may lease the relevant units to third parties. A separate lease agreement in respect of the additional units should be signed between the Target Company and the Purchaser. The major terms of the lease agreement in respect of the additional space (including the bases of determining rent, rental deposit and property management fee) should be consistent with the Lease Agreement, other than the lease term and any rent-free period, which would be separately negotiated and agreed on between the Target Company and the Purchaser.

Management fee and other fees: Throughout the term of the Lease Agreement, the management fee of RMB3 per sq.m. per month and other expenses including water, electricity, telecommunications, equipment, air-conditioning of the public area should be borne solely by the Purchaser.

Maintenance of the leased property and its ancillary facilities or equipment shall be the Purchaser’s sole responsibility.

Payment term:

Rent shall be paid in advance on the 25th day of the previous month. For each day of overdue payment, default interest of 0.3% will be incurred on the outstanding amount.

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LETTER FROM THE BOARD

Rental deposit:

Refundable rental deposit in the amount of RMB742,936.16, which is equal to the sum of 3-month rent (as set out in the sub-section headed “ Rent ” above) and 3-month management fee, is payable by the Purchaser to the Target Company. The Purchaser has paid a rental deposit in the amount of RMB678,255.96 under the existing leasing arrangement of Block 4, and such amount will be applied towards partial settlement of the rental deposit payable under the Lease Agreement, with the balance of the rental deposit to be settled by the Purchaser within 10 days of the Purchaser receiving notice from the Target Company. If the rent or management fee is adjusted during the term of the Lease Agreement, the amount of the rental deposit should be adjusted accordingly.

The rental deposit shall be refunded, without interest, by the Target Company to the Purchaser within 30 days after the termination of the Lease Agreement.

Car-parking spaces:

During the term of the Lease Agreement, the Target Company will provide 15 car-parking spaces to the Purchaser for free.

MEMORANDUM

At the request of the Purchaser, Power City, the Target Company and the Purchaser have also entered into the Memorandum on 13 June 2019 to supplement the New Framework Agreement. The Memorandum will become effective upon the New Framework Agreement becoming effective.

Pursuant to the Memorandum, after the Reference Date, the Purchaser is permitted to conduct, through a valuation institution with qualifications in securities and futures appointed by it, evaluation of the net asset value and the equity interest of the Target Company, and Power City and the Target Company are required to provide reasonable assistance for such valuation. However, the results of the valuation will not affect the determination of the Consideration.

INFORMATION OF THE TARGET COMPANY

The Target Company is a property investment holding company and its major asset is its legal and beneficial interest in the Property.

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LETTER FROM THE BOARD

The financial information of the Target Company set out below is extracted from Appendix II to this circular prepared in accordance with the Hong Kong Financial Reporting Standards for the two years ended 31 March 2018 and 2019:

	For the year ended	For the year ended
	31 March 2018	31 March 2019
	RMB’000	RMB’000
Unaudited net profit before taxation	2,393	7,115
Unaudited net profit after taxation	2,393	7,101
	As at	As at
	31 March 2018	31 March 2019
	RMB’000	RMB’000
Net assets	137,172	144,273

The Land is located in the Nanhui area, an eastern part of Shanghai close to Shanghai Disney Resort, Shanghai Pudong International Airport and Shanghai Harbour City, and has excellent transport and communications network. Being in the Nanhui Industrial Zone of Shanghai, the PRC, the Land enjoys the preferential tax and subsidies policies available to state level economic and development zones. The Land has a site area of 34,760 sq.m. on which the Property, which has a total gross floor area of 52,304.07 sq.m., was erected. The period of land use rights over the Land is from 31 December 2006 to 30 December 2056.

The Property consists of five high quality buildings and a guard house, power shed and car park. Each building has four to five storeys and each storey has a gross floor area ranging from approximately 1,700 sq.m. to 4,000 sq.m. As at the Latest Practicable Date, the Property has a total of 10 tenants (including the Purchaser). To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, such tenants are third parties independent of the Company and its connected persons (as defined in the Listing Rules).

As at 31 March 2019, the unaudited net asset value of the Target Company was approximately RMB144 million, including the Property at the fair value as approximately RMB289 million which was valued by an independent valuer.

REASONS FOR AND BENEFITS OF THE NEW DISPOSAL

As disclosed in the circular of the Company dated 22 September 2017, the Group entered into the Original Framework Agreement and the Original Property SPA in relation to the Original Disposals. The Original Disposals contemplate a two-stage process at the request of the Purchaser in order to cater for its funding arrangement, and involve, firstly, the direct disposal of Block 4 by the Target Company to the Purchaser pursuant to the Original Property SPA and, subsequently, the indirect disposal of the Remaining Block to the Purchaser through the disposal of the entire issued shares in Target Company by Power City. The Original Framework Agreement and the Original Property SPA were approved at the

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LETTER FROM THE BOARD

extraordinary general meeting of the Company held on 17 October 2017 and application for the necessary governmental approval of the Original Property Disposal was commenced shortly after the shareholders’ approval was obtained.

Prior to the entering into of the Original Framework Agreement and the Original Property SPA, the Group has consulted with NBPIDL and its superior authority and the key approving regulatory authority, MCJQEDZ, on the proposed implementation of the Original Disposals (i.e. the Original Property Disposal, followed by the Original Company Disposal, in two stages), and there was an indication of support for the Original Disposals. On 20 October 2017, NBPIDL formally issued its written submission to MCJQEDZ reporting, among others, that the proposed disposal of the Property would be implemented in stages, and seeking MCJQEDZ’s consent to the transfer of Block 4’s property ownership. In or around the second week of November 2017, MCJQEDZ gave its verbal reply that it was not minded to approve the Original Property Disposal on the ground that it was a partial sale (as opposed to an entire sale) of an industrial complex. Such view was different from the view previously obtained through the consultation. Subsequent to the consultation, there had been major changes in the personnel of, and the interpretation and implementation of the policies regarding the transfer of industrial land resources by, MCJQEDZ.

Shortly after receiving such verbal reply from MCJQEDZ, consultation with SPREEC in relation to the registration of transfer of Block 4’s property ownership was made and the feedback obtained from SPREEC was that additional approvals of four other regulatory authorities regarding the registration of transfer of Block 4’s property ownership, namely, Pudong Science, Technology and Economic Commission （浦東新區科技和經濟委員會）, Pudong Development and Reform Commission （浦東新區發展和改革委員會）, Shanghai Municipal Planning, Land and Resources Administration （上海市規劃國土資源局） and Shanghai Municipal Environmental Bureau （上海市環保局） (collectively the “ Two Commissions and Two Bureaux ”) would be required. Thereafter, the Group, its business partner and its consultants have spent enormous efforts on further communicating with MCJQEDZ and the Two Commissions and Two Bureaux, with a view to obtaining the necessary consent and approvals to proceed with the Original Disposals. Despite rounds of discussions with MCJQEDZ and the Two Commissions and Two Bureaux, the necessary consent and approvals have not been obtained yet. It has become apparent in early 2018 that it would be difficult if not impossible to obtain the required consent and approvals to proceed with the Original Disposals.

Due to the difficulty encountered by the Group as mentioned above, little progress has been made regarding the Original Disposals. Other than the original deposit of RMB2,000,000 made on 27 July 2017 pursuant to the Original Framework Agreement and the first instalment of RMB21,264,720 made on 3 November 2017 under the Original Property Disposal, no other payment has been made by the Purchaser to Power City or the Target Company in connection with the Original Disposals. No transfer of Block 4 (or any other part of the Property) or any shares in the Target Company to the Purchaser has taken place yet.

Upon assessment based on the status of the approval process and the time such process has already taken, in order that the intent and purposes of the Original Disposals could be achieved in a timelier manner, it has become necessary for the transacting parties to agree to

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LETTER FROM THE BOARD

an alternative structure to implement the sale and purchase of the Property. After arm’s length negotiations between the Group and the Purchaser, the structure of the New Disposal was agreed on. It was also agreed that the payments made by the Purchaser of RMB2,000,000 and RMB21,264,720 respectively as mentioned above would be applied towards payments of the first two out of the three Deposits as provided under the New Framework Agreement.

The Company considers that the substance of the New Disposal is essentially the same as the Original Disposals under both of which Power City’s direct interest in the Target Company and indirect interest in the Property would be disposed of entirely. The Original Disposals would involve both a real estate sale and purchase transaction (whereby Block 4 would be disposed of directly) and a company sale and purchase transaction (whereby the Remaining Block would be disposed of indirectly) and the two transactions would be implemented in two stages. Whereas, the New Disposal is merely a company sale and purchase transaction and no longer involves the separate and direct disposal of any part of the Property (i.e. the entire Property would entirely be disposed of indirectly and in one go), and it is expected that the New Disposal would mainly be subject to the filing requirements of the Pudong Commission of Commerce （上海市浦東新區商務委員會）, and the registration requirements of the Pudong Market Regulatory Bureau （上海市浦東新區市場監督管理局）, whereas the approvals from NBPIDL, MCJQEDZ and the Two Commissions and Two Bureaux would no longer be required. As such, in comparison to the Original Disposals, the New Disposal is simpler and more straight-forward. It is therefore expected that by pursuing the New Disposal, the transacting parties would be able to overcome the difficulties they have been facing under the Original Disposals, and thereby allowing the Company to proceed further with the intended disposal of the Group’s interest in the Property and ultimately bringing the benefits to the Group that were intended to be brought about by the Original Disposals. The Company has sought legal opinion from its legal advisers as to PRC laws, Beijing Yingke Law Firm Shanghai Office, in respect of the New Disposal, and is advised that the New Disposal would be legal and effective and that there would be no substantive legal obstacles, and therefore the Company does not expect there to be similar complications in obtaining approval from the relevant authorities when implementing the New Disposal.

With regard to the New Option granted in favour of the Purchaser, the Directors are of the view that as is the case with the equivalent options granted under the Original Framework Agreement and the Original Property SPA, there will only be actual consequence if there will be any undisclosed debts of the Target Company before the Reference Date, or any defect in Power City’s title over the equity interest of the Target Company. Since there is not expected to be any such undisclosed debts or defect, it is not expected that the New Option will become enforceable.

The terms of the New Framework Agreement are negotiated between the Group and the Purchaser, which is an independent third party purchaser, on an arm’s length basis. Having considered the above, the Directors believe that the terms of the transactions contemplated under the New Framework Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

FINANCIAL EFFECTS

After completion of the New Disposal, the Target Company will cease to be a subsidiary of the Group and the Company will cease to have any equity interest in the Target Company.

New Disposal

Assuming the New Disposal has been completed on 31 March 2019, the Group would have recorded a gain of approximately HK$79 million for the year ended 31 March 2019 which is calculated with reference to (i) consideration for the Company Disposal of approximately HK$424 million; (ii) adjustments to the consideration of approximately HK$130 million; (iii) net book value of the Target Company as at 31 March 2019 of approximately HK$168 million; (iv) adjustment on deferred tax liabilities of approximately HK$28 million; and (v) estimated tax effects in relation to the Company Disposal calculated at the applicable tax rates of approximately HK$19 million.

Based on the pro forma financial information of the Remaining Group as set out in Appendix IV to this circular, (i) assuming the New Disposal had been completed on 31 March 2019, total assets of the Group would have been increased by approximately HK$29 million from approximately HK$2,024 million as at 31 March 2019 to approximately HK$2,053 million, and total liabilities of the Group would have been decreased by approximately HK$50 million from approximately HK$555 million as at 31 March 2019 to approximately HK$505 million; and (ii) assuming the New Disposal had been completed on 1 April 2018, the Group’s total comprehensive income for the year ended 31 March 2019 would have been improved by approximately HK$92 million from approximately HK$289 million to approximately HK$381 million.

In the event that the New Option is exercised by the Purchaser

Based on the pro forma financial information of the Remaining Group as set out in Appendix IV to this circular (assuming there were no undisclosed debts of the Target Company), (i) total assets of the Group would have been increased by approximately HK$39 million from approximately HK$2,024 million as at 31 March 2019 to approximately HK$2,063 million, and total liabilities of the Group would have been decreased by approximately HK$41 million from approximately HK$555 million as at 31 March 2019 to approximately HK$514 million; and (ii) the Group’s total comprehensive income for the year ended 31 March 2019 would have been improved by approximately HK$101 million from approximately HK$289 million to approximately HK$390 million.

As the net book value of the Property as at 31 March 2019 as stated in the Accountants’ Report of the Target Company in Appendix II to this circular is the same as the valuation of the Property as at 31 May 2019 as stated in the valuation report from Beijing Colliers International Real Estate Valuation Co., Ltd. in Appendix V to this circular, no reconciliation between the net book value and the valuation of the Property is required to be made.

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LETTER FROM THE BOARD

USE OF PROCEEDS

The Company intends to use the net proceeds from the New Disposal for general working capital purposes (including but not limiting to financing the Group’s daily operations, and/or funding the Group’s future potential acquisition or investment opportunities identified from time to time). As at the Latest Practicable Date, the Group has no concrete plan for any potential acquisition or investments.

LISTING RULES IMPLICATIONS

New Disposal

As one of the applicable percentage ratios (as defined in the Listing Rules) calculated under the Listing Rules in respect of the New Disposal is more than 75%, the New Disposal constitute a very substantial disposal of the Company and is therefore subject to the reporting, announcement, circular and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

Grant of the New Option

Under Rule 14.74(1) of the Listing Rules, the New Option constitutes an “option” within the meaning of Rule 14.72(1) of the Listing Rules and as the exercise of such options is not at the discretion of the Group, on the grant of the New Option, the transaction will be classified as if it had been fully exercised.

The grant of the New Option constitutes a very substantial acquisition of the Company and is therefore subject to the reporting, announcement, circular and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

INFORMATION OF THE GROUP AND THE PURCHASER

The Group operates and invests in real estate development, real estate investment and distribution of building materials.

Power City is an investment holding company and holds the entire equity interest in the Target Company.

The principal business of the Purchaser is the provision of drug discovery and development services to pharmaceutical and biotechnology companies in the PRC.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, the Purchaser and its ultimate beneficial owner are third parties independent of the Company and its connected persons (as defined in the Listing Rules).

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LETTER FROM THE BOARD

EGM

A notice convening the EGM to be held at Function Room, 23H, Level 23, One Island East, 18 Westlands Road, Island East, Hong Kong on Wednesday, 25 September 2019 at 4:30 p.m. (or so soon thereafter as the 2019 annual general meeting to be held at 3:00 p.m. on the same day and at the same place has been concluded or adjourned) (or, in the event that a black rainstorm warning signal or tropical cyclone warning signal no. 8 or above is in force in Hong Kong at 12:00 noon on that day, at the same time and place on Monday, 30 September 2019) is set out on pages EGM-1 to EGM-3 of this circular.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you intend to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions stated thereon and return it to the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, 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 adjournment thereof should you so wish.

The resolution to be proposed at the EGM to approve the transactions contemplated under the New Framework Agreement (including pursuant to any exercise of the New Option) will be voted by way of a poll at the EGM.

To the best knowledge, information and belief of the Directors having made all reasonable enquires, no Shareholder or its close associate (as defined in the Listing Rules) has any material interest in the transactions contemplated under the New Framework Agreement and no Shareholder is required to abstain from voting on the resolution(s).

RECOMMENDATION

The Directors are of the opinion that the terms of the transactions contemplated under the New Framework Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the transactions contemplated under the New Framework Agreement (including pursuant to any exercise of the New Option).

Completion is conditional upon, among other things, the satisfaction of the conditions set out in the section headed “ New Framework Agreement – Conditions precedent ” above. Accordingly, the New Disposal and the grant of the New Option may or may not be materialised. Shareholders and potential investors should therefore exercise caution when dealing in the securities of the Company.

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LETTER FROM THE BOARD

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board Rykadan Capital Limited 宏基資本有限公司 Chan William

Chairman and Chief Executive Officer

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The audited consolidated financial statements of the Group for each of the three years ended 31 March 2017, 2018 and 2019 are disclosed in the following documents:

• The 2017 annual report of the Company for the year ended 31 March 2017 published on 28 July 2017 (pages 37 to 107);

• The 2018 annual report of the Company for the year ended 31 March 2018 published on 18 July 2018 (pages 43 to 113);

• The 2019 annual report of the Company for the year ended 31 March 2019 published on 31 July 2019 (pages 43 to 125).

All of the financial statements mentioned above have been published on the websites of the Stock Exchange (www.hkex.com.hk) and the Company (www.rykadan.com).

2. INDEBTEDNESS

At the close of business on 30 June 2019, being the latest practicable date for the purpose of preparing this statement of indebtedness prior to the printing of this circular, the Group had total borrowings of approximately HK$491,271,000, details of which are set out below:

Secured bank loans Unsecured bank loan Loans from non-controlling shareholders Total borrowings	HK$’000 403,030 10,000 78,241
	491,271

As at 30 June 2019, the secured bank loans of the Group were secured by mortgages over certain assets of the Group with an aggregate carrying value of approximately HK$283,225,000, details of which are set out below:

Investment properties Buildings held for own use Properties for sale	HK$’000 173,720 39,992 69,513
	283,225

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In addition, as at 30 June 2019, the Company has issued guarantees to banks in respect of banking facilities granted to certain indirect subsidiaries and a joint venture of HK$393,506,000 and HK$20,000,000 respectively. Such banking facilities were utilised by its subsidiaries and the joint venture to the extent of HK$139,700,000 and HK$20,000,000 respectively. Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade and other payables in the ordinary course of business of the Group, as at 30 June 2019, the Group did not have any debt securities issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptable credits, debentures, mortgages, charges, hire purchase or finance lease commitments, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

The Directors are of the opinion that after due and careful enquiry, taking into account the financial resources available to the Group, including internally generated funds and the available banking facilities, and the effect of the New Disposal and the New Option, the Group will have sufficient working capital to meet its current known requirements for at least the next 12 months from the date of this circular in the absence of unforeseeable circumstances.

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group’s asset, investment and fund management business will continue to seek to identify and cautiously invest in new high-potential and larger-scale projects by leveraging the Group’s expanding track record for generating solid returns from high-potential real estate investment projects and its existing resources in order for the Group to tap a broader base of additional development capital and generate recurring fee income throughout the life of various development projects.

In line with its strategy of securing high-potential investments, growing asset values and exiting within a three-to-five year horizon, the business is actively exploring promising residential, industrial and commercial properties and projects in Hong Kong and overseas that meets its investment mandate and complements the Group’s existing portfolio.

Despite investor sentiment in Hong Kong may be influenced by the ongoing U.S.A.-PRC trade tensions including the implementation of tit-for-tat trade tariffs between the two countries, recent commercial land tenders have attracted strong bids from developers, while earlier government policies aiming at revitalising industrial districts were also resumed during the year under review, the Group sees the long-term prospects of the Hong Kong property market. It remains cautiously optimistic about the strength of the commercial and industrial property markets in Hong Kong.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The U.S.A.-PRC trade tensions might also have an unpredictable impact on the market. Nevertheless, the potential for further interest rate rises by the Federal Reserve has become more muted which should support the ongoing positive sentiment in the real estate sector. The Group is also cautiously optimistic about the outlook for its investment portfolio in the U.S.A..

The asset, investment and fund management business will also explore potential projects in the PRC’s Greater Bay Area (the “GBA”), especially if increasing connectively between the GBA and Hong Kong results in more investment and demand.

This proactive but cautious strategy will continue to support the Group’s future performance while creating further value for shareholders.

5. MATERIAL ADVERSE CHANGE

The Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 March 2019 (being the date which the latest published audited consolidated financial statements of the Group had been made up) up to the Latest Practicable Date.

6. MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

Set out below is the management discussion and analysis of the Remaining Group’s business and performance for each of the three financial years ended 31 March 2019, 2018 and 2017.

Liquidity, Financial Resources and Capital Structure

The management and control of the Remaining Group’s financial, capital management and external financing functions are centralised at its headquarters in Hong Kong. The Remaining Group adheres to the principle of prudent financial management to minimise financial and operational risks. The Remaining Group mainly relies upon internally generated funds and bank borrowings to finance its operations and expansion.

As at 31 March 2019, the Remaining Group has total bank borrowings of HK$338 million which were mainly to finance the retaining of two floors of Rykadan Capital Tower, Hong Kong, the U.S.A. property development projects and investment in QHL.

As at 31 March 2018, the Remaining Group has total bank borrowings of HK$831million which were mainly to finance the retaining of two floors of Rykadan Capital Tower, Hong Kong, Maple Street Project and the U.S.A. property development projects and investment in QHL.

As at 31 March 2017, the Remaining Group has total bank borrowings of HK$331 million, which were mainly to finance the retaining two floors of Rykadan Capital Tower, Hong Kong, Maple Street Project and the U.S.A. property development projects.

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Of the total bank borrowings of the Remaining Group, the bank loans of HK$323 million as at 31 March 2019 were secured by the properties for sale, investment properties and buildings held for own use, of which HK$33 million will be repayable upon the completion of construction of properties. Further costs for developing the property redevelopment projects and the business of QHL will be financed by unutilised banking facilities or internally generated funds.

Of the total bank borrowings of the Remaining Group, the bank loans of HK$670 million as at 31 March 2018 were secured by the properties for sale, investment properties, buildings held for own use and pledged bank deposit, of which HK$184 million will be repayable upon the completion of construction of properties. Further costs for developing the property redevelopment projects and the business of QHL will be financed by unutilised banking facilities, deposits received from customers held as cash held by stakeholders designated for the projects or internally generated funds.

Of the total bank borrowings of the Remaining Group, the bank loans of HK$281 million as at 31 March 2017 were secured by the properties for sale, investment properties, buildings held for own use and pledged bank deposit, of which HK$169 million will be repayable upon the completion of construction of properties. Further costs for developing property redevelopment projects will be financed by unutilised banking facilities, deposits received from customers held as cash held by stakeholders designated for the projects or internally generated funds.

As at 31 March 2019, 2018 and 2017, the Remaining Group’s current assets were HK$1,418 million, HK$1,706 million and HK$1,065 million and current liabilities were HK$505 million, HK$1,203 million and HK$355 million respectively. The Remaining Group’s current ratios were 2.8, 1.4 and 3.0. The internally generated funds, together with unutilised banking facilities enable the Remaining Group to meet its business development needs.

The Remaining Group will cautiously seek new investment and development opportunities in order to balance risks and opportunities and maximise shareholders’ value.

Significant Investments

The following table shows the Remaining Group’s investments as at 31 March 2019, 2018 and 2017.

			Remaining	Status as of	Status as of	Status as of
Investment	Location	Type	Group’s interest	31/3/2019	31/3/2018	31/3/2017
Winston Project	1135 Winston	Residential	100%	Under planning	Under planning	Under planning
	Avenue, San	property
	Marino, CA 91108,
	the U.S.A.
265 Naomi Project	265 W Naomi	Residential	100%	Under construction.	Under construction.	Under planning
	Avenue, Arcadia,	property		Expected to be	Expected to be
	CA91007, the			completed in June	completed in
	U.S.A.			2019.	January 2019.

– I-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

			Remaining	Status as of	Status as of	Status as of
Investment	Location	Type	Group’s interest	31/3/2019	31/3/2018	31/3/2017
263 Naomi Project	263 W Naomi	Residential	100%	Under construction.	Under construction.	Under planning
	Avenue, Arcadia,	property		Expected to be	Expected to be
	CA91007, the			completed in April	completed in
	U.S.A.			2019.	January 2019.
Hampton Project	957 Hampton	Residential	100%	N/A	Sold out	Under construction.
	Road, Arcadia, CA	property				Expected to be
	91006, the U.S.A.					completed in the
						second quarter of
						2017.
Fallen Leaf	964 Fallen Leaf	Residential	100%	N/A	Sold out	Under construction.
Project	Road, Arcadia, CA	property				Expected to be
	91006, the U.S.A.					completed in the
						second quarter of
						2017.
Monterey Park	100,120,150,200	Residential and	100%	Under planning	Under planning	N/A
Towne Centre	South Garfield and	retail property
	114 East Garvey
	and City Parking
	Lot, Monterey
	Park, CA 91755,
	the U.S.A.
Shoreditch Project	79-81 Paul Street,	Commercial	100%	Completed and	Completed and	Completed
	Shoreditch,London,	property		being marketed to	being marketed to	(classified as
	EC2A 4NQ, the			buyer	buyer	properties for sale)
	U.K.
Le Roy Project	333 West Le Roy	Residential	50%	Sold out	Under construction.	Under planning
	Avenue,	property			Expected to be
	Arcadia,CA91007,				completed in
	the U.S.A.				September 2018.
Jaffe Road Project	216,216A,218,220	Commercial	3.55%	Under planning	N/A	N/A
	and 222A Jaffe	and retail
	Road, Wanchai,	property
	Hong Kong
Wong Chuk Hang	23 Wong Chuk	Commercial	20.8%	Under construction.	Under construction.	N/A
Project	Hang Road, Hong	and retail		Expected to be	Expected to be
	Kong	property		completed in	completed in
				March 2022.	March 2022.
The Paseo (one	Kowloon Inland	Residential/	100%	N/A	N/A	Completed
residential flat	Lot No. 11229	Commercial				(classified as
and commercial		property				properties for sale)
area)
Maple Street	124-126, 130, 132	Industrial	100%	Completed	Under construction	Under construction.
Project (2019:	and 134 Bedford	property		(classified as	and pre-sales stage.	Expected to be
11 workshops,	Road, Tai Kok			properties for sale).	Expected to be	completed in
2 floors and	Tsui, Kowloon				completed in	December 2018.
various car					December 2018.
parking spaces)
Wing Hong Street	55-57 Wing Hong	Industrial	26%	Completed.	Under construction.	Under construction
Project	Street and 84-86	property		Remaining 2 units	Expected to be	and pre-sale stage.
	King Lam Street,			handed over in	completed in	Expected to be
	Kowloon			April 2019	December 2018.	completed in
						December 2018.

– I-5 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Remaining	Status as of	Status as of	Status as of
Investment	Location	Type	Group’s interest	31/3/2019	31/3/2018	31/3/2017
2702, 2803, 2804	135 Hoi Bun Road,	Commercial	100%	Completed	Completed	Completed
and various car	Kwun Tong,	property		(classified as	(classified as	(classified as
parking spaces	Kowloon			investment	investment	investment
of Rykadan				properties)	properties)	properties)
Capital Tower
2802 of Rykadan	135 Hoi Bun Road,	Commercial	100%	Completed	Reclassified to	Completed
Capital Tower	Kwun Tong,	property		(classified as	investment	(classified as other
	Kowloon			investment	properties)	properties, plant
				properties)		and equipment)
Various car	135 Hoi Bun Road,	Commercial	100%	Completed	Completed	Completed
parking spaces	Kwun Tong,	property		(classified as	(classified as	(classified as
of Rykadan	Kowloon			properties for sale)	properties for sale)	properties for sale)
Capital Tower

Material Acquisitions and Disposals

On 19 July 2017, Q.R.B.G. S.r.L. (“QRBG”), an indirect wholly-owned subsidiary of QHL, has entered into a business sale and purchase contract with Quarella S.p.A. (“Quarella Italy”), an independent third party, pursuant to which QRBG has acquired, and Quarella Italy has, among other things, sold, the relevant parts of the business and assets of Quarella Italy which related to the business of production of quartz and marble-based engineered stone composite surface products. The major assets acquired by QRBG under the business sale and purchase contract consist of land and buildings, plant and machineries, inventories and trademarks.

Save as disclosed above, the Remaining Group had no other material acquisition and disposal during the three years ended 31 March 2019, 2018 and 2017.

Segmental Information

The principal activities of the Remaining Group are property development / asset, investment and fund management, property investment and distribution of construction and interior decorative materials.

Property Development/Asset, Investment and Fund Management

The Remaining Group was highly active in moving forward its property development investments during the three years ended 31 March 2019, 2018 and 2017. Highlights included developing certain high-potential overseas properties to broaden its investment portfolio since 2017 and the successful delivery and monetisation of the Remaining Group’s first two industrial real estate projects – the Wing Hong Street Project and the Maple Street Project and first residential real estate project – The Paseo in Hong Kong. The Remaining Group also sold three of its completed residential projects in the U.S.A..

Following the closing of Rykadan Real Estate Fund LP and Rykadan Real Estate Prospect Fund LP in December 2017 and April 2018 respectively, the Remaining Group’s asset, investment and fund management business moved forward with planning and site development of the Wong Chuk Hang Project and the Jaffe Road Project, which will develop jointly with the Remaining Group in accordance with their respective mandates. The

– I-6 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Remaining Group continues to develop the internal structure and add personnel to the asset, investment and fund management business as part of its strategy to broaden its capital base and tap larger-scale projects.

During the years, the Remaining Group also continued to explore opportunities to expend to other property-related business fields, including management services through its wholly-owned subsidiaries under a progressive fee structure linked to cost saving performance or at a fixed percentage of the actual total construction costs.

Following its exit from a number of the projects outlined above, the Remaining Group will seek to identify new opportunities and assess its projects on hand with a view of materialising these investments at an appropriate time.

Property Investment

For the three years ended 31 March 2019, 2018 and 2017, the Remaining Group holds several properties and hospitality operations in Hong Kong and Bhutan respectively. In Hong Kong, the Remaining Group continues to retain two floors of Rykadan Capital Tower for its own use and for rental income or potential rental income. In Bhutan, the Remaining Group has invested in a 24-suite boutique resort located in Bhutan’s Punakha Valley, for which operations and occupancy has been stable.

Distribution of Construction and Interior Decorative Materials

During the year ended 31 March 2018, the Remaining Group finalised a shareholders agreement with its joint venture partner governing the acquisition of business investment in Quarella Italy, a world leader in the production of quartz and marble-based stone composite surfaces products via a joint-venture. Quarella Italy was established over 50 years ago with manufacturing and research and development centres in Italy. Quarella Italy’s products are popularly used for benchtops, bathroom surfaces and floor tiles. It has supplied materials for a number of prominent commercial buildings and shopping malls in many markets around the world, including the PRC and Hong Kong.

The Remaining Group is continuing to look for other brands to expand its construction and interior decorative materials business of the subsidiary. As at 31 March 2019, 2018 and 2017, the subsidiary had contracts on hand worth HK$8 million, HK$43 million and HK$124 million to be completed, respectively.

Employees and Remuneration Policies

As at 31 March 2019, 2018 and 2017, the total numbers of employees of the Remaining Group were 27, 31 and 62. The Remaining Group offers an attractive remuneration policy, including reward to employees on a performance basis with reference to market rate, and subsidies for job-related continuing education. Total remuneration (including the directors’ remuneration) for the three years ended 31 March 2019, 2018 and 2017 of the Remaining Group was HK$48 million, HK$45 million and HK$51 million respectively.

– I-7 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Charges on the Remaining Group Assets

As at 31 March, banking facilities of the Remaining Group were secured by mortgages over:

Investment properties Buildings held for own use Properties for sale Pledged bank deposit	2019 HK$’000 173,720 40,350 69,222 – 283,292	2018 HK$’000 168,300 41,778 405,969 20,429 636,476	2017 HK$’000 132,200 51,074 401,092 422
			584,788

Prospects

The Remaining Group remains cautiously optimistic about the prospect of the commercial and industrial property markets in Hong Kong after the resume of the earlier government policies to revitalise industrial districts during the year under review. Strong bids attracted by recent commercial land tenders also indicated that developers are positive about the long-term strength of the Hong Kong real estate market despite local investor sentiment may also be influenced by the ongoing U.S.A.-PRC trade tensions, including the implementation of tit-for-tat trade tariffs between the two countries.

The ongoing U.S.A.-PRC trade tensions could also have an unpredictable impact on the property market in the U.S.A. Nevertheless, it has become more muted for the Federal Reserve to raise further the interest rate and this supports the ongoing positive investor sentiment in the U.S.A. real estate sector which the Remaining Group keeps cautiously optimistic about.

While it is finalising its exit from certain existing property investments and projects, the Remaining Group will deploy capital contributions from the asset, investment and fund management business together with its existing resources to identify and cautiously invest in new high-potential and larger-scale projects. Its explorations include potential projects in the PRC’s Greater Bay Area (the “GBA”), especially if increasing connectively between the GBA and Hong Kong results in more investment and demand.

The Remaining Group’s strategy will continue to be proactive but cautious in order to support its future performance and create additional value for its shareholders.

Gearing Ratio

As at 31 March 2018 and 2017, the Remaining Group’s gearing ratios (net debts, as defined by total bank borrowings less unrestricted bank deposits and cash, to total assets) were 19.2% and 14.5% respectively.

– I-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 March 2019, the Remaining Group’s gearing ratio (net debts, as defined by total bank borrowings less unrestricted bank deposits and cash, to total assets) was Nil, as the Remaining Group had net cash of HK$466 million.

Exposure to Fluctuations in Exchange Rates and Interest Rates and Corresponding Hedges

The Remaining Group operates in various regions with different foreign currencies including Euro, United States Dollars, British Pound and RMB.

Certain bank borrowings of the Remaining Group have been made at floating rates.

The Remaining Group has not implemented any foreign currencies and interest rates hedging policy. However, the management of the Remaining Group will monitor foreign currencies and interest rates for each business segment and consider appropriate hedging policies in future when necessary.

Contingent Liabilities

As at 31 March 2019, 2018 and 2017, the Company had issued guarantees to banks in respect of banking facilities granted to certain indirect subsidiaries of HK$393,426,000, HK$885,959,000 and HK$919,392,000 and a joint venture of HK$20,000,000, HK$Nil and HK$Nil respectively. Such banking facilities were utilised by its subsidiaries to the extent of HK$120,674,000, HK$308,170,000 and HK$322,157,000 respectively as at 31 March 2019, 2018 and 2017 including the bank guarantee in favour of a utility service provider to secure the payment obligation of a subsidiary of the joint venture for an amount up to EUR250,000, EUR370,000 and EUR370,000 respectively and the joint venture to the extent of HK$20,000,000, HK$Nil and HK$Nil respectively.

The directors do not consider it probable that a claim will be made against the Company under any of the guarantees.

The Company has not recognised any deferred income in respect of these guarantees as their fair values cannot be reliably measured using observable market data and no transaction price was incurred.

Capital Commitments

Authorised and not contracted for Contracted for	2019 HK$’000 696,314 38,763 735,077	2018 HK$’000 429,492 144,805 574,297	2017 HK$’000 228,147 16,589
			244,736

– I-9 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The above commitments include mainly the construction related costs to be incurred in respect of the Remaining Group’s development of its properties in various locations.

– I-10 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

The following is the text of a report set out on pages II-1 to II-25, received from the Company’s reporting accountants, KPMG, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

==> picture [114 x 46] intentionally omitted <==

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF BESTLINKAGE NHI CO., LTD. TO THE DIRECTORS OF RYKADAN CAPITAL LIMITED

Introduction

We report on the historical financial information of Bestlinkage NHI Co., Ltd. (the “Target Company”) set out on pages II-3 to II-25, which comprises the statements of financial position of the Target Company as at 31 March 2017, 2018 and 2019 and the statements of profit or loss and other comprehensive income, the statements of changes in equity and the cash flow statements, for each of the years ended 31 March 2017, 2018 and 2019 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages II-3 to II-25 forms an integral part of this report, which has been prepared for inclusion in the circular of Rykadan Capital Limited (the “Company”) dated 23 August 2019 (the “Circular”) in connection with the very substantial disposal in relation to the sale of Kailong Nanhui Business Park held by the Target Company by way of the disposal of 100% equity interest in the Target Company and the very substantial acquisition in relation to the grant of the option to buy back the Target Company.

Directors’ responsibility for Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in note 1 to the Historical Financial Information.

The Underlying Financial Statements of the Target Company as defined on page II-3, on which the Historical Financial Information is based, were prepared by the directors of the Target Company. The directors of the Target Company are responsible for the preparation of the Underlying Financial Statements that gives a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), and for such internal control as the directors of the Target Company determine is necessary to enable the preparation of the Underlying Financial Statements that is free from material misstatement, whether due to fraud or error.

– II-1 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

Reporting accountants’ responsibility

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

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

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

Opinion

In our opinion, the Historical Financial Information gives, for the purpose of the accountants’ report, a true and fair view of the Target Company’s financial position as at 31 March 2017, 2018 and 2019 and of the Target Company’s financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation and presentation set out in note 1 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page II-3 have been made.

Certified Public Accountants 8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 23 August 2019

– II-2 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

HISTORICAL FINANCIAL INFORMATION

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

The financial statements of the Target Company for the Relevant Periods, on which the Historical Financial Information is based, were audited by KPMG under separate terms of engagement with the Target Company in accordance with Hong Kong Standards on Auditing issued by the HKICPA (“Underlying Financial Statements”).

Statements of profit or loss and other comprehensive income

(Expressed in Renminbi)

Note Revenue 4 Direct costs Gross profit Other revenue 5 Administrative and other operating expenses (Loss)/profit from operations Increase in fair value of investment properties 8(a) Finance costs 6(a) Profit before taxation 6 Income tax 7(a) Profit and total comprehensive income for the year	Year 2017 RMB’000 2,507 (2,308) 199 15 (1,050) (836) 8,511 (1,925) 5,750 (2,128) 3,622	ended 31 March 2018 2019 RMB’000 RMB’000 7,068 12,092 (2,750) (4,960) 4,318 7,132 7 502 (950) (575) 3,375 7,059 – 56 (982) – 2,393 7,115 – (14) 2,393 7,101

– II-3 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

Statements of financial position

(Expressed in Renminbi)

Note Non-current asset Investment properties 8 Current assets Rental receivable 9 Other receivables, deposits and prepayments Cash at banks 10(a) Current liabilities Payables and accruals 11 Amount due to a related company 12 Amount due to immediate holding company 12 Bank loan 13 Net current liabilities Total assets less current liabilities Non-current liabilities Bank loan 13 Deferred tax liabilities 14 NET ASSETS CAPITAL AND RESERVE 15 Share capital Retained profits TOTAL EQUITY	At 31 March 2017 2018 RMB’000 RMB’000 288,600 288,791 ------------ ------------ – – 3,034 3,200 1,354 1,959 4,388 5,159 ------------ ------------ 9,018 32,729 787 – 80,504 88,304 9,700 – 100,009 121,033 ------------ ----------------------- ------------ ----------------------- (95,621) (115,874) ------------ ----------------------- ------------ ----------------------- 192,979 172,917 ------------ ------------ 22,455 – 35,745 35,745 58,200 35,745 ------------ ----------------------- ------------ ----------------------- 134,779 137,172 86,540 86,540 48,239 50,632 134,779 137,172	2019 RMB’000 289,100 ------------ 2,741 3,252 4,648 10,641 ------------ 31,405 – 88,304 – 119,709 ------------ ----------------------- (109,068) ------------ ----------------------- 180,032 ------------ – 35,759 35,759 ------------ ----------------------- 144,273 86,540 57,733 144,273

– II-4 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

Statements of changes in equity

(Expressed in Renminbi)

Balance at 1 April 2016 Change in equity for the year ended 31 March 2017: Profit and total comprehensive income for the year Balance at 31 March 2017 and 1 April 2017 Change in equity for the year ended 31 March 2018: Profit and total comprehensive income for the year Balance at 31 March 2018 and 1 April 2018 Change in equity for the year ended 31 March 2019: Profit and total comprehensive income for the year Balance at 31 March 2019	Share capital RMB’000 86,540 – 86,540 – 86,540 – 86,540	Retained profits RMB’000 44,617 3,622 48,239 2,393 50,632 7,101 57,733	Total RMB’000 131,157 3,622
			134,779 2,393
			137,172 7,101
			144,273

– II-5 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

Cash flow statements

(Expressed in Renminbi)

Note Operating activities Profit before taxation Adjustments for: Interest income 5 Finance costs 6(a) Increase in fair value of investment properties 8(a) Changes in working capital: Increase in rental receivable Increase in other receivables, deposits and prepayments Increase/(decrease) in payables and accruals Cash generated from operations Interest expenses paid Net cash (used in)/generated from operating activities Investing activities Additions to investment properties Interest received Net cash used in investing activities Financing activities Decrease in amount due to a related company 10(b) Advance from immediate holding company 10(b) Repayment of bank loan 10(b) Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year 10(a) Cash and cash equivalents at the end of the year 10(a)	Year 2017 RMB’000 5,750 (15) 1,925 (8,511) – (5) 2,616 1,760 (1,925) (165) ------------ (89) 15 (74) ------------ (1,350) 7,700 (9,700) (3,350) ------------ ----------------------- (3,589) 4,943 1,354	ended 31 March 2018 2019 RMB’000 RMB’000 2,393 7,115 (7) (4) 982 – – (56) – (2,741) (166) (52) 23,711 (1,324) 26,913 2,938 (982) – 25,931 2,938 ------------ ------------ (191) (253) 7 4 (184) (249) ------------ ------------ (787) – 7,800 – (32,155) – (25,142) – ------------ ----------------------- ------------ ----------------------- 605 2,689 1,354 1,959 1,959 4,648

– II-6 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1 Basis of preparation and presentation of Historical Financial Information

Bestlinkage NHI Co., Ltd. (the “Target Company”) was established in the People’s Republic of China (the “PRC”) on 29 November 2007 with limited liability under the Company Law of the PRC. The registered capital is USD12,700,000. The principal activity of the Target Company is property holding. Its ultimate holding company is Rykadan Capital Limited (“the Company”), a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Its immediate holding company is Power City Investments Limited (“Power City”), a subsidiary of the Company incorporated in Hong Kong.

The statutory financial statements of the Target Company for the years ended 31 December 2016, 2017 and 2018 were prepared in accordance with the relevant accounting rules and regulations applicable in the PRC, and were audited by Shanghai Linfang Certified Public Accountants Company Limited（上海琳方會計師事務所有限公司）, a firm of certified public accountants registered in the PRC.

The Historical Financial Information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Further details of the significant accounting policies adopted are set out in note 2.

The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this Historical Financial Information, the Target Company has adopted all applicable new and revised HKFRSs to the Relevant Periods, except for any new standards or interpretations that are not yet effective for the accounting period ended 31 March 2019. The revised and new accounting standards and interpretations issued but not yet effective for the Relevant Periods are set out in note 19.

The Group has adopted HKFRS 9, Financial instruments , and HKFRS15, Revenue from contracts with customers , which are effective for the accounting period beginning 1 January 2018, consistently throughout the Relevant Periods.

The Historical Financial Information also complies with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The Historical Financial Information of the Target Company for the Relevant Periods is presented in Renminbi (“RMB”), which is also the functional currency of the Target Company. All values are rounded to the nearest thousand (RMB’000) except where otherwise indicated.

The accounting policies set out below have been applied consistently to all periods presented in the Historical Financial Information.

2 Significant accounting policies

(a) Going concern

Notwithstanding the net current liabilities of the Target Company at 31 March 2017, 2018 and 2019, the Historical Financial Information has been prepared on a going concern basis as Rykadan Capital Limited, the ultimate holding company, has confirmed that it will continue to provide such financial assistance as is necessary to maintain the Target Company as a going concern and to enable it to meet its liabilities as and when they fall due over the next twelve months from the end of the Relevant Periods.

(b) Basis of measurement

The measurement basis used in the preparation of the Historical Financial Information is the historical cost basis except where stated otherwise in the accounting policies set out below.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

(c) Use of estimates and judgements

The preparation of the Historical Financial Information in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of HKFRSs that have significant effect on the Historical Financial Information and major sources of estimation uncertainty are discussed in note 3.

(d) Investment properties

Investment properties are land and/or buildings which are owned or held under a leasehold interest (see note 2(e)) to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use and property that is being constructed or developed for future use as investment property.

Investment properties are stated at fair value, unless they are still in the course of construction or development at the end of the reporting period and their fair value cannot be reliably measured at that time. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss. Rental income from investment properties is accounted for as described in note 2(m)(i).

When the Target Company holds a property interest under an operating lease to earn rental income and/or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it were held under a finance lease (see note 2(e)), and the same accounting policies are applied to that interest as are applied to other investment properties leased under finance leases. Lease payments are accounted for as described in note 2(e).

(e) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Target Company determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Target Company

Assets that are held by the Target Company under leases which transfer to the Target Company substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Target Company are classified as operating leases, with the following exception:

• property held under operating leases that would otherwise meet the definition of an investment property is classified as investment property on a property-by-property basis and, if classified as investment property, is accounted for as if held under a finance lease (see note 2(d)).

(ii) Operating leases charges

Where the Target Company has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from

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APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of the lease term except where the property is classified as an investment property (see note 2(d)) or is held for development for sale.

(f) Rental and other receivables

A receivable is recognised when the Target Company has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due.

Receivables are stated at amortised cost using the effective interest method less allowance for credit losses (see note 2(g)).

(g) Credit losses

The Target Company recognises a loss allowance for expected credit losses (“ECLs”) on the following

items:

• financial assets measured at amortised cost (including cash at banks and other receivables, deposits and prepayments); and

• rental receivable.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Target Company in accordance with the contract and the cash flows that the Target Company expects to receive).

The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material:

• fixed-rate financial assets, other receivables, deposits and prepayments: effective interest rate determined at initial recognition or an approximation thereof;

• variable-rate financial assets: current effective interest rate; and

• rental receivable: discount rate used in the measurement of the rental receivable.

The maximum period considered when estimating ECLs is the maximum contractual period over which the Target Company is exposed to credit risk.

In measuring ECLs, the Target Company takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.

ECLs are measured on either of the following bases:

• 12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and

• lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.

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Loss allowances for rental receivable are always measured at an amount equal to lifetime ECLs. ECLs on rental receivable are estimated using a provision matrix based on the Target Company’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.

For all other financial instruments, the Target Company recognises a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.

Significant increases in credit risk

In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Target Company compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Target Company considers that a default event occurs when (i) the borrower is unlikely to pay its credit obligations to the Target Company in full, without recourse by the Target Company to actions such as realising security (if any is held); or (ii) the financial asset is 90 days past due. The Target Company considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

• failure to make payments of principal or interest on their contractually due dates;

• an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available);

• an actual or expected significant deterioration in the operating results of the debtor; and

• existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Target Company.

Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings.

ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Target Company recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

Basis of calculation of interest income

Interest income recognised in accordance with note 2(m)(iii) is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset.

At each reporting date, the Target Company assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

Evidence that a financial asset is credit-impaired includes the following observable events:

• significant financial difficulties of the debtor;

• a breach of contract, such as a default or delinquency in interest or principal payments;

• it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation; or

• significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.

Write-off policy

The gross carrying amount of a financial asset and rental receivable is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Target Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.

Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs.

(h) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Cash and cash equivalents are assessed for ECLs in accordance with the policy set out in note 2(g).

(i) Payables

Payables are initially recognised at fair value and are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(j) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

(k) Income tax

Income tax for the Relevant Periods comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable on the taxable income for the Relevant Periods, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

Where investment properties are carried at their fair value in accordance with the accounting policy set out in note 2(d), the amount of deferred tax recognised is measured using the tax rates that would apply on sale of those assets at their carrying value at the reporting date unless the property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the property over time, rather than through sale. In all other cases, the amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted.

(l) Provisions and contingent liabilities

Provisions are recognised when the Target Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(m) Revenue and other income

Income is classified by the Target Company as revenue when it arises from the provision of services or the use by others of the Target Company’s assets under leases in the ordinary course of the Target Company’s business.

Revenue is recognised when control over a service is transferred to the customer, or the lessee has the right to use the asset, at the amount of promised consideration to which the Target Company is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

Further details of the Target Company’s revenue and other income recognition policies are as follows:

(i) Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned. Rental income is recognised net of value added tax.

(ii) Property management fee and utility income

Property management fee and utility income is recognised when relevant services are provided, net of value added tax.

(iii) Interest income

Interest income is recognised as it accrues using the effective interest method using the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of the financial asset. For financial assets measured at amortised cost that are not credit-impaired, the effective interest rate is applied to the gross carrying amount of the asset. For credit-impaired financial assets, the effective interest rate is applied to the amortised cost (i.e. gross carrying amount net of loss allowance) of the asset (see note 2(g)).

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APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

(n) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

(o) Related parties

• (1) A person, or a close member of that person’s family, is related to the Target Company if that person:

• (i) has control or joint control over the Target Company;

• (ii) has significant influence over the Target Company; or

• (iii) is a member of the key management personnel of the Target Company.

• (2) An entity is related to the Target Company if any of the following conditions applies:

• (i) The entity and the Target Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

• (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

• (iii) Both entities 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 Target Company or an entity related to the Target Company.

• (vi) The entity is controlled or jointly controlled by a person identified in (1).

• (vii) A person identified in (1)(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).

• (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Target Company or to the Target Company’s parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

3 Accounting judgements and estimates

Sources of estimation uncertainty

The methods, estimates and judgements the directors used in applying the Target Company’s accounting policies have a significant impact on the Target Company’s financial position and operating results. Some of the accounting policies require the Target Company to apply estimates and judgements on matters that are inherently uncertain. The critical accounting judgements in applying the Target Company’s accounting policies are described below.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

Valuation of investment properties

Investment properties are included in the statement of financial position at their market value, unless they are still in the course of construction or development at the end of the reporting period and their fair value cannot be reliably determined at that time. The market value of investment properties is assessed annually by independent qualified valuers, after taking into consideration the net rental income and other available market survey reports.

The assumptions adopted in the property valuation include market rents of properties with similar characteristic within the vicinity, expected market rental growth of the properties, appropriate discount rate and stabilised occupancy rate.

4 Revenue

The principal activity of the Target Company is property holding.

(a)

Revenue from contracts with customers within the scope of HKFRS 15 Property management fee and utility income Revenue from other source Rental income	2017 RMB’000 647 1,860 2,507	2018 RMB’000 2,729 4,339 7,068	2019 RMB’000 4,881 7,211
			12,092

(b) Revenue expected to be recognised in the future arising from contracts with customers in existence at the reporting date

The Target Company has applied the practical expedient in paragraph 121 of HKFRS 15 to all of its contracts such that no information regarding revenue expected to be recognised in the future arising from contracts with customers in existence at the reporting date is disclosed because the remaining performance obligation is part of a contract that has an original expected duration of one year or less.

• (c) The Target Company leases out investment properties under operating leases. The leases typically run for an initial period of 1 to 5 years, with an option to renew the leases after that date at which time all terms are renegotiated. None of the leases includes contingent rentals.

The Target Company’s total minimum lease payments under non-cancellable operating leases are receivable as follow:

			2017	2018	2019
			RMB’000	RMB’000	RMB’000
Within	1	year	1,556	1,932	1,605

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APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

5 Other revenue

Interest income Others	2017 RMB’000 15 – 15	2018 RMB’000 7 – 7	2019 RMB’000 4 498
			502

6 Profit before taxation

Profit before taxation is arrived at after charging/(crediting):

(a) Finance costs: Interest on bank loan (b) Other items: Auditors’ remuneration Directors’ remuneration (notes (i) and (ii)) Rental, property management fee and utility income receivables from investment properties less direct outgoing of RMB2,308,000, RMB2,750,000 and RMB4,960,000 for the years ended 31 March 2017, 2018 and 2019 respectively	2017 RMB’000 1,925 25 – (199)	2018 RMB’000 982 28 – (4,318)	2019 RMB’000 –
			14 – (7,132)

Notes:

• (i) During the Relevant Periods, no emoluments, retirement benefits, payments or benefits in respect of termination of directors’ services were paid or made, directly or indirectly, to the directors, nor are any payable. No consideration was provided to or receivable by third parties for making available directors’ services.

• (ii) There are no loans, quasi-loans or other dealings in favour of directors, their controlled bodies corporate and connected entities.

7 Income tax

• (a) Taxation in statements of profit or loss and other comprehensive income represents:

Deferred tax Origination and reversal of temporary differences (note 14(a))	2017 RMB’000 2,128	2018 RMB’000 –	2019 RMB’000 14

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APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

Under the Law of the PRC on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the PRC EIT tax rate is 25% for the years ended 31 March 2017, 2018 and 2019. No provision for the PRC Enterprise Income Tax has been made during the Relevant Periods as the Target Company sustained a loss for taxation purposes for the years ended 31 March 2017 and 2018 and the tax losses brought forward from previous years exceeded the estimated assessable profit for the year ended 31 March 2019.

• (b) Reconciliation between tax expense charged to profit or loss and profit before taxation at applicable tax rate:

Profit before taxation Notional tax on profit before taxation Tax effect of unused tax losses not recognised Recognition/utilisation of tax losses previously not recognised Actual tax expense charged to profit or loss	2017 RMB’000 5,750 1,438 690 – 2,128	2018 RMB’000 2,393 598 – (598) –	2019 RMB’000 7,115
			1,779 – (1,765)
			14

• 8 Investment properties

(a)

At valuation: At the beginning of the year Additions Revaluation surplus At the end of the year	2017 RMB’000 280,000 89 8,511 288,600	2018 RMB’000 288,600 191 – 288,791	2019 RMB’000 288,791 253 56
			289,100

All investment properties are held in the PRC under medium-term leases.

At 31 March 2017, the investment properties were pledged as securities for bank loan (note 13).

(b) Fair value hierarchy

• (i) The Target Company’s investment properties measured at fair value at the end of the reporting periods on a recurring basis are categorised into three-level fair value hierarchy as defined in HKFRS 13, Fair value measurement . The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:

• Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

– Level 3 valuations: Fair value measured using significant unobservable inputs.

At 31 March 2017, 2018 and 2019, the Target Company’s investment properties fall into Level 3 of the fair value hierarchy as described above.

The Target Company’s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur. During the years ended 31 March 2017, 2018 and 2019, there were no transfers between Level 1 and Level 2 or transferred into or out of Level 3.

The investment properties in the PRC were revalued as at 31 March 2017, 2018 and 2019 by Colliers International (Hong Kong) Limited, Beijing Colliers International Real Estate Valuation Co., Ltd. (“Beijing Colliers”) and Beijing Colliers respectively, independent firms of surveyors who has among their staff Fellows of the Hong Kong Institute of Surveyors with recent experience in the location and category of properties being valued.

Valuation processes

The senior management of the Target Company reviews the valuation performed by the independent valuers for financial reporting purposes by verifying all major inputs and assessing the reasonableness of the property valuation. A valuation report with an analysis of changes in fair value measurement is prepared at each annual reporting date, and is reviewed and approved by the senior management.

Valuation methodologies

The fair value of investment properties in the PRC is determined by discounting a projected cash flow series associated with the properties using discount rate, takes into account expected market rental growth of the properties and stabilised occupancy rate. The discount rate used has been adjusted for the quality and location of the buildings and the tenant credit quality. The fair value measurement is positively correlated to the expected market rental growth and negatively correlated to the discount rate.

(ii) Information about Level 3 fair value measurements

		Significant	Range
	Valuation technique	unobservable inputs	(weighted average)
Investment properties	Discounted cash flow	Expected market	2017: 2% – 3%
in the PRC	method	rental growth	2018: 2% – 3%
			2019: 0% – 3%
		Discount rate	2017: 9%
			2018: 9%
			2019: 9%
		Stabilised occupancy rate	2017: 90%
			2018: 90%
			2019: 90%

The revaluation surplus arising on revaluation of investment properties is recognised as “increase in fair value of investment properties” in the statements of profit or loss and other comprehensive income.

(c) In July 2017, the Target Company and Power City entered into a property sale and purchase agreement (the “Original Property SPA”) and a framework agreement (the “Original Framework Agreement”) with Shanghai Medicilon Inc. （上海美迪西生物醫藥股份有限公司） (the “Purchaser”), an independent third party, with regard to (i) the disposal of block 4 of Kailong Nanhui Business Park (the “Business Park”) in the PRC and (ii) the entering into of the agreement in relation to the disposal of the entire equity interests in the Target Company (effectively disposing of the Business

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APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

Park entirely). Details of such proposed disposal was disclosed in the circular of the Company dated 22 September 2017. Nevertheless, as at 31 March 2018 and 2019, the Company and the Purchaser re-assessed and further negotiated on an alternative deal structure in order for the sale to go through due to the difficulties encountered in obtaining approval from the authorities for the disposal of the Business Park in stages.

Management considered that it was not probable to execute the Original Property SPA and the Original Framework Agreement. Therefore, the investment properties were not classified as held for sale as at 31 March 2018 and 2019.

9 Rental receivable

2017 2018 2019 RMB’000 RMB’000 RMB’000 Rental receivable – – 2,741

At 31 March 2019, the ageing analysis of rental receivable is as follows:

2019 RMB’000 Current 2,741

Further details on the Target Company’s credit policy are set out in note 16(a).

10 Cash at banks

• (a) At 31 March 2017, 2018 and 2019, cash at banks of RMB1,354,000, RMB1,959,000 and RMB4,648,000 respectively are denominated in RMB, the remittance of which is subject to relevant rules and regulations of foreign exchange control promulgated by the PRC government.

(b) Reconciliation of liabilities arising from financing activities

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

– II-18 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

At 1 April 2016 Changes from financing cash flows: Decrease in amount due to a related company Advance from immediate holding company Repayment of bank loan Total changes from financing cash flows Other changes: Interest expenses (note 6(a)) Interest expenses paid Total other changes At 31 March 2017 At 1 April 2017 Changes from financing cash flows: Decrease in amount due to a related company Advance from immediate holding company Repayment of bank loan Total changes from financing cash flows Other changes: Interest expenses (note 6(a)) Interest paid Total other changes At 31 March 2018, 1 April 2018 and 31 March 2019	Amount due to a related company Amount due to immediate holding company RMB’000 (note 12) RMB’000 (note 12) 2,137 72,804 ------------- ------------- (1,350) – – 7,700 – – (1,350) 7,700 - - - - - - - - - - - - - - - - - - - - - - - - - - – – – – – – - - - - - - - - - - - - - --------------------------------------------------- - - - - - - - - - - - - - --------------------------------------------------- 787 80,504 Amount due to a related company Amount due to immediate holding company RMB’000 (note 12) RMB’000 (note 12) 787 80,504 - - - - - - - - - - - - - - - - - - - - - - - - - - (787) – – 7,800 – – (787) 7,800 - - - - - - - - - - - - - - - - - - - - - - - - - - – – – – – – - - - - - - - - - - - - - --------------------------------------------------- - - - - - - - - - - - - - --------------------------------------------------- – 88,304	Amount due to a related company Amount due to immediate holding company RMB’000 (note 12) RMB’000 (note 12) 2,137 72,804 ------------- ------------- (1,350) – – 7,700 – – (1,350) 7,700 - - - - - - - - - - - - - - - - - - - - - - - - - - – – – – – – - - - - - - - - - - - - - --------------------------------------------------- - - - - - - - - - - - - - --------------------------------------------------- 787 80,504 Amount due to a related company Amount due to immediate holding company RMB’000 (note 12) RMB’000 (note 12) 787 80,504 - - - - - - - - - - - - - - - - - - - - - - - - - - (787) – – 7,800 – – (787) 7,800 - - - - - - - - - - - - - - - - - - - - - - - - - - – – – – – – - - - - - - - - - - - - - --------------------------------------------------- - - - - - - - - - - - - - --------------------------------------------------- – 88,304	Bank loan Total RMB’000 (note 13) RMB’000 41,855 116,796 ------------- ------------- – (1,350) – 7,700 (9,700) (9,700) (9,700) (3,350) - - - - - - - - - - - - - - - - - - - - - - - - - - 1,925 1,925 (1,925) (1,925) – – - - - - - - - - - - - - - --------------------------------------------------- - - - - - - - - - - - - - --------------------------------------------------- 32,155 113,446 Bank loan Total RMB’000 (note 13) RMB’000 32,155 113,446 - - - - - - - - - - - - - - - - - - - - - - - - - - – (787) – 7,800 (32,155) (32,155) (32,155) (25,142) - - - - - - - - - - - - - - - - - - - - - - - - - - 982 982 (982) (982) – – - - - - - - - - - - - - - --------------------------------------------------- - - - - - - - - - - - - - --------------------------------------------------- – 88,304
	– - - - - - - - - - - - - - --------------------------------------------------- –	– - - - - - - - - - - - - - --------------------------------------------------- 88,304	– - - - - - - - - - - - - - --------------------------------------------------- –

– II-19 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

11 Payables and accruals

Receipts in advance Deposits received from tenants Deposits received from disposal of investment property (note) Other payables and accruals	2017 RMB’000 1,284 1,824 – 5,910 9,018	2018 RMB’000 1,364 2,192 23,265 5,908 32,729	2019 RMB’000 383 1,725 23,265 6,032
			31,405

Note: At 31 March 2018 and 2019, the amounts represent deposits received from the Purchaser in relation to the disposal of block 4 of the Business Park (note 8(c)).

Except for certain deposits received from tenants of RMB1,754,000, RMB1,979,000 and RMB1,340,000 as at 31 March 2017, 2018 and 2019 respectively which are expected to be settled after more than one year, the remaining payables and accruals are expected to be settled within one year.

12 Amounts due to a related company and immediate holding company

The amounts due to a related company and immediate holding company are unsecured, interest-free and repayable on demand.

13 Bank loan

The secured bank loan was repayable as follows:

Within 1 year or on demand After 1 year but within 2 years After 2 years but within 5 years	2017 RMB’000 9,700 - - - - - - - - - - 9,700 12,755 22,455 - - - - - - - - - - --------------------------------------- 32,155	2018 RMB’000 – - - - - - - - - - - – – – - - - - - - - - - - --------------------------------------- –	2019 RMB’000 – - - - - - - - - - - – –
			– - - - - - - - - - - --------------------------------------- –

• (a) At 31 March 2017, the bank loan bore interest at The People’s Bank of China Base Interest Rate per annum.

• (b) At 31 March 2017, the bank loan is secured by mortgages over investment properties with an aggregate carrying value of RMB288,600,000 (note 8).

• (c) During the year ended 31 March 2018, the bank loan was fully repaid.

– II-20 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

14 Deferred tax liabilities

(a) Deferred tax liabilities/(assets) recognised:

The components of deferred tax liabilities/(assets) recognised in the statements of financial position and the movements during the Relevant Periods are as follows:

At 1 April 2016 Charged/(credited) to profit or loss At 31 March 2017 and 1 April 2017 Charged/(credited) to profit or loss At 31 March 2018 and 1 April 2018 Charged/(credited) to profit or loss At 31 March 2019	Depreciation allowances in excess of the related depreciation RMB’000 7,584 1,675	Tax losses recognised Revaluation of investment properties RMB’000 RMB’000 (7,584) 33,617 (1,675) 2,128 (9,259) 35,745 (1,682) – (10,941) 35,745 (1,685) 14 (12,626) 35,759	Total RMB’000 33,617 2,128
	9,259 1,682		35,745 –
	10,941 1,685		35,745 14
	12,626		35,759

(b) Deferred tax assets not recognised:

At 31 March 2017, 2018 and 2019, the Target Company has not recognised deferred tax assets of RMB10,097,000, RMB3,975,000 and RMBNil respectively in respect of tax losses of RMB40,390,000, RMB15,900,000 and RMBNil respectively as it is not probable that sufficient future taxable profits will be available against which the assets can be utilised. The tax losses can be carried forward to offset against taxable profits of subsequent years for up to five years from the year in which they arose.

15 Capital and reserve

(a)	Share capital
	Paid-up capital	2017	2018	2019
		RMB’000	RMB’000	RMB’000
	At the beginning and the end of the year	86,540	86,540	86,540

(b) Capital management

The Target Company’s primary objectives when managing capital are to safeguard the Target Company’s ability to continue as a going concern, so that it can continue to provide returns for shareholder, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost. As the Target Company is part of a larger group, the Target Company’s sources of additional capital and policies for distribution of excess capital may also be affected by the larger group’s capital management objectives.

– II-21 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

The Target Company defines “capital” as including all components of equity plus any loans from other group companies with no fixed terms of repayment. Trading balances that arise as a result of trading transactions with other group companies are not regarded by the Target Company as capital.

The Target Company’s capital structure is regularly reviewed and managed with due regard to the capital management practices of the larger group to which the Target Company belongs. Adjustments are made to the capital structure in light of changes in economic conditions affecting the Target Company or the larger group to which the Target Company belongs, to the extent that these do not conflict with the directors’ fiduciary duties towards the Target Company.

There has been no change in the Target Company’s capital management practices as compared to prior year and the Target Company is not subject to externally imposed capital requirements.

16 Financial risk management and fair values of financial instruments

The Target Company’s major financial instruments include cash at banks, rental receivable, other receivables, deposits and prepayments, payables and accruals, amounts due to a related company/immediate holding company and bank loan. The risks associated with these financial instruments include credit risk, liquidity risk and interest rate risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(a) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Target Company. The Target Company’s credit risk is primarily attributable to rental receivable. The Target Company’s exposure to credit risk arising from cash at banks is limited because the counterparties are major financial institutions in the PRC, for which the Target Company considers to have low credit risk.

Other receivables, deposits and prepayments are reviewed regularly, for which the Target Company to have low credit risk.

The Target Company does not provide any guarantee which would expose the Target Company to credit risk.

Rental receivable

The Target Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer and therefore significant concentrations of credit risk primarily arise when the Target Company has significant exposure to individual customers. At 31 March 2019, the entire balance of rental receivable was due from the Purchaser.

Management manages this risk by reviewing the recoverable amount at the end of each reporting period.

The Target Company measures loss allowances for rental receivable at an amount equal to lifetime ECLs. Given the Target Company has not experienced any significant credit losses in the past, the allowance for ECLs is insignificant.

(b) Liquidity risk

The Target Company’s policy is to regularly monitor its liquidity requirements to ensure that it maintains sufficient reserves of cash and committed lines of funding from major financial institutions and/or group companies to meet its liquidity requirements in the short and longer term.

– II-22 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

The following table details the Target Company’s remaining contractual maturity for its financial liabilities which are based on the contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date on which the Target Company can be required to pay. The maturity dates for financial liabilities are based on the agreed repayment dates.

Weighted average interest rate % At 31 March 2017 Payables and accruals N/A Amount due to a related company N/A Amount due to immediate holding company N/A Bank loan 4.75% Weighted average interest rate % At 31 March 2018 Payables and accruals N/A Amount due to immediate holding company N/A	Contractual undiscounted cashflows	Contractual undiscounted cashflows	Contractual undiscounted cashflows	Contractual undiscounted cashflows	Total carrying amount RMB’000 7,734 787 80,504 32,155
	Within 1 year or on demand RMB’000 5,980 787 80,504 10,950	More than 1 year and less than 2 years RMB’000 213 – – 10,427	More than 2 years and less than 5 years RMB’000 1,541 – – 13,017	Total RMB’000 7,734 787 80,504 34,394
	98,221	10,640	14,558	123,419	121,180
					Total carrying amount RMB’000 8,100 88,304
	Within 1 year or on demand RMB’000 6,121 88,304	More than 1 year and less than 2 years RMB’000 341 –	More than 2 years and less than 5 years RMB’000 1,638 –	Total RMB’000 8,100 88,304
	94,425	341	1,638	96,404	96,404

– II-23 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

Weighted average interest rate % At 31 March 2019 Payables and accruals N/A Amount due to immediate holding company N/A	Contractual undiscounted cashflows	Contractual undiscounted cashflows	Contractual undiscounted cashflows	Contractual undiscounted cashflows	Total carrying amount RMB’000 7,757 88,304
	Within 1 year or on demand RMB’000 6,417 88,304	More than 1 year and less than 2 years RMB’000 662 –	More than 2 years and less than 5 years RMB’000 678 –	Total RMB’000 7,757 88,304
	94,721	662	678	96,061	96,061

(c) Interest rate risk

At 31 March 2017, the Target Company’s interest rate risk arises primarily from variable-rate bank loan. The interest rate and terms of repayment of the bank loan are set out in note 13. The Target Company does not have an interest rate hedging policy. However, management monitors closely the interest rate exposure and will consider other necessary actions when significant interest rate exposure is anticipated.

At 31 March 2018 and 2019, the Target Company does not have significant exposure to interest rate

risk.

Sensitivity analysis

For variable-rate bank loan, the analysis is prepared assuming the bank loan outstanding at 31 March 2017 was outstanding for the whole year. A 50 basis points increase or decrease in variable-rate bank loan represents management’s assessment of the reasonably possible change in interest rates. If interest rate increases/decreases by the aforesaid basis point, and all other variables were held constant, the Target Company’s post-tax results for the year ended 31 March 2017, would be decreased/increased by approximately RMB161,000.

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

(d) Fair value of financial assets and liabilities carried at other than fair values

All financial instruments carried at other than fair values are carried at amounts not materially different from their fair values as at 31 March 2017, 2018 and 2019.

17 Material related party transaction

Apart from disclosed elsewhere in the Historical Financial Information, the Target Company had entered into the following significant transactions with the related party during the Relevant Periods:

	2017	2018	2019
	RMB’000	RMB’000	RMB’000
Asset management expense paid/payable to Kailong REI
Project Investment Consulting (Shanghai) Co., Ltd.	337	337	337

– II-24 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET COMPANY

18 Immediate and ultimate controlling party

At 31 March 2017, 2018 and 2019, the directors consider the immediate parent and ultimate controlling party of the Target Company to be Power City which is incorporated in Hong Kong, and Rykadan Capital Limited which is incorporated in the Cayman Islands. Rykadan Capital Limited produces financial statements available for public use.

19 Possible impact of amendments, new standards and interpretations issued but not yet effective for the Relevant Periods

Up to the date of issue of the Historical Financial Information, the HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective for the Relevant Periods and which have not been adopted in the Historical Financial Information. These include the following which may be relevant to the Target Company.

	Effective for accounting
	periods beginning on or after
HKFRS 16, Leases	1 January 2019
HK(IFRIC) 23, Uncertainty over income tax treatments	1 January 2019
Annual improvements to HKFRSs 2015-2017 Cycle	1 January 2019
Amendments to HKAS 28, Long-term interest in associates and joint	1 January 2019
ventures

The Target Company is in the process of making an assessment of what the impact of these amendments, new standards and interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Historical Financial Information.

20 Subsequent events

On 13 June 2019, a new framework agreement has been entered into among Power City, the Target Company and the Purchaser in relation to the sale of the Business Park held by the Target Company by way of the disposal by Power City of its 100% equity interest in the Target Company to the Purchaser (the “New Framework Agreement”). The New Framework Agreement replaced the Original Framework Agreement and the Original Property SPA, which were automatically terminated upon the New Framework Agreement became effective on 13 June 2019.

SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company in respect of any period subsequent to 31 March 2019.

– II-25 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET COMPANY

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET COMPANY

Set out below is the management discussion and analysis of Target Company for the three years ended 31 March 2019, 2018 and 2017, which is based on the accountants’ report of the Target Company as set out in Appendix II to this circular.

Results

For the financial years ended 31 March 2019, 2018 and 2017, revenue in the amount of RMB12,092,000, RMB7,068,000 and RMB2,507,000 were recorded by the Target Company respectively.

Liquidity, Financial Resources and Capital Structure

As at 31 March 2019, 2018 and 2017, the Target Company’s total liabilities to total assets ratio were approximately 51.9%, 53.3% and 54.0% respectively.

The Target Company mainly relies upon its cash and bank balances on hand, bank loans and intercompany loans to finance its operations.

Significant Investment

As at 31 March 2019, 2018 and 2017, the Target Company had investment properties of RMB289,100,000, RMB288,791,000 and RMB288,600,000 respectively.

Save as disclosed above, the Target Company neither had any other significant investments nor any future plans for material investments or capital assets.

Material Acquisitions and Disposals

For the financial years ended 31 March 2019, 2018 and 2017, the Target Company had not entered into any material acquisitions and/or disposals of any its subsidiaries and associated companies.

Segment Information

The Target Company has only one operating segment which is property leasing, no segment information is presented other than the entity-wide information.

Employees and Remuneration Policy

For the financial years ended 31 March 2019, 2018 and 2017, the Target Company did not have any employees and thus no remuneration expenses were incurred.

Instead, the Target Company had outsourced the project and property management, financial reporting and daily operations and recorded such project and property management fees during the years.

– III-1 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET COMPANY

APPENDIX III

Charges on the Target Company Assets

As at 31 March 2019 and 2018, the Target Company did not have any charges on the Target Company assets.

As at 31 March 2017, bank loan was secured by mortgage over investment properties with an aggregate carrying amount of RMB288,600,000.

Prospects for New Business

For the financial years ended 31 March 2019, 2018 and 2017, the Target Company did not have any new business including new products and services introduced or announced.

Exposure to Fluctuations in Exchange Rates and Interest Rates and Corresponding Hedges

The Target Company mainly operates in RMB.

The Target Company’s bank borrowings were made at floating rates.

The Target Company has not implemented any foreign currencies and interest rates hedging policy. However, management of the Target Company will monitor foreign currencies and interest rates and consider appropriate hedging policies in future when necessary.

Contingent Liabilities and Capital Commitments

The Target Company did not have any significant contingent liabilities and capital commitment as at 31 March 2019, 2018 and 2017.

– III-2 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

The information set forth in this appendix does not form part of the Accountants’ Report received from KPMG, Certified Public Accountants, Hong Kong, the reporting accountants of the Company, as set forth in Appendix II to this Circular, and is included herein for illustrative purposes only.

The unaudited pro forma financial information should be read in conjunction with the Financial Information of the Group set forth in Appendix I and the Accountants’ Report set forth in Appendix II to this Circular.

(A) THE PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

1. Introduction

The following is a summary of illustrative unaudited pro forma consolidated statement of financial position, unaudited pro forma consolidated income statement, unaudited pro forma consolidated statement of comprehensive income and unaudited pro forma consolidated cash flow statement (collectively referred to as the “Pro Forma Financial Information”), which have been prepared to illustrate the effects of:

• (i) the sale of Kailong Nanhui Business Park held by Bestlinkage NHI Co., Ltd. (“Target Company”) by way of the disposal of 100% equity interest in the Target Company (“New Disposal”) (the “Very Substantial Disposal” or “VSD”);

• (ii) possible very substantial acquisition (“Possible VSA”) in relation to the assumed exercise by the Purchaser of the New Option relating to the acquisition of 100% equity interest in the Target Company, which the New Option is only exercisable in the event (a) if the Purchaser discovers within 18 months after the date of completion (“Completion Date”) that there is any undisclosed debt of the Target Company before the Completion Date and Power City fails to settle the undisclosed debts of which the amount is over RMB200,000 after the expiry of 30 days from receiving the Purchaser’s demand; or (b) there is any defect in Power City’s title over the equity interest of the Target Company and Power City fails to rectify such defect (“Possible VSA – New Option”).

Narrative descriptions of the unaudited pro forma adjustments that are directly attributable to the VSD and Possible VSA – New Option are summarised in the accompanying notes to the unaudited Pro Forma Financial Information.

The unaudited Pro Forma Financial Information of the Group has been prepared by the directors of the Company in accordance with Paragraph 4.29 of the Listing Rules for illustrative purposes only, based on their judgements, estimations and assumptions, and because of its hypothetical nature, it may not give a true picture of the financial position of the Group as at 31 March 2019 or any future date or the financial results and cash flows of the Group for the year ended 31 March 2019 or any future period.

– IV-1 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

The preparation of the unaudited pro forma consolidated statement of financial position of the Remaining Group is based on (i) the consolidated statement of financial position of the Group as at 31 March 2019 which has been extracted from the published annual report of the Company for the year ended 31 March 2019; and (ii) the statement of financial position of the Target Company as at 31 March 2019 as extracted from the Accountants’ Report of the Target Company for the year ended 31 March 2019 as set out in Appendix II to this circular, as if the VSD and Possible VSA – New Option had been completed on 31 March 2019.

The preparation of the unaudited pro forma consolidated income statement, consolidated statement of comprehensive income and consolidated cash flow statement of the Remaining Group is based on (i) the consolidated income statement, the consolidated statement of comprehensive income and the consolidated cash flow statement of the Group for the year ended 31 March 2019 which have been extracted from the published annual report of the Company for the year ended 31 March 2019; and (ii) the statement of profit or loss and other comprehensive income and the cash flow statement of the Target Company for the year ended 31 March 2019 as extracted from the Accountants’ Report of the Target Company for the year ended 31 March 2019 as set out in Appendix II to this circular, as if the VSD and Possible VSA – New Option had been completed on 1 April 2018.

The unaudited Pro Forma Financial Information of the Remaining Group should be read in conjunction with the historical financial information of the Group as set out in the published annual report of the Company for the year ended 31 March 2019 and other financial information included elsewhere in this circular.

– IV-2 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

A Unaudited Pro Forma Consolidated Statement of Financial Position of the Remaining Group as at 31 March 2019

(Expressed in Hong Kong dollars)

Non-current assets Investment properties Other properties, plant and equipment Interests in associates Interests in joint ventures Financial assets measured at fair value through other comprehensive income Current assets Properties for sale Inventories Trade receivables Other receivables, deposits and prepayments Bank deposits and cash on hand	The Group as at 31 March 2019 HKD’000 512,845 41,407 215,861 201,343 1,000	Pro forma adjustments on the New Disposal	Pro forma adjustments on the New Disposal	The Remaining Group as at 31 March 2019 after the completion of the New Disposal HKD’000 175,820 41,407 215,861 201,343 1,000	Pro forma adjustments on the Possible VSA – New Option	Pro forma adjustments on the Possible VSA – New Option	The Group as at 31 March 2019 after the New Disposal and Possible VSA – New Option HKD’000 599,856 41,407 215,861 201,343 1,000
		HKD’000 Note 1 (337,025) – – – –	HKD’000 Note 2 – – – – –		HKD’000 Note 3 424,036 – – – –	HKD’000 Note 4 – – – – –
	972,456 - - - - - - - - - 469,236 12,935 104,012 29,911 435,767	(337,025) - - - - - - - - - – – (3,195) (3,791) (5,419)	– - - - - - - - - - – – – – 378,315	635,431 - - - - - - - - - 469,236 12,935 100,817 26,120 808,663	424,036 - - - - - - - - - – – – – (423,898)	– - - - - - - - - - – – 142 3,791 5,419	1,059,467 - - - - - - - - - 469,236 12,935 100,959 29,911 390,184
	1,051,861 - - - - - - - - -	(12,405) - - - - - - - - -	378,315 - - - - - - - - -	1,417,771 - - - - - - - - -	(423,898) - - - - - - - - -	9,352 - - - - - - - - -	1,003,225 - - - - - - - - -

– IV-3 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

A Unaudited Pro Forma Consolidated Statement of Financial Position of the Remaining Group as at 31 March 2019 (Continued)

(Expressed in Hong Kong dollars)

Current liabilities Trade and other payables Contract liabilities Bank loans Amount due to the Remaining Group Loans from non-controlling shareholders Taxation payable Net current assets Total assets less current liabilities Non-current liabilities Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Share capital Reserves Total equity attributable to equity shareholders of the Company Non-controlling interests TOTAL EQUITY	The Group as at 31 March 2019 HKD’000 72,540 5,277 338,459 – 78,218 46,954	Pro forma adjustments on the New Disposal	Pro forma adjustments on the New Disposal	The Remaining Group as at 31 March 2019 after the completion of the New Disposal HKD’000 35,929 5,277 338,459 – 78,218 46,954	Pro forma adjustments on the Possible VSA – New Option	Pro forma adjustments on the Possible VSA – New Option	The Group as at 31 March 2019 after the New Disposal and Possible VSA – New Option HKD’000 45,419 5,277 338,459 – 78,218 46,954
		HKD’000 Note 1 (36,611) – – (102,942) – –	HKD’000 Note 2 – – – 102,942 – –		HKD’000 Note 3 – – – – – –	HKD’000 Note 4 9,490 – – – – –
	541,448 - - - - - - - - - ---------------------------------- 510,413 - - - - - - - - - ---------------------------------- 1,482,869 13,435	(139,553) - - - - - - - - - ---------------------------------- 127,148 - - - - - - - - - ---------------------------------- (209,877) (41,687)	102,942 - - - - - - - - - ---------------------------------- 275,373 - - - - - - - - - ---------------------------------- 275,373 28,252	504,837 - - - - - - - - - ---------------------------------- 912,934 - - - - - - - - - ---------------------------------- 1,548,365 –	– - - - - - - - - - ---------------------------------- (423,898) - - - - - - - - - ---------------------------------- 138 –	9,490 - - - - - - - - - ---------------------------------- (138) - - - - - - - - - ---------------------------------- (138) –	514,327 - - - - - - - - - ---------------------------------- 488,898 - - - - - - - - - ---------------------------------- 1,548,365 –
	1,469,434	(168,190)	247,121	1,548,365	138	(138)	1,548,365
	4,774 1,434,512	– –	– 46,621	4,774 1,481,133	– –	– –	4,774 1,481,133
	1,439,286 30,148	– –	46,621 32,310	1,485,907 62,458	– –	– –	1,485,907 62,458
	1,469,434	–	78,931	1,548,365	–	–	1,548,365

– IV-4 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

B Unaudited Pro Forma Consolidated Income Statement of the Remaining Group for the year ended 31 March 2019

(Expressed in Hong Kong dollars)

Revenue Cost of sales and services Gross profit Other revenue Other net loss Selling and marketing expenses Administrative and other operating expenses Gain on disposal of interest in a subsidiary Profit from operations Increase in fair value of investment properties Finance costs Share of profit less losses of associates Share of profit less losses of joint ventures Profit before taxation Income tax Profit for the year Attributable to: Equity shareholders of the Company Non-controlling interests Profit for the year	The Group for the year ended 31 March 2019 HKD’000 881,095 (463,733)	**Pro forma adjustments on the **	**Pro forma adjustments on the **	New Disposal	The Remaining Group for the year ended 31 March 2019 after the completion of the New Disposal HKD’000 866,912 (457,916)	Pro forma adjustments on the Possible VSA – New Option HKD’000 Note 8 14,183 (5,817)	The Group for the year ended 31 March 2019 after the New Disposal and Possible VSA – New Option HKD’000 881,095 (463,733)
		HKD’000 Note 5 (14,183) 5,817	HKD’000 Note 6 – –	HKD’000 Note 7 – –
	417,362 18,686 (22,932) (44,866) (73,147) –	(8,366) (589) – – 674 –	– – – – – 88,638	– – – – – (1,824)	408,996 18,097 (22,932) (44,866) (72,473) 86,814	8,366 589 – – (674) –	417,362 18,686 (22,932) (44,866) (73,147) 86,814
	295,103 5,585	(8,281) (66)	88,638 –	(1,824) –	373,636 5,519	8,281 –	381,917 5,519
	300,688 (23,563) 121,144 (27,097)	(8,347) – – –	88,638 – – –	(1,824) – – –	379,155 (23,563) 121,144 (27,097)	8,281 – – –	387,436 (23,563) 121,144 (27,097)
	371,172 (48,531)	(8,347) 16	88,638 –	(1,824) –	449,639 (48,515)	8,281 –	457,920 (48,515)
	322,641	(8,331)	88,638	(1,824)	401,124	8,281	409,405
	329,957 (7,316)	(4,921) (3,410)	52,355 36,283	(1,077) (747)	376,314 24,810	4,891 3,390	381,205 28,200
	322,641	(8,331)	88,638	(1,824)	401,124	8,281	409,405

– IV-5 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

C Unaudited Pro Forma Consolidated Statement of Comprehensive Income of the Remaining Group for the year ended 31 March 2019

(Expressed in Hong Kong dollars)

Profit for the year Other comprehensive income for the year (after tax and reclassification adjustments): Items that may be reclassified subsequently to profit or loss: – Exchange differences arising on translation of foreign operations – Share of translation reserve of joint ventures – Release of translation reserve upon disposal of a subsidiary Items that will not be reclassified subsequently to profit or loss: – Share of remeasurement of defined benefit liability of a joint venture – Financial assets measured at fair value through other comprehensive income – movement in fair value reserve (non-recycling) Other comprehensive income for the year Total comprehensive income for the year Attributable to: Equity shareholders of the Company Non-controlling interests Total comprehensive income for the year	The Group for the year ended 31 March 2019 HKD’000 322,641 - - - - - - - - - (14,390) (4,392) –	**Pro forma adjustments on the **	**Pro forma adjustments on the **	New Disposal	The Remaining Group for the year ended 31 March 2019 after the completion of the New Disposal HKD’000 401,124 - - - - - - - - - (2,540) (4,392) 1,824	Pro forma adjustments on the Possible VSA – New Option HKD’000 Note 8 8,281 - - - - - - - - - – – –	The Group for the year ended 31 March 2019 after the New Disposal and Possible VSA – New Option HKD’000 409,405 - - - - - - - - - (2,540) (4,392) 1,824
		HKD’000 Note 5 (8,331) - - - - - - - - - 11,850 – –	HKD’000 Note 6 88,638 - - - - - - - - - – – –	HKD’000 Note 7 (1,824) - - - - - - - - - – – 1,824
	(18,782) - - - - - - - - - (54) (14,651)	11,850 - - - - - - - - - – –	– - - - - - - - - - – –	1,824 - - - - - - - - - – –	(5,108) - - - - - - - - - (54) (14,651)	– - - - - - - - - - – –	(5,108) - - - - - - - - - (54) (14,651)
	(14,705) - - - - - - - - - ---------------------------------- (33,487) - - - - - - - - - ---------------------------------- 289,154	– - - - - - - - - - ---------------------------------- 11,850 - - - - - - - - - ---------------------------------- 3,519	– - - - - - - - - - ---------------------------------- – - - - - - - - - - ---------------------------------- 88,638	– - - - - - - - - - ---------------------------------- 1,824 - - - - - - - - - ---------------------------------- –	(14,705) - - - - - - - - - ---------------------------------- (19,813) - - - - - - - - - ---------------------------------- 381,311	– - - - - - - - - - ---------------------------------- – - - - - - - - - - ---------------------------------- 8,281	(14,705) - - - - - - - - - ---------------------------------- (19,813) - - - - - - - - - ---------------------------------- 389,592
	302,393 (13,239)	2,079 1,440	52,355 36,283	– –	356,827 24,484	4,891 3,390	361,718 27,874
	289,154	3,519	88,638	–	381,311	8,281	389,592

– IV-6 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

D Unaudited Pro Forma Consolidated Cash Flow Statement of the Remaining Group for the year ended 31 March 2019

(Expressed in Hong Kong dollars)

Operating activities Profit before taxation Adjustments for: Increase in fair value of investment properties Depreciation of other properties, plant and equipment Loss on disposal of other properties, plant and equipment Interest income on bank deposits Interest income on loans to joint ventures Interest expenses Share of profit less losses of joint ventures Share of profit less losses of associates Impairment loss on trade receivables Reversal of impairment loss Gain on disposal of a subsidiary Exchange loss Operating profit before changes in working capital	The Group for the year ended 31 March 2019 HKD’000 371,172 (5,585) 3,081 18 (560) (12,616) 23,563 27,097 (121,144) 10,560 (654) – 23,445	**Pro forma adjustments on the **	**Pro forma adjustments on the **	New Disposal	The Remaining Group for the year ended 31 March 2019 after the completion of the New Disposal HKD’000 449,639 (5,519) 3,081 18 (555) (12,616) 23,563 27,097 (121,144) 10,560 (654) (86,814) 21,144	Pro forma adjustments on the Possible VSA – New Option	Pro forma adjustments on the Possible VSA – New Option	The Group for the year ended 31 March 2019 after the New Disposal and Possible VSA – New Option HKD’000 457,920 (5,519) 3,081 18 (560) (12,616) 23,563 27,097 (121,144) 10,560 (654) (86,814) 23,445
		HKD’000 Note 5 (8,347) 66 – – 5 – – – – – – – (2,301)	HKD’000 Note 6 88,638 – – – – – – – – – – (88,638) –	HKD’000 Note 7 (1,824) – – – – – – – – – – 1,824 –		HKD’000 Note 8 8,281 – – – (5) – – – – – – – 2,301	HKD’000 Note 9 – – – – – – – – – – – – –
	318,377	(10,577)	–	–	307,800	10,577	–	318,377

– IV-7 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

D Unaudited Pro Forma Consolidated Cash Flow Statement of the Remaining Group for the year ended 31 March 2019 (Continued)

(Expressed in Hong Kong dollars)

Operating profit before changes in working capital Changes in working capital: Decrease in properties for sale Decrease in inventories Increase in trade receivables Decrease in other receivables, deposits and prepayments Decrease in amounts due from associates Decrease in cash held by stakeholders Decrease in trade and other payables Decrease in contract liabilities Cash generated from operations Interest paid Hong Kong Profits Tax paid, net PRC Enterprise Income Tax paid Net cash generated from operating activities	The Group for the year ended 31 March 2019 HKD’000 318,377 249,908 21,766 (8,126) 104,195 3,267 188,325 (46,616) (383,216)	**Pro forma adjustments on the **	**Pro forma adjustments on the **	New Disposal	The Remaining Group for the year ended 31 March 2019 after the completion of the New Disposal HKD’000 307,800 249,908 21,766 (4,926) 104,004 3,267 188,325 (42,494) (383,216)	Pro forma adjustments on the Possible VSA – New Option	Pro forma adjustments on the Possible VSA – New Option	The Group for the year ended 31 March 2019 after the New Disposal and Possible VSA – New Option HKD’000 318,377 249,908 21,766 (8,126) 104,195 3,267 188,325 (46,616) (383,216)
		HKD’000 Note 5 (10,577) – – 3,200 (191) – – 4,122 –	HKD’000 Note 6 – – – – – – – – –	HKD’000 Note 7 – – – – – – – – –		HKD’000 Note 8 10,577 – – (3,200) 191 – – (4,122) –	HKD’000 Note 9 – – – – – – – – –
	447,880 (25,353) (5,840) (2,703)	(3,446) – – –	– – – –	– – – –	444,434 (25,353) (5,840) (2,703)	3,446 – – –	– – – –	447,880 (25,353) (5,840) (2,703)
	413,984 - - - - - - - - -	(3,446) - - - - - - - - -	– - - - - - - - - -	– - - - - - - - - -	410,538 - - - - - - - - -	3,446 - - - - - - - - -	– - - - - - - - - -	413,984 - - - - - - - - -

– IV-8 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

D Unaudited Pro Forma Consolidated Cash Flow Statement of the Remaining Group for the year ended 31 March 2019 (Continued)

(Expressed in Hong Kong dollars)

Investing activities Additions to investment properties Purchases of other properties, plant and equipment Proceeds from disposal of interest in a subsidiary Net cash outflows from acquisition of assets and liabilities through acquisition of a subsidiary Dividends received from a joint venture Advances to joint ventures Repayment from a joint venture Dividend received from an associate Advances to associates Repayment from an associate Interest received Decrease in pledged bank deposits and restricted deposit Net cash generated from investing activities	The Group for the year ended 31 March 2019 HKD’000 (297) (387) – – 1,192 (12,284) 6,060 103,309 (26,634) 47,493 13,176 20,429	**Pro forma adjustments on the **	**Pro forma adjustments on the **	New Disposal	The Remaining Group for the year ended 31 March 2019 after the completion of the New Disposal HKD’000 – (387) 367,238 – 1,192 (12,284) 6,060 103,309 (26,634) 47,493 13,171 20,429	Pro forma adjustments on the Possible VSA – New Option	Pro forma adjustments on the Possible VSA – New Option	The Group for the year ended 31 March 2019 after the New Disposal and Possible VSA – New Option HKD’000 (297) (387) 367,238 (444,898) 1,192 (12,284) 6,060 103,309 (26,634) 47,493 13,176 20,429
		HKD’000 Note 5 297 – – – – – – – – – (5) –	HKD’000 Note 6 – – 367,238 – – – – – – – – –	HKD’000 Note 7 – – – – – – – – – – – –		HKD’000 Note 8 (297) – – – – – – – – – 5 –	HKD’000 Note 9 – – – (444,898) – – – – – – – –
	152,057 - - - - - - - - -	292 - - - - - - - - -	367,238 - - - - - - - - -	– - - - - - - - - -	519,587 - - - - - - - - -	(292) - - - - - - - - -	(444,898) - - - - - - - - -	74,397 - - - - - - - - -

– IV-9 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

D Unaudited Pro Forma Consolidated Cash Flow Statement of the Remaining Group for the year ended 31 March 2019 (Continued)

(Expressed in Hong Kong dollars)

Financing activities Proceeds from new bank loans Repayments of bank loans Loans from non-controlling shareholders Dividend paid Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year	The Group for the year ended 31 March 2019 HKD’000 214,498 (706,632) 650 (14,323)	**Pro forma adjustments on the **	**Pro forma adjustments on the **	New Disposal	The Remaining Group for the year ended 31 March 2019 after the completion of the New Disposal HKD’000 214,498 (706,632) 650 (14,323)	Pro forma adjustments on the Possible VSA – New Option	Pro forma adjustments on the Possible VSA – New Option	The Group for the year ended 31 March 2019 after the New Disposal and Possible VSA – New Option HKD’000 214,498 (706,632) 650 (14,323)
		HKD’000 Note 5 – – – –	HKD’000 Note 6 – – – –	HKD’000 Note 7 – – – –		HKD’000 Note 8 – – – –	HKD’000 Note 9 – – – –
	(505,807) - - - - - - - - - ---------------------------------- 60,234 374,511 (3,143)	– - - - - - - - - - ---------------------------------- (3,154) 173	– - - - - - - - - - ---------------------------------- 367,238	– - - - - - - - - - ---------------------------------- –	(505,807) - - - - - - - - - ---------------------------------- 424,318 374,511 (2,970)	– - - - - - - - - - ---------------------------------- 3,154	– - - - - - - - - - ---------------------------------- (444,898)	(505,807) - - - - - - - - - ---------------------------------- (17,426) 374,511 (2,970)
	431,602				795,859			354,115

– IV-10 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

Notes to the Unaudited Pro Forma Financial Information of the Remaining Group

1. The adjustments represent the deconsolidation of the assets and liabilities of the Target Company after the New Disposal as at 31 March 2019, as extracted from the statement of financial position of the Target Company as at 31 March 2019 as set out in Appendix II to this circular, as if the New Disposal had taken place on 31 March 2019. The exchange rate being used to convert RMB to HKD is RMB1 to HKD1.1658.

2. The adjustments represent (i) the receipt of cash consideration arising from the New Disposal of HKD275,373,000; (ii) the receipt of repayment of amount due from the Target Company of HKD102,942,000; (iii) the adjustment on deferred tax liabilities following the New Disposal; and (iv) the estimated net gain on the New Disposal, as if it had taken place on 31 March 2019.

The pro forma consideration for the New Disposal (subject to adjustments) was calculated as follows:

Pro forma consideration for the investment properties Adjustments on net balance of certain assets and liabilities Pro forma consideration for the New Disposal Estimated withholding tax and stamp duty Receipt of cash consideration for the New Disposal Pro forma consideration for the New Disposal Less: Net assets of the Target Company as at 31 March 2019 Adjustment on deferred tax liabilities Estimated withholding tax and stamp duty Estimated net gain on the New Disposal (total comprehensive income) Net gain attributable to the Remaining Group (total comprehensive income) Net gain attributable to the non-controlling interests (total comprehensive income)

HKD’000 424,036 (130,201) 293,835 (18,462) 275,373 HKD’000 293,835 (168,190) (28,252) (18,462) 78,931 46,621 32,310

The estimated net gain on the New Disposal is calculated as the pro forma consideration for the New Disposal of RMB252,052,000 (equivalent to HKD293,835,000), net of estimated withholding tax and stamp duty of HKD18,462,000, adjustment on deferred tax liabilities of HKD28,252,000 and net assets of the Target Company as at 31 March 2019 amounted to HKD168,190,000. The exchange rate being used to convert RMB to HKD is RMB1 to HKD1.1658.

The fair value of the New Option granted in connection with the transactions has not been taken into account in the above transaction as the directors of the Company consider the fair value of the New Option is insignificant.

– IV-11 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

1. The adjustments reflect the re-acquisition of the Target Company upon the assumed exercise of the New Option by the Purchaser, assuming that the Possible VSA – New Option had taken place on 31 March 2019.

The pro forma fair value of investment properties re-acquired is assumed to be the pro forma consideration for the investment properties in note 2 of HKD424,036,000.

The pro forma consideration for the re-acquisition of the Target Company is assumed to be arrived at the same basis of the calculation in note 2 of HKD293,835,000, together with the deposits of RMB23,265,000 (equivalent to HKD27,121,000) received in 2017 and the amount due from the Target Company of HKD102,942,000 repaid in the New Disposal. The exchange rate being used to convert RMB to HKD is RMB1 to HKD1.1658.

1. The adjustments reflect the re-acquisition of bank deposits and cash on hand, certain other assets and total liabilities and elimination of amount due from the Target Company arising from the re-acquisition of the Target Company upon the assumed exercise of the New Option by the Purchaser, assuming that the Possible VSA – New Option had taken place on 31 March 2019.

The directors of the Company assumed there was no undisclosed debt of the Target Company when preparing this unaudited Pro Forma Financial Information.

1. The adjustments represent the deconsolidation of the results and the exclusion of the cash flows attributable to the Target Company after the New Disposal for the year ended 31 March 2019, as extracted from the statement of comprehensive income and cash flow statement of the Target Company for the year ended 31 March 2019 as set out in Appendix II to this circular, as if the New Disposal had taken place on 1 April 2018. The exchange rate being used to convert RMB to HKD is RMB1 to HKD1.1729.

2. The adjustments represent the estimated gain on the New Disposal as if it had taken place on 1 April 2018.

The pro forma consideration for the New Disposal (subject to adjustments) was calculated as follows:

Pro forma consideration for the investment properties Adjustments on net balance of certain assets and liabilities Pro forma consideration for the New Disposal Less: Net assets of the Target Company as at 1 April 2018 Adjustment on deferred tax liabilities Estimated withholding tax and stamp duty Estimated net gain on the New Disposal (total comprehensive income) Net gain attributable to the Remaining Group (total comprehensive income) Net gain attributable to the non-controlling interests (total comprehensive income)

HKD’000 452,693 (144,211) 308,482 (170,718) (29,375) (19,751) 88,638 52,355 36,283

The net estimated gain on the New Disposal is calculated as the pro forma consideration for the New Disposal of RMB247,865,000 (equivalent to HKD308,482,000), net of estimated withholding tax and stamp duty of HKD19,751,000, adjustment on deferred tax liabilities of HKD29,375,000 and net assets of the Target Company as at 1 April 2018 amounted to HKD170,718,000.

The fair value of the New Option granted in connection with the transactions has not been taken into account in the above transaction as the directors of the Company consider the fair value of the New Option is insignificant.

– IV-12 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

In addition, the net cash inflow of the proceeds from disposal of interest in the Target Company represents the estimated pro forma consideration of HKD308,482,000 and the receipt of repayment of amount due from the Target Company of HKD109,899,000, less (i) estimated withholding tax and stamp duty of HKD19,751,000; (ii) the cash balance held by the Target Company as at 1 April 2018 of RMB1,959,000 (equivalent to HKD2,438,000); and (iii) the deposits of RMB23,265,000 (equivalent to HKD28,954,000) received in 2017, being part of the payment of the balance of the New Disposal Consideration.

The exchange rate being used to convert RMB to HKD is RMB1 to HKD1.2446.

1. According to the Group’s accounting policy, the results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items are translated into Hong Kong dollars at the closing foreign exchange rates at the end of each reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.

On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to profit or loss when the profit or loss on disposal is recognised. The adjustments represent the cumulative amount of the exchange differences relating to the Target Company reclassified to profit or loss as if the New Disposal had taken place on 1 April 2018.

1. The adjustments represent the financial performance and cash flows of the Target Company for the year ended 31 March 2019 after the re-acquisition of the Target Company as if the New Disposal had taken place on 1 April 2018.

The directors of the Company assumed there was no undisclosed debt of the Target Company when preparing this unaudited Pro Forma Financial Information.

1. The adjustments represent the net cash outflow arising from the re-acquisition of the Target Company at the New Disposal Consideration, as if the Possible VSA – New Option had taken place on 1 April 2018.

The pro forma cash consideration payable for the re-acquisition of the Target Company as if the Possible VSA – New Option had taken place on 1 April 2018 is as follows:

Net assets acquired: Investment properties Other receivables, deposits and prepayments Cash at banks Trade and other payables Cash consideration paid Less: Cash at banks Net cash outflows from acquisition of assets and liabilities through acquisition of a subsidiary	HKD’000 452,693 3,983 2,438 (11,778) 447,336 (2,438) 444,898

1. No adjustment has been made to this Pro Forma Financial Information for professional costs directly attributable to the VSD and the Possible VSA – New Option (including fees to legal advisers, reporting accountants, valuers, printer and other expenses) as the directors of the Company determined that the costs are insignificant.

2. No representation is made that RMB denominated amounts have been, could have been or could be converted to HKD, or vice versa, at the rates applied or at any other rates or at all.

– IV-13 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

1. All the above adjustments in respect of the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated cash flow statement above are not expected to have a continuing effect on the Remaining Group.

2. No adjustment has been made to reflect any trading results or other transactions of the Group entered into subsequent to 31 March 2019 for the unaudited pro forma consolidated statement of financial position and 1 April 2018 for the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated cash flow statement.

– IV-14 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

(B) INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION

The following is the text of a report received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong, in respect of the Group’s pro forma financial information for the purpose in this circular.

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TO THE DIRECTORS OF RYKADAN CAPITAL LIMITED

We have completed our assurance engagement to report on the compilation of pro forma financial information of Rykadan Capital Limited (the “Company”) and its subsidiaries (collectively the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 31 March 2019 and the unaudited pro forma consolidated income statement, unaudited pro forma consolidated statement of comprehensive income and unaudited pro forma consolidated cash flow statement for the year ended 31 March 2019 and related notes as set out in Part A of Appendix IV to the circular dated 23 August 2019 (the “Circular”) issued by the Company. The applicable criteria on the basis of which the Directors have compiled the pro forma financial information are described in Part A of Appendix IV to the Circular.

The pro forma financial information has been compiled by the Directors to illustrate the impact of the very substantial disposal in relation to the sale of Kailong Nanhui Business Park held by Bestlinkage NHI Co., Ltd. (the “Target Company”) by way of the disposal of 100% equity interest in the Target Company and the possible very substantial acquisition in relation to the grant of the option to buy back the Target Company (together, the “Proposed Transactions”) on the Group’s financial position as at 31 March 2019 and the Group’s financial performance and cash flows for the year ended 31 March 2019 as if the Proposed Transactions had taken place at 31 March 2019 and 1 April 2018, respectively. As part of this process, information about the Group’s financial position as at 31 March 2019 and the Group’s financial performance and cash flows for the year ended 31 March 2019 has been extracted by the Directors from the consolidated financial statements of the Company for the year then ended, on which an audit report has been published.

Directors’ Responsibilities for the Pro Forma Financial Information

The Directors are responsible for compiling the pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

– IV-15 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior. The firm applies Hong Kong Standard on Quality Control 1 “Quality Control for Firms That Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements” issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the 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 pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements (“HKSAE”) 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus” issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the pro forma financial information in accordance with paragraph 4.29 of the Listing Rules, and with reference to AG 7 issued by the HKICPA.

For purpose of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on the unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the events or transactions at 31 March 2019 or 1 April 2018 would have been as presented.

A reasonable assurance engagement to report on whether the pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the

– IV-16 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX IV

compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

• the related pro forma adjustments give appropriate effect to those criteria; and

• the pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgement, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the pro forma financial information.

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

Opinion

In our opinion:

• a) the pro forma financial information has been properly compiled on the basis stated;

• b) such basis is consistent with the accounting policies of the Group; and

• c) the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

KPMG

Certified Public Accountants

8th Floor, Prince’s Building

10 Chater Road Central, Hong Kong

23 August 2019

– IV-17 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

The following is the text of a letter and valuation summary prepared for the purpose of incorporation in this circular received from Beijing Colliers International Real Estate Valuation Co., Ltd., an independent valuer, in connection with its valuation as at 31 May 2019 of the Property interests.

Beijing Colliers International Real Estate Valuation Co., Ltd. MAIN 86 21 6141 4350 FAX 86 21 6141 3699 Suite 510 Tower W3, Oriental Plaza EMAIL flora.he@colliers.com No. 1 East Chang’an Avenue, Dongcheng District Beijing

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23 August 2019

The Board of Directors Rykadan Capital Limited Rooms 2701 & 2801 Rykadan Capital Tower 135 Hoi Bun Road Kwun Tong Hong Kong

Dear Sir or Madam,

• Re: Valuation of Kailong Nanhui Business Park located at No. 2300 Xuanhuang Road, Huinan Town, Pudong New District, Shanghai, the People’s Republic of China (the “Property”)

INSTRUCTIONS

Instructions have been received from Rykadan Capital Limited (the “Client”) to conduct a market valuation of the above-mentioned Property held by Bestlinkage NHI Co., Ltd.（美邦啟立光電科技（上海）有限公司 , the “Owner”). We confirm that we have carried out inspection, made relevant enquires and researches and obtained such further information as we consider necessary for the purpose of providing the Client with our opinion of the market value of the Property, as at 31 May 2019 (the “Date of Valuation”) for public circular purpose.

INTEREST VALUED IN THE PROPERTY

The land-use rights of a parcel of land located at Qiu 87/17, Jiefang 15, Huinan Town with a site area of 34,760.40 sq m and the building ownership of Kailong Nanhui Business Park with a total gross floor area of 52,304.07 sq m are vested in Bestlinkage NHI Co., Ltd. （美邦啟立光電科技（上海）有限公司） for industrial purpose for a term commencing on 31 December 2006 and expiring on 30 December 2056.

– V-1 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

BASIS OF VALUATION

Our valuation is provided on the basis of Market Value, which we define as “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

VALUATION STANDARDS

This valuation has been carried out in accordance with the Royal Institution of Chartered Surveyors (RICS) Global Valuation Professional Standards, incorporating the International Valuation Standards of the International Valuation Standards Council (IVSC). Beijing Colliers International Real Estate Valuation Co., Ltd. (“Colliers International”) is regulated by the RICS and all necessary investigations, inspections, and other work carried out for the purpose of this valuation have been in accordance with its valuation standards. The RICS monitors regulated firms under its Conduct and Disciplinary regulations. Colliers International maintains a complaint handling procedure, a copy of which is available on request.

QUALIFICATIONS OF THE VALUER

This valuation has been prepared by Zhirong He (Flora He) (RICS Registration No.: 1259301), who is a Fellow of the Royal Institution of Chartered Surveyors. Flora is head of China Valuation Services team at Colliers International. She is suitably qualified to carry out the valuation and has over 15 years’ experience in the valuation of properties of this magnitude and nature in China.

Neither the valuer nor Colliers International are aware of any pecuniary interest or conflict that could reasonably be regarded as being capable of affecting the ability to give an unbiased and objective, opinion of the value of the Property. She has accepted instructions to value the Property for the Client only.

VALUATION APPROACHES

The valuation derived from the Discounted Cash Flow Method has in turn been cross-checked with the Market Approach.

Income Approach is an approach to valuation that provides an indication of value by converting future cash flows to a single current capital value.

Discounted Cash Flow Method is the process of valuing an investment property or asset by undertaking an estimation of future cash flows and taking into account the time value of money. In the Discounted Cash Flow Method, the income is projected over the investment cycle and the net income is calculated after the deduction of the capital, operating, and other necessary expenses.

– V-2 –

APPENDIX V

VALUATION REPORT ON THE PROPERTY

Market Approach provides an indication of value by comparing the subject asset with identical or similar assets for which price information is available. By analysing such sales, which qualify as ‘arms-length’ transactions, between willing buyers and sellers, adjustments are made for size, location, time, amenities and other relevant factors when comparing such sales prices to assess the value of the subject asset. This approach is commonly used to value assets where reliable sales evidence of assets of a similar nature is available.

SOURCES OF INFORMATION

Although we have made independent enquires as much as possible, we have relied to a very considerable extent on the information provided by the Client and the Owner, and have accepted such information given to us as being true and correct for valuation purposes. This has included such matters as particulars of occupancy, ownership title, lettings, site and floor areas, statutory notices, easements, tenure, joint venture agreements, the identification of the property interests and all other relevant matters. Dimensions, measurements and areas included in the valuation summary are based on information provided to us by the Client and the Owner, that we assume to be true and correct for valuation purposes.

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

TITLE DOCUMENTS

We have been provided with copies or extracts of some title documents relating to the Property and have made relevant enquiries where possible. Due to the nature of the land registration system in the PRC, we have not examined the original documents to verify the existing titles to the property interests or any material encumbrances that might be attached to the property interests or any lease amendments. We have made assumptions that the full and proper ownership title of the Property has been obtained and all payable land premium or land-use rights fees have been fully settled.

VALUATION ASSUMPTIONS

Our valuation has been made on the assumption that the Owner can sell the Property on the open market without the benefit of deferred terms contracts, leasebacks, joint ventures, management agreements or any similar arrangements that would serve to affect the value of the Property.

No allowance has been made in our valuation for any charges, mortgages or amounts owing either on the Property or for any expense or taxation that may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the Property is free from restrictions and outgoings of an onerous nature that could affect its value.

– V-3 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

We have conducted the valuation assuming that:

• the information about the Property provided by the Client and the Owner is true and correct;

• the Property is free from contamination and the ground conditions are satisfactory;

• all usual utilise are connect to the Property and all associated costs have been fully paid and settled;

• all required approvals and certificates necessary for the development, occupation and use of the Property have been duly obtained and are in full force and effect;

• our valuation is based on the information as advised by the Client and the Owner, such as the site area, gross floor area, completion date, floor/building plans, etc. We have had no reason to doubt the truth and accuracy of the information provided;

• other assumptions as set out in the valuation summary;

• the Property can be freely transferred, mortgaged, sublet or otherwise disposed of in the market;

• we have assumed proper title has been obtained, and the Property and the interest valued therein can be freely transferred, mortgaged and let in the market;

• we are not aware of any easements or rights-of-way affecting the site and our valuation assumes that none of these exist;

• we have assumed that the Property has been constructed, occupied and used in full compliance with, and without contravention of, all relevant laws, ordinances and statutory requirements;

• we have assumed that, for any use (s) of the property upon which this valuation report is based, any and all required licences, permits, certificates, and authorisations have been obtained, and are capable of renewal without difficulty;

• the Property is in a good state of repair, management and maintenance and fit for the use to which it is put, and will continue to be managed and maintained to this standard in the future;

• the current tenancies of the Property are of good covenant and will run the full term of their leases at the current contracted rental levels; and

– V-4 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

• we have assumed that all information, estimates and opinions furnished to us and contained in this report, including all information provided by the Client, are fit for valuation purposes, and have been obtained from sources considered reliable and believed to be true and correct. We assume no responsibility for accuracy.

SITE MEASUREMENT

We have not carried out detailed site measurements to verify the correctness of the site area in respect of the Property but have assumed that the site area information provided to us is true and correct in all respects, for valuation purposes. All documents and contracts have been used as references only and all dimensions, measurements and areas are approximations. No on-site measurement had been taken.

SITE INSPECTION

We have inspected the Property from the outside and the inside on 9 April 2019 upon the instruction from the Client by Ms. Zhirong He.

Please be advised that we have not carried out investigations to determine the suitability of the ground conditions and the services etc. for any future development. Our valuation has been prepared on the assumption that these aspects are satisfactory.

Moreover, we have not carried out any structural surveys or environmental assessments and are unable to report on issues such as rot, infestation or any other structural defects.

No tests were carried out on any of the services. We have assumed such are in good order for the purpose of valuation.

CURRENCY

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

CAVEATS

This report is subject to and includes our Caveats and Assumptions attached hereto as well as our agreed terms of our engagement.

This report and its conclusion provide value reference solely for the Client for the public circular purpose as announced by the Client on 13 June 2019 and not for other purposes.

It is noted the valuation summary of the Property prepared as at 31 May 2019 will be attached to the publications made by the Client to its shareholders. However the prior written approval of Colliers International, as to the form and context in which it may appear is required beforehand.

– V-5 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

We hereby certify that we have neither present nor a prospective interest in the Property or the value reported.

Our valuation summary, part of this valuation report, is attached hereto.

Yours faithfully, For and on behalf of

Beijing Colliers International Real Estate Valuation Co., Ltd. Zhirong He (Flora He) FRICS MCOMFIN Executive Director

Valuation & Advisory Services/China

– V-6 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

VALUATION SUMMARY

PROPERTY

The Property is located at No. 2300 Xuanhuang Road in the northern part of Nanhui Industrial Park, Huinan Town, Pudong New District to the east of Shanghai’s downtown area, PRC

DESCRIPTION AND TENURE

The Property, known as Kailong Nanhui Business Park, is a business park erected on a roughly rectangular-shaped land lot with a site area of approximately 34,760.40 sq m.

Completed in 2010, the Property comprises four 4-storey business park office buildings, one 5-storey business park office building and ancillary facilities. Additionally, there are 111 aboveground car spaces in the park serving the tenants.

Blocks 1, 2, 4 and 5 are all 4-storey buildings, each served by two passenger lifts, one service lift and two pairs of staircases. Block 3 is a 5-storey building with a canteen on the first floor and it is served by passenger lifts, service lift and staircases.

MARKET VALUE IN EXISTING PARTICULARS OF STATE AS AT OCCUPANCY 31 MAY 2019

According to the RMB289,100,000 information provided, at the date of valuation, the Property was subject to 10 tenancies with an average daily rent of approximately RMB1.05 psm on GLA excl. management fee and value-add tax. The overall occupancy rate was approximately 34.26%.

According to the information provided, the Property has a total gross floor area (GFA) of approximately 52,304.07 sq m, of which gross lettable area (GLA) is about 50,040.76 sq m. The details are listed below:

Portion Block 1 Block 2 Block 3 Block 4 Block 5 Canteen Other Facilities Total	GFA (sq m) 9,510.79 9,510.79 16,842.70 7,088.24 7,088.24 1,879.90 383.41
	52,304.07

Pursuant to the Real Estate Ownership Certificates provided, the land-use rights of the Property have been granted for a term expiring on 30 December 2056 and the Property is zoned for industrial use.

– V-7 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

Notes:

• 1) Pursuant to the Real Estate Ownership Certificates, the land-use rights of a parcel of land located at Qiu 87/ 17, Jiefang 15, Huinan Town with a site area of 34,760.40 sq m and the corresponding building ownership with a total gross floor area of 52,304.07 sq m are vested in Bestlinkage NHI Co., Ltd.（美邦启立光电科 技（上海）有限公司）for industrial purpose for a term commencing on 31 December 2006 and expiring on 30 December 2056. The details are listed below:

No. Certificate No. Location 1 Hu Fang Di Pu Zi (2010) Di 236077 Hao Block 1, No.2300 Xuanhuang Road, Huinan Town 2 Hu Fang Di Pu Zi (2010) Di 236078 Hao Block 2, No.2300 Xuanhuang Road, Huinan Town 3 Hu Fang Di Pu Zi (2010) Di 236081 Hao Block 3, 6, 7 and 8, No.2300 Xuanhuang Road, Huinan Town 4 Hu Fang Di Pu Zi (2010) Di 236080 Hao Block 4, No.2300 Xuanhuang Road, Huinan Town 5 Hu Fang Di Pu Zi (2010) Di 236079 Hao Block 5, No.2300 Xuanhuang Road, Huinan Town Total

GFA (sq m) 9,510.79 9,510.79 19,106.01 7,088.24 7,088.24

52,304.07

• 2) Pursuant to the Company Business License No.15000002201702270003 dated 27 February 2017, Bestlinkage NHI Co., Ltd. （美邦啟立光電科技（上海）有限公司） with the address of Block 8, No. 2300 Xuanhuang Road, Pudong New District, Shanghai, has been in business in the term from 29 November 2007 to 28 November 2057 with the business scope of 光電子器件、電子傳感器的設計、開發、 生產，銷售自產產品，並提供相關技術服務及技術諮詢；在上海市浦東新區宣黃公路2300號內從事自有房屋的租賃、物業 管理、停車場（庫）的經營管理。（依法須經批准的項目，經相關部門批准後方可開展經營活動）.

• 3) The Owner holds 100% leasehold interests of the Property.

• 4) In Discounted Cash Flow Method, we have taken into account the determining factors of location, income and tenant mix of the Property and the rate of return requirement of property investors, and arrived at a discount rate of 9.0%. A terminal capitalisation rate of 5.25% was applied when deriving the present value of the cash flows after 5 years. The capitalisation rate will apply to the rental income generated until the expiry of the land-use rights of the Property.

• 5) In Market Approach to assess the market value of the Property, we have made reference to strata-title sales prices of similar properties in the vicinity. Comparable properties are located in the same district with similar conditions and tenure, etc. Comparables that had been selected range from RMB8,500 to RMB16,000 psm. In the course of our valuation, we have considered the relevant adjustment factors such as the accessibility, size, environment, building facilities, age/maintenance, etc. to determine the unit price of the Property.

• 6) The general description and market information of the property are summarised as below:

• Location : The Property is located at No. 2300 Xuanhuang Road, in the northern part of Nanhui Industrial Park, Huinan Town, Pudong New District, to the east of Shanghai’s downtown area.

• Transportation : The Property is accessible by Xuanhuang Road. Two expressways, namely Hu-Lu Expressway （滬蘆高速） and Shanghai Ring Expressway（上海繞城高速）are situated near the Property to the west and east, respectively.

– V-8 –

VALUATION REPORT ON THE PROPERTY

APPENDIX V

Nature of Surrounding Area

: The subject area is clustered with business parks, industrial and commercial developments.

• 7) We have been provided with a copy of PRC legal opinion on the Property prepared by Deheng Fuzhou Law Office（北京德恒（福州）律師事務所）, which contains, inter alia, the following information:

• Bestlinkage NHI Co., Ltd.（美邦啟立光電科技（上海）有限公司）has obtained the necessary permits and approvals for the construction work of the Property;

• Bestlinkage NHI Co., Ltd. （美邦啟立光電科技（上海）有限公司） has the rights to use the land in accordance to the above mentioned real estate ownership certificate. Bestlinkage NHI Co., Ltd. 美邦啟 立光電科技（上海）有限公司）has the rights to use, transfer, lease, mortgage or other legal means to deal with the premise on the condition of adhering to the land-use and the land tenure;

• The signed lease contracts by Bestlinkage NHI Co., Ltd. （美邦啟立光電科技（上海）有限公司）and the lessees are effective.

• 8) At the date of valuation, the Property was subject to ten tenancies with the latest expiration date on 15 February 2022. The details of the current tenancies are summarized as below:

				Lettable		Lease
No.	Unit		Floor	Area	Lease Start	Expiry	Gross Rental*
				(sq m)			_(RMB per _	month)
1	Block	1	1-2F	4,564.99	01/08/2017	31/07/2020	131,909
2	Block	3	102A	887.10	16/02/2017	29/09/2020		28,552
3	Block	3	102B	849.70	16/05/2017	15/05/2020		29,722
4	Block	4	–	7,088.24	16/02/2017	15/02/2022	226,381
			103-104,
5	Block	5	204	1,188.50	11/12/2016	30/11/2019		43,380
6	Block	5	101-102	840.20	10/08/2014	09/08/2019		29,390
7	Block	5	201	344.40	01/12/2016	30/11/2019		11,523
8	Block	5	202	461.60	01/12/2016	30/11/2019		15,444
9	Block	5	203	562.20	01/04/2018	31/03/2021		18,810
10	Block	5	301	356.70	01/10/2018	30/09/2019		12,477

• Gross Rental includes VAT.

– V-9 –

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

(1) Interests of Directors and chief executives

As at the Latest Practicable Date, the interests and short positions of each Director and chief executive of the Company 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 he was taken or deemed to have under such provisions of the SFO), or were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules (the “ Model Code ”) to be notified to the Company and the Stock Exchange were as follows:

Long position

Name Nature of interest and capacity Mr. Chan Founder of a discretionary trust(1) Other interest(2) Beneficial owner Mr. Ng Beneficial owner Mr. Lo Beneficial owner	Total number of Shares held as at the Latest Practicable Date 97,104,000 97,104,000 24,200,000 218,408,000 63,024,000 302,000	Approximate percentage of issued share capital of the Company as at the Latest Practicable Date 20.34 20.34 5.06
		45.74 13.20 0.06

– VI-1 –

GENERAL INFORMATION

APPENDIX VI

Notes:

1. Tiger Crown, which beneficially owns 97,104,000 Shares, is 100% owned by Rykadan Holdings which in turn is 100% held by HSBC International Trustee Limited as the trustee of Rykadan Trust. Mr. Chan is the settlor and protector and one of the discretionary beneficiaries of Rykadan Trust.

2. Since Tiger Crown, Scenemay, Mr. Chan, Mr. Li and Ms. Li are regarded as a group of shareholders acting in concert to exercise their voting rights in the Company, pursuant to the provisions of SFO, each of them is deemed to be interested in the 97,104,000 Shares beneficially owned or deemed to be interested by each other. Hence, Mr. Chan is also deemed to be interested in the 97,104,000 Shares owned by Scenemay.

3. All the Shares shown in the table above are ordinary shares.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executives of the Company had any interests and short positions 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 he was taken or deemed to have under such provisions of the SFO) or were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or were required pursuant to the Model Code to be notified to the Company and the Stock Exchange.

(2) Interests of Substantial Shareholders

As at the Latest Practicable Date, the following persons (other than a Director or chief executive of the Company) and companies had an interest or short position in the Shares or underlying Share which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

Long position

			Approximate
			percentage of
		Total number	issued share
		of Shares held	capital of the
		as at the	Company as at
		Latest	the Latest
	Nature of interest and	Practicable	Practicable
Name	capacity	Date	Date
HSBC International	Corporate Trustee(1)(2)	194,208,000	40.68
Trustee Limited
Rykadan Holdings	Interest in a controlled	194,208,000	40.68
	corporation (1)(2)

– VI-2 –

APPENDIX VI

GENERAL INFORMATION

Name Nature of interest and capacity Tiger Crown(1) Beneficial owner Other interest(2) Scenemay(3) Beneficial owner Other interest(2) Mr. Li Interest in a controlled corporation(3) Other interest(2) Ms. Li Interest in a controlled corporation(3) Other interest(2)	Total number of Shares held as at the Latest Practicable Date 97,104,000 97,104,000 194,208,000 97,104,000 97,104,000 194,208,000 97,104,000 97,104,000 194,208,000 97,104,000 97,104,000 194,208,000	Approximate percentage of issued share capital of the Company as at the Latest Practicable Date 20.34 20.34
		40.68
		20.34 20.34
		40.68
		20.34 20.34
		40.68
		20.34 20.34
		40.68

Notes:

1. Tiger Crown, which beneficially owns 97,104,000 shares of the Company, is 100% owned by Rykadan Holdings which in turn is 100% held by HSBC International Trustee Limited as the trustee of Rykadan Trust. Mr. Chan is the settlor and protector and one of the discretionary beneficiaries of Rykadan Trust.

2. Since Tiger Crown, Scenemay, Mr. Chan, Mr. Li and Ms. Li are regarded as a group of shareholders acting in concert to exercise their voting rights in the Company, pursuant to the provisions of the SFO, each of them is deemed to be interested in the 97,104,000 Shares owned or deemed to be interested by each other.

3. As the entire issued share capital of Scenemay is owned by Mr. Li and Ms. Li in equal shares, each of Mr. Li and Ms. Li is deemed to be interested in the 97,104,000 Shares beneficially owned by Scenemay.

4. All the Shares shown in the table above are ordinary shares.

– VI-3 –

GENERAL INFORMATION

APPENDIX VI

Save as disclosed above, as at the Latest Practicable Date, so far as is known to any Director and chief executive of the Company, no other person (not being a Director or chief executive of the Company) or company had, or were deemed to have, any interests or short positions in the Shares and underlying Shares which would fall to be disclosed to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO.

(3) Common Directors

Save as disclosed below, as at the Latest Practicable Date, none of the Directors was a director or employee of a company which had an interest or a short position in the Shares and underlying Shares which would fall to be disclosed to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO:

Company which had such discloseable interest or Name short position Position with such company Mr. Chan Tiger Crown Director

3. SERVICE CONTRACTS

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

4. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors and their respective close associates (as defined in the Listing Rules) had any interest in any business which competes or may compete with the business of the Group or had any other conflict of interest with the Group.

5. DISCLOSURE OF OTHER DIRECTORS’ INTERESTS

As at the Latest Practicable Date:

• (i) none of the Directors had any direct or indirect interest in any assets acquired or disposed of by or leased to, or which were proposed to be acquired, disposed of by or leased to, any member of the Group since 31 March 2019, the date up to which the latest published audited consolidated financial statements of the Group were made up; and

• (ii) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group taken as a whole.

– VI-4 –

GENERAL INFORMATION

APPENDIX VI

6. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration proceedings of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Group.

7. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) were entered into by the members of the Group within the two years immediately preceding the issue of this circular and are or may be material:

• (1) New Framework Agreement;

• (2) Memorandum; and

• (3) A shareholders agreement dated 15 December 2017 entered into between Rykadan Real Estate Fund LP (“ Rykadan Fund ”), Divine Power Holdings Limited (“ Divine Power ”) and Fastest Runner Limited (“ Fastest Runner ”) regulating the respective rights of Rykadan Fund and Divine Power as shareholders of Fastest Runner.

8. EXPERT AND CONSENT

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

Name Qualification Beijing Colliers International Professional property surveyors and valuers Real Estate Valuation Co. Ltd. (“ Colliers ”) KPMG Certified Public Accountants Beijing Yingke Law Firm Legal advisers as to PRC laws Shanghai Office (“ Yingke ”)

As at the Latest Practicable Date, Colliers, KPMG and Yingke have given and have not withdrawn their written consents to the issue of this circular with the inclusion herein of their letters and reports and/or references to their names in the form and context in which they appear.

As at the Latest Practicable Date, Colliers, KPMG and Yingke did not have any interest, either direct or indirect, in any assets which have been, since 31 March 2019, (being the date to which the latest published audited consolidated financial statements of the Group were made up) acquired or disposed of by or leased to or were proposed to be

– VI-5 –

GENERAL INFORMATION

APPENDIX VI

acquired or disposed of by or leased to any member of the Group nor had any shareholding in any member of the Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

9. GENERAL

• (a) The registered office of the Company is situated at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The Hong Kong head office and principal place of business of the Company is situated at Rooms 2701 & 2801, Rykadan Capital Tower, 135 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong.

• (b) The Company’s branch share registrar and transfer office in Hong Kong is Tricor Investor Services Limited situated at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (c) The company secretary of the Company is Yeung Man Yan, Megan, a qualified solicitor in Hong Kong.

• (d) In the event of inconsistency, the English text of the circular and the accompanying form of proxy shall prevail over the Chinese text thereof.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company in Hong Kong at Rooms 2701 & 2801, Rykadan Capital Tower, 135 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong during normal business hours on any weekday (except public holidays) for a period of 14 days from the date of this circular:

• (a) the memorandum of association and the articles of association of the Company;

• (b) the annual reports of the Company for the financial years ended 31 March 2018 and 31 March 2019;

• (c) the accountants’ report on the Target Company from KPMG, the text of which is set out in Appendix II to this circular;

• (d) the report on the pro forma financial information on the Remaining Group from KPMG, the text of which is set out in Appendix IV to this circular;

• (e) the valuation report from Colliers, the text of which is set out in Appendix V to this circular;

• (f) the consent letters referred to in the paragraph under the heading “ Expert and Consent ” in this Appendix to this circular;

– VI-6 –

GENERAL INFORMATION

APPENDIX VI

• (g) the material contracts disclosed in the paragraph under the heading “ Material Contracts ” in this Appendix to this circular; and

• (h) this circular.

– VI-7 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

RYKADAN CAPITAL LIMITED 宏基資本有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2288)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ Meeting ”) of Rykadan Capital Limited 宏基資本有限公司 (the “ Company ”) will be held at Function Room, 23H, Level 23, One Island East, 18 Westlands Road, Island East, Hong Kong on Wednesday, 25 September 2019 at 4:30 p.m. (or so soon thereafter as the 2019 annual general meeting to be held at 3:00 p.m. on the same day and at the same place has been concluded or adjourned) (or, in the event that a black rainstorm warning signal or tropical cyclone warning signal no. 8 or above is in force in Hong Kong at 12 noon on that day, at the same time and place on Monday, 30 September 2019), for the purpose of considering, and if appropriate, passing, with or without modification, the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“THAT

• (a) The framework agreement dated 13 June 2019 (the “ New Framework Agreement ”) entered into among Power City Investments Limited (“ Power City ”), 美邦啓立光電科技（上海）有限公司 (Bestlinkage NHI Co., Ltd.) (the “ Target Company ”), and 上海美迪西生物醫藥股份有限公司 (Shanghai Medicilon Inc.) (the “ Purchaser ”) in relation to (i) the entering into of the agreement (the “ Target Company SPA ”) in relation to the disposal by Power City of its entire equity interest in the Target Company to the Purchaser (the “ New Disposal ”), the details of which are disclosed in the circular of the Company dated 23 August 2019 (the “ Circular ”) and a copy of which is produced to the Meeting marked “A” and initialed by the chairman of the Meeting for the purpose of identification and all transactions contemplated under the New Framework Agreement and any other agreements or documents in connection therewith be and are hereby approved, confirmed and ratified;

• (b) the right granted to the Purchaser (i) to terminate the Target Company SPA and demand Power City to return to the Purchaser any of the consideration for the New Disposal paid and pay an amount equal to ten times of the undisclosed debts and subject to Power City making the aforesaid payment, the shares in the Target

– EGM-1 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

Company will be transferred back to Power City (the “ New Option ”); and (ii) to continue to perform the New Framework Agreement and the Target Company SPA, and demand Power City to pay the Purchaser an amount equal to ten times of the undisclosed debts, the details of which are disclosed in the Circular, and the transactions pursuant to any exercise of such right be and is hereby approved, confirmed and/or ratified; and

• (c) any one director of the Company, or any two directors of the Company if the affixation of the common seal is necessary, be hereby authorised for and on behalf of the Company to approve, execute any further document, waiver and/or amendment and do all such acts and things as he or they may in his or their absolute discretion consider necessary, appropriate or expedient for the Company and/or any of its subsidiaries to give effect to the New Framework Agreement and the grant of the New Option and the transactions contemplated thereunder and all matters incidental thereto or in connection therewith.”

By Order of the Board Rykadan Capital Limited 宏基資本有限公司 CHAN William

Chairman and Chief Executive Officer

Hong Kong, 23 August 2019

Notes:

1. The resolution at the Meeting will be taken by poll pursuant to the Rules Governing the Listing of Securities (the “ Listing Rules ”) on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) and the results of the poll will be published on the websites of Stock Exchange and the Company in accordance with the Listing Rules.

2. A member entitled to attend and vote at the Meeting is entitled to appoint one or more (if he holds more than one share) proxies to attend and vote instead of him. If more than one proxy is appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed. A proxy need not be a member of the Company.

3. In order to be valid, the form of proxy must be deposited at the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for the holding of the Meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude a member of the Company from attending and voting in person at the Meeting or any adjournment thereof. In such event, the form of proxy shall be deemed to be revoked.

4. For determining the qualification of members to attend and vote at the Meeting, the register of members of the Company will be closed from Friday, 20 September 2019 to Wednesday, 25 September 2019 (or Monday, 30 September 2019 in the event that the Meeting is to be held on Monday, 30 September 2019 because of a black rainstorm warning signal or tropical cyclone warning signal no.8 or above (as detailed in note 5 below)), both days inclusive, during which period no transfer of shares will be registered. In order to be eligible as members to attend and vote at the Meeting, investors are urged to lodge all transfers of shares accompanied by the relevant share certificates with the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Thursday, 19 September 2019.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

1. If a black rainstorm warning signal or a tropical cyclone warning signal no. 8 or above is in force in Hong Kong at 12 noon on Wednesday, 25 September 2019, the Meeting will not be held on that day but will be automatically postponed and, by virtue of this notice, be held at the same time and place on Monday, 30 September 2019 instead.

As at the date of this notice, the Board comprises Mr. CHAN William (Chairman and Chief Executive Officer) and Mr. YIP Chun Kwok (Chief Operating Officer) as executive directors, Mr. NG Tak Kwan as a non-executive director and Mr. TO King Yan, Adam, Mr. WONG Hoi Ki and Mr. HO Kwok Wah, George as independent non-executive directors.

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