Sinopec Engineering Group Co Ltd. — Capital/Financing Update 2015

Aug 27, 2015

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

UNIVERSE INTERNATIONAL HOLDINGS LIMITED 寰宇國際控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 1046)

(I) DISCLOSEABLE TRANSACTION – THE ACQUISITION OF 49% EQUITY INTEREST OF GLORY INTERNATIONAL ENTERTAINMENT LIMITED; AND

(II) CHANGE IN USE OF PROCEEDS

(I) DISCLOSEABLE TRANSACTION

Reference is made to the announcement of the Company dated 13 March 2015 in which the Company announced that the Purchaser (a wholly-owned subsidiary of the Company) had (i) entered into the MOU with the Vendor to form the basis of negotiation of the proposed acquisition of all or part of the direct or indirect interests of the Vendor in the Target; and (ii) agreed to pay HK$5,000,000 as Earnest Money for the proposed acquisition to the Vendor.

The Board is pleased to announce that after trading hours on 27 August 2015, the Purchaser and the Vendor entered into the SP Agreement pursuant to which the Purchaser had conditionally agreed to acquire, and the Vendor has conditionally agreed to sell, the Sale Shares (which shall represent 49% of the issued share capital of the Target as at the date of this announcement and as at Completion) at the Initial Consideration of HK$36,750,000, subject to the adjustments as described below.

The principal activities of the Target Group include advertising promotion, provision of public relations services, holding and sponsoring stage performance, concerts, film production and other cultural events in Hong Kong, Taiwan and the PRC.

As certain of the applicable percentage ratios under the Listing Rules in respect of the Acquisition are more than 5% and all applicable percentage ratios are less than 25%, the Acquisition constitutes a discloseable transaction of the Company and is therefore subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.

(II) CHANGE IN USE OF PROCEEDS

Reference is made to the Circular of the Company dated 24 June 2015 in relation to, among others, the Placing and the Rights Issue.

• for identification purposes only

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In case the amount of the Final Consideration is more than the amount of the Initial Consideration, the Purchaser shall pay in cash (or by way of cheque) to the Vendor a sum equal to such difference (with a cap of HK$18,375,000, being the difference between the Initial Consideration of HK$36,750,000 and the cap on the Final Consideration of HK$55,125,000) within 10 Business Days after the determination of the Final Consideration.

Having considered that the FY2016 Audited Accounts will only be available and the Final Consideration will only be determined in around September 2016, the Board has resolved to reallocate not more than HK$18.3 million from the Maximum Balance of the Final Consideration to the provision of short terms loans under the Group’s money lending business. The New Loans will be of terms not longer than 1 year, and the principals of the New Loans repaid after their maturity will be utilised as originally intended (where necessary). Accordingly, the Directors (including the independent non-executive Directors) confirm that such short term reallocation of proceeds does not have material impact on the Group’s future projects.

Having also considered that the Final Consideration is capped at HK$55,125,000, the Board has resolved to utilise the remaining HK$4,875,000 (being the difference between HK$60.0 million and HK$55,125,000) for general working capital of the Group or any other business opportunities in the business similar to that of the Target Group.

(I) DISCLOSEABLE TRANSACTION

Reference is made to the announcement of the Company dated 13 March 2015 in which the Company announced that the Purchaser (a wholly-owned subsidiary of the Company) had (i) entered into the MOU with the Vendor to form the basis of negotiation of the proposed acquisition of all or part of the direct or indirect interests of the Vendor in the Target; and (ii) agreed to pay HK$5,000,000 as Earnest Money for the proposed acquisition to the Vendor.

The Board is pleased to announce that after trading hours on 27 August 2015, the Purchaser and the Vendor entered into the SP Agreement pursuant to which the Purchaser had conditionally agreed to acquire, and the Vendor has conditionally agreed to sell, the Sale Shares (which shall represent 49% of the issued share capital of the Target as at the date of this announcement and as at Completion) at an initial Consideration of HK$36,750,000, subject to adjustments as described below.

THE SP AGREEMENT

Date

27 August 2015

Parties

• (1) the Purchaser, Fragrant River Entertainment Investment Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company as at the date of this announcement; and

• (2) the Vendor, Cheung Ming Kuang.

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

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Assets to be acquired

Pursuant to the SP Agreement, the Purchaser has conditionally agreed to acquire, and the Vendor has conditionally agreed to sell, the Sale Shares, representing 49% of the issued share capital of the Target as at the date of this announcement and as at Completion, free from all encumbrances, and together with all rights and benefits attaching thereto.

Consideration and Payment Terms

The Consideration for the Acquisition is determined with reference to the FY2016 Net Profit (as defined below) as described in the sub-section headed “Determination of the Consideration” below.

For the purpose of proceeding to Completion, the initial Consideration is fixed at HK$36,750,000 (the “ Initial Consideration ”), of which HK$5,000,000 (being the Earnest Money) has been paid in cash as part payment of the Consideration pursuant to the MOU prior to the date of this announcement. The remaining balance of the Initial Consideration, being the sum of HK$31,750,000 after deducting the Earnest Money, shall be paid by the Purchaser in cash (or by way of cheque) to the Vendor at Completion.

Determination of the Consideration

The final amount of the Consideration that the Purchaser is required to pay to the Vendor (“ Final Consideration ”) will be determined in accordance with the following formula:

FC = NP x 7.5 x 49%

Where:

“FC” means the amount of the Final Consideration subject to a cap of HK$55,125,000;

• “NP” means the net profit of the Target Group for FY2016 (as defined below) (the “ FY2016 Net Profit ”), being the audited consolidated profit after tax of the Target Group attributable to owners of the Target for the period from 1 July 2015 to 30 June 2016 (“ FY2016 ”) as shown in the audited consolidated financial statements of the Target Group (“ FY2016 Audited Accounts ”) for FY2016 (which will only include income or gain generated by activities in the ordinary and usual course of business of the Target Group). Where the FY2016 Net Profit is a negative figure, “NP” shall be deemed to be zero.

The Purchaser and the Vendor shall, in good faith, determine the Final Consideration in accordance with the above formula within 75 days after the FY2016 Audited Accounts are available. Within 10 Business Days after the Final Consideration is determined:

• (1) where the Final Consideration is more than the amount of the Initial Consideration, the Purchaser shall pay in cash (or by way of cheque) to the Vendor a sum equal to such difference; or

• (2) where the Final Consideration is less than the amount of the Initial Consideration, the Vendor shall pay in cash (or by way of cheque) to the Purchaser a sum equal to such difference.

For the avoidance of doubt, where the Final Consideration is equal to the Initial Consideration, neither the Purchaser is required to pay any additional sum to the Vendor nor is the Vendor required to refund any part of the Initial Consideration to the Purchaser.

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The Purchaser shall be entitled to appoint an independent auditor at its own cost to review the FY2016 Net Profit, the final figure of which shall be approved by the Purchaser. Further announcement will be made by the Company in relation to the FY2016 Net Profit and the Final Consideration when the Final Consideration is ascertained.

The Consideration was determined after arm’s length negotiations between the Purchaser and the Vendor principally taking into account, among other things, (i) the historical financial performance of the Target Group; (ii) the mechanism to determine the Final Consideration as detailed above; (iii) the average price to earnings ratio of other listed companies in Hong Kong which are principally engaged in the business similar to that of the Target Group of approximately 19.6 times as detailed below; (iv) the payment terms of the Consideration; and (v) the opportunity for the Group to further diversify its current business and broaden the income sources of the Group.

The Board has identified a list of sixteen companies listed on the Stock Exchange which are principally engaged in the business similar to that of the Target Group (the “ Comparables ”) and reviewed their price to earnings ratios (the “ PE Ratios ”). Based on the respective closing price per share of the Comparables on 24 August 2015 and the respective earnings per share as disclosed in their respective then latest available annual reports, the PE Ratios of the Comparables were within the range of approximately 8.7 times to approximately 44.9 times, with an average of approximately 19.6 times (the “ Average PE Ratio ”) (ten of the Comparables recorded a loss for their respective latest financial year and were excluded in calculating the Average PE Ratio). Given that the Target is not a listed company on the Stock Exchange, the Board considers that a lower PE Ratio of the Target Group will be more reasonable and more favourable to the Company. Therefore, a benchmark PE Ratio of 7.5 times, i.e. less than half of the Average PE Ratio, is adopted for the determination of the Consideration. Having also taken into account (i) a target profit of the Target Group for FY2016 of HK$15,000,000; and (ii) the Sale Shares which represent 49.0% of the issued share capital of the Target as at the date of this announcement, a benchmark cap on the Final Consideration of HK$55,125,000 is fixed (HK$15,000,000 x 7.5 x 49.0%).

Conditions Precedents

Completion is subject to the fulfilment or (if applicable) waiver of the following Conditions:

• (1) (where applicable) the compliance with the applicable requirements under the Listing Rules for the sale and purchase of the Sale Shares as contemplated under the SP Agreement having been fulfilled by the Company;

• (2) (if applicable) all necessary consents and approvals in relation to the transactions contemplated under the SP Agreement (including, where applicable, waiver of pre-emptive rights over the Sale Shares by the other shareholders of the Target) having been obtained by the Vendor and such consents and approvals should be valid up to the Completion Date;

• (3) (if applicable) all necessary consents and approvals in relation to the transactions contemplated under the SP Agreement having been obtained by the Purchaser and such consents and approvals should be valid up to the Completion Date;

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• (4) the Purchaser being reasonably satisfied with the results of the due diligence exercise (whether legal, accounting, financial, operational or other aspects that the Purchaser may consider necessary) the business assets, liability, activities, operations, prospects and other status of each of the companies within the Target Group which the Purchaser, its agents or professional advisers think reasonably necessary and appropriate to conduct;

• (5) the Purchaser being satisfied, from the date of the SP Agreement and at any time before the Completion, that the Vendor’s warranties as given by the Vendor in the SP Agreement remain true, accurate and not misleading and that no events have occurred that would result in any breach of any of the Vendor’s warranties or other provisions of the SP Agreement given by the Vendor; and

• (6) there being no material adverse change in the Target Group’s business, operations, financial conditions or prospects taken as a whole since the date of the SP Agreement.

The Purchaser may waive the Conditions (4), (5) and (6) at any time before the Long Stop Date by notice in writing to the Vendor. None of the other Conditions are capable of being waived by any party to the SP Agreement.

If the Conditions shall not have been fulfilled (or waived by the Purchaser as stated above) by 5:00 p.m. on the Long Stop Date, all rights and obligations of the parties to the SP Agreement shall cease and terminate, save and except certain provisions relating to confidentiality, costs and expenses and certain miscellaneous matters which provisions shall remain in full force and effect, and no party to the SP Agreement shall have any claim against the other save for claim (if any) in respect of such continuing provisions or any antecedent breach thereof. Under such circumstances, the Vendor shall refund an amount equal to the Earnest Money, without interest, to the Purchaser within 10 days after the Long Stop Date.

Completion

Subject to the fulfilment or waiver (as the case may be) of all the Conditions set out above, Completion shall take place on the Completion Date (i.e. the fifth Business Day after all the Conditions have been fulfilled or waived (or such other date as the parties may agree)).

Upon Completion, the Company will own 49% interest in the Target and will equity account the financial results of the Target Group.

INFORMATION OF THE TARGET GROUP

The Target is principally engaged in investment holding. As at the date of this announcement, the Target has a number of subsidiaries, the principal activities of which include advertising production, provision of public relations services, holding and sponsoring stage performance, concerts, film production and other cultural events in Hong Kong, Taiwan and the PRC.

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Set out below is the shareholding structure of the Target as at the date of this announcement and immediately prior to Completion:

==> picture [527 x 272] intentionally omitted <==

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

Vendor Independent Third Parties
50% 50%
Glory International Principal activities:
Entertainment Limited (BVI) Investment holding
100%
Glory Entertainment Principal activities:
Limited (HK) Investment holding
100% 100% 100% 100% 100%
Glory Communications Three Dimension Production Wilson Chin Production Star Creation Entertainment YCT Film Production
Company Limited (HK) Co. Limited (HK) Limited (HK) Limited (HK) Limited (HK)
Principal activities: Provision of public Provision of In the field of stage Provision of artist agents and Film production
relation and advertising services advertisement production production entertainment advertisement production
51%
String Production
Limited (HK)
Principal activities: Film production
----- End of picture text -----

Financial information

Set out below is the summary of the key financial information extracted from the unaudited combined financial statements of the Target Group for the year ended 31 March 2014 and 31 March 2015 respectively:

	For the year	For the year
	ended 31	ended 31
	March 2015	March 2014
	HK$’000	HK$’000
Turnover	8,264	11,455
Profit before taxation	218	668
Profit after taxation	100	635

The unaudited combined total asset value and unaudited combined net asset value of the Target Group as at 31 March 2015 were approximately HK$10,827,000 and HK$1,624,000 respectively.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is principally engaged in distribution of films in various videogram formats, film exhibition, licensing and sub-licensing of film rights, leasing of investment properties, securities investment, money lending and trading, wholesale and retail of watch and jewellery products.

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The Board has taken into account the following factors in assessing the Acquisition:

• (1) The entertainment business including advertising production, provision of public relations services, holding and sponsoring stage performance, concerts, film production and other culture events is conducted by the Target Group on a project basis, and the revenue generated thereunder are not stable, thus causing the fluctuation of the revenue and also the profitability of the Target Group;

• (2) The Target Group has well-established business in advertising production, provision of public relations services, holding and sponsoring stage performance, concerts, film production and other culture events in Hong Kong, Taiwan and the PRC, and the Acquisition will enable the Group to complement its existing film production business to similar advertising production business, as well as provision of public relations services in relation to, among others, promotion of films through various events;

• (3) The directors of the Target Group and other shareholders of the Target have years of experience in the advertising production, provision of public relations services, holding and sponsoring stage performance, concerts and film production, and the close alliance between the Group and the Target Group may have synergetic effect which will be beneficial to the Group and the Shareholders;

• (4) In case of the FY2016 Net Profit of HK$15,000,000 cannot be achieved, the Final Consideration for the Acquisition is subject to downward adjustment depending on the actual performance of the Target Group for FY2016 to the extent that the Final Consideration shall be nil if the Target Group records net loss for FY2016. As such, the risk and return of the Acquisition is further protected in this regard; and

• (5) A benchmark PE Ratio of 7.5 times, i.e. less than half of the Average PE Ratio, is adopted for the determination of the Final Consideration.

Based on the above, the Board considers that the terms of the Acquisition as well as the Consideration are fair and reasonable so far as the Company and the Shareholders are concerned, and the Acquisition is in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

As certain of the applicable percentage ratios under the Listing Rules in respect of the Acquisition are more than 5% and all applicable percentage ratios are less than 25%, the Acquisition constitutes a discloseable transaction of the Company and is therefore subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.

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(II) CHANGE IN USE OF PROCEEDS

Reference is made to the Circular of the Company dated 24 June 2015 in relation to, among other matters, the Placing and the Rights Issue. As disclosed in the Circular, the Company intended to apply the net proceeds of not less than HK$60.0 million from the Placing for the possible acquisition of a target company principally engaged in advertising production, provision of public relations services, holding and sponsoring stage performance, concerts, film production and other cultural events in Hong Kong, Taiwan and the PRC as contemplated under the MOU as announced in the Company’s announcement dated 13 March 2015. Such possible acquisition now materialises as the Acquisition as detailed in this announcement.

As detailed under the sub-sections headed “Consideration and Payment Terms” and “Determination of the Consideration” above, the amount of the Initial Consideration is HK$36,750,000 and the amount of the Final Consideration is capped at HK$55,125,000 (the “ Maximum Balance of the Final Consideration ”). In case the amount of the Final Consideration is more than the amount of the Initial Consideration, the Purchaser shall pay in cash (or by way of cheque) to the Vendor a sum equal to such difference (with a cap of HK$18,375,000, being the difference between the Initial Consideration of HK$36,750,000 and the cap on the Final Consideration of HK$55,125,000) within 10 Business Days after the determination of the Final Consideration.

Having considered that the FY2016 Audited Accounts will only be available and the Final Consideration will only be determined in around September 2016, the Board has resolved to reallocate not more than HK$18.3 million from the Maximum Balance of the Final Consideration to the provision of short terms loans (the “ New Loans ”) under the Group’s money lending business. The New Loans will be of terms not longer than 1 year, and the principals of the New Loans repaid after their maturity will be utilised as originally intended (where necessary). Accordingly, the Directors (including the independent non-executive Directors) confirm that such short term reallocation of proceeds does not have material impact on the Group’s future projects.

Having taken into account (i) the stable interest income generated from the money lending business; (ii) the growing demand for loan facilities by the existing customers; and (iii) the above short term reallocation of not more than HK$18.3 million from the Maximum Balance of the Final Consideration will facilitate efficient allocation of financial resources, generate additional interest income for the Group and maximise the return of the Group and would not adversely affect the operations of the Group, the Directors (including the independent non-executive Directors) consider the above short term reallocation of proceeds is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

Having also considered that the Final Consideration is capped at HK$55,125,000, the Board has resolved to utilise the remaining HK$4,875,000 (being the difference between HK$60.0 million and HK$55,125,000) for general working capital of the Group or any other business opportunities in the business similar to that of the Target Group.

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DEFINITIONS

In this announcement, unless the context otherwise requires, the following words and expressions shall have the following meanings when used herein:

“Acquisition”	the acquisition of the Sale Shares pursuant to the terms and conditions of
	the SP Agreement
“associate”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of Directors of the Company
“Business Day”	a day (excluding Saturday and any day on which a tropical cyclone
	warning no.8 or above is hoisted or remains hoisted between 9:00 a.m.
	and 12:00 noon and is not lowered at or before 12:00 noon or on which
	a “black” rainstorm warning is hoisted or remains in effect between
	9:00 a.m. and 12:00 noon and is not discontinued at or before 12:00 noon)
	on which licensed banks in Hong Kong are open for business
“BVI”	the British Virgin Islands
“Circular”	the circular of the Company dated 24 June 2015 in relation to, among
	other matters, the Placing and the Rights Issue
“Company”	Universe International Holdings Limited, a company incorporated in the
	Bermuda, the issued shares of which are listed on the Stock Exchange
	(stock code:1046)
“Completion”	the completion of the sale and purchase of the Sale Shares in accordance
	with the terms and conditions of the SP Agreement
“Completion Date”	the fifth Business Day after all the Conditions shall have fulfilled or
	waived on which the Completion shall take place (or such other date as the
	Purchaser and the Vendor may agree in writing)
“Condition(s)”	the conditions precedent to which Completion is subject as set out in the
	sub-section headed “The SP Agreement – Conditions Precedent” above
“connected person”	has the meaning ascribed to it under the Listing Rules
“Consideration”	the consideration for the purchase of the Sale Shares under the SP
	Agreement, the maximum amount being HK$55,125,000 (subject to
	adjustments as set out in the sub-section headed “The SP Agreement
	– Determination of the Consideration” above). For the purpose
	of proceeding to Completion, the initial Consideration is fixed at
	HK$36,750,000
“Director(s)”	the director(s) of the Company

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“Earnest Money”

HK$5,000,000, being the sum paid by the Purchaser to the Vendor for the proposed acquisition pursuant to the MOU

“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Third	third party(ies) who is independent of and not connected with the
Party(ies)”	Company and its connected persons
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“Long Stop Date”	31 December 2015 (or such later date as the Vendor and the Purchaser
	may agree in writing)
“MOU”	the memorandum of understanding dated 13 March 2015 entered into
	between the Purchaser and the Vendor
“Placing”	the offer by way of private placing of 586,350,000 placing shares by or
	on behalf of the placing agent to the placees, on a best effort basis, on the
	terms and subject to the conditions set out in the placing agreement dated
	26 May 2015 entered into between the Company and the placing agent
“PRC”	the People’s Republic of China (excluding, for the purposes of this
	announcement, Hong Kong, Macau Special Administrative Region of the
	People’s Republic of China and Taiwan)
“Purchaser”	Fragrant River Entertainment Investment Limited, a company incorporated
	in Hong Kong with limited liability and a wholly-owned subsidiary of the
	Company
“Rights Issue”	the issue by way of rights issue to the qualifying Shareholders on the basis
	of two (2) rights shares for every one (1) Share in issue held on 23 July
	2015, being the record date, at HK$0.202 per rights share on the terms and
	subject to the conditions set out in the underwriting agreement dated 26
	May 2015 entered into between the Company and the underwriter and the
	prospectus of the Company published by the Company on 24 July 2015
“Sale Shares”	24,500 issued shares of the Target, representing 49% of the issued share
	capital of the Target as at the date of this announcement
“Shareholders”	the shareholders of the Company
“SP Agreement”	the agreement dated 27 August 2015 entered into between the Purchaser
	and the Vendor in relation to the Acquisition
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

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“Target”

Glory International Entertainment Limited, a company incorporated in BVI with limited liability

“Target Group”

the Target and its subsidiaries

“Vendor”

Cheung Ming Kuang

%

per cent

By order of the Board Universe International Holdings Limited Lam Shiu Ming, Daneil Chairman and Executive Director

Hong Kong, 27 August 2015

As at the date of this announcement, the executive Directors are Mr. Lam Shiu Ming, Daneil, Mr. Hung Cho Sing, Mr. Yeung Kim Piu and Mr. Lam Kit Sun, the non-executive Director is Mr. Chan Shiu Kwong Stephen, and the independent non-executive Directors are Mr. Lam Wing Tai, Mr. Choi Wing Koon and Mr. Lam Chi Keung.

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