Television Broadcasts Limited — Proxy Solicitation & Information Statement 2020

Jul 28, 2020

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your 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 China Fortune Financial Group Limited, you should at once hand this circular accompanying with the form of proxy to the purchaser(s) or transferee(s) or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities.

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

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China Fortune Financial Group Limited

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 290)

Website: http://www.290.com.hk

(1) MAJOR TRANSACTION – SUPPLEMENTAL LOAN AGREEMENT RELATING TO THE EXTENSION OF REPAYMENT DATE OF LOAN; (2) CONNECTED TRANSACTION – PROPOSED EXTENSION OF THE MATURITY DATE OF THE CONVERTIBLE BONDS; (3) PROPOSED GRANT OF SPECIFIC MANDATE; AND

(4) NOTICE OF EXTRAORDINARY GENERAL MEETING

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

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A notice convening the EGM of the Company to be held at 43rd Floor, COSCO Tower, 183 Queen’s Road Central, Hong Kong, on Thursday, 27 August 2020 at 11:30 a.m. is set out on pages EGM-1 to EGM-3 of this circular.

Whether or not you intend to attend and vote in person at the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Union Registrars Limited at Suites 3301-04, 33/F., Two Chinachem Exchange Square, 338 King’s Road, North Point, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case may be). 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 (as the case may be) should you so wish and in such event, the instrument appointing a proxy shall be deemed to be revoked.

PRECAUTIONARY MEASURES FOR THE EGM

Please refer to page 1 of this circular for measures being taken to try to prevent and control the spread of the coronavirus disease 2019 (“COVID-19”), including: – compulsory temperature checks; – health declarations; – recommended wearing of surgical face masks; and – no distribution of corporate gifts and no serving of refreshments. Any person who does not comply with the precautionary measures may be denied entry into the EGM venue. The Company encourages attendees to wear face masks and reminds Shareholders that they may appoint the chairman of the meeting as their proxy to vote on the relevant resolutions at the EGM as an alternative to attending the EGM in person.

29 July 2020

CONTENTS

PRECAUTIONARY MEASURES FOR THE EGM . . . . . . . . . . . . . . . . . . . . . . . .	1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . .	25
LETTER FROM RAINBOW CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP . . . . . . .	46
APPENDIX II – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . .	48
NOTICE OF EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

PRECAUTIONARY MEASURES FOR THE EGM

In view of the ongoing spread of COVID-19 pandemic and recent requirements for prevention and control of its spread, the Company will implement the following preventive measures at the EGM to protect attending Shareholders, staff and other stakeholders from the risk of infection:

• (i) compulsory body temperature checks will be conducted on every Shareholder, proxy and other attendees at the entrance of the EGM venue. Any person with a body temperature of over 37.4 degrees Celsius may be denied entry into the EGM venue or be required to leave the EGM venue;

• (ii) all Shareholders, proxies and other attendees are required to complete and submit at the entrance of the EGM venue a declaration form confirming their names and contact details, and confirming that they have not travelled to, or to their best of knowledge had physical contact with any person who has recently travelled to, any pandemic affected countries or areas outside of Hong Kong (as per guidelines issued by the Hong Kong government at www.chp.gov.hk/en/features/102742.html) at any time in the preceding 14 days. Any person who does not comply with this requirement may be denied entry into the EGM venue or be required to leave the EGM venue;

• (iii) the Company encourages attendees to wear surgical face masks inside the EGM venue at all times, and to maintain a safe distance between seats; and

• (iv) no refreshments will be served, and there will be no corporate gifts.

To the extent permitted under law, the Company reserves the rights to deny entry into the EGM venue or require any person to leave the EGM venue in order to ensure the safety of the attendees at the EGM.

The Company reminds all Shareholders that physical attendance in person at the EGM is not necessary for the purpose of exercising voting rights in the Company. As an alternative, by using proxy forms with voting instructions inserted, Shareholders may appoint the chairman of the EGM as their proxy to vote on the relevant resolutions at the EGM instead of attending the EGM in person.

The proxy form is attached to this circular for Shareholders who opt to receive physical circulars. Alternatively, the proxy form can be downloaded from the website of Hong Kong Exchanges and Clearing Limited, at www.hkexnews.hk and the website of the Company at www.290.com.hk respectively. If you are not a registered Shareholder (if your Shares are held via banks, brokers, custodians or the Hong Kong Securities Clearing Company Limited), you should consult directly with your banks or brokers or custodians (as the case may be) to assist you in the appointment of proxy.

– 1 –

DEFINITIONS

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

• “Amendment Deed”

the amendment deed entered into by the Company and Riverhead Capital dated 8 July 2020 to extend the maturity date of the Tranche 2 CB from the date falling on the third anniversary of the issue date of the Tranche 2 CB (i.e. 28 June 2020) to the fifth anniversary of the issue date of the Tranche 2 CB (i.e. 28 June 2022)

• “associate(s)”

• has the meaning ascribed to it under the Listing Rules

• “Board”

• the board of Directors

• “Borrower”

Shine Well Holdings Limited, a company duly incorporated under the laws of the British Virgin Islands with limited liability

• “Business Day(s)”

• a day on which banks are open for business in Hong Kong (excluding Saturdays and Sundays)

• “CB Extension”

the proposed amendment to the terms and conditions of the Convertible Bonds to extend the maturity date of the Tranche 2 CB from the date falling on the third anniversary of the issue date of the Tranche 2 CB (i.e. 28 June 2020) to the fifth anniversary of the issue date of the Tranche 2 CB (i.e. 28 June 2022)

• “Charged Shares I”

• 13,000,000 shares of the Borrower (representing all the issued shares of the Borrower) which are beneficially owned by the Guarantor

• “Charged Shares II”

223,220,000 shares of the Listco (representing approximately 54.04% of the issued share capital of the Listco as at the Latest Practicable Date) and beneficially owned by the Borrower

• “Company”

China Fortune Financial Group Limited (中國富強金融集 團有限公司), a company incorporated in the Cayman Islands with limited liability and the issued Shares of which are listed on the Main Board of the Stock Exchange (stock code: 290)

• “Conditions Precedent”

the conditions precedent to the Amendment Deed

– 2 –

DEFINITIONS

• “connected person(s)”

• “controlling shareholder(s)”

• “Conversion Price”

• “Conversion Rights”

• “Conversion Share(s)”

• “Convertible Bonds”

• “Director(s)”

• “Drawdown Date”

• “EGM”

• “Group”

• “Guarantor”

• “HK$”

• has the meaning ascribed to it under the Listing Rules

• has the meaning ascribed to it under the Listing Rules

• HK$0.06 per Conversion Share (subject to adjustments)

• the right of the holder of the Convertible Bonds to convert the outstanding principal amount of the Convertible Bonds into such number of Shares credited as fully paid

• the Share(s) which may fall to be allotted and issued upon the exercise of the conversion rights attaching to the Convertible Bonds

• the 3-year 2% unsecured redeemable convertible bonds in the aggregate principal amount of up to HK$305,661,000 issued by the Company, details of which are set out in the circulars of the Company dated 7 October 2016 and 13 December 2016

• the director(s) of the Company

• the date of utilization of the Loan, being the date on which the Loan is to be made

• an extraordinary general meeting of the Company to be convened for (i) the Shareholders to consider and, if thought fit, approve the Supplemental Loan Agreement and the transactions contemplated thereunder; and (ii) the Independent Shareholders to consider and, if thought fit, approve the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate

• the Company and its subsidiaries from time to time

• Mr. LAI Tse Ming, being the sole director and sole shareholder of the Borrower

• Hong Kong dollars, the lawful currency of the Hong Kong

– 3 –

DEFINITIONS

• “Hong Kong”

• “Independent Board Committee”

• “Independent Financial Adviser” or “Rainbow Capital”

• “Independent Shareholder(s)”

• “Latest Practicable Date”

• “Lender”

• “Listco”

• “Listing Rules”

• “Loan”

• the Hong Kong Special Administrative Region of the PRC

• the independent board committee comprising Mr. CHAN Kin Sang, Mr. CHIU Kung Chik, Mr. LI Gaofeng and Mr. LIU Xin, being all the independent non-executive Directors, established to advise the Independent Shareholders in connection with the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate

• Rainbow Capital (HK) Limited (浤博資本有限公司), a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity as defined under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in connection with the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate

• Shareholders other than Riverhead Capital and its associates

• 24 July 2020, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular

• Fortune Finance Limited, a wholly-owned subsidiary of the Company

• IBO Technology Company Limited (艾伯科技股份有限 公司), a company incorporated in the Cayman Islands with limited liability and the issued shares of which are listed on the Main Board of the Stock Exchange (stock code: 2708)

• the Rules Governing the Listing of Securities on the Stock Exchange

• the term loan in the principal amount of HK$155,000,000 granted by the Lender to the Borrower pursuant to the terms of the Loan Agreement

– 4 –

DEFINITIONS

• “Loan Agreement” the loan agreement dated 29 January 2019 and entered into among the Lender, the Borrower and the Guarantor in relation to the Loan

• “Mr. Xie” Mr. XIE Zhichun, the Chairman of the Board, an executive Director and the controlling shareholder and sole director of Riverhead Capital

• “Personal Guarantee” a deed of personal guarantee dated 29 January 2019, provided by the Guarantor in favour of the Lender to secure the Borrower’s liability and obligations under the Loan Agreement

• “PRC” the People’s Republic of China, and for the purpose of this circular only, excluding Hong Kong, the Macau Special Administrative Region and Taiwan

• “Repayment Date” has the meaning ascribed to it under the paragraph “The Loan Agreement” in the Letter from the Board in this circular

• “Riverhead Capital” Riverhead Capital (International) Management Co., Ltd. (江先資本(國際)管理有限公司), a company incorporated in the Cayman Islands and is owned as to 80% by Mr. Xie and 20% by Ms. XIE Juhan

• “Riverhead Subscription Agreement”

• the subscription agreement dated 22 November 2016 entered into between the Company and Riverhead Capital in relation to the subscription of the Convertible Bonds

• “SFC”

• the Securities and Futures Commission

• “SFO”

• the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended from time to time

• “Share(s)”

• ordinary share(s) of HK$0.01 each in the issued share capital of the Company

• “Share Charge I”

• the deed of charge dated 29 January 2019, provided by the Guarantor (as the sole shareholder of the Borrower) in favour of the Lender over the Charged Shares I to secure the Borrower’s liability and obligations under the Loan Agreement

– 5 –

DEFINITIONS

• “Share Charge II” the deed of charge dated 29 January 2019, provided by the Borrower in favour of the Lender over the Charged Shares II to secure the Borrower’s liability and obligations under the Loan Agreement

• “Shareholder(s)” the holder(s) of the Shares

• “Specific Mandate” the specific mandate to be granted to the Directors by the Independent Shareholders at the EGM for the allotment and issue of Conversion Shares upon exercise of the conversion rights attached to the Tranche 2 CB

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Supplemental Deed Poll” the supplemental deed poll to be executed by the Company upon the satisfaction of the Conditions Precedent to effect the CB Extension

• “Supplemental Loan Agreement” the supplemental loan agreement dated 13 May 2020 entered into between the Lender, the Borrower and the Guarantor to amend and supplement the Loan Agreement

• “Takeovers Code” The Codes on Takeovers and Mergers and Share Buybacks

• “Tranche 1 CB” the first tranche of the Convertible Bonds in the aggregate principal amount of HK$125,661,000 issued to Riverhead Capital on 30 March 2017

• “Tranche 2 CB” the second tranche of the Convertible Bonds in the aggregate principal amount of HK$60,000,000 issued to Riverhead Capital on 28 June 2017

• “Tranche 3 CB” the third tranche of the Convertible Bonds in the aggregate principal amount of HK$60,000,000 issued to Riverhead Capital on 5 July 2018

• “Tranche 4 CB”

• the fourth tranche of the Convertible Bonds in the aggregate principal amount of HK$60,000,000

• “US$”

• United States dollars, the lawful currency of the United States of America

• “%”

• percentage

– 6 –

LETTER FROM THE BOARD

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China Fortune Financial Group Limited

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 290)

Website: http://www.290.com.hk

Executive Directors: Mr. XIE Zhichun (Chairman) Mr. ZHU Yi Ms. SUN Qing

Registered Office: P.O. Box 309, Ugland House Grand Cayman, KY1-1104 Cayman Islands

Non-executive Directors: Mr. HAN Hanting Mr. CHEN Zhiwei Mr. WU Ling

Head Office and Principal Place of Business in Hong Kong: 43rd Floor COSCO Tower 183 Queen’s Road Central Hong Kong

Independent non-executive Directors: Mr. CHAN Kin Sang Mr. CHIU Kung Chik Mr. LI Gaofeng Mr. LIU Xin

29 July 2020

To the Shareholders

Dear Sir or Madam

(1) MAJOR TRANSACTION – SUPPLEMENTAL LOAN AGREEMENT RELATING TO THE EXTENSION OF REPAYMENT DATE OF LOAN; (2) CONNECTED TRANSACTION – PROPOSED EXTENSION OF THE MATURITY DATE OF THE CONVERTIBLE BONDS;

(3) PROPOSED GRANT OF SPECIFIC MANDATE; AND

(4) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

References are made to (i) the announcements of the Company dated 13 May 2020 and 15 May 2020 in relation to, among others, the Supplemental Loan Agreement; and (ii) the announcement of the Company dated 8 July 2020 in relation to, among others, the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate.

– 7 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things, (i) further details of the Supplemental Loan Agreement; (ii) further details of the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate; (iii) a letter of advice from the Independent Board Committee to the Independent Shareholders in relation to the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate; (iv) a letter of advice from Rainbow Capital to the Independent Board Committee and the Independent Shareholders in relation to the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate; and (v) the notice of EGM.

THE SUPPLEMENTAL LOAN AGREEMENT AND EXTENSION OF REPAYMENT DATE OF LOAN

On 13 May 2020 (after trading hours), the Lender (a wholly-owned subsidiary of the Company), the Borrower and the Guarantor entered into the Supplemental Loan Agreement, pursuant to which, among other things, the Lender agreed to extend the repayment date of the Loan from 12 months after the Drawdown Date (i.e. 30 January 2020) to 21 months after the Drawdown Date (i.e. 31 October 2020) on the terms and subject to the conditions therein. Subject to the Lender’s prior written consent, the repayment date can be further extended for a further 6 months to 30 April 2021. Save as disclosed herein, all other material terms of the Loan Agreement shall remain unchanged and in full force and effect. As at the date of the Supplemental Loan Agreement, the loan amount of HK$155,000,000 remained outstanding and due to be repaid by the Borrower to the Lender.

The material terms of the Loan Agreement (as amended and supplemented by the Supplemental Loan Agreement) are set out as follows:

Date: Loan Agreement – 29 January 2019 (after trading hours) Supplemental Loan Agreement – 13 May 2020 (after trading hours) Parties: (1) the Lender; (2) the Borrower; and (3) the Guarantor.

• Principal amount: HK$155,000,000 Interest: (1) 12% per annum for the first twelve (12) months after the Drawdown Date, payable quarterly in arrears on the last day of each quarter for the first twelve (12) months after the Drawdown Date; and

• (2) 15% per annum for the period thereafter, payable as follows:

  • (a) in respect of the period from the thirteenth (13th) to fifteenth (15th) month after the Drawdown Date, in arrears on the last day of such period;

– 8 –

LETTER FROM THE BOARD

• (b) in respect of the period from the sixteenth (16th) to eighteenth (18th) month after the Drawdown Date, within fourteen (14) days of the date of the Supplemental Loan Agreement; and

• (c) monthly in arrears on the last day of the nineteenth (19th) month after the Drawdown Date and each month thereafter.

Arrangement fee:

The Borrower shall pay to the Lender:

• (1) a non-refundable arrangement fee of HK$4,650,000 within three (3) months after the Drawdown Date (which has already been paid to the Lender as at the Latest Practicable Date); and

• (2) a non-refundable arrangement fee of HK$3,100,000 on 31 October 2020 or, in the event of prepayment, the date of such prepayment (whichever is the earlier).

Drawdown Date:

Repayment Date:

Repayment:

30 January 2019

The date falling 21 months after the Drawdown Date, i.e. 31 October 2020. Subject to the Lender’s prior written consent, the repayment date can be further extended for a further 6 months to 30 April 2021.

The Borrower shall repay in full the principal amount of the Loan, together with interest accrued and unpaid thereof on the Repayment Date.

Subject to the terms of the Loan Agreement (as amended and supplemented by the Supplemental Loan Agreement), the Borrower may prepay all or any part of the Loan at any time, provided that if the Borrower prepays all or any part of the Loan during the period within six months from the Drawdown Date, the Borrower shall be liable to pay interest that would have accrued on the amount prepaid (but not yet paid in accordance with the Loan Agreement (as amended and supplemented by the Supplemental Loan Agreement), from and including the date of prepayment to and including the last date of the six-month period from the Drawdown Date.

– 9 –

LETTER FROM THE BOARD

Security:

• (1) the Share Charge I (as confirmed by a deed of confirmation dated 13 May 2020);

• (2) the Share Charge II (as confirmed by a deed of confirmation dated 13 May 2020); and

• (3) the Personal Guarantee (as confirmed by a deed of confirmation dated 13 May 2020).

The Supplemental Loan Agreement is conditional upon, among others, the passing of the ordinary resolution by the Shareholders at the extraordinary general meeting of the Company to approve the Supplemental Loan Agreement and the transactions contemplated thereunder.

Reasons for entering into the Supplemental Loan Agreement

As disclosed in the announcement of the Company dated 29 January 2019, the Loan was due to be repaid on 30 January 2020, being the date falling 12 months after the Drawdown Date, unless the Lender consents to extend to a date falling 24 months from the Drawdown Date. The Lender and the Borrower had been in negotiations on the possible extension and extension terms since January 2020 with the understanding that the Borrower would also simultaneously try to seek alternative financing in the market. The Borrower had timely paid each of the interest payments under the Loan Agreement save for the final interest payment (the “ Final Interest Payment ”), which was placed on hold pending the results of the negotiations on the extension between the Lender and the Borrower and the obtaining of alternative financing at a lower cost by the Borrower. The request for withholding the Final Interest Payment was made by the Borrower as it was in negotiation with a third party to obtain alternative financing and believed that such alternative financing would be available sooner than liquidating its assets to raise funds to repay the Final Interest Payment and the outstanding principal of the Loan.

In response to the Borrower’s request, the Lender balanced the security value of the Charged Shares I and Charged Shares II as well as the previous interest payment records of the Borrower and agreed to withhold the Final Interest Payment on the condition that for the period following the due date of the Final Interest Payment, the interest on (i) the outstanding principal amount of the Loan; and (ii) the outstanding Final Interest Payment would accrue at a higher rate of interest of 15% per annum instead of the rate of interest of 12% per annum for the first nine (9) months after the Drawdown Date per the Loan Agreement. It was also agreed between the Lender and the Borrower that the proceeds from the alternative financing would be applied immediately towards repayment of the outstanding principal amount together with all outstanding interest on the Loan.

Having considered (i) the additional interest income derived from the interest accrued on the Final Interest Payment and the outstanding principal amount of the Loan at the rate of interest of 15% per annum following the due date of the Final Interest Payment; and (ii) the value of the Charged Shares I and Charged Shares II at the material time, being at least two times the outstanding Loan, the Board was of the view that the arrangement to place the Final Interest Payment on hold pending the obtaining of alternative financing by the Borrower was fair and reasonable and in the interest of the Company and the Shareholders as a whole.

– 10 –

LETTER FROM THE BOARD

Due to the impact of COVID-19 outbreak and the preventive measures and quarantine requirements imposed in the PRC and Hong Kong, the progress of obtaining alternative financing by the Borrower and the discussions between the Lender and the Borrower were significantly interrupted and/or delayed. Despite the Borrower’s effort, it did not succeed in securing alternative financing at lower cost and has requested the Lender to extend the repayment date of the Loan.

As part of the preventive measures adopted by the Lender to safeguard the interests of the Group, the Lender regularly monitors the performance and the value of the Charged Shares I and Charged Shares II, as well as the financial status of the Guarantor to ensure that the value of the Charged Shares I and Charged Shares II will in aggregate be no less than two times the outstanding Loan at all times and that the Guarantor is financially sound to guarantee the Loan. In assessing the financial background of the Borrower and the Guarantor, the Lender has performed, including but not limited to, regular background searches against each of the Borrower, the Guarantor and the Listco, reviewed credit report of the Borrower and the Guarantor, reviewed management account of the Borrower as well as the interim and annual results published by the Listco, and attended site visit of the principal place of business of the Listco in the PRC.

The Lender is a licensed money lender and its principal activity is provision of money lending services. The entering into the Supplemental Loan Agreement will provide additional interest income to the Lender. Given that the Charged Shares II have continuously been valued at no less than two times of the outstanding Loan with reference to the price of the shares quoted on the Stock Exchange and the Borrower has agreed to pay all accrued interests prior to the entering into of the Supplemental Loan Agreement, the Lender agreed to charge interest on the outstanding interest at the rate of 15% per annum and was of the view that the increment in the interest rate from 12% per annum to 15% per annum, the entitlement to such interest and a non-refundable arrangement fee of in the amount of HK$3,100,000 and the shortening of the interest period from quarterly payment to monthly payment will provide favourable interest income as well as additional protection and compensation to the Lender. Having considered the above, the financial background of the Borrower, the Guarantor and the additional interest income to be received by the Group in respect of the extension of the repayment date of the Loan, the Board considers that the execution of the Supplemental Loan Agreement is of commercial benefit to the Group.

As at the Latest Practicable Date, the Final Interest Payment has been settled in full and the Borrower has paid all interests in accordance with the terms of the Supplemental Loan Agreement and there is no accrued interest. As at the Latest Practicable Date, the total amount of outstanding payment in respect of the principal of the Loan is HK$155,000,000. There is no outstanding late payment penalty charge due from the Borrower.

– 11 –

LETTER FROM THE BOARD

In the event the ordinary resolution to approve the Supplemental Loan Agreement and the transactions contemplated thereunder is not passed by the Shareholders at the EGM, the outstanding principal of the Loan, together with interest accrued shall become immediately due and payable. To the best of the knowledge of the Company, in the circumstances, the Borrower may take steps to dispose of its assets and apply the proceeds towards repayment of the Loan.

The terms of the Supplemental Loan Agreement were arrived at by the parties thereto after arm’s length negotiations and are on normal commercial terms, with reference to the prevailing market conditions and practices. The Board considers that the terms of the Supplemental Loan Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Financial effects of the extension of loan

The Loan was from internal resources of the Group before entering into the Loan Agreement. There is no material change in the consolidated net assets of the Company as a result of entering into the Supplemental Loan Agreement. The continuation of the provision of the Loan by the Group to the Borrower pursuant to the Loan Agreement (as supplemented and amended by the Supplemental Loan Agreement) will continue to generate interest income for the Group. The Directors do not expect that the entering into of the Supplemental Loan Agreement would have any adverse financial impact on the earnings, assets and liabilities of the Group.

Information of the Lender, the Company, the Group, the Borrower and the Guarantor

The Lender is a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of the Company and is principally engaged in the money lending business as a holder of the Money Lenders License under the Money Lenders Ordinance (Cap. 163 of the Laws of Hong Kong).

The Company is an investment holding company incorporated in the Cayman Islands with limited liability and the issued shares of which are listed on the Main Board of the Stock Exchange.

The Group is principally engaged in the provision of brokerage and margin financing, proprietary securities trading, corporate finance, money lending and factoring, consultancy and insurance brokerage and asset management services.

The Borrower is a company duly incorporated under the laws of the British Virgin Islands with limited liability and wholly-owned by the Guarantor. The Borrower is principally engaged in the business of equity investment and investment in securities.

The Guarantor is an individual, the sole director and the sole shareholder of the Borrower.

– 12 –

LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, each of the Borrower, the Guarantor, and their respective ultimate beneficial owners are third parties independent of the Company and its connected persons under the Listing Rules.

Listing Rules implications

As the highest applicable percentage ratio calculated under Rule 14.07 of the Listing Rules in relation to the Supplemental Loan Agreement, when aggregated with the interest income derived from the Loan since its drawdown, is more than 25% but all of the applicable percentage ratios are less than 100%, the entering into of the Supplemental Loan Agreement constitutes a major transaction of the Company under Chapter 14 of the Listing Rules and is therefore subject to the announcement and shareholders’ approval requirements under the Listing Rules.

To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, no Shareholder has a material interest in the Loan and if the Supplemental Loan Agreement and the transactions contemplated thereunder were put forward to the Shareholders for approval at a general meeting of the Company, no Shareholder or any of its close associates is required to abstain from voting on the resolution(s) to approve the Supplemental Loan Agreement and the transactions contemplated thereunder.

PROPOSED EXTENSION OF THE MATURITY DATE OF THE CONVERTIBLE BONDS

Background information

References are made to the circulars of the Company dated 7 October 2016 and 13 December 2016 and the announcements of the Company dated 21 September 2016, 22 November 2016, 30 March 2017 and 5 July 2018.

The Convertible Bonds were issued by the Company to Riverhead Capital as follows:

						Status/outstanding
						principal amount
				Date of	Principal	as at the Latest
Tranche			Date of issue	maturity	amount	Practicable Date
Tranche	1	CB	30 March 2017	30 March 2020	HK$125,661,000	Converted in whole
						on 27 April 2017
Tranche	2	CB	28 June 2017	28 June 2020	HK$60,000,000	HK$60,000,000
Tranche	3	CB	5 July 2018	5 July 2021	HK$60,000,000	HK$21,000,000
_(Note _	1)					(Note 1)
Tranche	4	CB	–	–	HK$60,000,000	Not issued due to
_(Note _	2)					non-satisfaction of
						certain conditions
						precedent

– 13 –

LETTER FROM THE BOARD

Notes:

1. The Company has no immediate intention and has not been in discussion to extend the Tranche 3 CB. An amount equivalent to HK$39,000,000 of the Tranche 3 CB were partially converted on 11 January 2019.

2. The Company is not allowed to, and will not, to issue the Tranche 4 CB in the future.

As at the Latest Practicable Date, Riverhead Capital was the registered holder of the Convertible Bonds in the principal amount of HK$81,000,000 which represented all of the Convertible Bonds outstanding as at the Latest Practicable Date.

The proposed amendment

On 8 July 2020 (after trading hours), the Company and Riverhead Capital entered into the Amendment Deed, pursuant to which Riverhead Capital conditionally agreed to extend the maturity date of the Tranche 2 CB from the date falling on the third anniversary of the issue date of the Tranche 2 CB (i.e. 28 June 2020) to the fifth anniversary of the issue date of the Tranche 2 CB (i.e. 28 June 2022).

Subject to fulfillment of the Conditions Precedent, the Company shall execute the Supplemental Deed Poll. The CB Extension shall take effect from the date of the Supplemental Deed Poll.

Save for the amendments above, other terms and conditions of the Convertible Bonds shall remain unchanged and in full force and effect and binding on the parties.

Conditions Precedent to the Amendment Deed

The CB Extension under the Amendment Deed is conditional upon the satisfaction of the following Conditions Precedent:

• (i) the Stock Exchange having approved the amendments to the terms and conditions of the Convertible Bonds;

• (ii) the approval of (i) the amendments to the terms and conditions of the Convertible Bonds; and (ii) proposed grant of the Specific Mandate by the Independent Shareholders at the EGM;

• (iii) the Listing Committee of the Stock Exchange having granted approval for the listing of, and permission to deal in, the Conversion Shares to be allotted and issued by the Company upon conversion of the Tranche 2 CB; and

• (iv) the sanction of the Supplemental Deed Poll by a special resolution of Riverhead Capital as holder of the Convertible Bonds.

As at the Latest Practicable Date, condition (iv) has been fulfilled while conditions (i), (ii) and (iii) above remain outstanding.

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LETTER FROM THE BOARD

Principal terms of the Convertible Bonds (as amended and supplemented by the Supplemental Deed Poll)

The principal terms of the Convertible Bonds (as amended and supplemented by the Supplemental Deed Poll) are set out as follows:

Issuer: the Company Holder: Riverhead Capital Aggregate principal amount: An aggregate principal amount of up to HK$305,661,000, comprising four tranches with a principal amount of HK$125,661,000 for the Tranche 1 CB, a principal amount of HK$60,000,000 for the Tranche 2 CB, a principal amount of HK$60,000,000 for the Tranche 3 CB and a principal amount of HK$60,000,000 for the Tranche 4 CB.

Issue price:

• (a) 100% at the full face value of the Tranche 1 CB (i.e. HK$125,661,000);

• (b) 100% at the full face value of the Tranche 2 CB (i.e. HK$60,000,000);

• (c) 100% at the full face value of the Tranche 3 CB (i.e. HK$60,000,000); and

• (d) 100% at the full face value of the Tranche 4 CB (i.e. HK$60,000,000).

Maturity date:

• In respect of each tranche of the Convertible Bonds, (i) the date falling on the third (3rd) anniversary of the date of issue of the Tranche 1 CB, the Tranche 3 CB and the Tranche 4 CB; and (ii) the date falling on the fifth (5th) anniversary of the date of issue of the Tranche 2 CB, as the case may be (both dates inclusive).

Interest rate:

• 2% per annum (on the basis of a 365-day year, or a 366-day in a leap year) on the outstanding principal amount of the Convertible Bonds which shall be paid on the maturity date of the Convertible Bonds.

Interest period:

The period commencing from (and including) the date of issue of the Convertible Bonds to (but excluding) maturity date of the Convertible Bonds.

Conversion Price:

HK$0.06 per Conversion Share, subject to adjustments as set out and in accordance with the terms and conditions of the Convertible Bonds.

– 15 –

LETTER FROM THE BOARD

Adjustment events:

The Conversion Price is subject to adjustments in accordance with the terms and conditions set out in the Convertible Bonds if any of the following specific events occurs:

• (a) where there is an alteration to the nominal amount of a Share by reason of any consolidation or subdivision;

• (b) where the Company issues (other than in lieu of a cash dividend) any Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);

• (c) where the Company makes (whether on a reduction of capital or otherwise except pursuant to any purchase by the Company of its own Shares which is permitted by law and by the rules of the Stock Exchange and in accordance with the provisions of the Company’s memorandum and articles of association) any capital distribution (including distributions in cash or specie, and any dividend charged or provided for in the accounts for any financial period) to the Shareholders (in their capacity as such) or grants to the Shareholders rights to acquire for cash assets of the Company or any of its subsidiaries;

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LETTER FROM THE BOARD

• (d) where the Company offers to the Shareholders Shares for subscription by way of rights, or grants to the Shareholders any options or warrants to subscribe for Shares at a price per Share which is less than 90% of the market price (as defined in the Convertible Bonds) as at the date of the announcement of the terms of the offer or grant;

• (e) where the Company or any other company issues wholly for cash any securities which by their terms are convertible into or exchangeable for or carrying rights of conversion for Shares, and the total effective consideration (as defined in the Convertible Bonds) per Share initially receivable for such securities is less than 90% of the market price (as defined in the Convertible Bonds) as at the date of the announcement of the terms of issue of such securities;

• (f) where the rights of conversion or exchange attached to any such securities as mentioned in sub-paragraph (e) above are modified so that the total effective consideration (as defined in the Convertible Bonds) per Share initially receivable for such securities shall be less than 90% of the market price (as defined in the Convertible Bonds) as at the date of announcement of the proposal to modify such rights of conversion or exchange;

• (g) where the Company issues wholly for cash any Shares at a price per Share which is less than 90% of the market price as at the date of the announcement of the terms of such issue; or

• (h) where the Company shall be permitted by law and, by the rules of the Stock Exchange and in accordance with the provisions of its memorandum and articles of association, purchases and makes an offer or invitation to the Shareholders to tender for sale to the Company any Shares or if the Company purchases any Shares or securities convertible into Shares or any rights to acquire Shares (excluding any such purchase made on the Stock Exchange, or any recognised stock exchange, being a stock exchange recognised for this purpose by the SFC or equivalent authority and the Stock Exchange).

– 17 –

LETTER FROM THE BOARD

Notwithstanding the specific adjustment events set out above, in any circumstances where the Directors shall consider that an adjustment to the Conversion Price provided for under the relevant provisions set out in the terms of Convertible Bonds should not be made or should be calculated on a different basis or that an adjustment to the Conversion Price should be made notwithstanding that no such adjustment is required under such relevant provisions set out in the Convertible Bonds or that such adjustment shall take effect on a different date or at a different time from that provided under such relevant provisions, the Company shall appoint an approved merchant bank or the auditors of the Company to consider whether for any reason whatsoever the adjustment to be made (or the absence of adjustment) would or might not fairly and appropriately reflect the relative interests of the persons affected thereby and, if such approved merchant bank or the auditors of the Company consider this to be the case, the adjustment shall be modified or nullified, or an adjustment made instead of no adjustment, in such manner (including, without limitation, making an adjustment calculated on a different basis) and/or the adjustment takes effect on a different date and/or time as shall be certified by such approved merchant bank or the auditors of the Company to be in its opinion appropriate.

Whenever the Conversion Price is adjusted, the Company will give notice to the holders of the Convertible Bonds (setting forth the event giving rise to the adjustment, the Conversion Price in effect prior to such adjustment, the adjusted Conversion Price and the effective date thereof) and will at all times until conversion date make available for inspection by them, among other things, a signed certificate of the auditors of the Company or (as the case may be) of the relevant approved merchant bank and a certificate signed by a Director setting out brief particulars of the event giving rise to the adjustment, the Conversion Price in effect prior to such adjustment, the adjusted Conversion Price and the effective date thereof. The Company will make announcement(s) on any adjustment to the Conversion Price.

Conversion Shares:

5,094,350,000 Conversion Shares would be in issue on full conversion of the Convertible Bonds.

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LETTER FROM THE BOARD

Conversion Rights:

holder of the Convertible Bonds will have the right, during the period commencing on the date of issue of each tranche of the Convertible Bonds up to and ending on the third (3rd) business day prior to their respective maturity dates, to convert the Convertible Bonds in whole or in part of the outstanding principal amount of the Convertible Bonds into Conversion Shares, provided that the exercise of the Conversion Rights will not result in:

• (a) any mandatory offer obligation under Rule 26.1 of the Takeovers Code being triggered by the holder of the Convertible Bonds and/or parties acting in concert (as defined in the Takeovers Code) with such holder; or

• (b) the Company being in breach of any provision of the Listing Rules, including the requirement to maintain any prescribed minimum percentage of the issued share capital of the Company held by the public.

Redemption:

Transferability:

• The Company shall redeem the Convertible Bonds by repaying the holder(s) of the Convertible Bonds all outstanding principal amount and accrued interests of the Convertible Bonds on the maturity date of the Convertible Bonds. No interest shall be paid on the amount of the Convertible Bonds which has been converted into Conversion Shares prior to the maturity date of the Convertible Bonds.

The Convertible Bonds are transferable except that no Convertible Bonds shall be transferred to any person who:

• (i) is not independent of the Group or the connected persons of the Company (unless otherwise permitted with prior written consent of the Company); or

• (ii) is a party acting in concert (as defined in the Takeovers Code) with any person or Shareholder to the effect that any transfer of the Convertible Bonds to such transferee(s) and/or the exercise by such transferee(s) of any conversion right attaching to the Convertible Bonds subject to such transfer will trigger the mandatory offer obligation under Rule 26.1 of the Takeovers Code.

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LETTER FROM THE BOARD

Ranking of Conversion Shares:

The Conversion Shares allotted and issued upon conversion of the Convertible Bonds will in all respects rank pari passu in all respects with the Shares already in issue on the conversion date.

Restriction to the transfer of Conversion Shares:

During the period of twelve months commencing from the date of issuance of the Convertible Bonds, the holder of the Convertible Bonds shall not dispose of or transfer or enter into any agreement to dispose of or otherwise create any options, rights, interest or encumbrances in respect of any of the Conversion Shares issued pursuant to the exercise of any conversion right by that holder of the Convertible Bonds. After the abovementioned 12-month period, the Conversion Shares shall be transferable provided that the transfers of the Conversion Shares are in compliance with all rules and requirements under the Listing Rules and laws and regulations applicable to the Company and/or registered holder(s) of the Conversion Shares.

Status:

The Convertible Bonds constitute a direct unconditional, unsubordinated and unsecured obligations of the Company and shall at all times rank pari passu and rateably without preference (with the exception of obligations in respect of taxes and certain other statutory exceptions) equally with all other unsecured and unsubordinated obligations of the Company. The payment obligations of the Company under the Convertible Bonds shall, save for such exceptions as may be provided by applicable legislation, rank at least equally with all its other present and future unsecured and unsubordinated obligations.

Listing:

No application has been nor will be made by the Company for the listing of the Convertible Bonds on the Stock Exchange.

Application has been made by the Company to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares that may be issued upon the conversion of the Convertible Bonds.

Please refer to the circulars of the Company dated 7 October 2016 and 13 December 2016 for further details of the Convertible Bonds.

– 20 –

LETTER FROM THE BOARD

Proposed grant of the Specific Mandate

The Conversion Shares, upon conversion of the Tranche 2 CB, will be allotted and issued under the Specific Mandate to be sought for approval from the Independent Shareholders at the EGM.

Impact to the net asset value of the Tranche 2 CB due to the CB Extension

According to the annual report of the Company for the year ended 31 March 2020, the net assets of the Group was approximately HK$323.5 million as at 31 March 2020. Following the CB Extension, it is estimated by an independent valuer that the amount of changes in fair value of the Tranche 2 CB will be approximately HK$8.8 million, which is not expected to materially impact the net asset position of the Group.

Reasons for entering into the Amendment Deed and the CB Extension

Tranche 2 CB of the Convertible Bonds was due on 28 June 2020. The proposed amendment to extend the maturity date of the Tranche 2 CB can relieve the imminent need of the Company to repay Tranche 2 CB of the Convertible Bonds (in case Tranche 2 CB of the Convertible Bonds remains outstanding as at its original maturity date), which in turn, can retain appropriate level of funds for its business development and general working capital of the Group.

In light of the above, the Board considers that although the CB Extension contemplated under the Amendment Deed is not entered in the ordinary and usual course of business of the Company, the CB Extension contemplated under the Amendment Deed was arrived at after arm’s length negotiation between the Company and Riverhead Capital and the Board considers that the CB Extension contemplated under the Amendment Deed is on normal commercial terms, is fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors are of the view that the CB Extension will not pose any significant impact on the operations of the Group.

Since Mr. Xie is the controlling shareholder and sole director of Riverhead Capital and is considered to have a material interest in the transactions contemplated under the Amendment Deed and the proposed grant of the Specific Mandate, he has abstained from voting on the board resolution for approving the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate. Save as disclosed above, none of the Directors has a material interest in the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate or should abstain from voting in respect of the relevant board resolutions.

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LETTER FROM THE BOARD

Shareholding structure of the Company

The following table sets out the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately upon the full conversion of all outstanding Convertible Bonds (assuming there being no other change in the share capital of the Company, save for the issue of the Conversion Shares upon the full conversion of the outstanding Convertible Bonds):

Shareholders Riverhead Capital Other Shareholders Total	As at the Latest Practicable Date Shares % 2,744,350,000 29.98 6,408,728,859 70.02 9,153,078,859 100.00	Upon full conversion of all outstanding Convertible Bonds Shares % 4,094,350,000 38.98 6,408,728,859 61.02 10,503,078,859 100.00	Upon full conversion of all outstanding Convertible Bonds Shares % 4,094,350,000 38.98 6,408,728,859 61.02 10,503,078,859 100.00
			100.00

Information of the Company, the Group and Riverhead Capital

The Company is an investment holding company incorporated in the Cayman Islands with limited liability and the issued shares of which are listed on the Main Board of the Stock Exchange.

The Group is principally engaged in the provision of brokerage and margin financing, proprietary securities trading, corporate finance, money lending and factoring, consultancy and insurance brokerage and asset management services.

Riverhead Capital is a limited liability company incorporated in the Cayman Islands and is owned as to 80% by Mr. Xie and 20% by Ms. XIE Juhan, who is the daughter of Mr. Xie. Riverhead Capital is an investment holding company.

Listing Rules implications

Pursuant to Rule 28.05 of the Listing Rules, any alteration in the terms of convertible debt securities after issue must be approved by the Stock Exchange, except where the alteration takes effect automatically under the existing terms of such convertible debt securities. The Company has applied to the Stock Exchange for approval of the CB Extension contemplated under the Amendment Deed.

Riverhead Capital holds 2,744,350,000 Shares which represent approximately 29.98% of the issued share capital of the Company as at the Latest Practicable Date. Therefore, Riverhead Capital is a connected person of the Company under the Listing Rules. Accordingly, the CB Extension contemplated under the Amendment Deed constitutes a connected transaction of the Company and is subject to reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

To the best knowledge, information and belief of the Directors, save for Riverhead Capital and its associates, no other Shareholder has a material interest in the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate. As such, save for Riverhead Capital and its associates, no other Shareholder is required to abstain from voting at the EGM to approve the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate. To the best knowledge, information and belief of the Directors, as at the Latest Practicable Date, no associate of Riverhead Capital is a Shareholder or holds any Shares that is required to abstain from voting at the EGM.

The Company will seek the Independent Shareholders’ approval for the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate at the EGM.

EGM

The Company will convene an EGM for (i) the Shareholders to consider and, if thought fit, approve the Supplemental Loan Agreement and the transactions contemplated thereunder; and (ii) the Independent Shareholders to consider and, if thought fit, approve the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate. A notice convening the EGM to be held at 43rd Floor, COSCO Tower, 183 Queen’s Road Central, Hong Kong on Thursday, 27 August 2020 at 11:30 a.m. is set out on pages EGM-1 to EGM-3 of this circular. Pursuant to Rule 13.39(4) of the Listing Rules, all votes of the Shareholders at general meetings must be taken by poll. Therefore, the resolutions set out in the notice of the EGM will be required to be voted by way of poll.

Whether or not you are able to attend and vote at the EGM in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar and transfer office in Hong Kong, Union Registrars Limited at Suites 3301-04, 33/F., Two Chinachem Exchange Square, 338 King’s Road, North Point, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding of the EGM or any adjournment thereof (as the case maybe). Completion and return of the form of proxy will not preclude you from subsequently attending and voting in person at the EGM or any adjournment thereof (as the case may be) should you so wish.

RECORD DATE FOR EGM

In order to determine the eligibility of the Shareholders to attend and vote at the EGM which is scheduled to be held on Thursday, 27 August 2020, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Union Registrars Limited, at Suites 3301-04, 33/F., Two Chinachem Exchange Square, 338 King’s Road, North Point, Hong Kong for registration by no later than 4:00 p.m. on Friday, 21 August 2020. Shareholders whose names are recorded in the register of members of the Company on Friday, 21 August 2020 are entitled to attend and vote at the EGM.

– 23 –

LETTER FROM THE BOARD

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee, comprising Mr. CHAN Kin Sang, Mr. CHIU Kung Chik, Mr. LI Gaofeng and Mr. LIU Xin, being all independent non-executive Directors, has been established to advise the Independent Shareholders as to whether the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate is fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole so far as the Independent Shareholders are concerned. Rainbow Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

RECOMMENDATION

The Board considers that the Supplemental Loan Agreement was entered into after arm’s length negotiations and the terms of the Loan Agreement (as supplemented and amended by the Supplemental Loan Agreement) are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the ordinary resolution(s) to be proposed at the EGM to approve the Supplemental Loan Agreement and the transactions contemplated thereunder.

The Directors (including all independent non-executive Directors) consider that CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate is fair and reasonable, on commercial terms and in the interests of the Company and the Shareholders as a whole so far as the Independent Shareholders are concerned, and therefore recommend the Independent Shareholders to vote in favour of the ordinary resolution(s) to be proposed at the EGM to approve the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate.

ADDITIONAL INFORMATION

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

By Order of the Board China Fortune Financial Group Limited ZHU Yi

Chief Executive Officer and Executive Director

– 24 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [67 x 66] intentionally omitted <==

China Fortune Financial Group Limited

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 290)

Website: http://www.290.com.hk

29 July 2020

To the Independent Shareholders

Dear Sir or Madam

(1) CONNECTED TRANSACTION – PROPOSED EXTENSION OF THE MATURITY DATE OF THE CONVERTIBLE BONDS; AND (2) PROPOSED GRANT OF SPECIFIC MANDATE

We refer to the circular of the Company dated 29 July 2020 (the “ Circular ”), in which this letter forms part. Unless the context requires otherwise, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

We have been appointed as the Independent Board Committee to advise the Independent Shareholders as to whether the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate is fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole so far as the Independent Shareholders are concerned.

Although the CB Extension contemplated under the Amendment Deed is not in the ordinary and usual course of business of the Company, having considered the CB Extension contemplated under the Amendment Deed and the advice from Rainbow Capital in relation thereto, we are of the view that the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate is fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole so far as the Independent Shareholders are concerned.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate. The letter from Rainbow Capital containing its recommendations to us and the Independent Shareholders and the principal factors and reasons taken into the account by Rainbow Capital in arriving at such recommendations is set out on pages 26 to 45 of this Circular.

Yours faithfully, Independent Board Committee

China Fortune Financial Group Limited

Mr. CHAN Kin Sang Independent nonexecutive Director

Mr. CHIU Kung Chik Mr. LI Gaofeng Mr. LIU Xin Independent nonIndependent nonIndependent nonexecutive Director executive Director executive Director

– 25 –

LETTER FROM RAINBOW CAPITAL

The following is the full text of a letter of advice from Rainbow Capital (HK) Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate, which has been prepared for the purpose of incorporation in this circular.

==> picture [93 x 43] intentionally omitted <==

29 July 2020

To the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION PROPOSED EXTENSION OF THE MATURITY DATE OF THE CONVERTIBLE BONDS AND PROPOSED GRANT OF SPECIFIC MANDATE

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the proposed extension of the maturity date of the second tranche of the Convertible Bonds pursuant to the Amendment Deed and the proposed grant of the Specific Mandate thereof, details of which are set out in the “Letter from the Board” (the “ Letter from the Board ”) contained in the circular issued by the Company to the Shareholders dated 29 July 2020 (the “ Circular ”), of which this letter forms part. Unless the context otherwise requires, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

Pursuant to Rule 28.05 of the Listing Rules, any alterations in the terms of convertible debt securities after issue must be approved by the Stock Exchange, except where the alterations take effect automatically under the existing terms of such convertible debt securities. As such, the Company has applied to the Stock Exchange for approval of the CB Extension contemplated under the Amendment Deed. The Conversion Shares, upon conversion of the Tranche 2 CB, will be allotted and issued under the Specific Mandate to be sought for approval from the Independent Shareholders at the EGM.

– 26 –

LETTER FROM RAINBOW CAPITAL

As at the Latest Practicable Date, Riverhead Capital holds 2,744,350,000 Shares which represent approximately 29.98% of the issued share capital of the Company and is therefore a connected person of the Company under the Listing Rules. Accordingly, the CB Extension contemplated under the Amendment Deed constitutes a connected transaction of the Company and is subject to the reporting, announcement and the Independent Shareholders’ approval requirements pursuant to Chapter 14A of the Listing Rules. Save for Riverhead Capital and its associates, no other Shareholder has a material interest in the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate. As such, save for Riverhead Capital and its associates, no other Shareholder is required to abstain from voting at the EGM to approve the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate. As at the Latest Practicable Date, no associate of Riverhead Capital is a Shareholder or holds any Shares that is required to abstain from voting at the EGM.

The Independent Board Committee, comprising all independent non-executive Directors, namely Mr. CHAN Kin Sang, Mr. CHIU Kung Chik, Mr. LI Gaofeng and Mr. LIU Xin, has been formed to advise the Independent Shareholders in respect of the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate. We, Rainbow Capital, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

As at the Latest Practicable Date, we did not have any relationships or interests with the Group or Riverhead Capital, or their respective substantial shareholder(s) or connected person(s), as defined under the Listing Rules that could reasonably be regarded as relevant to our independence. In the last two years, there was no engagement between the Group and us. Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangements exist whereby we had received any fees or benefits from the Group or Riverhead Capital, or their respective substantial shareholder(s) or connected person(s), as defined under the Listing Rules. Accordingly, we are qualified to give independent advice on the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate.

BASIS OF OUR OPINION

In formulating our opinion and advice, we have relied on (i) the information and facts contained or referred to in the Circular; (ii) the information supplied by the Group; (iii) the opinions expressed by and the representations of the Directors and the management of the Group; (iv) our review of (a) circulars of the Company dated 7 October 2016 and 13 December 2016; (b) announcements of the Company dated 21 September 2016, 22 November 2016, 30 March 2017 and 5 July 2018 and (c) annual report of the Company for the year ended 31 March 2020 (the “ 2020 Annual Report ”) and annual report of the Company for the year ended 31 March 2019 (the “ 2019 Annual Report ”); (v) Riverhead Subscription Agreement and (vi) the Amendment Deed. We have assumed that all the information provided and representations and opinions expressed to us or contained or referred to in the Circular were true, accurate and complete in all respects as at the date thereof and may be relied upon. We have also assumed

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LETTER FROM RAINBOW CAPITAL

that all statements contained and representations made or referred to in the Circular are true at the time they were made and continue to be true as at the Latest Practicable Date and all such statements of belief, opinions and intentions of the Directors and the management of the Group and those as set out or referred to in the Circular were reasonably made after due and careful enquiry. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and the management of the Group. We have also sought and received confirmation from the Directors that no material facts have been withheld or omitted from the information provided and referred to in the Circular and that all information or representations provided to us by the Directors and the management of the Group are true, accurate, complete and not misleading in all respects at the time they were made and continued to be so until the date of the Circular.

We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verification of the information provided, representations made or opinion expressed by the Directors and the management of the Group, nor have we conducted any form of in-depth investigation into the business, affairs, operations, financial position or future prospects of the Group, or any of their respective substantial shareholders, subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In considering whether the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate are fair and reasonable in so far as the Independent Shareholders are concerned, we have taken into account the principal factors and reasons set out below:

1. Background to and reasons for the CB Extension

(i) The Group

The Group is principally engaged in the provision of brokerage and margin financing, proprietary securities trading, corporate finance,money lending and factoring, consultancy and insurance brokerage and asset management services.

– 28 –

LETTER FROM RAINBOW CAPITAL

The following table summarises the financial information of the Group for the years ended 31 March 2018, 2019 and 2020 as extracted from the 2020 Annual Report and the 2019 Annual Report, respectively:

	2018	2019	2020
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(audited)
Financial performance:
Revenue	96,404	108,072	179,401
– Brokerage and margin financing	50,314	39,135	64,944
– Proprietary trading	1,223	–	–
– Corporate finance	34,079	50,034	51,957
– Money lending and factoring	9,368	10,364	40,702
– Consultancy and insurance
brokerage	1,635	2,594	2,260
– Asset management	335	5,945	19,538
Expenses (including)
– Expected credit losses on trade
receivables, net	10,282	(3,952)	(5,409)
– Staff costs	(60,148)	(100,103)	(89,742)
– Other operating expenses	(53,813)	(55,950)	(59,583)
– Finance costs	(42,126)	(54,591)	(58,326)
Loss before tax	(62,224)	(102,743)	(62,176)
Loss for the year	(65,450)	(104,179)	(71,814)
Financial position:
Non-current assets	132,512	136,306	132,951
Current assets	1,221,418	1,349,194	1,033,779
Current liabilities	600,306	857,039	714,325
Non-current liabilities	377,858	220,735	128,891
Net current assets	621,112	492,155	319,454
Net assets	375,766	407,726	323,514
Bank balances and
cash – trust*	210,353	531,568	114,565
Bank balances and
cash – general	480,823	243,755	315,132

* As disclosed in the 2019 Annual Report, balance represented segregated trust accounts maintained by the Group with a licensed bank to hold clients’ monies arising from its securities and futures brokerage and financing business.

– 29 –

LETTER FROM RAINBOW CAPITAL

For the years ended 31 March 2019 and 2020

For the year ended 31 March 2020, revenue of the Group was approximately HK$179.4 million, representing an increase of approximately 66.0% as compared with the revenue of approximately HK$108.1 million for the year ended 31 March 2019. Such increase was mainly attributable to the general increase in revenue generated from (i) the brokerage and margin financing business by approximately 66.0% from approximately HK$39.1 million to approximately HK$64.9 million, primarily due to the increase in client from the brokerage business and the surge of active level of transactions, as well as the increased contribution from the underwriting business brought along by the Group’s initial public offering projects during the year, including a few important projects which the Group acted in the capacity of global coordinator and bookrunner; (ii) money lending and factoring business by approximately 291.3% from approximately HK$10.4 million to approximately HK$40.7 million, primarily attributable to the growth in average loan balance which was the result of the Group’s effort in expanding such business and (iii) asset management business by approximately 230.5% from approximately HK$5.9 million to approximately HK$19.5 million, primarily due to the continuous effort of management in exploring and broadening its investment portfolios, including, among others, high-quality bond portfolio, China and Hong Kong stock portfolio and Pre-IPO equity investment portfolio. The other two business segments of the Group, being the corporate finance business and consultancy and insurance brokerage business, recorded a slight fluctuation in revenue, from approximately HK$50.0 million and HK$2.6 million to approximately HK$52.0 million and HK$2.3 million, respectively.

The net loss of the Group for the year ended 31 March 2020 was approximately HK$71.8 million, representing a decrease of approximately 31.1% as compared with the net loss of approximately HK$104.2 million for the year ended 31 March 2019. Despite (i) the increase in cost of brokerage business resulting from the expanse of such segment of approximately HK$8.9 million; (ii) the decrease in fair value of financial assets primarily due to the volatility of the stock and bond market in early 2020 and (iii) the losses in the share of an associate of approximately HK$2.4 million, the substantial increase in revenue as aforementioned and the decrease in staff costs of approximately HK$10.4 million were more than compensated for the increase in aforesaid costs and losses during the year.

As at 31 March 2020, the Group recorded net current assets of approximately HK$319.5 million and net assets of approximately HK$323.5 million, respectively.

For the years ended 31 March 2018 and 2019

For the year ended 31 March 2019, revenue of the Group was approximately HK$108.1 million, representing an increase of approximately 12.1% compared with the revenue of approximately HK$96.4 million for the year ended 31 March 2018. Such increase was mainly attributable to the general increase in revenue generated from (i) the corporate finance business by approximately 46.8% from approximately HK$34.1 million to approximately HK$50.0 million, primarily due to the increase in the provision of

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LETTER FROM RAINBOW CAPITAL

sponsorship and underwriting services for several listed offering projects and (ii) asset management business by approximately 1,674.6% from approximately HK$0.3 million to approximately HK$5.9 million, primarily thanks to the broadening of the distribution of financing channel to focus on the development of the fixed income market and the initiation and management of one of the funds since the middle of 2018. Driven by the severe volatility of the Hong Kong stock market in 2018, the general decrease in the broker and margin trading activity led to the decrease in revenue generated from the brokerage and margin financing business and proprietary business, from approximately HK$50.3 million and HK$1.2 million to approximately HK$39.1 million and nil, respectively.

The net loss of the Group for the year ended 31 March 2019 was approximately HK$104.2 million, representing an increase of approximately 59.1% as compared with the net loss of approximately HK$65.5 million for the year ended 31 March 2018. As disclosed in the 2019 Annual Report, the significant increase in net loss for the year ended 31 March 2019 was mainly attributable to the significant increase in expenses in the year ended 31 March 2019, including: (i) increase in staff costs of approximately HK$40.0 million; (ii) decrease in reversal of impairment loss on loan and trade receivables and increase in impairment loss on trade receivables of approximately HK$14.2 million; (iii) increase of comprehensive expense of an associated company of approximately HK$2.7 million, and (iv) increase in finance costs attributable to convertible bonds and loans of approximately HK$12.5 million.

As at 31 March 2019, the Group recorded net current assets of approximately HK$492.2 million and net assets of approximately HK$407.7 million respectively.

Overall comment

As disclosed in the 2020 Annual Report, the Group will continue to implement its strategy to focus on the development its investment banking business, asset management business and various financing business. With a view to providing a one-stop integrated financial services to its client through strengthening the Group’s existing securities operation and collaboration with its various business segments, an appropriate level of funds is expected to be retained for such purpose.

Despite an increasing trend of the Group’s revenue was noted as a result of the pursuance of the aforesaid strategical direction in the recent years, the continual development of the business will inevitably incur increasing operating costs and financing costs, as shown in the Group’s recent financial statements as extracted above. As a result, the Group’s net loss position is not expected to turnaround significantly in the short run. Coupled with the recent social incidents and coronavirus outbreak which may potentially increase the volatility of the financial market in Hong Kong, we consider that it preferable for the Group to prudently maintain adequate cash reserves for its ongoing business development and general working capital purpose.

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LETTER FROM RAINBOW CAPITAL

(ii) Background of entering into the Amendment Deed and the proposed grant of the Specific Mandate

On 22 November 2016, the Company entered into a subscription agreement with Riverhead Capital in respect of the issue of the Convertible Bonds in the aggregate principal amount of approximately HK$305.7 million, which will be issued in four tranches in the principal amount of approximately HK$125.7 million, HK$60.0 million, HK$60.0 million and HK$60.0 million, respectively at the Conversion Price of HK$0.06 per Conversion Share (the “ Riverhead Subscription ”). The Convertible Bonds bear an interest rate of 2% per annum and mature on the third anniversary of the date of issuance. The Riverhead Subscription was approved by the then independent shareholders at the extraordinary general meeting on 5 January 2017 (the “ 2017 EGM ”).

The completion of the first tranche of the Riverhead Subscription took place on 30 March 2017 and the Tranche 1 CB was issued to Riverhead Capital accordingly, which was converted and exercised in full by Riverhead Capital in the principal amount of approximately HK$125.7 million at the Conversion Price on 27 April 2017. Since then, completion of the second tranche and the third tranche of the Riverhead Subscription took place and the respective tranche of the Convertible Bonds was issued to Riverhead Capital on 28 June 2017 and 5 July 2018, respectively. While the Tranche 3 CB was partially converted and exercised by Riverhead Capital at the amount of HK$39.0 million at the Conversion Price on 11 January 2019, Tranche 4 CB was not issued due to the non-satisfaction of certain conditions precedent under the subscription agreement. As stated in the Letter from the Board, the Company has no immediate intention and has not been in discussion to extend the Tranche 3 CB and the Company is not allowed to, and will not, issue the Tranche 4 CB in the future. As disclosed in the 2019 Annual Report, the total net proceeds raised through the aforesaid issuance was applied primarily to strengthen and consolidate the principal businesses of the Group.

As at the Latest Practicable Date, the total outstanding principal of the Convertible Bonds amounted to HK$81.0 million, which represented HK$60.0 million and HK$21.0 million under the Tranche 2 CB (with maturity date falling on 28 June 2020) and the Tranche 3 CB (with maturity date falling on 5 July 2021), respectively.

Given that the Tranche 2 CB would be due on 28 June 2020, on 8 July 2020 (after trading hours), the Company and Riverhead Capital entered into the Amendment Deed to extend the maturity date of the Tranche 2 CB from the date falling on the third anniversary of issue date of the Tranche 2 CB (i.e. 28 June 2020) to the fifth anniversary of the issue date of the Tranche 2 CB (i.e. 28 June 2022). Subject to the fulfillment of the conditions precedent under the Amendment Deed, the Company shall execute the Supplemental Deed Poll. The CB Extension shall take effect from the date of the Supplemental Deed Poll. Save for the CB Extension, other terms and conditions of the Convertible Bonds shall remain unchanged and in full force and effect and binding on the parties. Accordingly, we are given to understand that the Amendment Deed does not

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constitute a material change in terms to the Convertible Bonds. The Conversion Shares, upon conversion of the Tranche 2 CB, will be allotted and issued under the Specific Mandate to be sought for approval from the Independent Shareholders at the EGM.

2. Reasons for and benefits of the CB Extension

As disclosed in the Letter from the Board, the Tranche 2 CB would be due on 28 June 2020. According to the terms of the Convertible Bonds, the Company shall redeem the Convertible Bonds by repaying Riverhead Capital all outstanding principal amount and accrued interests of the Convertible Bonds on the maturity date (i.e. 28 June 2020), which amounted to HK$63.6 million as at the Latest Practicable Date based on our discussion with the management of the Group. By entering into of the Amendment Deed, the CB Extension can relieve the imminent need of the Company to repay the Tranche 2 CB of the Convertible Bonds over a relatively short period in light of the Group’s recent net loss making position and volatility of the financial market, which in turn, can enable the Company to retain the funds for replenishing the Company’s working capital to support its existing business operation and allow more financial flexibility for its ongoing business development.

As disclosed in the 2020 Annual Report, the Group’s bank loan borne interest rate of 3.22%-4.24% per annum, which is higher than the interest rate of 2% as stipulated under the Tranche 2 CB of the Convertible Bonds. By entering into the Amendment Deed, the CB Extension can effectively allow the Group to refinance the debts under the Tranche 2 CB of the Convertible Bonds under the same terms for a further 2 years. In addition, the widening of the interest spread as a result of the CB Extension is also expected to facilitate the brokerage and margin financing as well as the money lending and factoring business of the Group.

As disclosed in the 2020 Annual Report, as at 31 March 2020, the Group’s gearing ratio, measured on the basis of total borrowings as a percentage of equity attributable to owners of the Company, was approximately 154.7%, as compared to that of 129.2% as at 31 March 2019. The increase in the gearing ratio was primarily due to the increase in drawdown of bank loan. In this regard, the CB Extension can avoid the further increase in the Group’s gearing ratio which will help to maintain the liquidity of the Group.

Taking into account that (i) the CB Extension would effectively allow the Group to refinance its debt under the Tranche 2 CB of the Convertible Bonds under the same term for a further 24 months; (ii) the full repayment of the Tranche 2 CB of the Convertible Bonds will decrease the cash balance of the Group which may impose negative impact on the Group’s liquidity and in turn further boost the Group’s gearing ratio; (iii) the CB Extension can relieve the imminent need of the Company to repay the Tranche 2 CB of the Convertible Bonds over a relatively short period in light of the Group’s recent net loss making position and volatility of the financial market and (iv) an appropriate level of funds is expected to retain for the Group’s ongoing business development and general working capital purpose as particularly mentioned in the above section headed “1. Background to and reasons for the CB Extension”, we are of the view that the CB Extension and the proposed grant of the Specific Mandate is justifiable and fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM RAINBOW CAPITAL

3. Principal terms of the Convertible Bonds

The principal terms of the Convertible Bonds were set out in the circular of the Company dated 13 December 2016. Save for the maturity date and the conversion period, all terms of the Convertible Bonds remain unchanged. The principal terms of the Convertible Bonds (as amended and supplemented by the Supplemental Deed Poll) are included in the Letter from the Board under the section headed “Principal terms of the Convertible Bonds (as amended and supplemented by the Supplemental Deed Poll)”, the key terms of which are summarised as below:

Aggregate principal amount	:	An aggregate principal amount of up to
		HK$305,661,000, comprising: four tranches with a
		principal amount of HK$125,661,000 for the
		Tranche 1 CB, a principal amount of
		HK$60,000,000 for the Tranche 2 CB, a principal
		amount of HK$60,000,000 for the Tranche 3 CB
		and a principal amount of HK$60,000,000 for the
		Tranche 4 CB.
Issue price	:	100% of the principal amount of the respective
		tranche.
Maturity date	:	In respect of each tranche of the Convertible
		Bonds, (i) the date falling on the third (3rd)
		anniversary of the date of issue of the Tranche 1
		CB, the Tranche 3 CB and the Tranche 4 CB; and
		(ii) the date falling on the fifth (5th) anniversary of
		the date of issue of the Tranche 2 CB, as the case
		may be (both dates inclusive).
Interest rate	:	2% per annum (on the basis of a 365-day year, or
		a 366-day in a leap year) on the outstanding
		principal amount of the Convertible Bonds which
		shall be payable on the maturity date of the
		Convertible Bonds.
Interest period	:	The period commencing from (and including) the
		date of issue of the Convertible Bonds to (but
		excluding) maturity date of the Convertible Bonds.
Conversion Price	:	HK$0.06 per Conversion Share (subject to
		adjustments).
Conversion Shares	:	5,094,350,000 Conversion Shares would be in
		issue on full conversion of the Convertible Bonds.

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LETTER FROM RAINBOW CAPITAL

Conversion Rights :

Holder of the Convertible Bonds will have the right, during the period commencing on the date of issue of each tranche of the Convertible Bonds up to and ending on the third (3rd) business day prior to their respective maturity dates, to convert the Convertible Bonds in whole or in part of the outstanding principal amount of the Convertible Bonds into Conversion Shares, provided that the exercise of the Conversion Rights will not result in:

• (a) any mandatory offer obligation under Rule 26.1 of the Takeovers Code being triggered by the holder of the Convertible Bonds and/or parties acting in concert (as defined in the Takeovers Code) with such holder; or

• (b) the Company being in breach of any provision of the Listing Rules, including the requirement to maintain any prescribed minimum percentage of the issued share capital of the Company held by the public.

• Redemption : The Company shall redeem the Convertible Bonds by repaying the holder(s) of the Convertible Bonds all outstanding principal amount and accrued interests of the Convertible Bonds on the maturity date of the Convertible Bonds. No interest shall be paid on the amount of the Convertible Bonds which has been converted into Conversion Shares prior to the maturity date of the Convertible Bonds.

• Ranking of Conversion : The Conversion Shares alloted and issued upon Shares conversion of the Convertible Bonds will in all respects rank pari passu in all respects with the Shares already in issue on the conversion date.

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LETTER FROM RAINBOW CAPITAL

Restriction to the transfer of : Conversion Shares

• During the period of twelve months commencing from the date of issuance of the Convertible Bonds, the holder of the Convertible Bonds shall not dispose of or transfer or enter into any agreement to dispose of or otherwise create any options, rights, interest or encumbrances in respect of any of the Conversion Shares issued pursuant to the exercise of any conversion right by that holder of the Convertible Bonds. After the abovementioned 12-month period, the Conversion Shares shall be transferable provided that the transfers of the Conversion Shares are in compliance with all rules and requirements under the Listing Rules and laws and regulations applicable to the Company and/or registered holder(s) of the Conversion Shares.

The CB Extension under the Amendment Deed is conditional upon the satisfaction of the following Conditions Precedent:

• (i) the Stock Exchange having approved the amendments to the terms and conditions of the Convertible Bonds;

• (ii) the approval of (i) the amendments to the terms and conditions of the Convertible Bonds; and (ii) proposed grant of the Specific Mandate by the Independent Shareholders at the EGM;

• (iii) the Listing Committee of the Stock Exchange having granted approval for the listing of, and permission to deal in, the Conversion Shares to be allotted and issued by the Company upon conversion of the Tranche 2 CB; and

• (iv) the sanction of the Supplemental Deed Poll by a special resolution of Riverhead Capital as holder of the Convertible Bonds.

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LETTER FROM RAINBOW CAPITAL

As at the Latest Practicable Date, condition (iv) has been fulfilled while conditions (i), (ii) and (iii) above remain outstanding.

4. Assessment on the principal terms of the Convertible Bonds

(i) Conversion Price

In order to assess the fairness and reasonableness of the Conversion Price, we have performed (i) a review on the average monthly closing prices of the Shares with volume traded on the Stock Exchange from 1 January 2019 to 7 July 2020 (the “ Last Trading Day ”) (the “ Review Period ”) and compared with the Conversion Price; and (ii) a comparison with other issue and subscription of convertible bonds/notes exercises. Presented below are our relevant findings:

Closing prices of the Shares with volume traded during Review Period

			Premium/
			(discount) of
			the Conversion
			Price over/
	Average	Average daily	to the average
	closing price	trading	closing price
	per Share	volume	per Share
	(HK$)	(Shares)	(%)
2019
January	0.078	3,158,364	(23.52)
February	0.075	3,941,765	(20.31)
March	0.075	4,776,667	(20.40)
April	0.067	4,132,632	(10.59)
May	0.070	4,223,714	(14.75)
June	0.066	2,449,684	(8.95)
July	0.066	2,103,091	(8.90)
August	0.064	1,547,000	(6.18)
September	0.060	1,365,810	(0.79)
October	0.056	8,860,000	7.42
November	0.056	1,024,476	6.33
December	0.055	5,544,100	8.70
2020
January	0.056	3,195,200	6.29
February	0.055	7,523,500	8.40
March	0.052	4,565,909	14.88
April	0.047	3,138,947	27.23
May	0.049	2,913,600	21.33
June	0.054	2,858,000	11.31
July (From July 1 to July 7)	0.055	4,419,000	9.59
Average	0.061	3,775,866	0.37

Source: Bloomberg

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LETTER FROM RAINBOW CAPITAL

As illustrated in the table above, the average monthly closing price per Share ranged from HK$0.047 to HK$0.078 during the Review Period. As such, the Conversion price of HK$0.06 per Conversion Share represents a premium of approximately 27.23% over the lowest average monthly closing price of HK$0.047 and a discount of approximately 23.52% to the highest average monthly closing price of HK$0.078. The Conversion Price was generally lower than the average closing price of the Shares over the first nine months (i.e. from January 2019 to September 2019) of the Review Period and the Share prices declined afterwards at around the Conversion Price and showing a generally downward trend for the following seven-months period (i.e. from October 2019 to April 2020) with the average monthly closing price ranging from approximately HK$0.047 to HK$0.056. The Share prices then increased slightly recently resulting in an average monthly closing price of approximately HK$0.055 in July 2020 (from July 1 2020 to July 7 2020).

Despite that the Conversion Price was generally lower than the average closing price of the Shares over the first nine months of the Review Period, it is noted that the Conversion Price (i) falls within the range of the average monthly closing price per Share during the Review Period; (ii) represents premiums ranging from approximately 6.29% to 27.23% over the recent average closing prices of the Shares from October 2019 to July 2020 (from July 1 2020 to July 7 2020) during the Review Period; and (iii) represents a very slight premium of approximately 0.37% to the average closing price of the Shares during the Review Period. In view of the above, we consider that, in comparison of the historical average monthly closing price of the Shares, the Conversion Price is fair and reasonable so far as the Shareholders as a are concerned.

Furthermore, we noted that the average trading volume of the Shares ranged from approximately 1,024,476 Shares to 8,860,000 Shares during the Review Period, representing approximately 0.01% to 0.10% of a total of 9,153,078,859 Shares in issued as at the Latest Practicable Date. Due to the generally low liquidity of the Shares, we consider that it might not be possible for Riverhead Capital to realise his shareholdings in the market after the conversion of the Tranche 2 CB. In addition, given the trading volume of the Shares is insufficient, the disposal of large number of Shares within a short period in the market might generate substantial downward pressure on the market price of the Shares, which in turn might have negative impact on the funding ability and credibility of the Group.

Comparison with other issue and subscription of convertible bonds/notes exercise

As part of our analysis, we have further reviewed the relevant issues and subscriptions of convertible bonds/notes exercises by companies listed on the Stock Exchange (the “ Comparables ”) as announced during the last three months prior to and including the Last Trading Day (the “ Comparable Period ”) and identified an exhaustive and complete list of 21 Comparables. We consider that the Comparables (i) adequately covered the prevailing market conditions and sentiments of the capital market in Hong Kong; (ii) such period represented recent structure of the convertible bonds/notes issues

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LETTER FROM RAINBOW CAPITAL

in Hong Kong; and (iii) the number of the Comparables identified demonstrate the market practice during the period and allow the Independent Shareholders to have a general understanding of recent issues of convertible bonds/notes being conducted in the capital market of Hong Kong. In addition, in view that similarity of the nature of the convertible bonds/notes exercises, we consider that the Comparables are fair and representative samples. Shareholders should note that the businesses, operations and prospects of the Company may not be the same as, or even substantially vary from, that of the Comparables, and we have not conducted any detailed investigation into the respective businesses and operations of the Comparables. Set out below is the summary of the Comparables:

Table 1: A summary of the Comparables

			Conversion price	Conversion price
			premium over/	premium over/
			(discount to) the	(discount to) the
			closing price on	closing price on
			the last trading	the last five
			day prior	trading day prior
	Stock	Date of	to the date of	to the date of	Interest	Term to
Company name	code	announcement	agreement	agreement	rate	maturity
						(Number
			(approximate %)	(approximate %)	(% p.a.)	of years)
Huajun International Group	377	30 June 2020	246.72	242.03	0	5
Limited
Greater China Financial Holdings	431	29 June 2020	405.1	405.1	3.67	5
Limited					(Note 1)
Polyard Petroleum International	8011	28 June 2020	29.5	31.39	0	1
Group Limited
Vobile Group Limited	3738	28 June 2020	0	15.59	5	2
		(Note 2)	8.53	25.45
Link Holdings Limited	8237	21 June 2020	2.86	1.69	0	5
China Automotive Interior	48	18 June 2020	31.58	30.66	0.5	2
Decoration Holdings Limited
3SBIO Inc.	1530	17 June 2020	25	31.72	0	5.03
						(Note 3)

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LETTER FROM RAINBOW CAPITAL

			Conversion price	Conversion price
			premium over/	premium over/
			(discount to) the	(discount to) the
			closing price on	closing price on
			the last trading	the last five
			day prior	trading day prior
	Stock	Date of	to the date of	to the date of	Interest	Term to
Company name	code	announcement	agreement	agreement	rate	maturity
						(Number
			(approximate %)	(approximate %)	(% p.a.)	of years)
Far East Horizon Limited	3360	17 June 2020	21.61	20.03	2.5	5.06
						(Note 4)
Echo International Holdings Group	8218	11 June 2020	0.87	0	7	5
Limited
Oriental Payment Group Holdings	8613	11 June 2020	100	101.61	7	2
Limited
Huajun International Group	377	5 June 2020	225.34	222.03	0	5
Limited
Gome Retail Holdings Limited	493	28 May 2020	37.91	37.91	5	3
Wai Chun Group Holdings Limited	1013	21 May 2020	5.88	4.65	4	3
Weimob Inc.	2013	7 May 2020	12.94	14.21	1.5	5
China Environmental Technology	646	29 April 2020	1,111.76	1,171.60	12	3
Holdings Limited
Country Garden Services Holdings	6098	28 April 2020	10.99	13.96	0	1
Company Limited
Quali-Smart Holdings Limited	1348	28 April 2020	0.3	0	6	3
China Biotech Services Holdings	8037	24 April 2020	56.25	49.06	8.5	2
Limited						(Note 5)
Kingsoft Corporation Limited	3888	24 April 2020	27.5	30.2	0.625	5
Gome Retail Holdings Limited	493	19 April 2020	66.44	68.75	5	3
New City Development Group	456	14 April 2020	(17.98)	(18.89)	2	3
Limited

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LETTER FROM RAINBOW CAPITAL

				Conversion price	Conversion price
				premium over/	premium over/
				(discount to) the	(discount to) the
				closing price on	closing price on
				the last trading	the last five
				day prior	trading day prior
		Stock	Date of	to the date of	to the date of	Interest	Term to
**Company **	name	code	announcement	agreement	agreement	rate	maturity
							(Number
				(approximate %)	(approximate %)	(% p.a.)	of years)
			Max	1,111.76	1,171.60	12	5.06
			Min	(17.98)	(18.89)	0	1
			Median	26.25	30.43	2.5	3
			Mean	109.50	113.58	3.35	3.48
			The Company	1.69	8.70	2	2
				(Note 6)	(Note 6)

Source: The announcement of relevant companies published on the Stock Exchange’s website Notes:

1. The interest rate of 3.67% is calculated by simple weighting the interest rate of 1% per annum (for the period commencing from the first anniversary of the issue date and expiring on the second anniversary of the issue date), 4% per annum (for the period commencing from the second anniversary of the issue date and expiring on the third anniversary of the issue date) and 6% per annum (for the period commencing from the third anniversary of the issue date and expiring on the maturity date).

2. The company has issued two series of convertible bonds at different conversion prices but with the same interest rates and maturity date.

3. The term to maturity of 5.03 years is estimated based on the maturity date on 29 June 2025.

4. The term to maturity of 5.06 years is estimated based on the maturity date on 8 July 2025.

5. The term to maturity of 2 years is estimated based on the maturity of 730 days.

6. The respective figures are calculated by assuming the last trading day to be 7 July 2020 for illustrative purpose only.

Among the Comparables, we noted that the range of the conversion price of the Comparables during the Comparable Period ranged from a discount of approximately 17.98% to a premium of approximately 1,111.76% to/over the respective closing price per share on the last trading day prior to the date of the corresponding announcement in relation to the respective issue of convertible bonds/notes (the “ Discount/Premium Range ”), with the average and median of approximately 109.50% and 26.25%, respectively. The Conversion Price, which represents a premium of approximately 1.69% over the closing price of HK$0.059 per Share as quoted on the Stock Exchange on the Last Trading Day, falls within the Discount/Premium range and is lower than the average and median premium of the Comparables. Moreover, the conversion price of the

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LETTER FROM RAINBOW CAPITAL

convertible bonds/notes of the Comparables ranged from a discount of approximately 18.89% to a premium of approximately 1,171.60% over/to the closing price per share on the last five trading days prior to the date of the corresponding announcement or up to and including the date of the corresponding announcement (the “ 5 Days Discount/Premium Range ”), with the average and median premium of approximately 113.58% and 30.43%, respectively. The Conversion Price, which represents a premium of approximately 8.70% over the average closing price of approximately HK$0.0552 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to and including the Last Trading Day, falls within the 5 Days Discount/Premium Range and is lower than the average and median premium of the Comparables.

We note that the range of the Discount/Premium Range and the 5 Days Discount/Premium Range are wide. This might be due to specific circumstances facing each of the Comparables. Despite such wide ranges, having considered that the Conversion Price is within the range of the Discount/Premium Range and the 5 Days Discount/Premium Range, we are of the view that the Conversion Price is in line with the prevailing market sentiment.

Although the above analysis relating to Comparables may not be useful as a direct reference to the fairness and reasonableness of the terms of the Convertible Bonds due to the wide ranges of the Discount/Premium Range and the 5 Days Discount/Premium Range, it should be noted that, in forming our opinion, we have considered the results of the above analysis together with all other factors stated in this letter as a whole.

(ii) Interest rate

As shown in Table 1 above, the interest rates of the Comparables range from nil to 12%, with an average and median of approximately 3.35% and 2.5% respectively. Tranche 2 CB bears an interest rate of 2% per annum, which fall within the range of interest rates of the Comparables and lower than the average and median rate.

(iii) Maturity

The terms to maturity of the Comparables range from a minimum of 1 year and up to approximately 5.06 years, with an average and median term of approximately 3.48 years and 3 years respectively. The CB Extension pursuant to the Tranche 2 CB of 2 years therefore is at the low end of the range of the terms to maturity of the Comparables and is in line with the recent market practice.

In view of the above and taking into account the reasons for and benefits of the CB Extension as described above, we are of the view that the principal terms of the Convertible Bonds including the Conversion Price, the interest rate and the extended term to maturity of the Tranche 2 CB of the Convertible Bonds are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM RAINBOW CAPITAL

5. Financial impacts of the CB Extension

When assessing the financial impacts of the CB Extension, we have taken into account the following four main aspects:

(a) Net asset value

According to the 2020 Annual Report, the net assets of the Group was approximately HK$323.5 million as at 31 March 2020. Following the CB Extension, it is estimated by an independent valuer that the amount of changes in fair value of the Tranche 2 CB of the Convertible Bonds will be approximately HK$8.8 million, which is not expected to materially impact the net asset position of the Group.

(b) Liquidity

As stated in the 2020 Annual Report, the Group had net current assets and cash and cash equivalents of approximately HK$319.5 million and HK$315.1 million respectively as at 31 March 2020. The CB Extension will enable the Group to delay a cash outflow as the maturity date of the Tranche 2 CB of the Convertible Bonds is extended, which would relieve the imminent need of the Company to repay Tranche 2 CB of the Convertible Bonds and is expected to maintain the immediate liquidity of the Group by retaining financial resources for its operation and development.

(c) Earnings

Following the CB Extension, the Trance 2 CB of the Convertible Bonds will bear an interest rate of 2% per annum until maturity. The Company will be required to pay interest to Riverhead Capital, resulting a decrease in the earnings of the Company in subsequent financial year.

(d) Gearing ratio

Following the CB Extension, both the total borrowings and total equity of the Group will remain unchanged assuming no other factors affecting the financial position of the Group. As such, it is expected that the CB Extension will not have any immediate material changes to the gearing position of the Group. It should be noted that, however, the full repayment of the Convertible Bonds would improve the gearing position of the Group as the Group’s overall indebtedness would be reduced by the liability component of the Convertible Bonds, but in turn it will substantially decrease the cash balance of the Group which may impose negative impact on the Group’s liquidity as discussed above.

– 43 –

LETTER FROM RAINBOW CAPITAL

Based on the aforesaid, although the CB Extension will not have any immediate improvement to the gearing position of the Group and, after taking into consideration the liquidity position of the Group as discussed above, we are of the view that the CB Extension contemplated under the Amendment Deed is in the interest of the Company and the Shareholders as a whole.

It should be noted that the aforementioned analyses are for illustrative purpose only and does not purport to represent how the financial position of the Company following the CB Extension.

OPINION AND RECOMMENDATION

In arriving at our opinion and recommendation in respect of the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate, we have considered the principal factors and reasons as discussed above and in particular the following (which should be read in conjunction with and interpreted in the full context of this letter):

• The CB Extension would effectively allow the Group to refinance its debt under the Tranche 2 CB of the Convertible Bonds under the same term for a further 2 years;

• The CB Extension can relieve the imminent need of the Company to repay the Tranche 2 CB of the Convertible Bonds over a relatively short period in light of the Group’s recent net loss making position and volatility of the financial market;

• An appropriate level of funds is expected to retain for the Group’s ongoing business development and general working capital purpose, given the Group’s strategy to focus on the development of its investment banking business, asset management business and various financing business;

• The Conversion Price falls within the range of the average monthly closing price per Share during the Review Period and represent a very slight premium of approximately 0.37% to the average closing price of the Shares during the Review Period;

• Save for the maturity date and the conversion period, all terms of the Tranche 2 CB of the Convertible Bonds remain unchanged. As regards the maturity date, the CB Extension of 2 years is at the low end of the range of the terms to maturity of the Comparables and is in line with the recent market practice; and

• The CB Extension will not have material adverse financial impact on the Group.

– 44 –

LETTER FROM RAINBOW CAPITAL

Based on the above, we consider that the Amendment Deed and the proposed grant of the Specific Mandate is on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned. We also consider that the entering into of the Amendment Deed, while not in the ordinary and usual course of business of the Company, is nevertheless in the interests of the Company and its shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the CB Extension contemplated under the Amendment Deed and the proposed grant of the Specific Mandate.

Yours faithfully, For and on behalf of Rainbow Capital (HK) Limited Danny Leung Managing Director

Mr. Danny Leung is a licensed person and a responsible officer of Rainbow Capital (HK) Limited registered with the Securities and Futures Commission to carry out type 6 (advising on corporate finance) regulated activity under the SFO. He has over ten years of experience in the corporate finance industry.

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. THREE-YEAR AUDITED FINANCIAL INFORMATION

The audited consolidated financial statements of the Group for the years ended 31 March 2018, 2019 and 2020 together with the relevant notes thereto can be found from pages 60 to 143 of the annual report of the Company for the year ended 31 March 2018 published on 27 July 2018 (https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0727/ ltn20180727655.pdf), pages 63 to 147 of the annual report of the Company for the year ended 31 March 2019 published on 25 July 2019 (https://www1.hkexnews.hk/listedco/listconews/sehk/2017/0726/ltn20170726617.pdf) and pages 117 to 251 of the annual report of the Company for the year ended 31 March 2020 published on 23 July 2020 (https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0723/2020072300444.pdf).

The said annual reports of the Company are available on the Company’s website at www.290.com.hk and the website of the Stock Exchange at www.hkexnews.hk.

2. INDEBTEDNESS STATEMENT

As at 31 May 2020, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the total indebtedness of the Group was as follows:

Borrowings

The Group had (i) outstanding unsecured convertible bonds with liability component of approximately HK$81,000,000 and equity component of approximately HK$19,000,000; and (ii) secured guaranteed bank borrowings of approximately HK$500,000,000.

Operating lease

The Group had no operating lease obligations.

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities

The Group had no significant contingent liabilities.

Apart from as disclosed above and intra-group liabilities, as at 31 May 2020, the Group did not have any debt securities issued and outstanding, and authorised or otherwise created but unissued, and term loans, other borrowings or indebtedness in the nature of borrowing including bank overdrafts and liabilities under acceptance (other than normal trade bills) or acceptance credits or hire purchase commitments, mortgages, charges, contingent liabilities or guarantees.

The Directors are not aware of any material changes in the indebtedness or contingent liabilities of the Group since 31 May 2020.

3. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse changes in the financial or trading position or prospects of the Group since 31 March 2020, being the date to which the latest audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date.

4. WORKING CAPITAL

The Directors are of the opinion that, in the absence of unforeseeable circumstances, taking into account the internal financial resources and borrowings of the Group, the Group will have sufficient working capital for its present requirements and the requirements for the next twelve months from the date of this circular.

5. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group is principally engaged in the provision of brokerage and margin financing, proprietary securities trading, corporate finance, money lending and factoring, consultancy and insurance brokerage and asset management services.

The Group’s strategy is to focus and strengthen existing securities operation and work in close collaboration with our corporate finance business, asset management business as well as wealth management business, in order to provide a one-stop integrated financial services to better serve our institutional and high networth individual clients.

– 47 –

GENERAL INFORMATION

APPENDIX II

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 aspects and not misleading or deceptive, and there is no other matter the omission of which would make any statement herein or this circular misleading.

2. Disclosure of Interests

Interests of Directors and Chief Executive in the Company

As at the Latest Practicable Date, the Directors and the chief executive of the Company had the following interests and short positions in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director or, chief executive of the Company was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) contained in the Listing Rules, to be notified to the Company and the Stock Exchange:

Long position

					Approximate
					percentage of
				Total interest	the issued
			Interest in	in Shares/	share capital
		Interest in	underlying	underlying	of the
Name of Director	Capacity	Shares	shares	shares	Company
Mr. Xie_(Note)_	Interest of	2,744,350,000	1,350,000,000	4,094,350,000	44.73%
	controlled
	corporation

Note: As at the Latest Practicable Date, Mr. Xie was deemed to be interested in 2,744,350,000 Shares held by Riverhead Capital and 1,350,000,000 underlying shares of the Company which may be issued upon the exercise of the conversion rights attaching to the convertible bonds (at the conversion price of HK$0.06 per conversion share) in an aggregate outstanding principal balance amount of HK$81,000,000 issued by the Company to Riverhead Capital on 28 June 2017 and 5 July 2018 respectively pursuant to the subscription agreement entered into between the Company and Riverhead Capital on 22 November 2016 subject to the fulfilment of the conditions as contained therein.

– 48 –

GENERAL INFORMATION

APPENDIX II

Save as disclosed above, as at the Latest Practicable Date, none of the Director and chief executive of the Company had or was deemed to have any interests or short positions in the Shares, underlying shares or debentures of the Company or 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 or short positions which they were 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 as set out in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange.

Interests of substantial Shareholders

As at the Latest Practicable Date, so far as is known to the Directors, the following substantial Shareholders (other than a Director or the chief executive of the Company) had, or were deemed to have, interests or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were required pursuant to section 336 of the SFO, to be entered into the registered referred to therein, or who are, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company or any other member of the Group:

Long position

					Approximate
				Total interest	percentage of
				in Shares	the issued
			Interest in	and	share capital
		Interest in	underlying	underlying	of the
Name of Shareholders	Capacity	Shares	shares	shares	Company
Riverhead Capital_(Note1)_	Beneficial	2,744,350,000	1,350,000,000	4,094,350,000	44.73%
	owner
Ms. SUN Zhuyin	Interest of	2,744,350,000	1,350,000,000	4,094,350,000	44.73%
(“Ms. Sun”)(Note1)	Spouse
Jadehero Limited	Beneficial	800,000,000	–	800,000,000	8.74%
(“Jadehero”)(Note 2)	owner
Southlead Limited	Interest of	800,000,000	–	800,000,000	8.74%
(“Southlead”)(Note 2)	controlled
	corporation
Santo Limited (“Santo”)(Note 2)	Beneficial	1,416,430,000	–	1,416,430,000	15.47%
	owner

– 49 –

GENERAL INFORMATION

APPENDIX II

					Approximate
				Total interest	percentage of
				in Shares	the issued
			Interest in	and	share capital
		Interest in	underlying	underlying	of the
Name of Shareholders	Capacity	Shares	shares	shares	Company
WHOLE ADVANCE LIMITED	Interest of	2,216,430,000	–	2,216,430,000	24.22%
(“Whole Advance”)(Note 2)	controlled
	corporation
Liberal Expansion Limited	Interest of	2,216,430,000	–	2,216,430,000	24.22%
(“Liberal Expansion”)(Note 2)	controlled
	corporation
Mr. ZHAO Xu Guang	Interest of	2,216,430,000	–	2,216,430,000	24.22%
(“Mr. Zhao”)(Note 2)	controlled
	corporation

Notes:

1. As at the Latest Practicable Date, Riverhead Capital beneficially held 2,744,350,000 Shares and 1,350,000,000 underlying shares of the Company which may be issued upon the exercise of the conversion rights attaching to the convertible bonds (at the conversion price of HK$0.06 per conversion share) in an aggregate outstanding principal balance amount of HK$81,000,000 issued by the Company to Riverhead Capital on 28 June 2017 and 5 July 2018 respectively pursuant to the subscription agreement entered into between the Company and Riverhead Capital on 22 November 2016 subject to the fulfillment of the conditions as contained therein. Riverhead Capital is owned as to 80% by Mr. Xie (the executive Director and Chairman of the Company) who is also the sole director of Riverhead Capital. For the purpose of the SFO, Mr. Xie was deemed to be interested in the Shares and underlying shares held by Riverhead Capital.

Ms. Sun is the spouse of Mr. Xie, therefore, Ms. Sun was deemed to be interested in 2,744,350,000 Shares and 1,350,000,000 underlying shares of the Company which Mr. Xie has a deemed interest therein under the SFO.

1. As at the Latest Practicable Date, Jadehero beneficially held 800,000,000 Shares and Santo beneficially held 1,416,430,000 Shares. Jadehero is owned as to 80% by Southlead. Southlead was deemed to be interested in the Shares held by Jadehero. Southlead and Santo are wholly-owned by Whole Advance. Whole Advance is wholly-owned by Liberal Expansion which in turn is wholly-owned by Mr. Zhao. For the purpose of the SFO, Mr. Zhao, Liberal Expansion and Whole Advance were deemed to be interested in the Shares held by Jadehero and Santo.

Save as disclosed above, as at the Latest Practicable Date, the Directors were not aware of any substantial Shareholders (who were not Directors or chief executive of the Company) who had an interest or short position in the Shares or underlying shares which would fall to be disclosed under Divisions 2 and 3 of Part XV of the SFO, or which would be required, pursuant to Section 336 of the SFO, to be entered in the register referred to therein.

– 50 –

GENERAL INFORMATION

APPENDIX II

3. Directors who are Directors or Employees of Companies with Interests in Shares and Underlying Shares

As at the Latest Practicable Date, save for Mr. Xie who is the controlling shareholder and sole director of Riverhead Capital, none of the Directors are directors or employees of a company which has an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

4. Service Contracts

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

5. Other Interests of the Directors

As at the Latest Practicable Date, none of the Directors has any direct or indirect interests in any assets which have been acquired or disposed of by, or leased to, or are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries since 31 March 2020, the date to which the latest published audited consolidated financial statements of the Company were made up.

As at the Latest Practicable Date, save for the interests of Mr. Xie, being the chairman of the Board and an executive Director, in the Riverhead Subscription Agreement as Mr. Xie is the director and beneficial owner of Riverhead Capital, none of the Directors was materially interested in any contract or arrangement which is significant in relation to the share capital and business of the Group. Please refer to the circular of the Company dated 13 December 2016 for details in relation to the Riverhead Subscription Agreement and transactions contemplated thereunder.

– 51 –

GENERAL INFORMATION

APPENDIX II

6. Competing Interests of the Directors

As at the Latest Practicable Date, the interest of the Directors in the business which compete or is likely to compete either directly or indirectly, with business of the Group (“ Competing Business ”) as required to be disclosed pursuant to the Listing Rules were as follows:

• Description of

• Name of Director Name of company Competing Business Nature of interest Mr. XIE Zhichun China Taiping Fund and asset As an independent (Executive Insurance Holdings management non-executive Director) Co. Ltd. (“ China director of China Taiping ”) Taiping

• China Minsheng Fund and asset As an independent Banking Corp. Ltd. management, non-executive (“ China securities dealing director of China Minsheng ”) and broking, Minsheng investment banking

• Mr. HAN Hanting CVP Securities Securities broking and As a non-executive (Non-executive Limited (“ CVP margin financing director of CVP Director) Securities ”) Securities

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and his associates was interested directly or indirectly in any business, apart from his interest in the Company, which competes or is likely to compete with the business of the Group.

7. Litigation

The Group has no material litigation as at the Latest Practicable Date.

– 52 –

GENERAL INFORMATION

APPENDIX II

8. Material Contracts

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Group within two years immediately preceding the date of this circular which is or may be material:

	Agreement
	Date	Parties	Amount Involved	Summary
1.	29 August	1. Galaxy Way	Initial subscription	Galaxy Way applied to
	2018	Development Limited	amount of US$4.7	subscribe for class B
		(“Galaxy Way”), a	million, with a	participating shares of
		wholly-owned	commitment to invest	the Fund on the terms
		subsidiary of the	up to US$10 million	and conditions of the
		Company;		subscription
				agreement.
		2. CEL Fortune
		Convertible		For further details,
		Opportunities Feeder		please refer to the
		Fund (the “Fund”);		announcement of the
				Company dated
		3. Fortune Asset		29 August 2018.
		Management Limited,
		an indirectly wholly-
		owned subsidiary of
		the Company; and
		4. China Everbright
		Fund Management
		Limited.
2.	13 December	1. the Company; and	HK$49,000,000.00	Ms. Sit had conditionally
	2018			agreed to subscribe
		2. Ms. SIT Lai Hei		for, and the Company
		(“Ms. Sit”).		had conditionally
				agreed to allot and
				issue a total of
				700,000,000
				subscription shares at
				the subscription price
				of HK$0.07 per
				subscription share.
				For further details,
				please refer to the
				announcements of the
				Company dated
				13 December 2018
				and 31 December
				2018.

– 53 –

GENERAL INFORMATION

APPENDIX II

Agreement Date Parties Amount Involved

Summary

1. 13 December 1. the Company; and HK$50,190,000.00 2018

2. Eastasia Power Holding Ltd. (“ Eastasia ”).

3. Eastasia had

4. conditionally agreed to subscribe for, and the Company had conditionally agreed to allot and issue a total of 717,000,000 subscription shares at the subscription price of HK$0.07 per subscription share.

				For further details,
				please refer to the
				announcements of the
				Company dated
				13 December 2018
				and 31 December
				2018.
4.	29 January	1. the Lender;	Loan facility of	Grant of the Loan to the
	2019		HK$155,000,000	Borrower by the
		2. the Borrower; and		Lender.
		3. the Guarantor.		For further details,
				please refer to the
				announcement of the
				Company dated
				29 January 2019.
5.	11 April	1. Marvel Champion	The total consideration	Marvel Champion
	2019	Investment Limited	was approximately	subscribed through a
		(“Marvel	HK$86,477,600	broker for the
		Champion”), a	(including transaction	US$200,000,000,
		wholly-owned	cost)	6.375% bonds due
		subsidiary of the		2020 issued by Lv’an
		Company; and		and was allocated with
				bonds in the principal
		2. Lv’an Chuangxing		amount of
		Limited (“Lv’an”).		US$11,000,000.
				For further details,
				please refer to the
				announcements of the
				Company dated
				11 April 2019 and
				12 April 2019.

– 54 –

GENERAL INFORMATION

APPENDIX II

Agreement Date

Parties

Amount Involved

Summary

1. 9 May 2019 1. Marvel Champion; The total consideration Marvel Champion and was approximately subscribed through a HK$66,810,000 broker for the 7.75%

2. E-House (China) (including transaction senior notes due 2021 Enterprise Holdings cost) in the aggregate Limited (“ E-House ”). principal amount of US$100,000,000 issued by E-House and was allocated with senior notes in the principal amount of US$8,500,000.

For further details, please refer to the announcements of the Company dated 9 May 2019 and 10 May 2019.

1. 20 May 2019 1. Marvel Champion; The total consideration Marvel Champion and was approximately acquired from BIAML US$11,923,320 the US$300,000,000

2. BOCOM (including transaction 6.5% guaranteed International Asset cost) senior notes due Management Limited 20 May 2022 issued (“ BIAML ”). by New Metro Global Limited in the principal amount of US$12,000,000.

For further details, please refer to the announcement of the Company dated 20 May 2019.

– 55 –

GENERAL INFORMATION

APPENDIX II

• Agreement Date Parties Amount Involved Summary

• 1. 18 March 1. Marvel Champion; The total consideration Marvel Champion 2020 and was approximately acquired from China US$10,058,000 CITIC the
• 1. China CITIC Bank (including transaction US$500,000,000 5.20 International Limited cost) per cent. guaranteed (“ China CITIC ”). notes due 2021 issued by Ease Trade Global Limited in the principal amount of US$10,000,000.

For further details, please refer to the announcement of the Company dated 18 March 2020.

1. 13 May 2020 1. the Lender; – The Supplemental Loan Agreement. 2. the Borrower; and 3. the Guarantor. 10. 8 July 2020 1. the Company; and – The Amendment Deed. 2. Riverhead Capital.

9. Expert and Consent

Name Qualification

Rainbow Capital (HK) Limited A licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO

Rainbow Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which it appears.

As at the Latest Practicable Date, Rainbow Capital did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, or any interests, directly or indirectly, in any assets which have been, since 31 March 2020, being the date to which the latest published audited financial statements of the Group were made up, acquired, or disposed of by or leased to any member of the Group, or were proposed to be acquired, or disposed of by or leased to any member of the Group.

– 56 –

GENERAL INFORMATION

APPENDIX II

10. General

• (a) The company secretary of the Company is Ms. MOK Ming Wai. Ms. MOK Ming Wai is a director and head of the Listing Corporate Services Department of Trident Corporate Services (Asia) Limited, a global professional services firm. She has over 20 years of professional and in-house experience in the company secretarial field. She is a fellow member of the Hong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries and Administrators in the United Kingdom.

• (b) The registered office of the Company is situated at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands and the principal place of business of the Company in Hong Kong is at 43rd Floor, COSCO Tower, 183 Queen’s Road Central, Hong Kong.

• (c) The branch share registrar of the Company in Hong Kong is Union Registrars Limited, located at Suites 3301-04, 33/F, Two Chinachem Exchange Square, 338 King’s Road, North Point, Hong Kong.

• (d) In the event of inconsistency, the English text shall prevail over the Chinese text.

11. Documents Available for Inspection

Copies of the following documents will be available for inspection during normal business hours from 9:00 a.m. to 12:30 p.m. and from 2:00 p.m. to 5:30 p.m. (other than Saturdays, Sundays and public holidays in Hong Kong) at the principal place of business of the Company at 43rd Floor, COSCO Tower, 183 Queen’s Road Central, Hong Kong from the date of this circular up to and including the date of the EGM:

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

• (b) the annual reports of the Company for the two years ended 31 March 2019 and 2020;

• (c) the material contracts referred to under the section headed “Material Contracts” in this appendix;

• (d) a copy of each circular issued pursuant to the requirements set out in Chapter 14 and/or 14A of the Listing Rules which has been issued since 31 March 2020;

• (e) the Loan Agreement;

• (f) the Supplemental Loan Agreement;

• (g) the Convertible Bonds;

• (h) the Amendment Deed;

– 57 –

GENERAL INFORMATION

APPENDIX II

• (i) the letter from the Independent Board Committee, the text of which is set out in this circular;

• (j) the letter from the Independent Financial Adviser, the text of which is set out in this circular;

• (k) the consent letter referred to in the paragraph headed “Expert and consent” in this Appendix; and

• (l) this circular.

– 58 –

NOTICE OF EGM

==> picture [67 x 66] intentionally omitted <==

China Fortune Financial Group Limited

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 290)

Website: http://www.290.com.hk

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of China Fortune Financial Group Limited (the “ Company ”) will be held at 43rd Floor, COSCO Tower, 183 Queen’s Road Central, Hong Kong, on Thursday, 27 August 2020 at 11:30 a.m. for the purpose of considering, and if thought fit, passing with or without modifications, the following resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT :

2. (a) the supplemental loan agreement (the “ Supplemental Loan Agreement ”) dated 13 May 2020 entered into between Fortune Finance Limited (the “ Lender ”), a wholly-owned subsidiary of the Company, as the lender, Shine Well Holdings Limited (the “ Borrower ”) as the borrower and Mr. LAI Tse Ming (the “ Guarantor ”) as the guarantor, a copy of which has been produced to the EGM and marked “A” and initialled by the chairman of the EGM for the purposes of identification), pursuant to which the Lender agreed to extend the repayment date of the loan under the loan agreement for the HK$155,000,000 term loan facility (the “ Loan ”) dated 29 January 2019 between the Lender, the Borrower and the Guarantor to 21 months after the drawdown date of the Loan (i.e. 31 October 2020) and further extended for a further 6 months to 30 April 2021 subject to the Lender’s prior written consent and the terms thereof be and are hereby confirmed, approved and ratified;

3. (b) all the transactions contemplated under the Supplemental Loan Agreement be and are hereby confirmed, approved and ratified; and

4. (c) the directors (“ Directors ”) of the Company be and are hereby authorised to do such acts and things, to sign and execute all such further documents and to take such steps as they may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Supplemental Loan Agreement and any transactions contemplated thereunder.”

– EGM-1 –

NOTICE OF EGM

1. “ THAT :

2. (a) the amendment deed (the “ Amendment Deed ”) dated 8 July 2020 and entered into between the Company and Riverhead Capital (International) Management Co., Ltd. (“ Riverhead Capital ”) in relation to the proposed extension (the “ CB Extension ”) of the maturity date of the second tranche (the “ Tranche 2 CB ”) of the 3-year 2% unsecured redeemable convertible bonds (the “ Convertible Bonds ”) in the aggregate principal amount of up to HK$305,661,000 issued by the Company in the aggregate principal amount of HK$60,000,000 issued to Riverhead Capital on 28 June 2017 from the date falling on the third anniversary of the issue date of the Tranche 2 CB (i.e. 28 June 2020) to the fifth anniversary of the issue date of the Tranche 2 CB (i.e. 28 June 2022) (a copy of which has been produced to the EGM and marked “B” and initialled by the chairman of the EGM for the purposes of identification) be and are hereby confirmed, approved and ratified;

3. (b) the board of Directors be and is hereby granted a specific mandate to allot and issue the conversion shares upon exercise of the conversion rights attached to the Tranche 2 CB in accordance with terms and conditions of the Convertible Bonds as altered by the Amendment Deed; and

4. (c) the Directors be and are hereby authorised to do such acts and things, to sign and execute all such further documents and to take such steps as they may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the CB Extension contemplated under the Amendment Deed.”

By Order of the Board China Fortune Financial Group Limited ZHU Yi

Chief Executive Officer and Executive Director

Hong Kong, 29 July 2020

Registered Office: P.O. Box 309, Ugland House Grand Cayman, KY1-1104 Cayman Islands

Principal Place of Business in Hong Kong: 43rd Floor, COSCO Tower, 183 Queen’s Road Central, Hong Kong

– EGM-2 –

NOTICE OF EGM

Notes:

• (a) Any member of the Company entitled to attend and vote at the EGM is entitled to appoint a proxy to attend and vote on behalf of him/her/it. A proxy needs not be a member. A member of the Company who is the holder of two or more shares of the Company may appoint more than one proxy to represent him/her/it to attend and vote on his/her/its behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares of the Company in respect of which each such proxy is so appointed.

• (b) In order to be valid, a form of proxy together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power of authority, must be deposited at the Company’s branch share registrar and transfer office in Hong Kong, Union Registrars Limited at Suites 3301-04, 33/F., Two Chinachem Exchange Square, 338 King’s Road, North Point, 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 delivery of the form of proxy shall not preclude a member from attending and voting in person at the EGM or any adjournment thereof should such member so wishes and, in such event, the form of proxy shall be deemed to be revoked.

• (c) Where there are joint registered holders of any shares of the Company, any one of such persons may vote at the EGM, either personally or by proxy, in respect of such shares as if he were solely entitled thereto; but if more than one of such joint holders be present at the EGM personally or by proxy, that one of the said persons so present being the most, or, as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand in the register of members of the Company in respect of the relevant joint holding.

• (d) All votes to be taken at the EGM shall be conducted by way of poll.

• (e) If a Typhoon Signal No. 8 or above is hoisted, a or a “Black” rainstorm warning signal is in force at or at any time after 8:00 a.m. on the date of the EGM, the EGM will be postponed. The Company will post an announcement on the Company’s website and HKExnews website to notify the shareholders of the Company of the date, time and place of the rescheduled EGM.

– EGM-3 –