Ulferts International Limited - Proxy Solicitation & Information Statement 2021

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 register dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Shougang Concord Grand (Group) Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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**首長四方（集團）有限公司[*] SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability)

(Stock Code: 730)

(1) VERY SUBSTANTIAL ACQUISITION AND CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER FACILITIES AGREEMENT; AND (2) CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER PURCHASE AGREEMENT; AND NOTICE OF SPECIAL GENERAL MEETING

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

A letter from the Board is set out on pages 4 to 24 of this circular and a letter from the Independent Board Committee to the Independent Shareholders is set out on pages 25 to 26 of this circular. A letter from the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 27 to 65 of this circular.

A notice convening the SGM to be held at 3:00 p.m. on Tuesday, 25 January 2022 at 11/F, China Railway Construction Building, No. 20, Shijingshan Road, Shijingshan District, Beijing, PRC is set out on pages 99 to 100 of this circular. A form of proxy for the SGM for use by the Shareholders is enclosed with this circular.

Whether or not you are able to attend the SGM, you are requested to complete the enclosed 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, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as practicable and in any event not less than 48 hours before the time appointed the for holding of the SGM or any adjournment thereof. Completion and return of the enclosed form of proxy will not preclude you from attending and voting in person at the SGM or at any adjourned meeting should you so wish.

PRECAUTIONARY MEASURES FOR THE SPECIAL GENERAL MEETING

Please see page ii of this circular for measures to be taken at the SGM in trying to prevent and control the spread of the COVID-19, including:

compulsory body temperature checks
requirement of wearing surgical face masks
no refreshments

Any person who does not comply with the precautionary measures may be denied entry into the SGM venue at the absolute discretion of the Company as permitted by law. The Company reminds Shareholders that physical attendance is not necessary for the purpose of exercising Shareholders’ rights and encourages Shareholders to exercise their right to vote by appointing the Chairman of the SGM as their proxy instead of attending the SGM in person.

For identification purpose only

24 December 2021

	Page
Precautionary Measures for the Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Appendix I – Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Appendix II – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Notice of Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

PRECAUTIONARY MEASURES FOR THE SPECIAL GENERAL MEETING

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

VOTING BY PROXY IN ADVANCE OF THE SGM:

The Company does not in any way wish to diminish the opportunity available to the Shareholders to exercise their rights and to vote, but is conscious of the pressing need to protect the Shareholders from possible exposure to the COVID-19. For the health and safety of the Shareholders, and in view of the limit on attendance and seating capacity as may be legally required, the Company would like to encourage Shareholders to exercise their right to vote at the SGM by appointing the Chairman of the SGM as their proxy instead of attending the SGM in person. Physical attendance is not necessary for the purpose of exercising Shareholders’ rights. Completion and return of the enclosed proxy form will not preclude the Shareholders from attending and voting in person at the SGM or any adjournment thereof should they subsequently so wish.

PRECAUTIONARY MEASURES AT THE SGM

The Company will implement the following precautionary measures at the SGM to safeguard the health and safety of the attending Shareholders, staff and other stakeholders:

(i) compulsory body temperature checks will be conducted on every attendee at the entrance of the SGM venue. Any person with a body temperature above reference range quoted by the Department of Health from time to time, or exhibiting respiratory inflection or flu-like symptoms, may be denied entry into the SGM venue;
(ii) every attendee will be required to submit a completed and signed Health Declaration Form prior to entry into the SGM venue. The completed and signed Health Declaration Form must be ready for collection at the main entrance of the SGM venue to ensure prompt and smooth processing;
(iii) every attendee will be required to wear a surgical face mask throughout the SGM. Please note that no masks will be provided at the SGM venue and attendees should bring and wear their own masks;
(iv) seating at the SGM will be arranged to ensure adequate physical distancing between attendees so as to reduce interaction between them; and
(v) no refreshments will be served.

If any Shareholder chooses not to attend the SGM in person but has any question about the resolution or about the Company, or has any matter for communication with the Board, he/she is welcome to send such question or matter in writing to the Company’s principal office in Hong Kong. If any Shareholder has any questions relating to the SGM, please contact Tricor Tengis Limited, the Company’s branch share registrar and transfer office in Hong Kong, the details of which are as follows:

Tricor Tengis Limited Level 54, Hopewell Centre 183 Queen’s Road East Hong Kong Email: [email protected] Telephone: 2980 1333 Facsimile: 2810 8185

DEFINITIONS

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

“2015 Master Facilities Agreement” the agreement dated 26 March 2015 entered into between the Company and Shougang Group in relation to the provision by the Group of financing facilities to Shougang Group “2018 Master Facilities Agreement” the agreement dated 8 June 2018 entered into between the Company and Shougang Group in relation to the provision by the Group of financing facilities to Shougang Group “associate” has the meaning ascribed to it under the Listing Rules “Beijing Shougang” Beijing Shougang Co., Ltd. (北京首鋼股份有限公司), a state-owned enterprise established in the PRC, the shares of which are listed on the Main Board of Shenzhen Stock Exchange (Stock Code: 000959), and is the holding company of Shougang Group “Beijing Jingxi Supply Chain” 北京京西供應鏈管理有限公司 (Beijing Jingxi Supply Chain Management Co., Ltd.*), an indirect wholly owned subsidiary of the Company “Board” the board of directors of the Company “Company” Shougang Concord Grand (Group) Limited, a company incorporated in Bermuda with limited liability, the securities of which are listed on the main board of the Stock Exchange “connected person” has the meaning ascribed to it under the Listing Rules “Directors” the directors of the Company “Facilities” the facilities of up to an aggregate principal amount of R M B 2 , 0 0 0 , 0 0 0 , 0 0 0 ( e q u i v a l e n t t o a p p r o x i m a t e l y HK$2,410,000,000) to be provided by the Company and/or its subsidiaries to members of Shougang Group in accordance with the Master Facilities Agreement “Group” the Company and its subsidiaries “HK$” Hong Kong dollar, the lawful currency of Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Board Committee” the independent committee of the Board, comprising all the independent non-executive Directors

DEFINITIONS

“Independent Financial Adviser” Messis Capital Limited, a corporation licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO which has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders on the terms of the Master Facilities Agreement and the Master Purchase Agreement and their respective transactions contemplated thereunder
“Independent Shareholders” Shareholders other than Shougang Group and its associates “Latest Practicable Date” 23 December 2021, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Loan” each advance (entrusted payment, finance lease or credit financing) under the Master Facilities Agreement extended by the Group to Shougang Group
“Master Facilities Agreement” the agreement dated 23 August 2021 entered into between the Company and Shougang Group pursuant to which the Company has conditionally agreed to provide or procure its subsidiaries to provide financing to Shougang Group and/or its subsidiaries for a term of 3 years
“Master Purchase Agreement” the agreement dated 23 August 2021 entered into between Beijing Jingxi Supply Chain and Beijing Shougang
“PRC” the People’s Republic of China, which, for the purpose of this circular, does not include Hong Kong, Macao Special Administrative Region and Taiwan
“RMB” Renminbi, the lawful currency of the PRC “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

“SGM”	the special general meeting of the Company to be held at 3:00 p.m.
	on Tuesday, 25 January 2022 at 11/F, China Railway
	Construction Building, No. 20, Shijingshan Road, Shijingshan
	District, Beijing, PRC and at any adjournment to consider and, if
	appropriate, to approve the resolutions contained in the notice of
	SGM which is set out on pages 99 to 100 of this circular

DEFINITIONS

“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital of the
	Company
“Shareholder(s)”	the holder(s) of the ordinary share(s) of HK$0.01 each in the
	share capital of the Company
“Shougang Fund”	北京首鋼基金有限公司(Beijing Shougang Fund Co., Ltd.*), a wholly
	owned subsidiary of Shougang Group
“Shougang Group”	Shougang Group Co., Ltd., a state-owned enterprise established in
	the PRC and the holding company of Shougang Holding
“Shougang Holding”	Shougang Holding (Hong Kong) Limited, a company incorporated
	in Hong Kong and the controlling shareholder of the Company,
	which through its wholly owned subsidiary, held approximately
	50.84% of the issued share capital in the Company as at the Latest
	Practical Date
“South China Leasing”	South China International Leasing Company Limited, a company
	established in the PRC and an indirect non-wholly owned
	subsidiary of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“%”	per cent

Unless otherwise specified in this circular, translations of RMB into HK$ are made in this circular, for illustration only, at the rate of HK$1.00 to RMB0.83. No representation is made that any amounts in RMB or HK$ could have been or could be converted at that rate or at any other rate or at all.

For identification purpose only

LETTER FROM THE BOARD

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**首長四方（集團）有限公司[*] SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability)

(Stock Code: 730)

Directors: Xu Liang (Chairman) Tian Gang (Executive Director) Huang Donglin (Non-executive Director) Zhang Jianxun (Non-executive Director) Tam King Ching, Kenny (Independent Non-executive Director) Zhang Xingyu (Independent Non-executive Director) Ng Man Fung, Walter (Independent Non-executive Director) On Danita

Registered office: Victoria Place, 5th Floor 31 Victoria Street Hamilton HM 10 Bermuda

Principal office in Hong Kong: 5th Floor Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong

(Independent Non-executive Director)

24 December 2021

To the Shareholders

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER FACILITIES AGREEMENT; AND (2) CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER PURCHASE AGREEMENT; AND NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the two announcements of the Company both dated 23 August 2021 in relation to the Master Facilities Agreement and the Master Purchase Agreement, respectively.

For identification purpose only

LETTER FROM THE BOARD

The purposes of this circular are:

(i) to provide the Shareholders with further details of the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder;
(ii) to set out the opinion of the Independent Financial Adviser on the terms of the Master Facilities Agreement and the Master Purchase Agreement;
(iii) to set out the recommendations of the Independent Board Committee in respect of the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder; and
(iv) to give the Shareholders notice of the SGM to consider and, if thought fit, to approve the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder.

1. THE MASTER FACILITIES AGREEMENT

Reference is made to the 2015 Master Facilities Agreement and the 2018 Master Facilities Agreement between the Company and Shougang Group in relation to the provision by the Group of financing facilities to Shougang Group. As the 2018 Master Facilities Agreement has expired in June 2021, the Company and Shougang Group entered into the Master Facilities Agreement on 23 August 2021.

Major terms of the Master Facilities Agreement

Subject matter

: The Company will provide or procure its subsidiaries to provide at its discretion the Facilities to Shougang Group and/or its subsidiaries (including direct and/or indirect subsidiaries) from time to time during the term of the Master Facilities Agreement.

The Group will finance the Facilities through bank borrowing and internal resources.

Term of the Master Facilities : A period of 3 years commencing from the Master Facilities Agreement Agreement becoming effective.

LETTER FROM THE BOARD

Principal amount of the Master Facilities Agreement
: An aggregate principal amount of up to RMB2,000,000,000 (equivalent to approximately HK$2,410,000,000).

The Facilities to be granted are non-revolving in nature and are subject to the maximum amount may not be exceeded at any time during the term of the Master Facilities Agreement.

The grant of the Facilities is subject to the maximum amount under the Master Facilities Agreement and the outstanding balance of the Facilities owed by Shougang Group for each relevant year will not exceed RMB2,264,000,000, being the principal amount, interest and handling fee thereon.

Methods of provision of Facilities
: The Facilities will be provided by the Group to Shougang Group by way of the following methods (each a “ Loan ”):
(a) entrusted payment (委託付款), in which Shougang Group as borrower will entrust the Group as lender to make payment on behalf of the borrower for procurement;
(b) finance lease, in which the Group will purchase equipment/ asset items for Shougang Group and lease it to Shougang Group under a finance lease arrangement; and
(c) credit financing, in which the Group will provide credit financing facility to Shougang Group.

The relevant parties will enter into individual agreements with respect to each of the financing arrangements under the Facilities pursuant to the Master Facilities Agreement.

Term of each Loan

Guarantee

Conditions precedent of the Master Facilities Agreement
: The duration of each Loan will be negotiated on a case-by-case basis and each Loan will not have a term of longer than three years from the date of the relevant Loan.
: Shougang Group will guarantee the obligations of the relevant member(s) of Shougang Group as borrower(s) under each entrusted payment or loan, or as lessee(s) under each finance lease. The relevant parties will enter into individual guarantee agreements with respect to each of the financing arrangements under the Facilities pursuant to the Master Facilities Agreement.
: The Independent Shareholders having approved the Master Facilities Agreement and the transactions contemplated thereunder at a general meeting of the Company convened for approving the Master Facilities Agreement.

LETTER FROM THE BOARD

(A) Major terms of an entrusted payment:

Entrusted payment amount

: The Company and/or its subsidiaries may, at the request of the relevant member of Shougang Group as borrower, at its discretion make the payment to an intended payee on behalf of the borrower for procurement of the purchased items.

The loan amount under each entrusted payment shall be equivalent to the purchase price of the purchased item, but in any event, shall not exceed the unutilized portion of the Facilities.

Purchased items

: The items to be used by Shougang Group and/or its subsidiaries in their respective ordinary course of business.

Interest rate

: The interest rate payable by the relevant borrower shall be at a rate equal to the cost of lending of the Group plus 1% to 5%, subject to not being more than 10%.
Repayment date of the entrusted payment and interest
: Unless otherwise agreed, the repayment amount under each entrusted payment, together with accrued interest, shall be at the end of the term of the relevant entrusted payment.

Handling fee

: The Group shall be entitled to charge the relevant borrower for each entrust payment a non-refundable handling fee of not more than 1.5% of the principal amount of the entrust payment. Such handling fee is negotiable on a case-by-case basis by reference the handling fee charged by other finance companies for entrusted payment of similar nature. Such fee shall be payable by the borrower at least five business days before the date of the entrust payment.

(B) Major terms of the finance lease:

Finance lease amount

: The finance lease amount under each finance lease shall be the purchase price of the lease items, subject to such amount shall not exceed the unutilized portion of the Facilities.
Lease items : The lease items will be equipment and/or properties to be used by Shougang Group and/or its subsidiaries in their ordinary course of business, including, without limitation, industrial and commercial buildings, manufacturing and construction equipments and machineries.
Interest rate : The interest rate payable by the relevant lessee shall be at a rate equal to the cost of lending of the Group plus 1% to 5%, subject to not being more than 10%.

LETTER FROM THE BOARD

Payment date of the lease and : Unless otherwise agreed, payment under each finance lease and interest the interest accrued shall be on a quarterly basis on the 21st day of March, June, September and December.

Security deposit

: The Group shall be entitled to a security deposit to secure the payment obligations of the relevant lessee under a finance lease, the amount and payment arrangement of which will be determined in accordance with the circumstances of each case and set out in the specific agreement to be entered into by the Group and Shougang Group and/or its subsidiaries for each finance lease. If the relevant lessee breaches the finance lease, the Group shall be entitled to deduct from the security deposit such sum(s) payable to the Group, and within 3 business days of such deduction, the relevant lessee shall top up the required security deposit. The security deposit shall only be returned without interest by the Group when the lease items are duly returned to the Group and there has been no outstanding sums under the finance lease.

Handling fee

: The Group shall be entitled to charge the relevant lessee for each finance lease a non-refundable handling fee of not more than 3.75% of the principal amount of the finance lease. Such handling fee shall be payable on the date of the drawdown of the fund. The handling fee is charged for the services provided by the Group in assessing the feasibility of conducting the relevant finance lease transactions. The handling fees and level of security deposits are determined by the Group on a case-by-case basis and will in any event determined with reference to the overall return of each project. Such rate is adjustable depending on various factors, including the level of services as provided by the Group and the risk exposures of the finance lease transactions.
Lessee’s option to purchase : At the end of the finance lease, the relevant lessee will have the right to purchase the lease items at a nominal purchase price equal to 0.01% of the loan amount of the finance lease, which was based on the scale commonly used for end of term purchase by the lessee in the finance lease industry.

(C) Major terms of the credit financing:

Credit financing amount

: The credit financing amount shall be such amount requested by Shougang Group, subject to such amount shall not exceed the unutilized portion of the Facilities.
Interest rate : The interest rate payable by the relevant borrower shall be at a rate equal to the cost of lending of the Group plus 1% to 5%, subject to not being more than 10%.

LETTER FROM THE BOARD

Repayment date of the credit : Unless otherwise agreed, the outstanding principal of the credit financing and interest financing shall be repayable at the expiry of the term of the credit financing and the interest accrued shall be paid on a quarterly basis on the 21st day of March, June, September and December.
Handling fee : The Group shall be entitled to charge the relevant borrower a non-refundable handling fee of not more than 1.5% of the principal amount of the credit financing. Such handling fee is negotiated on a case-by-case basis by reference to the handling fee charged by other finance companies for credit financing of similar nature. Such fee shall be payable at least five business days before the drawdown of the credit financing.

Basis of determining of the Facilities and the annual caps thereof

The aggregate principal amount of the Facilities were determined after arm’s length negotiations between the parties with reference to (i) the historical transaction amount between the parties; (ii) the capability of the Group to raise the necessary fund to finance the operation, and (iii) the financing needs of Shougang Group. The Group first entered into the 2015 Master Facilities Agreement with Shougang Group for the provision of financing facilities to Shougang Group. Upon the expiry of the term of the 2015 Master Facilities Agreement, the 2018 Master Facilities Agreement was entered into to continue the arrangement in the ordinary course of business of the Group. Set out below is the actual amount of the facilities used by Shougang Group for the three years ended 31 December 2020 and the six months ended 30 June 2021:

					For the
				six months
	For the	year ended 31 December			ended
	2018	2019	2020	30	June 2021
	RMB’million	RMB’million	RMB’million	RMB’million
Approved amount of the facilities	5,000	5,000	5,000		5,000
Actual amount of facilities used	60	830	939		959
Annual cap	1,500	1,500	1,500		1,500
Outstanding balance as at
each balance sheet date	584	876	581		553

Note: The approved amount is the principal amount of the Facilities, whilst the annual cap would include interest and handling fees to be charged.

LETTER FROM THE BOARD

Historical transactions under the 2018 Facilities Agreement

Of the facilities used under the 2018 Master Facilities Agreement, they were all related to finance leases for certain commercial properties, construction machinery and equipment, and amongst them seven finance leases, on an aggregate basis, constituted notifiable transactions of the Company under Chapter 14 of the Listing Rules. Details of such finance leases entered into under the 2018 Master Facilities Agreement are set out below:

						Classification	of the finance
						lease under	Chapter 14
						of the Listing Rules#
					Finance lease	on a	on an
	Lease items	Interest rate	Handling fee	Term (months)	amount	standalone basis	aggregate basis
					(RMB)
1.	Commercial properties, comprising certain	5.4686%-7.5%	1.50%	36	100,000,000	Discloseable	Discloseable
	housing units situated at No. 18 Jinding					transaction	transaction
	North Road, Shijingshan District, Beijing
2.	Commercial properties, comprising car	5.4686%-7.5%	1.50%	36	200,000,000	Major	Major
	parking spaces situated at No. 18 Jinding					transaction	transaction,
	North Road, Shijingshan District, Beijing						when
							aggregated
							with finance
							lease no. 1
3.	Commercial properties, comprising indoor	5.4686%-7.5%	1.50%	36	220,000,000	Major	Very substantial
	cultural and sports activity centre, wet					transaction	acquisition,
	market, elderly activity centre and public						when
	buildings situated at No. 18 Jinding North						aggregated
	Road, Shijingshan District, Beijing						with finance
							lease nos. 1
							and 2
4.	Construction machines and equipment,	5.00%	1.00%	24	100,000,000	Discloseable	Discloseable
	including without limitation hanging beam					transaction	transaction
	bridge cranes, casting machine equipment
	and excavator
5.	Construction machines and equipment,	5.52%	1.50%	36	150,000,000	Major	Major
	including without limitation grinding					transaction	transaction,
	machine, high voltage inverters, electrical						when
	wiring systems, electrical transmission						aggregated
	systems and hanging beam bridge cranes						with finance
							lease no. 4

LETTER FROM THE BOARD

						Classification	of the finance
						lease under	Chapter 14
						of the Listing Rules#
					Finance lease	on a	on an
	Lease items	Interest rate	Handling fee	Term (months)	amount	standalone basis	aggregate basis
					(RMB)
6.	Construction machines and equipment,	5.35%	1.20%	36	9,126,000	Not a notifiable	Major
	comprising a steam turbine power generator					transaction	transaction,
	system						when
							aggregated
							with finance
							lease nos. 4
							and 5
7.	Construction machines and equipment,	5.00%	1.00%	24	100,000,000	Major	Very substantial
	including without limitation composite gear					transaction	acquisition,
	boxes, gear bases, finishing mills, process						when
	control systems and transmission control						aggregated
	systems.						with finance
							lease nos. 4, 5
							and 6

#Note: For classification purposes, the above finance leases entered into under the 2018 Master Facilities Agreement are aggregated where they were conducted within a 12-month period, entered into by the Group with the same party or involved similar types of lease items.

The low historical transaction amounts as compared to the annual caps set under the 2018 Master Facilities Agreement and the 2015 Master Facilities Agreement were due to (i) the parties not being able to conclude on certain commercial terms of the individual Loans, including the failure by the parties to agree on the payment terms, (ii) the fluctuation in interests rate and (iii) availability of fund in the market, which resulted in the lower than expected utilization of the facilities under the 2018 Master Facilities Agreement and the 2015 Master Facilities Agreement. As such, whilst the maximum amount of facilities under the 2018 Master Facilities Agreement has already been downward adjusted to RMB5,000,000,000 from that of RMB8,000,000,000 under the 2015 Master Facilities Agreement, the maximum amount of the Facilities under the Master Facilities Agreement has been further adjusted to RMB2,000,000,000 and is lower than that under the 2018 Master Facilities Agreement.

The Master Facilities Agreement has a term of three years and the duration for each Loan under the Master Facilities Agreement shall not exceed three years from the date of the relevant Loan.

LETTER FROM THE BOARD

The annual cap of the Facilities, on the basis of the principal amount of the Facilities and interest, and handling fees thereon, for each of the financial years ending 31 December 2021 to 2027 shall be RMB2,264,000,000 each year, taken into account of the expected level of financing required by Shougang Group and its subsidiaries based on published public information on Shougang Group, and the amount of financing that the Group is expected to be able to secure to finance the Facilities, for each relevant year. The breakdown of the annual cap for each of the segments under the Facilities for each of the financial years ending 31 December 2021 to 2027 is as follows:

Type of transaction Annual cap Entrusted payment RMB223 million Finance lease RMB1,706 million Credit financing RMB335 million Total RMB2,264 million

The annual caps were determined based on the expected level of financing required by Shougang Group and the amount of financing that the Group is expected to be able to secure for financing the Facilities.

Given that the annual caps of the Master Facilities Agreement were determined with reference to the expected demand of financing by Shougang Group and its subsidiaries, the Directors (excluding Mr. Xu Liang and Mr. Zhang Jianxun who are considered to be interested in the transactions contemplated thereunder and the independent non-executive Directors whose view are set out in the letter from the Independent Board Committee) are of the view that the amount of the Facilities and the annual caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Basis of determining the interest rate

The range of interest rate for entrusted payment, finance lease and credit financing were determined after arm’s length negotiations between the parties with reference to the prevailing market rate and a reasonable margin, which will be added to the total cost of lending by the Group so as to ensure that the Group can earn a net income for providing the Facilities under the Master Facilities Agreement.

The exact interest rate to be charged for each of the Loans based on (a) the prevailing market interest rate at the relevant time; and (b) the risk profile of the relevant entrusted payment or finance lease and the then business and financial conditions of the relevant subsidiary of Shougang Group being the borrower or the lessee. In assessing the risk profile of the borrower in relation to each Loan, the following factors will be considered: (i) source of funds available for repayment, including the profitability, equity position and the cash flow condition of the borrower/lessee; (ii) the valuations of the lease items as set out above when they are being sold in secondary markets to discharge the debt of the borrower/lessee; (iii) the risk level of the relevant industry of the borrower during the term of the entrusted payment or the relevant industry of the lessee during the term of the finance lease; (iv) the risk and return analysis of other financing projects between the Company and/or its subsidiary and other independent third party borrowers with similar background; and (v) the general market conditions that will be faced by Shougang Group. The Group will ensure that the interest rate charged on the loans will not be more favourable than the interest rate granted to independent third party customers based on the analysis of items (i) to (v) above.

LETTER FROM THE BOARD

Currently, there are notable differences in the interest rates offered by the banks in Hong Kong and those in the PRC. Set out below is a summary comparison between the Hong Kong Interbank Offered Rate (“ HIBOR ”) and the Shanghai Interbank Offer Rate (“ SHIBOR ”) for the period from 1 March 2021 to 31 August 2021:

		Interest	rate
	HIBOR	HIBOR	SHIBOR	SHIBOR
	Overnight	1 year	Overnight	1 year
Average	0.039%	0.439%	2.338%	2.964%
Maximum	0.049%	0.613%	3.282%	3.104%
Minimum	0.033%	0.349%	2.092%	2.789%

The above table demonstrates that there is significant differences between the interest rates and this represents an opportunity for the Group, as the Group is able to seek financing in Hong Kong while extending financing in the PRC so as to earn the spread.

Going forward, in determining the interest rate to be charged, the Group will approach at least three banks to seek for specific bank loan for the relevant project to determine the cost of the fund to the Group. The Group would then evaluate the credit risk of the borrower and/or lessee by reviewing its financial position and its ability to repay the Loan, and any assets or guarantee that may be provided as security. A margin would then be added based on the overall risk profile and collaterals that may be secured in respect of the Loan. In addition, the Group would evaluate if it has idle funds at the time. In such event, the Group would further evaluate the deposit rate for the idle fund and the lending rate that it could secure based on the risk profile and collaterals that may be secured in respect of the Loan.

The Group will apply the above policy in determining the interest rate for all financing or leasing transactions of the Group irrespective of whether the transaction is with a connected person or an independent third-party customer. The Directors (including the independent non-executive Directors) consider that the pricing policy described above can ensure that the interest rate for the transactions contemplated under the Master Facilities Agreement will be conducted on terms that are fair and reasonable, on normal commercial terms, and in the interest of the Company and the Shareholders as a whole.

Information on Shougang Group

Shougang Group is a company established in the PRC and is the holding company of Shougang Holding, the controlling shareholder of the Company. Shougang Group is a state-owned enterprise wholly owned by the Beijing State-owned Capital Operation and Management Centre (北京國有資本經營管理中心) which is in turn wholly owned by the State-owned Assets Supervision and Administration Commission of People’s Government of Beijing Municipality (北京市人民政府國有資產監督管理委員會).

Shougang Group is one of the largest steel production enterprises in the PRC and is principally engaged in a wide range of business including steel and iron production, overseas business, property development, mining resources and other businesses.

LETTER FROM THE BOARD

Financial effects of the transactions contemplated under the Master Facilities Agreement

As (i) the interest rate to be charged on each of the Loans under the Master Facilities Agreement would be at a rate equal to the cost of lending of the Company and/or its subsidiaries plus 1% to 5%, subject to not being more than 10%; and (ii) the Group shall be entitled to charge the relevant lessee for each finance lease under the Master Facilities Agreement a non-refundable handling fee of not more than 1.5% (in the case of entrusted payment and credit financing) or 3.75% (in the case of finance lease) of the principal amount of the Loan, the Group is able to earn a net income over the term of the Master Facilities Agreement. As such, the Directors consider that the entering into the Master Facilities Agreement will have positive impact on the earnings of the Group in a long run.

Reasons for entering into of the Master Facilities Agreement

The Group provides finance leases in its usual and ordinary course of business. The Group aims at sourcing customers in the finance lease segment with sufficient assets and good creditability in order to safeguard the credit risks of the Group. Shougang Group is rich in assets and has a good credit history with good repayment capability. As the Group has been providing financing facilities to Shougang Group in the past, and the 2018 Master Facilities Agreement has expired in June 2021 and the Group has not been able to provide any financing services to Shougang Group, the Master Facilities Agreement is being entered into to enable the Group to continue to provide financing services to a trusted customers group. As the entering into of the Master Facilities Agreement is in the ordinary and usual course of business of the Company and will enable the Group to earn a net interest income under the Master Facilities Agreement, the Directors (excluding the interested Directors and the members of the Independent Board Committee whose view is set out in the letter from the Independent Board Committee after reviewing and considering the advice from the Independent Financial Adviser) consider that the transactions under the Master Facilities Agreement and the proposed annual caps thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE BOARD

Policy and Internal Control of the Group in Relation to the Master Facilities Agreement

As stated above, Shougang Group has good credit history with reliable repayment capability and is a good customer of the Group. In addition, the Group has the absolute discretion on whether or not to provide the Loan under the Facilities at the relevant time.

In respect of each Loan under the Facilities, the business department of the Group will first submit a project proposal to the chief operating officer for preliminary evaluation. Upon the acceptance of the project for consideration, the business department will conduct due diligence on the relevant Loan. The relevant project proposal will then be reviewed by the risk management department and the legal department of the Group and submit to the investment committee of the Group and the general manager office for approval.

In evaluating each Loan under the Facilities, the business department and the risk management department of the Group will conduct risk and return analysis and compare with other potential financing projects between the Group and independent third party available at the time. In the event that any of the Company or its subsidiaries considers that it is not to the Group’s benefit to provide the Loan, or it would be risky to grant the Loan, the Group may at its absolute discretion refuse the provision of such Loan to Shougang Group and/or its subsidiaries under the Facilities.

In assessing whether to provide each Loan under the Facilities, the Group will consider the following factors on a case by case basis: (i) whether there are other independent third party customers with similar risk exposure who would like to seek finance under entrusted payment and/or finance lease arrangement from the Group at the relevant time; (ii) whether the Group will be able to gain a better rate of return from such available customer(s) at the relevant time; (iii) whether the annual caps will be exceeded; and (iv) whether the pricing terms are in compliance with the Master Facilities Agreement.

If, at the relevant time, the Group can get a better rate of return from independent third party customer(s), the Group will either (a) use its discretion not to grant the Loan under the Facilities to Shougang Group and/or its subsidiaries and provide facilities to the independent third party customer(s) instead or (b) ensure that the interest rate to be granted to Shougang Group under the relevant Loan will not be more favourable than those to independent third-party customer(s) with similar risk profile and comparable size of borrowing so as to ensure that the rate of return of the Group is maximised. If, at the relevant time, there is no independent third party customer, the Group will evaluate the prevailing interest rate at the relevant time and the last three transactions with independent third party customer and compare against the interest rate to be granted to Shougang Group and/or its subsidiaries to ensure that the interest rate to be granted to Shougang Group and/or its subsidiaries under the relevant Loan will not be more favourable than those to independent third party customer(s) with similar risk profile and comparable size of borrowing.

LETTER FROM THE BOARD

In assessing the risk profile of the borrower in relation to each Loan, the following factors will be considered: (i) source of funds available for repayment, including the profitability, equity position and the cash flow condition of the borrower/lessee; (ii) the valuations of the lease items as set out above when they are being sold in secondary markets to discharge the debt of the borrower/lessee; (iii) the risk level of the relevant industry of the borrower during the term of the entrusted payment or the relevant industry of the lessee during the term of the finance lease; (iv) the risk and return analysis of other financing projects between the Company and/or its subsidiary and other independent third party borrowers with similar background; and (v) the general market conditions that will be faced by Shougang Group. The Group will ensure that the interest rate charged on the loans will not be more favourable than the interest rate granted to independent third party customers based on the analysis of items (i) to (v) above.

To ensure that the transactions contemplated under the Master Facilities Agreement will be conducted in accordance with its terms and conditions, the internal audit department of the Company will review the transactions with Shougang Group and/or its subsidiaries on a periodic basis to ensure that (i) the transactions are conducted in accordance with the terms of the Master Facilities Agreement, (ii) the pricing terms are in accordance with the pricing policy of the Master Facilities Agreement and the policy of the Group, and (iii) the annual caps have not been exceeded.

The transactions contemplated under the Master Facilities Agreement is subject to the review by the independent non-executive Directors on an annual basis, who will confirm in the annual report whether the transactions have been entered into (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms or better; and (iii) according to the Master Facilities Agreement on terms that are fair and reasonable and in the interests of the Shareholders as a whole. In addition, the transactions will also be subject to the review on an annual basis by the auditors of the Group, who will confirm to the Directors as to whether there is anything which has come to their attention that causes them to believe that such continuing connected transactions: (i) have not been approved by the Board; (ii) were not, in all material respects, in accordance with the pricing policies of the Group; (iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iv) have exceeded the annual caps.

The Directors (including the independent non-executive Directors) consider the above internal control and internal review policies of the Group are effective to ensure that the transactions contemplated under the Master Facilities Agreement will be conducted on normal commercial terms and not prejudicial to the interests of the Company and the Shareholders as a whole.

Listing Rules Implications

As at the Latest Practical Date, Shougang Holding was a controlling Shareholder holding approximately 50.84% of the issued share capital of the Company. Shougang Group is the holding company of Shougang Holding and hence is a connected person of the Company. Accordingly, the transactions contemplated under the Master Facilities Agreement constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules.

As one or more of the applicable ratios for the Facilities under the Master Facilities Agreement is more than 100%, the transactions contemplated under the Master Facilities Agreement also together constitute a very substantial acquisition of the Company under Chapter 14 of the Listing Rules, and therefore the Master Facilities Agreement is subject to the announcement, reporting and Independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules, and the announcement, reporting and Shareholders’ approval requirements under Chapter 14 of the Listing Rules.

LETTER FROM THE BOARD

Future compliance with the notifiable transaction requirements for the transactions under the Master Facilities Agreement

As disclosed above, the facilities used under the 2018 Master Facilities Agreement were all related to finance leases for certain commercial properties, construction machinery and equipment, and amongst them, six finance leases constituted notifiable transactions of the Company under Chapter 14 of the Listing Rules. The Company obtained its independent shareholders’ approval in respect of the 2018 Master Facilities Agreement at its special general meeting held on 7 December 2018, however, the Company did not comply with the applicable notifiable transaction requirements for these six finance leases when they were subsequently entered into by the Group at the relevant time.

The Directors consider that the failure to comply with the applicable notifiable transaction requirements for the six finance leases as abovementioned was due to the Company’s previous inadvertent misinterpretation of the Listing Rules on finance leases. It had been the Company’s initial understanding that the finance leases as contemplated under the 2018 Master Facilities Agreement were of revenue in nature and conducted in the ordinary course of business, and accordingly, did not fall under the definition of “transaction” pursuant to Rule 14.04(1) of the Listing Rules.

Going forward, the Company will treat the Master Facilities Agreement as a very substantial acquisition, in addition to continuing connected transactions, and comply with the requirements of both Chapters 14 and 14A of the Listing Rules.

2. THE MASTER PURCHASE AGREEMENT

On 23 August 2021, Beijing Jingxi Supply Chain, an indirect wholly owned subsidiary of the Company, entered into the Master Purchase Agreement with Beijing Shougang under which Beijing Jingxi Supply Chain agreed to purchase steel products from Beijing Shougang for a term of three financial years ending 31 December 2023.

Subject

: Beijing Jingxi Supply Chain will purchase steel products from Beijing Shougang for trading purpose.
Term : Three financial years commencing from the effective date of the Master Purchase Agreement and ending on 31 December 2023.

Pricing : The price of the products supplied by the supplier to the Group will be based on the quoted price for the products to be supplied. Such quoted price will be determined based on arm’s length negotiations between the parties and on normal commercial terms on a quarterly basis with reference to:

(i) the prevailing market price for the same or substantially similar products, taking into account the price of the same or substantially similar products with comparable order quantities and quality offered by independent third party suppliers;

LETTER FROM THE BOARD

(ii) if there are insufficient comparable transactions to (i) above, on normal commercial terms comparable to those received from independent third parties in respect of the same or substantially similar products with comparable quantities and quality; and
(iii) if both (i) and (ii) above are not applicable, by reference to the average price of similar products previously purchased by the Group, and on normal commercial terms which are no less favourable to the Group than that are available from independent third parties.

Payment for the products under the Master Purchase Agreement will be made at the time of placement of the order for the products.

Cap amount

: Pursuant to the Master Purchase Agreement, Beijing Jingxi Supply Chain has agreed to purchase products from Beijing Shougang based on the pricing policy stated above during the term of the Master Purchase Agreement subject to the following annual caps:

	Financial	year ending 31	December
	2021	2022	2023
	RMB’million	RMB’million	RMB’million
Transaction amount	1,000	1,000	1,000

There were no historical purchases from Beijing Shougang. The annual caps for the Master Purchase Agreement were determined based on the expected market demand and trading volume for the products and the supply capacity of Beijing Shougang.

The Group recorded revenue from trading of steel related products for its supply chain management business of approximately HK$1.07 billion for the six months ended 30 June 2021. The Company has prioritised the development of its supply chain financial services in the steel industry and centred around core enterprises in the industry to expand supply chain management and financial service business to their upstream and downstream customers.

LETTER FROM THE BOARD

In view of the significant increase in revenue from the trading of steel related products under its supply chain management business for the six months ended 30 June 2021, the market demand and trading volume for the steel products are expected to increase for the three years ending 31 December 2023. Given that Shougang Group is a leading steel producer in the PRC and owns and manages nine production bases with coking, ironmaking, steelmaking and steel-rolling capacity in China, geographically covering the Bohai Rim region, Western China, Southwestern China, Southeastern China, Northeastern China and Northwestern China. As at 31 December 2018, the total designed production capacity of crude iron, crude steel and steel products across Shougang Group’s nine production bases was approximately 28.5 million tons per year, 30.3 million tons per year and 35.3 million tons per year, respectively. The Company considers the entering into of the Master Purchase Agreement would help Beijing Jingxi Supply Chain to gain a stable supply of steel products for trading purpose, thereby providing it with an opportunity to generate income and trading profits along with the expected increase in market demand and trading volume for the steel products.

As Beijing Shougang is a leading steel supplier in the PRC and is a company listed on the Shenzhen Stock Exchange with solid track record for supplying quality products, the Directors are of the view that despite there had been no previous transaction with Beijing Shougang of this nature, the selection of Beijing Shougang as a supplier satisfies the internal control policies of the Company for selection criteria of supplier.

Basis of determining the price of the products supplied to the Group

In determining the prices for the products supplied by the supplier to the Group, the Group will obtain information on the transaction prices of similar products in the market by making reference to the websites of major players in the industry or industry associations (including but not limited to China Iron and Steel Association (中國鋼鐵工業協會) http://www.chinaisa.org.cn, Zhong Gang Wang (中鋼網) http://baojia.steelcn.cn and My Steel (我的鋼鐵網) http://www.mysteel.com), conducting researches on industry websites and enquiry with industry players to determine the reference prices. Then, Beijing Jingxi Supply Chain will obtain quotation from major players in China Iron and Steel Association which will then be compared against the prices quoted by the supplier to ensure that prices and terms for the products being offered will be no less favourable to the Company than that available from independent suppliers. The aforesaid websites can be obtained on a daily basis and the prices of steel products are highly transparent in the open market. In the unlikely event that no comparable market price can be taken, experts in the Group with sufficient industry experience could opine on the fairness and reasonableness of the price by reference to the comparable price and/or historical transaction price of the most similar items to ensure that the price and terms would be fair and reasonable to the Group and no less favourable to the Company than that available from independent third parties.

LETTER FROM THE BOARD

Condition

The Master Purchase Agreement is subject to the Company’s compliance with the requirements of the Listing Rules with respect to continuing connected transactions, including the obtaining of approval from the Independent Shareholders.

Information on Beijing Jingxi Supply Chain and Beijing Shougang

Beijing Jingxi Supply Chain

Beijing Jingxi Supply Chain is a limited liability company established in the PRC. It is an indirect wholly owned subsidiary of the Company and is principally engaged in the business of supply chain management.

Beijing Shougang

Beijing Shougang is a limited liability company established in the PRC and is principally engaged in the manufacturing, processing and selling of steel-related products. Beijing Shougang is a 62.74% owned non-wholly owned subsidiary of Shougang Group.

The information on Shougang Group is disclosed in the paragraph headed “1. THE MASTER FACILITIES AGREEMENT – Information on Shougang Group” above.

Reasons for Entering into of the Master Purchase Agreement

The entering into of the Master Purchase Agreement would help Beijing Jingxi Supply Chain to gain a stable supply of steel products for trading purchase, thereby providing it with an opportunity to generate income and trading profits.

As the Master Purchase Agreement is being entered into in the usual and ordinary course of business of the Group and the terms have been negotiated on an arm’s length basis and on normal commercial terms, with the purchase price of the products being based on prevailing market price of the same or substantially similar products offered by independent third parties, the Directors (excluding the interested Directors and the members of the Independent Board Committee whose view is set out in the letter from the Independent Board Committee after reviewing and considering the advice from the Independent Financial Adviser) consider that the transactions under the Master Purchase Agreement and the proposed annual caps thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE BOARD

Internal Control Procedures of the Group in Relation to the Master Purchase Agreement

To ensure that the terms of the Master Purchase Agreement of the Group are fair and reasonable and no less favourable to the Group than those available to/from independent third parties, the Group has the following internal control and pricing policies in place under which:

Internal control and pricing policies

(i) the Group maintains a list of carefully selected suppliers. The list is regularly reviewed and updated. For a supplier to become listed, the Group will initially conduct and must be satisfied with the due diligence on the supplier. The supplier must have good market reputation and established track record for supplying quality products;
(ii) with respect to any potential orders, the business department of the Group will first discuss and formulate the details of the specifications of the order (including materials, functions and the specification for the relevant products);
(iii) after such order specification has been determined, the business department will select not less than two and on average about three suppliers from the Group’s suppliers list, then based on the extensive market experience of the business development officer and taking into account of various factors in order to determine the final purchase supplier;
(iv) the selection criteria of the suppliers will depend on several factors such as their product price, brand, quality, payment terms, deliver times and business performance;
(v) upon delivery of the products (whether by the connected party or independent third party suppliers), the business department will conduct checks to review (including but not limited to quality and safety) and assess whether the products have been supplied in accordance with the terms of each contract; and
(vi) the price of the products supplied by Beijing Shougang will be determined based on the pricing policies as set out in the Master Purchase Agreement.

Internal review policies

(i) the pricing policy for all the continuing connected transactions of the Group will be supervised and monitored by the management of the Group to ensure that the relevant continuing connected transactions are being conducted on normal commercial terms and will not be prejudicial to the interests of the Company and the Shareholders as a whole;
(ii) in respect of any order for the products supplied by Beijing Shougang, the Group will assess the level of order to be placed and based on the size of the order, obtain reference quotations from independent third party suppliers for setting the prevailing market price in accordance with the pricing policies as set out under the Master Purchase Agreement;

LETTER FROM THE BOARD

(iii) the relevant personnel from the internal auditing department of the Group will conduct regular checks to review and assess whether the transactions contemplated under the relevant continuing connected transactions are conducted in accordance with the terms of its respective agreement and the management of the Group will also regularly update the market price for the purpose of considering if the price charged for a specific transaction is fair and reasonable and in accordance with the aforesaid pricing policy; and
(iv) the independent non-executive Directors will review the transactions under the relevant continuing connected transaction and the auditors of the Company will also conduct an annual review on the pricing terms and annual caps thereof.

The Directors (including the independent non-executive Directors) consider that the above internal control and pricing policies and internal review policies of the Group are effective to ensure that the transactions contemplated under the Master Purchase Agreement will be conducted on normal commercial terms and not prejudicial to the interests of the Company and the Shareholders as a whole.

Listing Rules Implications

As at the Latest Practical Date, Beijing Shougang is a non-wholly owned subsidiary of Shougang Group, which is in turn the holding company of Shougang Holding, the controlling Shareholder holding approximately 50.84% of the issued share capital of the Company. Beijing Shougang is hence a connected person of the Company and the transactions contemplated under the Master Purchase Agreement constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules.

As the applicable percentage ratios in respect of the annual transaction amount under the Master Purchase Agreement are expected to be more than 5%, the transactions contemplated under the Master Purchase Agreement are subject to the announcement, reporting and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Relationship with Shougang Group

The Company is mindful of the significance of the business from Shougang Group to the Company’s revenue, and has continuously been exploring new business opportunities in order to reduce its reliance on the Shougang Group. However, owing to market conditions and the effect of the Sino-U.S. trade war and the effect of the COVID-2019 pandemic, the business development momentum of the Group has lagged behind its original plan, with the revenue generated from Shougang Group still contributed to 60% of the Company’s revenue for each of the three years ended 31 December 2020.

LETTER FROM THE BOARD

For the six months ended 30 June 2021, the revenue of the Group attributable to Shougang Group was approximately 47%. The Company is taking active measures in developing new lines of leasing business and the Company expects that these new business initiatives will increase the revenue attributable to the leasing business of the Group and thereby reducing the Group’s reliance on Shougang Group to approximately 39% by the end of 2022.

In respect of the purchase of steel products for trading under the Group’s supply chain management business, the Group recorded revenue of approximately HK$1.07 billion for the six months ended 30 June 2021 all through purchases from independent third party suppliers. The Group has not commenced any purchases from Beijing Shougang as Beijing Shougang is a connected person of the Company and transaction with it will constitute connected transaction. As Beijing Shougang is a leading steel supplier, the entering into of the Master Purchase Agreement will provide the Group with greater flexibility and a stable source of supply of steel products. The Company will exercise its best endeavours to ensure that it will strike a balance source of supply of steel products so as not to place undue reliance on Beijing Shougang. To this end, in addition to the internal control and pricing policies as described above under the section headed “2. THE MASTER PURCHASE AGREEMENT” above to ensure that the transactions are being conducted in accordance with the terms of the relevant agreement, the relevant personnel of the internal auditing department and the management of the Group will conduct a monthly review of the purchase volume between that of the Beijing Shougang and independent third party suppliers and take necessary measures, including the suspension of further purchases from Beijing Shougang, to ensure that Beijing Shougang will not become the supplier of the majority of the Group’s requirement of steel products.

3. GENERAL

The Independent Board Committee comprising all the independent non-executive Directors has been formed to advise the Independent Shareholders in respect of the terms of the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder. Messis Capital Limited has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the terms of the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder.

A SGM will be convened at which ordinary resolutions will be proposed to consider and, if thought fit, pass the resolutions to approve the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder.

LETTER FROM THE BOARD

4. SGM

A notice of the SGM is set out on pages 99 to 100 of this circular. In accordance with the requirements of the Listing Rules, all votes to be taken at the SGM will be by way of poll. Shougang Group and its associates, who were interested in a total of 2,425,736,972 Shares and controlled the voting rights of such Shares which represented approximately 60.88% of the issued share capital of the Company as at the Latest Practicable Date, will be required to abstain from voting at the SGM on the resolutions in relation to the Master Facilities Agreement and the Master Purchase Agreement. Save as disclosed above, no other Shareholder will be required to abstain from voting on the resolutions in respect of the Master Facilities Agreement and/or the Master Purchase Agreement.

A form of proxy for the SGM is enclosed herewith. Whether or not you are able to attend the SGM, you are requested to complete the enclosed 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, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as practicable and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the enclosed form of proxy will not preclude you from attending and voting in person at the SGM or at any adjournment meeting should you so wish.

5. RECOMMENDATIONS

Your attention is drawn to (i) the letter from the Independent Board Committee is set out on pages 25 to 26 of this circular which contains its recommendations to the Independent Shareholders in respect of the terms of the Master Facilities Agreement and the Master Purchase Agreement; (ii) the letter from the Independent Financial Adviser is set out on pages 27 to 65 of this circular, which contains, amongst other matters, its advices to the Independent Board Committee and the Independent Shareholders in relation to the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder.

The Directors (other than Mr. Xu Liang and Mr. Zhang Jianxun who are considered to be interested in the Master Facilities Agreement and the Master Purchase Agreement and the members of the Independent Board Committee whose view is set out in the letter from the Independent Board Committee after reviewing and considering the advice from the Independent Financial Adviser) consider that the terms of the Master Facilities Agreement and the Master Purchase Agreement are in the best interests of the Company and the Shareholders as a whole and the Board is not aware of there being any material disadvantages in entering into of the Master Facilities Agreement and the Master Purchase Agreement. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the SGM.

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

By Order of the Board Shougang Concord Grand (Group) Limited Xu Liang Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendations, prepared for the purpose of incorporation in the circular, from the Independent Board Committee to the Independent Shareholders regarding the terms of the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder.

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**首長四方（集團）有限公司[*] SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability) (Stock Code: 730)

24 December 2021

To the Independent Shareholders

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER FACILITIES AGREEMENT; AND (2) CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER PURCHASE AGREEMENT; AND NOTICE OF SPECIAL GENERAL MEETING

We refer to the circular of the Company to the Shareholders dated 24 December 2021 (the “ Circular ”), in which this letter forms a part. Unless the context requires otherwise, capitalized terms used in this letter will have the same meanings given to them in the section headed “Definitions” of the Circular.

We have been authorised by the Board to form the Independent Board Committee to advise the Independent Shareholders on whether, in our opinion, the terms of the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned.

We wish to draw your attention to the letter of advice from Messis Capital Limited, the Independent Financial Adviser appointed to advise the Independent Board Committee and the Independent Shareholders on the terms of the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder is set out on pages 27 to 65 of the Circular and the letter from the Board is set out on pages 4 to 24 of the Circular.

For identification purpose only

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered, among other matters, the factors and reasons considered by, and the opinion of the Independent Financial Adviser as stated in its letter of advice, we consider that the terms of the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder are on normal commercial terms, are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions in relation to the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder to be proposed at the Special General Meeting.

Yours faithfully,

For and on behalf of

The Independent Board Committee of Shougang Concord Grand (Group) Limited Tam King Ching, Kenny Zhang Xingyu Ng Man Fung, Walter On Danita

Independent Non-executive Directors

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter from Messis Capital Limited, the Independent Financial Adviser, for the purpose of inclusion in this circular, to the Independent Board Committee and the Independent Shareholders regarding the terms of the Master Facilities Agreement, the Master Purchase Agreement and their respective transactions contemplated thereunder.

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24 December 2021

To: The Independent Board Committee and the Independent Shareholders of Shougang Concord Grand (Group) Limited

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER FACILITIES AGREEMENT; AND (2) CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER PURCHASE AGREEMENT

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in connection with the terms of the Master Facilities Agreement and the Master Purchase Agreement, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular of the Company to the Shareholders dated 24 December 2021 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

Reference is made to the circulars of the Company dated 26 May 2015 and 20 November 2018, the Company and Shougang Group entered into the 2015 Master Facilities Agreement and the 2018 Master Facilities Agreement in relation to the provision of financing facilities by the Group to Shougang Group. The 2018 Master Facilities Agreement was approved by the then independent shareholders of the Company at the special general meeting held on 7 December 2018 and was expired in June 2021. On 23 August 2021, the Company entered into the Master Facilities Agreement with Shougang Group, pursuant to which the Company has conditionally agreed to provide or procure its subsidiaries to provide the Facilities to Shougang Group and/or its subsidiaries in an aggregate principal amount of up to RMB2,000,000,000 (equivalent to approximately HK$2,410,000,000) for a term of 3 years.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 23 August 2021, Beijing Jingxi Supply Chain, an indirect wholly-owned subsidiary of the Company, entered into the Master Purchase Agreement with Beijing Shougang under which Beijing Jingxi Supply Chain agreed to purchase steel products from Beijing Shougang for a term of three years commencing from the Master Facilities Agreement become effective.

As at the Latest Practicable Date, Beijing Shougang is a non-wholly owned subsidiary of Shougang Group, which is in turn the holding company of Shougang Holding, the controlling Shareholder holding approximately 50.84% of the issued share capital of the Company. Beijing Shougang is hence a connected person of the Company and the transactions contemplated under the Master Purchase Agreement constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules. As the applicable percentage ratios in respect of the annual transaction amount under the Master Purchase Agreement are expected to be more than 5%, the transactions contemplated under the Master Purchase Agreement are subject to the announcement, reporting and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Mr. Xu Liang and Mr. Zhang Jianxun are considered to be interested in the Master Facilities Agreement and the Master Purchase Agreement and have abstained from voting on the relevant board resolutions of the Company. Apart from the above, none of the Directors has any material interest in the Master Facilities Agreement and the Master Purchase Agreement and is required to abstain from voting on the board resolutions approving the Master Facilities Agreement and the Master Purchase Agreement, the transactions contemplated thereunder and the proposed annual caps.

Shougang Group and its associates, who were interested in a total of 2,425,736,972 Shares and controlled the voting rights of such Shares which represented approximately 60.88% of the issued share capital of the Company as at the Latest Practicable Date, will be required to abstain from voting at the Special General Meeting on the resolutions in relation to the Master Facilities Agreement and the Master Purchase Agreement. Save as disclosed above, no other Shareholder will be required to abstain from voting on the resolutions in respect of the Master Facilities Agreement and the Master Purchase Agreement.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee, comprising all of the independent non-executive Directors, namely Mr. Tam King Ching, Kenny, Mr. Zhang Xingyu, Mr. Ng Man Fung, Walter and Ms. On Danita, has been established to advise the Independent Shareholders in relation to the Master Facilities Agreement and the Master Purchase Agreement and their respective transactions contemplated thereunder. We, Messis Capital Limited, have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in these regards.

As at the Latest Practicable Date, we do not have any relationships with or interests in the Company and any other parties that could reasonably be regarded as relevant to our independence. Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial Adviser, no arrangement exists whereby we will receive any fees or benefits from the Company. During the past two year, we were appointed as an independent financial adviser of BeijingWest Industries International Limited (stock code: 2339), a connected person of the Company, for one occasion as detailed in its circular dated 28 November 2019. Notwithstanding, we are independent from the Company pursuant to Rule 13.84 of the Listing Rules, in particular we did not serve as a financial adviser to (i) the Group, (ii) Shougang Group or its subsidiaries, or (iii) any core connected person of the Company within 2 years prior to 14 September 2021, being the date of making our independence declaration to the Stock Exchange pursuant to Rule 13.85(1) of the Listing Rules.

BASIS OF OUR ADVICE AND RECOMMENDATIONS

In arriving at our recommendations, we have relied on the statements, information and representations contained in the Circular and the information and representations provided to us by the Company, the Directors and the management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information and representations which have been provided by the Company, the Directors and the management of the Company for which they are solely and wholly responsible, are true and accurate at the time they were made and will continue to be accurate as at the Latest Practicable Date. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the management of the Company.

The 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 the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement therein or the document misleading.

We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any material facts or circumstances which would render the information provided and representations made to us untrue, inaccurate or misleading. We consider that we have performed all the necessary steps to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinion. We have not, however, carried out any independent verification of the information provided by the Company, the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs of the Group and any parties in relation to the Master Facilities Agreement and the Master Purchase Agreement.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

This letter is issued for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Master Facilities Agreement and the Master Purchase Agreement and the proposed annual caps. Except for its inclusion in the Circular, this letter is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinions and recommendations, we have taken the following principal factors and reasons into consideration:

1. Background information of the Group

1.1 Background of the Group

1.2 Financial information of the Group

The table below sets out the key financial information of the Group for the years ended 31 December 2020 and 2019 and for the six months ended 30 June 2021 and 2020, as extracted from the Company’s annual report for the year ended 31 December 2020 (the “ 2020 Annual Report ”), and the Company’s interim report for the six months ended 30 June 2021 (the “ 2021 Interim Report ”):

Financial performance of the Group

	For the six months ended	For the six months ended	For the year	ended
	30 June		31 December
	2021	2020	2020	2019
	HK$’000	HK$’000	HK$’000	HK$’000
	(Unaudited)	(Unaudited)	(Audited)	(Audited)
Revenue	1,124,219	38,601	85,378	77,702
Cost of sales and services	(1,072,058)	(5,992)	(11,618)	(20,058)
Gross profit	52,161	32,609	73,760	57,644
Profit/(loss) for the year/
period attributable to
the owners of
the Company	11,418	2,117	5,980	(7,921)

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the year ended 31 December 2020

According to the 2020 Annual Report, revenue of the Group for the year ended 31 December 2020 was approximately HK$85.4 million, representing an increase of approximately HK$7.7 million or 9.9% as comparing with that of approximately HK$77.7 million for the year ended 31 December 2019. Revenue from the sale and leaseback arrangement services was the largest business segment of the Group which accounted for approximately 92.2% and 92.2% of its total revenue for the year ended 31 December 2019 and 31 December 2020, respectively. The Group commenced its supply chain management services in 2019. Revenue from this business segment was the second largest business segment of the Group which accounted for approximately 6.2% of its total revenue for the year ended 31 December 2020. During the year ended 31 December 2020, the increase in revenue of the Group was mainly contributed by (i) the increase in revenue from the sale and leaseback arrangement services segment of approximately 9.9% from approximately HK$71.6 million for the year ended 31 December 2019 to approximately HK$78.7 million for the year ended 31 December 2020 and (ii) the increase in revenue from the supply chain management services segment of approximately 639.4% from HK$0.7 million for the year ended 31 December 2019 to approximately HK$5.3 million for the year ended 31 December 2020. The increase in revenue from the sale and leaseback arrangement services segment was mainly attributable to the increase in project gross profit resulting from the increase in the number of new projects and more flexible financial resource usage.

The Group recorded a gross profit of approximately HK$57.6 million and HK$73.8 million for the two years ended 31 December 2019 and 2020, respectively and a gross profit margin of approximately 74.2% and 86.4% for the two years ended 31 December 2019 and 2020, respectively. The improvement was mainly attributable to the increase in gross profit margin from the sale and leaseback arrangement services segment from the increase in the number of new projects and more flexible financial resource usage.

The Group recorded a profit for the year attributable to the owners of the Company of approximately HK$6.0 million for the year ended 31 December 2020 and a loss for the year attributable to the owners of the Company of approximately HK$7.9 million for the year ended 31 December 2019. The turnaround in financial performance from loss to profit for the year ended 31 December 2020 was mainly attributable to (i) the increase in revenue and gross profit for the year ended 31 December 2020; (ii) the recovery of receivables under sale and leaseback arrangements previously written-off of approximately HK$13.7 million was recorded in 2020; (iii) the decrease in finance costs of approximately HK$4.3 million; and (iv) the increase in reversal of impairment provision of approximately HK$4.0 million.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the six months ended 30 June 2021

According to the 2021 Interim Report, revenue of the Group for the six months ended 30 June 2021 was approximately HK$1,124.2 million, representing an increase of approximately HK$1,085.6 million or 2812.4% as comparing with that of approximately HK$38.6 million for the six months ended 30 June 2020. The increase was mainly attributable to (i) the significant increase in revenue from the supply chain management business which provided full-process services including steel product trading and logistics of approximately HK$1.07 billion; (ii) the increase in revenue from the sale and leaseback arrangements services segment of approximately HK$5.5 million or 14.6% from approximately HK$37.8 million for the six months ended 30 June 2020 to approximately HK$43.3 million for the six months ended 30 June 2021, which was mainly attributable to the increase in project gross profit resulting from the increase in the number of new projects and more flexible financial resource usage; and (iii) the increase in revenue from the assets management and consultancy services segment of approximately HK$1.4 million or 2215.9% from approximately HK$63,000 for the six months ended 30 June 2020 to approximately HK$1.5 million for the six months ended 30 June 2021, which was mainly due to the commencement of the consultancy business at the end of 2020.

The Group recorded gross profit of approximately HK$52.2 million for the six months ended 30 June 2021, representing an increase of approximately 60.0% when compared with that of approximately HK$32.6 million for the six months ended 30 June 2020. The Group’s gross profit margin was approximately 4.6% for the six months ended 30 June 2021, representing a significant decrease when compared with the gross profit margin of approximately 84.5% for the six months ended 30 June 2020, which was mainly attributable to the lower gross profit margin from the supply chain management business segment with gross profit margin of approximately 1.2% during the period.

The Group recorded a profit for the period attributable to the owners of the Company of approximately HK$11.4 million for the six months ended 30 June 2021 and approximately HK$2.1 million for the six months ended 30 June 2020, representing an increase of approximately HK$9.3 million or 439.4%, which was in line with the increase in revenue and gross profit of the Group.

Financial position of the Group

	As at 30 June	As at 31	December
	2021	2020	2019
	HK$’000	HK$’000	HK$’000
	(Unaudited)	(Audited)	(Audited)
Current assets	1,309,248	1,118,873	1,134,802
Non-current assets	902,611	1,042,600	1,159,230
Total assets	2,211,859	2,161,473	2,294,032
Current liabilities	323,405	244,537	371,651
Non-current liabilities	107,846	152,947	178,883
Total liabilities	431,251	397,484	550,534
Total equity	1,780,608	1,763,989	1,743,498

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at 31 December 2020

Due to the business nature of the Group in relation to the provision of finance lease to its customers, short term and long term receivables under sale and leaseback arrangements are the key assets of the Group. As at 31 December 2020, short term and long term receivables under sale and leaseback arrangements amounted to approximately HK$1,380.4 million, representing approximately 63.9% of the Group’s total assets. The Group had total cash (including bank balances and cash, structured deposits and restricted bank deposits) of approximately HK$318.8 million and HK$607.8 million as at 31 December 2020 and 31 December 2019, respectively. The decrease in cash position was mainly due to the increase in net cash used in financing activities from repayment of bank borrowings of approximately HK$368.4 million. The current ratio of the Group was 458% and 305% as at 31 December 2020 and 31 December 2019, respectively.

Total liabilities of the Group mainly comprised of long term and short term bank borrowings which were principally utilised on supporting the Group’s sale and leaseback arrangement business. The total bank borrowings amounted to approximately HK$290.3 million and HK$465.6 million as at 31 December 2020 and 31 December 2019, respectively, which represented approximately 73.0% and 84.6% of its total liabilities, respectively. During 2020, the Group obtained new bank borrowings of approximately HK$283.7 million for its finance leasing and working capital of the Group. The Group was in a gearing position with a total interest-bearing borrowings to total equity of approximately 16% and 27% as at 31 December 2020 and 31 December 2019, respectively.

As at 30 June 2021

Short term and long term receivables under sale and leaseback arrangements, continued to be the key assets of the Group amounted to approximately HK$1,299.1 million, representing approximately 58.7% of the Group’s total assets. The Group had total cash (including bank balances and cash, structured deposits and restricted bank deposits) of approximately HK$204.3 million and HK$318.8 million as at 30 June 2021 and 31 December 2020, respectively. The decrease in cash position was mainly due to the net repayment of bank borrowings of approximately HK$26.4 million and cash flows used in operating activities amounted to approximately HK$73.0 million which was mainly attributable to the inventories purchased as a result of the expansion of the supply chain business. The current ratio of the Group was 405% and 458% as at 30 June 2021 and 31 December 2020, respectively.

Total liabilities of the Group mainly comprised of long term and short term bank borrowings which were principally utilised on supporting the Group’s sale and leaseback arrangement business. The total bank borrowings amounted to approximately HK$264.1 million and HK$290.3 million as at 30 June 2021 and 31 December 2020, respectively, which represented approximately 61.3% and 73.0% of its total liabilities. During the first half of 2021, the Group obtained new bank borrowings of approximately HK$12.2 million for its supply chain management business.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Background information of Beijing Jingxi Supply Chain, Beijing Shougang and Shougang Group

2.1 Information of Beijing Jingxi Supply Chain

2.2 Information of Beijing Shougang

2.3 Information of Shougang Group

Shougang Group is a company established in the PRC and is the holding company of Shougang Holding, the controlling Shareholder of the Company. Shougang Group is a state-owned enterprise wholly owned by Beijing State-owned Capital Operation and Management Centre (北京國有資本經營管理中心), which is in turn wholly owned by State-owned Assets Supervision and Administration Commission of People’s Government of Beijing Municipality (北京市人民政府國有資產監督管理委員會).

Shougang Group is one of the largest steel production enterprises in the PRC and is principally engaged in a wide range of business, including steel and iron production, overseas business, property development, mining resources and other businesses. According to the World Steel Association, Shougang Group ranked ninth among the world’s 50 top steel producing companies in terms of steel production volume in 2020, with a production capacity of 34 million tones.

According to an offering circular of Shougang Group as published on 16 May 2019 (the “ 2019 Offering Circular ”), the latest public available publication which contained the financial information of Shougang Group, the total assets and net assets of Shougang Group as at 31 December 2018 amounted to approximately RMB501.7 billion and RMB137.0 billion, respectively. Shougang Group is a capital intensive company with total non-current assets of approximately RMB382.0 billion as at 31 December 2018, approximately 49.0% of which (i.e. approximately RMB187.3 billion) were the net book value of fixed assets. Steel and iron production was the largest business segment of Shougang Group which accounted for approximately 60.4% of its total operating income for the year ended 31 December 2018.

According to the 2019 Offering Circular, Fitch Ratings, Inc. (“ Fitch ”) had assigned a corporate rating of “A-” with a stable outlook to Shougang Group. The stable outlook reflects the assessment of the local government’s strong control and support of Shougang Group and the expectation that Shougang Group’s operation will remain stable and it would remain strong linkage with Beijing Municipal People’s Government.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. The Master Facilities Agreement

3.1 Background to and reasons for entering into of the Master Facilities Agreement

On 26 March 2015, the Company and Shougang Group entered into the 2015 Master Facilities Agreement in relation to the provision by the Group of financing facilities to Shougang Group and/or its subsidiaries. As the 2018 Master Facilities Agreement was expired in June 2021. On 23 August 2021, the Company entered into the Master Facilities Agreement with Shougang Group, pursuant to which the Company has conditionally agreed to provide or procure its subsidiaries to provide the Facilities to Shougang Group and/or its subsidiaries in an aggregate principal amount of up to RMB2,000,000,000 (equivalent to approximately HK$2,410,000,000) for a term of 3 years commencing from the Master Facilities Agreement become effective.

The Company is an investment holding company and its subsidiaries are principally engaged in the provision of financial services, property leasing, supply chain management business, asset management and consultancy services. South China Leasing, an indirect non-wholly owned subsidiary of the Company, is a prominent leasing company in the PRC. As set out in the section headed “1.2 Financial Information of the Group” in this letter, sale and leaseback arrangement services was the largest business segment of the Group which accounted for approximately 92.2% and 92.2% of its total revenue for the year ended 31 December 2019 and 31 December 2020, respectively. According to the 2020 Annual Report, in 2020, in coping against the COVID-19 pandemic, the Company managed to record a year-on-year growth in both revenue and profit with its expanded base of core corporate customers in strategic industries through its industrial financial service platform. The financial leasing business to domestic conglomerates continued to grow steadily in terms of project scale. Going forward, according to the 2021 Interim Report, although the Group prioritised the development of its supply chain financial services in the steel industry through serving the upstream and downstream customers of Shougang Group, the Group will also continue to focus on the provision of financial leasing business and to promote the rapid growth of the scale of its financial service business with industrial project resources. We are advised by the Directors that the entering into of the Master Facilities Agreement is crucial and beneficial for its continuous development in the financial service business which is in line with its business strategy.

We have discussed with the management of the Company and understand that the transactions contemplated under the Master Facilities Agreement are expected to be occurred on a continuing basis in the ordinary and usual course of business of the Group. The Company have been providing or procuring its subsidiaries to provide financial services to Shougang Group and/ or its subsidiaries (including direct and/or indirect subsidiaries) from time to time during the term of the 2015 Master Facilities Agreement and the 2018 Master Facilities Agreement. It is expected that the arrangement for the Facilities will continue and the entering into of the Master Facilities Agreement is to facilitate the continued provision of facilities between Company and Shougang Group and/or its subsidiaries.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the Letter from the Board, there are notable differences in the interest rates offered by the banks in Hong Kong and those in the PRC. Set out below is a summary comparison between the Hong Kong Interbank Offered Rate (“ HIBOR ”) and the Shanghai Interbank Offer Rate (“ SHIBOR ”) for the period from 1 March 2021 to 31 August 2021:

		Interest	rate
	HIBOR	HIBOR	SHIBOR		SHIBOR
	Overnight	1 year	Overnight		1 year
Average	0.039%	0.439%		2.338%	2.964%
Maximum	0.049%	0.613%		3.282%	3.104%
Minimum	0.033%	0.349%		2.092%	2.789%

The above table demonstrates that there are significant differences between the interest rates and this represents an opportunity for the Group, as the Group is able to seek financing in Hong Kong while extending financing in the PRC so as to earn the spread. The entering into of the Master Facilities Agreement will enable the Group to earn a net interest income under the Master Facilities Agreement. The transactions contemplated under the Master Facilities Agreement will be mostly funded by bank borrowings and internal resources of the Group, and the terms will be basically on a back-to-back basis, so as to minimise the risk exposure to the Company on any fluctuations in borrowing costs. The Group adhered to a prudent risk management policy, with the finance leasing and other financial services segment continuously carrying out rigorous and regular review of credit risk over all the existing and new finance leasing clients. The Group aims at sourcing customers in the finance lease segment with sufficient assets and good creditability in order to safeguard the credit risks of the Group. Shougang Group is rich in assets and a good credit history with good repayment capability. As such, the Directors consider that the entering into the Master Facilities Agreement will enable the Group to continue to provide financing services to a trusted customer group. The Company considers that there is no material disadvantage in entering into of the Master Facilities Agreement and that the entering into of the Master Facilities Agreement is in the interest of the Company and the Shareholders as a whole.

As advised by the Directors, the Group targets large scale corporations, such as Shougang Group, as its core customer groups as it could enable the Group to earn a stable revenue stream at a considerably low risk level. Since the entering into of the 2015 Master Facilities Agreement and the 2018 Master Facilities Agreement, the Group had gradually built up its customer profile. We consider it is fair and reasonable to compare the terms of the finance lease transactions conducted by the Group with Shougang Group and independent third party customers under the same period, which represents the entire term of the 2018 Master Facilities Agreement (the “ Facilities Review Period ”). We have obtained and reviewed a summary of finance lease transactions conducted by the Group during the Facilities Review Period, we note that the Group had entered into (i) 9 finance lease transactions with Shougang Group and/or its subsidiaries, with principal amounts ranged from RMB9 million to RMB220 million; and (ii) 10 finance lease transactions with independent third party customers, with principal amounts ranged from RMB38,700 to RMB150 million. As advised by the Directors, the Group will not be exposed to high business risk under the Master Facilities Agreement given the strong background of Shougang Group. In particular, pursuant to the Master Facilities Agreement, Shougang Group will provide a guarantee in favour of the Company and/or its subsidiaries in respect of the obligations of the relevant member(s) of Shougang Group as the borrower(s) under each entrusted payment transaction or as the lessee(s) under each finance lease transaction.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above, in particular that (i) it is the principal business of the Group to provide financial services to its customers; (ii) the strong background of Shougang Group as set out in the paragraph headed “2.3 Information of Shougang Group” in this letter; (iii) Shougang Group is one of the target customer of the Group and the Group is able to earn a net interest income over the term of the Master Facilities Agreement; and (iv) the provision of the Facilities can demonstrates the capability of the Group in engaging in sizeable financial services transactions, which in turn may enable the Group to expand its businesses with targeted independent third party customers, we concur with the view of the Directors that the transactions contemplated under the Master Facilities Agreement are in the ordinary and usual course of business of the Group and that the entering of the Master Facilities Agreement is in the interests of the Company and the Shareholders as a whole.

3.2 Key terms of the Master Facilities Agreement

On 23 August 2021, the Company entered into the Master Facilities Agreement with Shougang Group, pursuant to which the Company has conditionally agreed to provide or procure its subsidiaries to provide the Facilities to Shougang Group and/or its subsidiaries in an aggregate principal amount of up to RMB2,000,000,000 (equivalent to approximately HK$2,410,000,000) for a term of 3 years commencing from the Master Facilities Agreement become effective. The duration of each transaction contemplated thereunder will be negotiated on a case-by-case basis and each of which shall expire by the end of the 3-year period from the Master Facilities Agreement becoming effective. The Facilities to be granted are non-revolving and are subject to the proposed Annual Caps.

Pursuant to the Master Facilities Agreement, the Facilities shall be provided to Shougang Group and/or its subsidiaries by way of (i) entrusted payment; and/or (ii) finance lease; and/or (iii) credit financing. The relevant parties will enter into individual agreements with respect to each of the financing arrangements under the Facilities pursuant to the Master Facilities Agreement. The key terms thereof are set out below:

Major terms of the Master Facilities Agreement

Subject matter : The Company will provide or procure its subsidiaries to provide at its discretion the Facilities to Shougang Group and/ or its subsidiaries (including direct and/or indirect subsidiaries) from time to time during the term of the Master Facilities Agreement. The Group will finance the provision of the Facilities through bank borrowing and internal resources. Term of the Master : A period of 3 years commencing from the Master Facilities Facilities Agreement Agreement becoming effective.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Principal amount of the : An aggregate principal amount of up to RMB2,000,000,000 Master Facilities (equivalent to approximately HK$2,410,000,000). Agreement

The Facilities to be granted are non-revolving in nature and are subject to the maximum amount may not be exceeded at any time during the term of the Master Facilities Agreement.

Methods of provision of Facilities
: The Facilities will be provided by the Group to Shougang Group by way of the following methods (each a “ Loan ”):
(a) entrusted payment (委託付款), in which Shougang Group as borrower will entrust the Group as lender to make payment on behalf of the borrower for procurement;
(b) finance lease, in which the Group will purchase equipment/asset items for Shougang Group and lease it to Shougang Group under a finance lease arrangement; and
(c) credit financing, in which the Group will provide credit financing facility to Shougang Group.

The relevant parties will enter into individual agreements with respect to each of the financing arrangements under the Facilities pursuant to the Master Facilities Agreement.

Term of each Loan

: The duration of each Loan will be negotiated on a case-by-case basis and each Loan will not have a term of longer than three years from the date of the relevant Loan.
Guarantee : Shougang Group will guarantee the obligations of the relevant member(s) of Shougang Group as borrower(s) under each entrusted payment or loan, or as lessee(s) under each finance lease. The relevant parties will enter into individual guarantee agreements with respect to each of the financing arrangements under the Facilities pursuant to the Master Facilities Agreement.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Conditions precedent of : The Independent Shareholders having approved the Master the Master Facilities Facilities Agreement and the transactions contemplated Agreement thereunder at a general meeting of the Company convened for approving the Master Facilities Agreement.

The Facilities will be provided by the Group to Shougang Group and/or its subsidiaries by way of the following methods (each a “ Loan ”):

(A) Major terms of the entrusted payment:

Entrusted payment : The Company and/or its subsidiaries may, at the request of the amount relevant member of the Shougang Group as borrower, at its discretion make the payment to an intended payee on behalf of the borrower for procurement of the purchased items.

The loan amount under each entrusted payment shall be equivalent to the purchase price of the purchased item, but in any event, shall not exceed the unutilised portion of the Facilities.

Purchased items

: The items to be used by Shougang Group and/or its subsidiaries in their respective ordinary course of business.

Interest rate

: The interest rate payable by the relevant borrower shall be at a rate equal to the cost of lending of the Group plus 1% to 5%, subject to not being more than 10%.
Repayment date of the entrusted payment and interest
: Unless otherwise agreed, the repayment amount under each entrusted payment, together with accrued interest, shall be at the end of the term of the relevant entrusted payment.
Handling fee
: The Group shall be entitled to charge the relevant borrower for each entrust payment a non-refundable handling fee of not more than 1.5% of the principal amount of the entrust payment. Such handling fee is negotiable on a case-by-case basis by reference the handling fee charged by other finance companies for entrusted payment of similar nature. Such fee shall be payable by the borrower at least five business days before the date of the entrust payment.

(B) Major terms of the finance lease:

Finance lease amount : The finance lease amount under each finance lease shall be the purchase price of the lease items, subject to such amount shall not exceed the unutilised portion of the Facilities.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Lease items

: The lease items will be equipment and/or properties to be used by Shougang Group and/or its subsidiaries in their ordinary course of business.
Interest rate : The interest rate payable by the relevant lessee shall be at a rate equal to the cost of lending of the Group plus 1% to 5%, subject to not being more than 10%.
Payment date of the lease : Unless otherwise agreed, payment under each finance lease and interest and the interest accrued shall be on a quarterly basis on the 21st day of March, June, September and December.
Security deposit
: The Group shall be entitled to a security deposit, the amount and payment arrangement will be determined in accordance with the circumstances of each case.
Handling fee
: The Group shall be entitled to charge the relevant lessee for each finance lease a non-refundable handling fee of not more than 3.75% of the principal amount of the finance lease. Such handling fee shall be payable on the date of the drawdown of the fund. The handling fee is charged for the services provided by the Group in assessing the feasibility of conducting the relevant finance lease transactions. The handling fees and level of security deposits are determined by the Group on a case-by-case basis and will in any event determined with reference to the overall return of each project. Such rate is adjustable depending on various factors, including the level of services as provided by the Group and the risk exposures of the finance lease transactions.
Lessee’s option to : At the end of the finance lease, the relevant lessee will have purchase the right to purchase the lease items at a nominal purchase price equal to 0.01% of the loan amount of the finance lease, which was based on the scale commonly used for end of term purchase by the lessee in the finance lease industry.

(C) Major terms of the credit financing:

Credit financing amount : The credit financing amount shall be such amount requested by the Shougang Group, subject to such amount shall not exceed the unutilised portion of the Facilities.

Interest rate : The interest rate payable by the relevant borrower shall be at a rate equal to the cost of lending of the Group plus 1% to 5%, subject to not being more than 10%.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Repayment date of the : Unless otherwise agreed, the outstanding principal of the credit financing and credit financing shall be repayable at the expiry of the term of interest the credit financing and the interest accrued shall be paid on a quarterly basis on the 21st day of March, June, September and December.
Handling fee : The Group shall be entitled to charge the relevant borrower a non-refundable handling fee of not more than 1.5% of the principal amount of the credit financing. Such handling fee is negotiated on a case-by-case basis by reference to the handling fee charged by other finance companies for credit financing of similar nature. Such fee shall be payable at least five business days before the drawdown of the credit financing.

In assessing the fairness and reasonableness of the key terms of the Master Facilities Agreement, we have considered the followings:

3.2.1 Interest rate

As set out in the Letter from the Board, the range of interest rate for entrusted payment, finance lease and credit financing to be charged on the transactions contemplated under the Master Facilities Agreement were determined after arm’s length negotiations between the parties with reference to the prevailing market rate and a reasonable margin, which will be added to the total cost of lending by the Group so as to ensure that the Group can earn a net income for providing the Facilities under the Master Facilities Agreement. Pursuant to the Master Facilities Agreement, the interest rate so charged shall be at a rate equal to the cost of lending of the Group plus 1% to 5%, subject to not being more than 10%. As discussed with the management of the Group, this term serves as a benchmark (i) of the Group which a minimum return of 1% is required for each transaction; and (ii) of Shougang Group which it would not consider transactions with interest rate over 10%.

The exact interest rate to be charged for each of the Loans is therefore not directly relevant to the cost of lending of the Group. It is determined by the Company at the relevant time after taking into account: (a) the prevailing market interest rate; and (b) the risk profile of the relevant entrusted payment or finance lease and the then business and financial conditions of the relevant member of Shougang Group being the borrower or the lessee. In assessing the risk profile of the borrower in relation to each Loan, the following factors will be considered: (i) source of funds available for repayment, including the profitability, equity position and the cash flow condition of the borrower/lessee; (ii) the valuations of the lease items as set out above when they are being sold in secondary markets to discharge the debt of the borrower/lessee; (iii) the risk level of the relevant industry of the borrower during the term of the entrusted payment or the relevant industry of the lessee during the term of the finance lease; (iv) the risk and return analysis of other financing projects between the Company and/or its subsidiary and other independent third party borrowers with similar background; and (v) the general market conditions that will be faced by Shougang Group. As a general practice, the Group may agree on a relatively lower interest rate for a

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transaction in the event that, among others, security or pledge is offered by the customers as the credit risk associated to this transaction is lower. The Group will ensure that the interest rate charged on the loans will not be more favourable than the interest rate granted to independent third party customers based on the analysis of items (i) to (v) above.

As advised by the Directors, the Group has adopted, and will continue to adopt, policy and internal control mechanism on risk and return for project evaluation which applied to all financing transactions under the 2018 Master Facilities Agreement and the Master Facilities Agreement. The Group adopts similar assessment and approval processes in accepting transactions regardless of the mode of financing under the Master Facilities Agreement (i.e. entrusted payment, finance lease, or credit financing). We have obtained and reviewed the Group’s policy and its internal control measures on project evaluation. Such policy and/or internal control mechanism includes (i) the assessment of risk profile of the borrower to be conducted by the risk management department and (ii) the review by the legal department and the risk management committee of the Group which is comprised of its senior management. In evaluating projects, factors to be considered includes, but not limited to, the borrower’s and/or guarantor’s financial position, the industry prospect for which the borrower and/or guarantor operating, valuation of the lease assets, repayment term and return. We are given to understand that the Group’s policy and internal control mechanism has been further strengthened. Going forward, in determining the interest rate to be charged, the Group will approach at least three banks to seek for specific bank loan for the relevant project to determine the cost of the fund to the Group. The Group would then evaluate the credit risk of the borrower and/or lessee by reviewing its financial position and its ability to repay the Loan, and any assets or guarantee that may be provided as security. A margin would then be added based on the overall risk profile and collaterals that may be secured in respect of the Loan. In addition, the Group would evaluate if it has idle funds at the time. In such event, the Group would further evaluate the deposit rate for the idle fund and the lending rate that it could secure based on the risk profile and collaterals that may be secured in respect of the Loan. Based on the above, we concur with the view of the Directors that there are adequate internal control procedures in place to ensure that the actual interest rate to be charged will be in accordance with the Group’s pricing policy.

(a) Entrusted payment

As advised by the Directors, no entrusted payment transaction was conducted by the Group during the Facilities Review Period. We therefore do not have any references for comparison purpose in assessing the fairness and reasonableness on the interest rate chargeable on the entrusted payment transactions under the Master Facilities Agreement Alternatively, we compare the interest rate chargeable to Shougang Group based on the terms of the Master Facilities Agreement against certain entrusted payment transactions conducted by companies listed on the Stock Exchange in evaluating whether the interest rate to be changed would be on normal commercial terms or better.

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We have obtained and reviewed a summary of financing obtained by the Group during the Facilities Review Period. We noted that the effective interest rate on the Group’s bank borrowings obtained for the purpose to finance the transactions contemplated under the 2018 Master Facilities Agreement ranged from 3.38% to 5.00%. Pursuant to the Master Facilities Agreement, the interest rate shall be at a rate equal to the cost of lending of the Group plus 1% to 5%, subject to not being more than 10%. For illustrative purpose, the interest rate chargeable on the entrusted payment transactions to Shougang Group and/or its subsidiaries would range from 4.38% to 10% pursuant to the Master Facilities Agreement.

On the other hand, we have conducted an independent research from the website of the Stock Exchange (“ Entrusted Payment Analysis ”) during the Facilities Review Period with an aim to locate the practice of listed companies on conducting entrusted payment transactions. On this basis, to the best of our knowledge and as far as we are aware of, we identified 28 entrusted payment transactions (“ Entrusted Payment Comparables ”) which were announced by companies listed on the Stock Exchange (12 transactions of which were with third parties while 16 transactions were with connected persons. We consider the selection basis is fair and representative to compare the interest rate chargeable on the entrusted payment transactions. Based on the Entrusted Payment Analysis, we note that the interest rate of the Entrusted Payment Comparables were either at a fixed rate or at rates referencing to the People’s Bank of China (“ PBOC ”)). Applying the relevant rate of the PBOC as at the date of the Master Facilities Agreement, the interest rate of the Entrusted Payment Comparables ranged from approximately 3.5% to 15%. The illustrative interest rate chargeable on the entrusted payment transactions to Shougang Group and/or its subsidiaries is within the range of the Entrusted Payment Comparables. We are therefore of the view that the interest rate on entrusted payment transactions chargeable under the Master Facilities Agreement are no less favourable than terms available to independent third party customers.

In addition, we note that the Group has adopted policy and internal control mechanism on risk and return for project evaluation, among others, (1) the business department and the risk management department of the Group will conduct risk and return analysis and compare with other potential financing projects between the Group and independent third party available at the time; (2) the internal audit department of the Company will review the transactions with Shougang Group and/or its subsidiaries on a periodic basis to ensure that (i) the transactions are conducted in accordance with the terms of the Master Facilities Agreement, (ii) the pricing terms are in accordance with the pricing policy of the Master Facilities Agreement and the policy of the Group, and (iii) the annual caps have not been exceeded; and (3) the Master Facilities Agreement is subject to the review by the independent non-executive Directors on an annual basis, who will confirm in the annual report whether the transactions have been entered into (i) in the ordinary and usual course of business of the Group, (ii) on normal commercial terms or better, and (iii) according to the Master Facilities Agreement on terms that are fair and reasonable and in the interests of the Shareholders as a whole, which applied to all financing transactions,

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to ensure the interest rate chargeable on the entrusted payment transactions are on normal commercial terms and will not deviate from market practice. In this circumstance, we are of the view that the Group has implemented appropriate internal measures to ensure the interest rate chargeable to the Shougang Group and/or its subsidiaries under the Master Facilities Agreement to be on normal commercial terms or better.

(b) Finance lease

In assessing the fairness and reasonableness on the interest rate chargeable on the finance lease transactions under the Master Facilities Agreement and the effectiveness of the internal control mechanism of the Group, we have reviewed the terms of all finance lease transactions conducted by the Group during the Facilities Review Period.

During the Facilities Review Period, we note that the Group has conducted a total of 19 finance lease transactions, in which, (a) 2 finance lease transactions on equipment leasing, 3 finance lease transactions on construction material leasing and 5 finance lease transactions on mobile phones and home furnitures leasing to independent third party customers; and (b) 5 finance lease transactions on equipment leasing, 1 finance lease transaction on construction material leasing and 3 finance lease transactions on commercial property leasing to Shougang Group and/or its subsidiaries.

For direct comparison purpose, we selected samples of transactions which were of equipment leasing. We note that (a) 5 finance lease transactions has been entered into with Shougang Group and the relevant interest rate ranged from 5.00% to 5.52%; and (b) 2 finance lease transactions has been entered into with one independent third party customer and the relevant interest rate were 5.46%. It is noted that the interest rates so charged to Shougang Group did not materially deviated from (i.e. ±10%) those charged to independent third party customers. It is also noted that interest rate of certain transaction with Shougang Group (i.e. 5.52%) was higher than that of third party customers.

We are given to understand that security deposit and term of each Loan were factors which may affect the interest rate granted to its customers as the credit risks for transactions with security deposits are generally lower. We note that 3 out of 5 finance lease transactions with Shougang Group were charged with security deposits, the Group therefore agreed on a lower interest rate of 5.00% to be granted to the 2 finance lease transactions with terms of 24 months given the relatively lower credit risks. For another finance lease transaction with a term of 36 months, a relatively higher interest rate of 5.52% was granted.

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For finance lease transactions of no security deposit, we note that (a) 2 out of 5 finance lease transactions with Shougang Group were not charged with security deposit and the relevant interest rate granted were 5.35%, and (b) 2 out of 2 finance lease transactions with Shougang Group were not charged with security deposit and the interest rate granted were 5.46%. As advised by the management of the Company, the transactions with one independent third party were charged with relatively higher interest rates as the total principal amount of the loans (i.e. RMB300 million) was relatively high as compared to the other finance lease transactions entered into with Shougang Group and/or its subsidiaries (i.e. RMB9 million). As such, after considering the risks of the Group, a relatively higher interest rate was charged to that particular independent third party customer.

Having considered the above, and in particular that (i) the interest rates so charged to Shougang Group did not materially deviated from (i.e. ±10%) and thus comparable with those charged to third party customers; (ii) the interest rate for certain transaction with Shougang Group was higher than those of third party customers; (iii) the transactions with Shougang Group which had interest rates at low end of 5% were with security deposits; and (iv) the relatively higher interest rate for transactions with third party customers was due to relatively higher risk and cost profile, we are of the view that the interest rate on finance lease transactions chargeable under the 2018 Master Facilities Agreement are no less favourable than those as offered to the Group’s independent third party customer.

(c) Credit financing

As advised by the Directors, no credit financing transaction was conducted by the Group during the Facilities Review Period. We therefore do not have any references for comparison purpose in assessing the fairness and reasonableness on the interest rate chargeable on the credit financing transactions under the Master Facilities Agreement. Alternatively, we compare the interest rate chargeable to Shougang Group based on the terms of the Master Facilities Agreement against the general borrowing costs of Shougang Group in evaluating whether the interest rate to be changed would be on normal commercial terms or better.

We have obtained and reviewed a summary of financing obtained by the Group during the Facilities Review Period. We noted that the effective interest rate on the Group’s bank borrowings obtained for the purpose to finance the transactions contemplated under the 2018 Master Facilities Agreement ranged from 3.38% to 5.00%. Pursuant to the Master Facilities Agreement, the interest rate shall be at a rate equal to the cost of lending of the Group plus 1% to 5%, subject to not being more than 10%. For illustrative purpose, the interest rate chargeable on the credit financing transactions to Shougang Group and/or its subsidiaries would range from 4.38% to 10% pursuant to the Master Facilities Agreement.

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On the other hand, we have obtained and reviewed the 《首鋼集團有限公司 2021年度第四期超短期融資券募集說明書》 (Prospectus in relation to the issuance of 2021 forth phrase super short term commercial paper of the Shougang Group) (the “ Prospectus ”). As disclosed in the Prospectus, we noted that as at 31 December 2019, (i) the interest rate on outstanding bank borrowings of Shougang Group ranged from 3.35% to 4.75% and (ii) the interest rate on outstanding perpetual bonds of Shougang Group ranged from 3.35% to 4.50%. We have also obtained and reviewed the 2019 Offering Circular. We note from the 2019 Offering Circular that the average interest rate of Shougang Group’s indebtedness was approximately 4.8% for the year ended 31 December 2018. The illustrative chargeable on the credit financing transactions to Shougang Group and/or its subsidiaries of 4.38% to 10% is comparable to or higher than Shougang Group’s cost of borrowings. We are therefore of the view that the interest rate on credit financing transactions chargeable under the Master Facilities Agreement would be on normal commercial term or better.

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Having considered that (i) the interest rate to be chargeable on the entrusted payment transactions to Shougang Group and/or its subsidiaries are within the range of the Entrusted Payment Comparables; (ii) the terms of finance lease transactions with Shougang Group and/or its subsidiaries were comparable with those of other independent third party customers; (iii) the interest rate to be chargeable on the credit financing transactions to Shougang Group and/or its subsidiaries are comparable to or higher than the general borrowing costs of Shougang Group; (iv) the actual interest rate charged by the Group were in accordance with the Group’s pricing policy and internal control mechanism; and (v) there are adequate internal control policies to be taken place by the Group to determine the interest rate to be offered to each transaction contemplated under the Master Facilities Agreement;, we concur with the view of the Directors that the interest rate to be charged under the Master Facilities Agreement are no less favourable than terms available to independent third party customers, and are fair and reasonable so far as the Independent Shareholders are concerned.

3.2.2 Handling fees

We are given to understand from the Directors that handling fees are common terms for entrusted payment, finance lease and credit financing transactions charged by the Group. The handling fee is charged for the services provided by the Group in assessing the feasibility of conducting the relevant transactions. As advised by the Directors, the handling fees are determined by the Group on a case-by-case basis and will in any event with reference to the overall return of each project. Pursuant to the Master Facilities Agreement, the handling fees to be charged by the Group will be not more than 1.5% for entrusted payment transactions and credit financing transactions, and not more than 3.75% for finance lease transactions. Pursuant to the Master Facilities Agreement, the Group shall entitled to a security deposit for finance lease transactions, to be determined in accordance with the circumstances of each case. The handling fees and securities deposits are adjustable depending on various factors, including the level of services as provided by the Group and the risk exposures of the finance lease transactions.

(a) Entrusted payment

Pursuant to the Master Facilities Agreement, the handling fees to be charged by the Group will be not more than 1.5% for entrusted payment transactions.

As advised by the Directors, no entrusted payment nor credit financing transaction was conducted by the Group during the Facilities Review Period. We therefore do not have any references for comparison purpose in assessing the fairness and reasonableness on the handling fee chargeable on entrusted payment transactions. Alternatively, we compare the interest rate chargeable to Shougang Group based on the terms of the Master Facilities Agreement against certain entrusted payment transactions conducted by companies listed on the Stock Exchange in evaluating whether the interest rate to be charged would be on normal commercial terms or better.

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We have conducted the Entrusted Payment Analysis, details of which are set out in paragraph 3.1.2(a) of this letter. Based on the 28 Entrusted Payment Comparables we identified, we noted that the handling fee of the Entrusted Payment Comparables ranged from nil to 0.3%. The handling fee to be charged by the Group of not more than 1.5% for entrusted payment transactions under the Master Facilities Agreement is therefore comparable to or higher than those of the Entrusted Payment Comparables. Based on the above, we are of the view that the handling fees to be chargeable by the Group of not more than 1.5% are on normal commercial terms or better.

(b) Finance lease

Pursuant to the Master Facilities Agreement, the handling fees to be charged by the Group will be not more than 3.75% for finance lease transactions. In assessing the fairness and reasonableness of the handling fee chargeable on finance lease transactions, we have reviewed the handling fees and security deposits as charged on the finance lease transactions conducted by the Group to independent third party customers and Shougang Group and/or its subsidiaries as conducted under the 2018 Master Facilities Agreement during the Facilities Review Period. We note that the handling fee for finance lease transactions were charged at a rate ranged from (i) nil to 3.75% to independent third party customers; and (ii) 0.62% to 1.50% to Shougang Group and/or its subsidiaries, and no security deposit was charged to independent third party customers. We are given to understand that during the Facilities Review Period, the Group entered into two finance lease transactions with one independent third party customer with relatively high handling fee of 3.75%. As advised by the management of the Company, the two finance lease transactions were entered into with one independent third party customer within the same month and the total loan amount was relatively high as compared to the other finance lease transactions entered into with Shougang Group and/or its subsidiaries. As such, a relatively high handling fee was charged. Excluding these two finance lease transactions, the handling fee charged to third party customers ranged from nil to 2.32%, and majority of the handling fee charged was not more than 1.5%. We therefore consider that the handling fee charged to Shougang Group and/or its subsidiaries is comparable to that of the independent third party customers.

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Pursuant to the Master Facilities Agreement, the handling fees to be charged by the Group will be not more than 1.5% for credit financing transactions.

As advised by the Directors, no credit financing transaction was conducted by the Group during the Facilities Review Period. We therefore do not have any references for comparison purpose in assessing the fairness and reasonableness on the handling fee chargeable on credit financing transactions. Alternatively, we compare the handling fee chargeable to Shougang Group based on the terms of the Master Facilities Agreement against the handling fee charged to the Group from third party commercial banks in evaluating whether the interest rate to be changed would be on normal commercial terms or better.

We have obtained and reviewed the summary of financing obtained by the Group during the Facilities Review Period and noted that the handling fee on the Group’s bank borrowings obtained for the purpose to finance the transactions contemplated under the 2018 Master Facilities Agreement ranged from nil to 1.24%. The handling fee to be charged by the Group of not more than 1.5% for credit financing transactions under the Master Facilities Agreement is therefore comparable to or higher than those of the Group’s bank borrowings. Accordingly, we are of the view that the handling fees chargeable to the Shougang Group and/or its subsidiaries of not more than 1.5% are on normal commercial terms or better.

Having considered that the handling fees chargeable under the Master Facilities Agreement are in line with the Group’s normal practice and the rates of which are within the range as normally offered to other independent third party customers and/or the market practice, we therefore concur with the view of the Directors that the handling fees and security deposits charged under the Master Facilities Agreement are on normal commercial terms or better and are fair and reasonable so far as the Independent Shareholders are concerned.

3.2.3 Lessee’s option to purchase

Pursuant to the Master Facilities Agreement, at the end of the finance lease, the relevant lessee will have the right to purchase the lease items at a nominal purchase price equal to 0.01% of the loan amount of the finance lease, which was based on the scale commonly used for end of term purchase by the lessee in the finance lease industry.

We have reviewed the nominal purchase price of the finance lease charged by the Group to independent third party customers and those to Shougang Group and/or its subsidiaries as conducted under the 2018 Master Facilities Agreement during the Facilities Review Period. We note that the nominal purchase price of the finance lease was charged at (i) a rate ranged from 0.00003% to 0.01% of the loan amount of the finance lease to independent third party customers; and (ii) a rate of 0.01% of the loan amount of the finance lease to Shougang Group and/or its subsidiaries.

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Having considered that the nominal purchase price of the finance lease conducted under the Master Facilities Agreement are within the range as normally offered to other independent third party customers, we therefore concur with the view of the Directors that the nominal purchase price of the finance lease under the Master Facilities Agreement are no less favourable than those as offered to the Group’s independent third party customers, and are fair and reasonable so far as the Independent Shareholders are concerned.

3.2.4 Guarantee

Pursuant to the Master Facilities Agreement, Shougang Group will provide a guarantee in favour of the Company and/or its subsidiaries in respect of the obligations of the relevant member(s) of Shougang Group as the borrower(s) under each entrusted payment or loan, or as the lessee(s) under each finance lease. The relevant parties will enter into individual guarantee agreements with respect to each of the financing arrangements under the Facilities pursuant to the Master Facilities Agreement.

As set out in the paragraph headed “2.3 Information of Shougang Group” in this letter, Shougang Group is one of the largest steel production enterprises in the PRC. The total assets and net assets of Shougang Group as at 31 December 2018 amounted to approximately RMB501.7 billion and RMB137.0 billion, respectively. In addition, according to the 2019 Offering Circular, Fitch has assigned a corporate rating of “A-” with a stable outlook to Shougang Group, reflects the assessment of the local government’s strong control and support of Shougang Group and the expectation that Shougang Group’s operation will remain stable and it would remain strong linkage with Beijing Municipal People’s Government.

As advised by the Directors, the guarantee provided under Shougang Group is relatively sizable as compared to the corporate guarantees and/or personal guarantees from independent third party customers, as such the Directors believed that the guarantees provided by Shougang Group would lower the credit risk exposed by the Group on transactions to be conducted under the Master Facilities Agreement.

Having considered, (i) the strong background of Shougang Group as set out in the paragraph headed “2.3 Information of Shougang Group” in this letter; and (ii) the background of Shougang Group in providing the guarantee, we concur with the view of the Directors that adequate guarantee has been sought to secure the interests of the Group under the Master Facilities Agreement.

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3.2.5 Annual caps

Set out below is the actual amount of the facilities used by Shougang Group and/or its subsidiaries for the three years ended 31 December 2020 and the six months ended 30 June 2021:

				For the
				six months
	For the year ended			ended
		31 December		30 June
	2018	2019	2020	2021
	RMB’million	RMB’million	RMB’million	RMB’million
Approved amount of
the facilities	5,000	5,000	5,000	5,000
Actual amount of
facilities used	60	830	939	959
Annual Cap	1,500	1,500	1,500	1,500
Outstanding balance as
at each balance sheet
date	584	876	581	533

Note: The approved amount is the principal amount of the Facilities, whilst the annual cap would include interest and handling fees to be charged.

The Master Facilities Agreement has a term of three years and the duration for each Loan under the Master Facilities Agreement shall not exceed three years from the date of the relevant Loan.

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The Annual Caps of the Facilities, on the basis of the principal amount of the Facilities, interest, and handling fees thereon, for each of the financial years ending 31 December 2021 to 31 December 2027 shall be RMB2,264,000,000 each year, taken into account of the expected level of financing required by Shougang Group and its subsidiaries based on the published public information on Shougang Group, and the amount of financing that the Group is expected to be able to secure to finance the Facilities for each relevant year. The breakdown of the proposed Annual Cap for each of the segments under the Facilities for each of the financial years ending 31 December 2021 to 2027 is as follows:

Type of transaction Entrusted payment Finance lease Credit financing Total	Annual cap RMB223 million RMB1,706 million RMB335 million
	RMB2,264 million

According to the Letter from the Board, the annual caps were determined based on the expected level of financing required by Shougang Group and the amount of financing that the Group is expected to be able to secure for financing the Facilities.

According to the 2019 Offering Circular, Shougang Group is a capital intensive company with total assets and net assets amounted to approximately RMB501.7 billion and RMB137.0 billion as at 31 December 2018, respectively. We note that the principal amount of the Facilities of RMB2 billion and the proposed Annual Caps of RMB2,264 million only represents approximately 1.1% and 1.2% of the carrying value of the fixed assets of Shougang Group of RMB187.3 billion as at 31 December 2018, respectively. The transaction size under the Master Facilities Agreement is hence not significant and the Directors believe that the Group is able to conduct more finance lease transactions with Shougang Group and/or its subsidiaries at scaleable sizes in future.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In order to assess the fairness and reasonableness of the Facilities and the proposed Annual Caps, we have considered the followings:

(i) the historical transaction amounts

The historical aggregate principal amount of the facilities used by Shougang Group were approximately RMB60 million, RMB830 million, RMB939 million and RMB959 million for the years ended 31 December 2018, 2019 and 31 December 2020 and the six months ended 30 June 2021, respectively. As advised by the Directors, the increase in historical aggregate principal amount along the years was mainly due to the new finance lease transactions being conducted.

Of the facilities used under the 2018 Master Facilities Agreement, they were all related to finance leases for certain commercial properties, construction machinery and equipment. The low historical transaction amounts as compared to the annual caps set under the 2018 Master Facilities Agreement and the 2015 Master Facilities Agreement were due to (i) the parties not being able to conclude on certain commercial terms of the individual Loans, including the failure by the parties to agree on the payment terms, (ii) the fluctuation in interests rate and (iii) availability of fund in the market, which resulted in the lower than expected utilisation of the facilities under the 2018 Master Facilities Agreement and the 2015 Master Facilities Agreement. As such, whilst the maximum amount of facilities under the 2018 Master Facilities Agreement has already been downward adjusted to RMB5,000,000,000 from that of RMB8,000,000,000 under the 2015 Master Facilities Agreement, the maximum amount of the Facilities under the Master Facilities Agreement has been further adjusted to RMB2,264,000,000 and is lower than that under the 2018 Master Facilities Agreement.

The historical outstanding balance of the facilities owed by Shougang Group were approximately RMB584 million, RMB876 million, RMB581 million and RMB553 million as at 31 December 2018, 31 December 2019, 31 December 2020 and 30 June 2021, respectively. The general slight decrease in historical outstanding balances over the three years ended 31 December 2020 and for the six months ended 30 June 2021 date was mainly due to the receipt of the finance lease receivables according to the terms of each finance lease transaction.

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(ii) the projected volume of the Facilities to be provided

As advised by the Directors, the Group believes that the financing needs of the Shougang Group would increase for the three years ending 31 December 2024. In considering the future financing needs of the Shougang Group, we have obtained and reviewed the 2019 Offering Circular, we are given to understand that:

(a) Shougang Group is the second largest iron and steel enterprise in China in terms of total assets as at 31 December 2018 according to the Iron and Steel Association of China;
(b) according to the 2019 Offering Circular, there was a global trend in the control of steel production capacity coupled with a slight recovery in demand in 2018. As a result, the steel industry began to show positive signs of recovery, mainly through the rebound in steel prices. In this regard, it is expected that the steel and iron industry in the PRC will continue to grow in the near future;
(c) according to the 2019 Offering Circular, Shougang Group will continue to explore and strengthen the synergies among different business divisions to increase its overall operating efficiency and profitability. Shougang Group believes that its diversified business portfolio and its unique position in implementing the “Beijing-Tianjin-Hebei Collaborative Development Initiative” and the outlines of the “BeijingTianjin-Hebei Collaborative Development Plan” will give it the opportunities to explore synergies between different business divisions, such as iron and steel production, industrial park construction and financial services. Shougang Group believes that such synergies will help maximise the value of its business portfolio, to enhance its risk resistibility and to improve its overall competitiveness;
(d) according to the 2019 Offering Circular, Shougang Group will continue to (i) expand its overseas business, including steel export, cooperation with foreign reputable corporations for establishment of offshore sales network and international engineering business development and; (ii) gain access to overseas resources through procurement of ore resources, as well as offshore financing and capital operations; and
(e) according to the 2019 Offering Circular, Shougang Group relies on external financing to satisfy a portion of its capital requirements and it believes that it will continue to require substantial capital resources to fund its business operations and expansion. As at 31 December 2018, the long-term and short-term bank loans of Shougang Group amounted to approximately RMB142.2 billion.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

From the 2019 Offering Circular, we note that the principal amount of the Facilities of RMB2 billion and the proposed Annual Caps of RMB2 billion only represents approximately 1.4% of Shougang Group’s long-term and short-term bank loans of RMB142.2 billion as at 31 December 2018. Moreover, we have discussed with the management of the Company and note that there are six potential finance lease transactions with a total amount of approximately RMB1.2 billion under ongoing negotiation with Shougang Group and/or its subsidiaries as at the Latest Practicable Date. It is also expected that the Group will continue to have new finance lease transactions with Shougang Group during the term of the Master Facilities Agreement. As such, based on the current discussions between the Company and Shougang Group on the potential finance lease transactions as mentioned, we concur with the view of the Directors that the funding needs of Shougang Group and/or its subsidiaries is expected to increase.

Based on the above, in particular (i) the recent and future business strategies of Shougang Group as set out in the 2019 Offering Circular; (ii) the well-established business relationship with the Shougang Group and/or its subsidiaries; and (iii) the ongoing negotiation of potential finance lease transactions between the Company and Shougang Group and/or its subsidiaries, we consider it is justifiable to determine the amount of the Annual Caps on the basis that the financing needs of Shougang Group would increase for the three years ending 31 December 2024.

(iii) the capability of the Group to raise the necessary fund

As set out in the section headed “3. Background to and reasons for the entering into of the Master Facilities Agreement” in this letter, since the entering into of the 2015 Master Facilities Agreement and the 2018 Master Facilities Agreement, the Group had gradually built up its customer profile. During the Facilities Review Period, the Group had entered into (i) 9 finance lease transactions with the subsidiaries and/or associates of Shougang Group, of principal amount ranged from RMB9 million to RMB220 million; and (ii) 10 finance lease transactions with independent third party customers, of principal amount ranged from RMB38,700 to RMB150 million. The total principal amount of the finance lease transactions entered by the Group during Facilities Review Period amounted to approximately RMB1.6 billion. It demonstrated the capabilities of the Group to provide large scale financing services.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As set out in the Letter from the Board, the transactions contemplated under the Master Facilities Agreement will be mostly funded by bank borrowings and internal resources, and the terms will be on a back-to-back basis. We are given to understand that prior to the finalisation of each project, the Group would assess the availability of internal resources and approach the banks for financing of each project, in order to ensure there are sufficient funds for the transaction. Having considered that the total principal amount of the finance lease transactions entered by the Group during Facilities Review Period amounted to approximately RMB1.6 billion, we concur with the view of the Directors that the Group has the capability to raise sufficient funds for the transactions contemplated under the Master Facilities Agreement up to the level of the approved amount of the Facilities.

Having considered (i) the basis of determination of the Facilities and the proposed annual caps; (ii) the potential demand on finance lease of Shougang Group based on its capital intensive nature, huge historical funding raised from external borrowings; (iii) the capability of the Group to raise the necessary funds to finance the operation; (iv) and the strong background of Shougang Group as set out in the paragraph headed “2.3 Information of Shougang Group” in this letter; and (v) the reasons as set out in the paragraph headed “3.1 Background to and reasons for the entering into of the Master Facilities Agreement” in this letter, we are of the view that the proposed Annual Caps in respect of the Master Facilities Agreement are reasonably determined and are fair and reasonable so far as the Independent Shareholders are concerned.

3.2.6 Term

The term of the Master Facilities Agreement is for a period of 3 years commencing from the date of the relevant Loan. Such that the duration of each Loan will be negotiated on a case-by-case basis and each Loan shall expire within the 3-year period from the date of the relevant loan document. In other words, pursuant to the Master Facilities Agreement, the Company and/or its subsidiaries may enter into loan document with Shougang Group and/or its subsidiaries during the 3 years period from 2021 to 2024 and the Loans would expire by 2027 the latest.

We note that the finance lease transactions entered into between the Group and independent third party customers during the past two years up to the date of the Master Facilities Agreement ranges from 27 to 36 months, and most commonly set for a period of 36 months. The term of each Loan offered under the Master Facilities Agreement, being not exceeding 3 years from the date of the relevant loan document, is therefore in line with the Group’s normal practice.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have also reviewed the announcements of the finance lease transactions as announced by companies listed on the Stock Exchange, published from 26 May 2021 (being three months prior to the date of the Master Facilities Agreement) up to the date of the Master Facilities Agreement (the “ Comparables Review Period ”). As we have, on a best-effort basis, identified a total of 65 finance lease transactions announcements during the Comparables Review Period, we consider the selection period is fair and representative to compare the terms of the finance lease transactions. We have reviewed the terms of each of the finance lease transactions, including but not limited to the lease period, and note that the relevant lease period ranges from 1 year to 15 years, and 21 out of 65 finance lease transactions were set for a period of 3 years. This demonstrates that it is not uncommon for finance lease transactions having terms of 3 years or more.

Pursuant to the Master Facilities Agreement, the term of the Master Facilities Agreement is for a fixed term of 3 years and the duration for each Loan under the Master Facilities Agreement shall not exceed 3 years from the date of the relevant Loan Documents. As such, the Annual Caps of the Master Facilities Agreement will be for a maximum period of 6 years from the date of the Master Facilities Agreement.

Having considered (i) the term of each Loan of 3 years is in line with the Group’s normal practice; (ii) it is of market practices for finance lease transactions having terms of 3 years or more, we consider that it is normal business practice for agreements of similar type with the Master Facilities Agreement to have such duration.

3.3 Financial effects of the transactions contemplated under the Master Facilities Agreement

(i) Effect on earnings

The Directors consider that the entering into the Master Facilities Agreement will enable the Group to earn a net income. As (i) the interest rate to be charged on each of the Loans under the Master Facilities Agreement would be at a rate equal to the cost of lending of the Company and/or its subsidiaries plus 1% to 5%, subject to not being more than 10%; and (ii) the Group shall be entitled to charge the relevant lessee for each finance lease under the Master Facilities Agreement a non-refundable handling fee of not more than 1.5% (in the case of entrusted payment and credit financing) or 3.75% (in the case of finance lease) of the principal amount of the Loan, the Group is able to earn a net income over the term of the Master Facilities Agreement. As such, the Directors consider that the entering into the Master Facilities Agreement will have positive impact on the earnings of the Group in a long run.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. The Master Purchase Agreement

4.1 Background to and reasons for entering into of the Master Purchase Agreement

The Company is an investment holding company and its subsidiaries are principally engaged in the provision of financial services, property leasing services, supply chain management business, asset management and consultancy services. Beijing Jingxi Supply Chain, is an indirect wholly-owned subsidiary of the Company and is principally engaged in the supply chain management business. As set out in the section headed “1.2 Financial Information of the Group” in this letter, the Group commenced its supply chain management services in 2019. The supply chain management services segment mainly provide services including (i) the analysis of the capital flow, information flow, business flow, logistics, etc. of the industrial chain where the target companies are located; and (ii) solved customers’ capital and management needs with the most convenient and diversified products, so as to reduce the transaction cost of the industrial chain and empower the industry. During the six months ended 30 June 2021, the Group extended its supply chain management business to trading of steel related products which was a new revenue stream to the Group. The supply chain management business became the largest business segment of the Group which accounted for approximately 96.0% of its total revenue for the six months ended 30 June 2021. Revenue from the commencement of business covering full-process services including steel product trading and logistics under the supply chain management business segment recorded a significant increase by approximately HK$1.07 billion for the six months ended 30 June 2021.

As set out in the Letter from the Board, the entering into of the Master Purchase Agreement would help Beijing Jingxi Supply Chain to gain a stable supply of steel products for trading purpose, thereby providing it with an opportunity to generate income and trading profits. As the Master Purchase Agreement is being entered into in the usual and ordinary course of business of the Group and the terms have been negotiated on an arm’s length basis and on normal commercial terms, with the purchase price of the products being based on prevailing market price of the same or substantially similar products offered by independent third parties, the Directors (including the independent non-executive Directors but excluding the interested Directors) consider that the transactions under the Master Purchase Agreement and the proposed annual caps thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the 2020 Annual Report, the Group attaches great emphasis on the long-term and stable strategic cooperation and partnerships with good-quality intermediaries and suppliers, thereby developing together on the basis of equality and mutual benefit. On 21 July 2020, Beijing Jingxi Supply Chain entered into a cooperation agreement with Suzhou Shougang Steel Processing Assembly Co., Ltd. (“ Suzhou Shougang Steel ”), a company wholly owned by Beijing Shougang, pursuant to which Beijing Jingxi Supply Chain agrees to purchase steel related products from Suzhou Shougang Steel for a term of 1 year (the “ Cooperation Agreement ”). As advised by the Directors, the steel related products to be purchased from Suzhou Shougang Steel is one of the types of steel products to be purchased from Beijing Shougang under the Master Purchase Agreement. However, the Cooperation Agreement did not materialise as additional time was required to comply with the regulatory requirements, which seriously disrupted the supply plan of the steel related products to the end-customers.

As advised by the Directors, the steel products to be purchased from Beijing Shougang under the Master Purchase Agreement are specific types of steel products which can only be sourced from sizable steel production enterprises. As such, the Directors consider that the entering of the Master Purchase Agreement would help Beijing Jingxi Supply Chain to gain a stable supply in respect to quantity and quality of steel products for trading purpose, thereby providing it with an opportunity to generate more income and trading profits.

According to the 2021 Interim Report, the Company prioritised the development of its supply chain financial services in the steel industry serving the upstream and downstream customers of Shougang Group, and centred around core enterprises in the industry to expand supply chain management and financial service business. Focusing on the two groups of target core enterprises namely steel companies and domestic conglomerates as well as their upstream and downstream customers, after thorough analysis and research, the Group seized market opportunities and continued to optimise product mix. We have discussed with the management of the Company and noted that the Company has gradually built up its customer base since the commencement of its supply chain management business. During the six months ended 30 June 2021, the customers in the trading of steel related products of the supply chain management business segment mainly consisted of domestic conglomerates principally engaged in the construction industry and steel products distributors.

Based on the above, in particular that (i) it is the principal business of the Group to provide supply chain management business to its customers; (ii) the strong background of Shougang Group as set out in the paragraph headed “2. Background information of Beijing Jingxi Supply Chain, Beijing Shougang and Shougang Group” in this letter; and (iii) Beijing Jingxi Supply Chain will be able to gain a stable supply of steel products for trading purpose over the term of the Master Purchase Agreement, we concur with the view of the Directors that the transactions contemplated under the Master Purchase Agreement are in the ordinary and usual course of business of the Group and that the entering of the Master Purchase Agreement is in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.2 Key terms of the Master Purchase Agreement

Date : 23 August 2021 Parties : (1) Beijing Jingxi Supply Chain; and (2) Beijing Shougang
Subject matter : Beijing Jingxi Supply Chain will purchase steel products from Beijing Shougang for trading purpose.
Term : Three financial years commencing from the effective date of the Master Purchase Agreement and ending on 31 December 2023.
Pricing : The price of the products supplied by the supplier to the Group will be based on the quoted price for the products to be supplied. Such quoted price will be determined based on arm’s length negotiations between the parties and on normal commercial terms on a quarterly basis with reference to:
(i) the prevailing market price for the same or substantially similar products, taking into account the price of the same or substantially similar products with comparable order quantities and quality offered by independent third party suppliers;
(ii) if there are insufficient comparable transactions to (i) above, on normal commercial terms comparable to those received from independent third parties in respect of the same or substantially similar products with comparable quantities and quality; and
(iii) if both (i) and (ii) above are not applicable, by reference to the average price of similar products previously purchased by the Group, and on normal commercial terms which are no less favourable to the Group than that are available from independent third parties.

Payment for the products under the Master Purchase Agreement will be made at the time of placement of the order for the products.

We have reviewed the Master Purchase Agreement and have discussed with the management of the Company on the major terms therein. In assessing the fairness and reasonableness of the key terms of the Master Purchase Agreement, we have considered the followings:

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.2.1 Pricing of the products

As set out in the Letter from the Board, in determining the prices for the products, the Group will obtain information of the transaction prices of similar products in the market by making reference to the websites of major players in the industry or industry associations (including but not limited to China Iron and Steel Association (中國鋼鐵工業協會) http://www.chinaisa.org.cn, Zhong Gang Wang (中鋼網) http://baojia.steelcn.cn and My Steel (我的鋼鐵網) www.mysteel.com) conducting researches on industry websites and enquiry with industry players to determine the reference prices. Then, Beijing Jingxi Supply Chain will obtain quotation from major players in China Iron and Steel Association which will then be compared against the prices quoted by the Supplier to ensure that prices and terms for the products being offered will be no less favourable to the Company than that available from independent suppliers. The aforesaid websites can be obtained on a daily basis and the prices of steel products are highly transparent in the open market. In the unlikely event that no comparable market price can be taken, experts in the Group with sufficient industry experience could opine on the fairness and reasonableness of the price by reference to the comparable price and/or historical transaction price of the most similar items to ensure that the price and terms would be fair and reasonable to the Group and no less favourable to the Company than that available from independent third parties.

As advised by the Directors, the Group has adopted internal control and pricing policies to ensure that the terms of the continuing connected transactions of the Group are fair and reasonable and no less favourable to the Group than those available from independent third parties. We have reviewed the internal control and pricing policies and understand that the internal control policies include, among others, (i) the pricing policy for all the continuing connected transactions of the Group will be supervised and monitored by the management of the Group to ensure that the relevant continuing connected transactions are being conducted on normal commercial terms; (ii); the Group will assess the level and the size of order for the products supplied by Beijing Shougang, to obtain reference quotations from independent third party suppliers for setting the prevailing market price; (iii) the relevant personnel from the internal auditing department of the Group will conduct regular checks semi-annually to review the transactions under the relevant continuing connected transaction; and (iv) the independent non-executive Directors and the auditors of the Company will conduct an annual review on the transactions under the relevant continuing connected transaction as well as the pricing terms and annual caps thereof. Based on the above, we concur with the view of the Directors that adequate internal control and pricing policies are in place to ensure that the terms of the continuing connected transactions of the Group are fair and reasonable and no less favourable to the Group than those available from independent third parties.

In assessing the fairness and reasonableness of the purchase price of the products to be supplied by Beijing Shougang to the Group under the Master Purchase Agreement, we have discussed with the management of the Company and understand that in determining the purchase price for the products, the Group will obtain information of the transaction prices of similar products in the market by making reference to the websites of major players in the industry or industry associations conducting researches on industry websites and enquiry of industry players to determine the reference prices.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have obtained and reviewed the list of approved suppliers of steel products and the assessment reports for evaluation of the approved suppliers. We note that the Group has taken into account of a number of factors, including but not limited to (i) nature and scale of the enterprise; (ii) the qualification and ability of the supplier to provide specific steel products; (iii) the quality of the steel products. We have also obtained from the Company the price lists of steel products obtained by the Company from two independent third party suppliers and the price list of steel products obtained by the Company from Beijing Shougang. We have reviewed the price lists and note that information including the type and specification of the steel products, and the range of purchase price of the steel products are provided. We also note that the purchase price of the steel products of similar type and specification offered by Beijing Shougang is comparable to those offered by the independent third party suppliers. Based on the above, we concur with the view of the Directors that the pricing policies will be effective to ensure that the purchase price for the products being offered by Beijing Shougang will be no less favourable to the Company than that offered by the independent third party suppliers.

We have also visited the websites of major players in the industry or industry associations (including but not limited to China Iron and Steel Association (中國鋼鐵網工業協會) http://www.chinaisa.org.cn, Zhong Gang Wang (中鋼網) http://baojia.steelcn.cn and My Steel (我的鋼鐵網) www.mysteel.com) which the Group will make reference in determining the purchase price of the products. We noted that (i) China Iron and Steel Association is a national wide industrial organisation of Chinese steel industry; and (ii) Zhong Gang Wang and My Steel provide the market price of varieties of steel products. We have discussed with the management of the Company and understand that the Company would obtain market quotation of the products from the abovementioned websites as a reference in determining the purchase price of the products. Based on the above, we concur with the view of the Directors that these websites together with quotations from independent third party suppliers are appropriate reference in determining the purchase price of steel products.

4.2.2 Annual caps

Pursuant to the Master Purchase Agreement, Beijing Jingxi Supply Chain has agreed to purchase products from Beijing Shougang based on the pricing policy stated above during the term of the Master Purchase Agreement subject to the following annual caps:

	For the year ending	For the year ending
		31 December
	2021	2022	2023
	RMB’ million	RMB’ million	RMB’ million
Transaction amount	1,000	1,000	1,000

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the Letter from the Board, there were no historical purchases from Beijing Shougang. The annual caps for the Master Purchase Agreement were determined based on the expected market demand and trading volume for the products and the supply capacity of Beijing Shougang.

In order to assess the fairness and reasonableness of the annual caps, we have considered the followings:

(i) the expected market demand and trading volume for the products

We have reviewed the 2021 Interim Report and note that the Group recorded revenue from trading of steel related products of its supply chain management business of approximately HK1.07 billion for the six months ended 30 June 2021, representing an increase of approximately RMB1.07 billion from nil for the six months ended 30 June 2020. The Company prioritised the development of its supply chain financial services in the steel industry serving the upstream and downstream customers of Shougang Group, and centred around core enterprises in the industry to expand supply chain management and financial service business. Focusing on the two groups of target core enterprises namely steel companies and domestic conglomerates as well as their upstream and downstream customers, after thorough analysis and research, the Group seized market opportunities and continued to optimise product mix.

We have also discussed with the management of the Company and understand that in view of (i) the significant increase in revenue from trading of steel related products under the Group’s supply chain management business for the six months ended 30 June 2021; and (ii) the preliminary estimated total sales amount of the specific types of steel products which can only be sourced from sizable steel production enterprises amounted to approximately RMB0.9 billion, RMB1.05 billion and RMB1.05 billion for the three years ending 31 December 2021, 2022 and 2023 respectively, the Directors believes that the market demand and trading volume for the steel products are expected to increase for the three years ending 31 December 2023. As advised by the Directors, it is expected that the entering into of the Master Purchase Agreement would help Beijing Jingxi Supply Chain to gain a stable supply of steel products for trading purpose, thereby providing it with an opportunity to generate income and trading profits along with the expected increase in market demand and trading volume for the steel products.

Based on the above, in particular the Group recorded significant increase in revenue from trading of steel related products of its supply chain management business for the six months ended 30 June 2021, we consider it is justifiable to determine the amount of the annual caps on the basis that the expected market demand and trading volume would increase for the three years ending 31 December 2023.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) the supply capacity of Beijing Shougang

As set out in the Letter from the Board, Beijing Shougang is a leading steel supplier in the PRC and is a company listed on the Shenzhen Stock Exchange with a solid track record for supplying quality products.

In considering the supply capacity of Beijing Shougang, we have obtained and reviewed the offering circular of Shougang Group as published on 16 May 2019, being the latest public available publication which contained the financial information of Shougang Group. We are given to understand that Shougang Group owns and manages nine production bases with coking, ironmaking, steelmaking and steel-rolling capacity in China, geographically covering the Bohai Rim region, Western China, Southwestern China, Southeastern China, Northeastern China and Northwestern China.

Having considered (i) the basis of determination of the proposed annual caps; (ii) it is justifiable to determine the amount of the annual caps on the basis that the expected market demand and trading volume would increase for the three years ending 31 December 2023; (iii) the supply capacity of Beijing Shougang would remain strong; (iv) the strong background of Shougang Group as set out in the paragraph headed “2.3 Information of Shougang Group” in this letter; and (v) the reasons as set out in the paragraph headed “4.1 Background to and reasons for the entering into of the Master Purchase Agreement” in this letter, we are of the view that the transactions under the Master Purchase Agreement and the proposed annual caps thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole so far as the Independent Shareholders are concerned.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having taken into account the principal factors discussed above, we are of the view that (i) the entering into of the Master Facilities Agreement and the Master Purchase Agreement are in the interests of the Company and the Shareholders as a whole; (ii) the terms of the Master Facilities Agreement and the Master Purchase Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (iii) the transactions contemplated under the Master Facilities Agreement and the Master Purchase Agreement are in the ordinary and usual course of business of the Group and the proposed annual caps are determined under fair and reasonable grounds. Accordingly, we recommend the Independent Shareholders, and the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the resolution to be proposed at the Special General Meeting to approve the Master Facilities Agreement and the Master Purchase Agreement and the proposed annual caps thereof.

Yours faithfully, For and on behalf of Messis Capital Limited Thomas Lai Chief Executive Officer

Mr. Thomas Lai is a licensed person registered with the Securities and Futures Commission and regarded as a responsible officer of Messis Capital Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and has over 27 years of experience in corporate finance industry.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The published audited consolidated financial statements of the Group for the years ended 31 December 2018, 2019 and 2020 and the six months ended 30 June 2021 were set out in the Company’s annual reports for each of the years ended 31 December 2018, 2019 and 2020 and the Company’s interim report for the six months ended 30 June 2021, respectively, which are incorporated by reference into this circular. The said annual reports and interim report can be accessed on the website of the Stock Exchange (www.hkexnews.hk) and the website of the Company (www.shougang-grand.com.hk).

The following is a quick link to the annual report of the Company published on 11 April 2019 with its audited consolidated financial statements for the year ended 31 December 2018 on pages 104 to 230:

https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0411/ltn20190411714.pdf

The following is a quick link to the annual report of the Company published on 16 April 2020 with its audited consolidated financial statements for the year ended 31 December 2019 on pages 110 to 250:

https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0416/2020041600687.pdf

The following is a quick link to the annual report of the Company published on 12 April 2021 with its audited consolidated financial statements for the year ended 31 December 2020 on pages 112 to 250:

https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0412/2021041200852.pdf

The following is a quick link to the interim report of the Company published on 9 September 2021 with its unaudited condensed consolidated interim financial statements for the six months ended 30 June 2021 on pages 4 to 41:

https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0909/2021090900544.pdf

2. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Through supply chain management services, financial services and assets management services as our core business and competitive edge in the market, the Group strived to focus on the provision of finance leasing, business factoring, supply chain management, investment and financing advisory services and other portfolios of financial products to two types of target entities including steel companies and domestic large-scale enterprise groups, as well as their upstream and downstream customers, in order to provide customised financial service solutions for target companies, meet the strategic needs of target companies and their upstream and downstream companies for industrial upgrading and give full play to the important role of financial services in empowering real economy. The Group will seize the digital transformation of large enterprises, new infrastructure and other digital economic development opportunities, improve the supply chain management, leasing, asset securitization and other businesses of customer information and data security storage, processing and analysis capabilities, and will provide customers with comprehensive data application services.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. STATEMENT OF INDEBTEDNESS

Borrowings and lease liabilities

At the close of business on 31 October 2021, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group had outstanding bank borrowings of approximately HK$306,265,000, of which as to approximately HK$236,265,000 were secured by certain investment properties and certain finance lease receivables, and the Group had lease liabilities of approximately HK$17,554,000 certain of which were secured by the rental deposits and all of which were unguaranteed.

Pledge of assets

At the close of business on 31 October 2021, the Group had the following charge on its assets:

(i) Certain investment properties with an aggregate carrying value of approximately HK$38,600,000; and
(ii) Certain finance lease receivables with an aggregate carrying value of approximately HK$273,909,000.

Debt securities

At the close of business on 31 October 2021, the Group had no debt securities.

Contingent liabilities

The Group did not have any material contingent liabilities as at the close of business on 31 October 2021.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade and others payables in the ordinary course of business, the Group did not have any other loan capital issued or agreed to be issued, bank overdrafts, loans, debt securities issued and outstanding, and authorised or otherwise created but unissued and term loans or other borrowings, indebtedness in the nature of borrowings, liabilities under acceptance (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance lease or hire purchase commitments, which are either guaranteed, unguaranteed, secured or unsecured, guarantees or other material contingent liabilities outstanding on 31 October 2021.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2020, being the date to which the latest published audited consolidated financial statements of the Group were made up.

5. WORKING CAPITAL STATEMENT

The Directors are of the opinion that, after taking into account the internally generated funds, existing facilities available to the Group and financial resources presently available to the Group, the Group will have sufficient working capital to satisfy its requirements for at least twelve months from the date of this circular.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. MANAGEMENT DISCUSSION AND ANALYSIS

Set out below is the management discussion and analysis of the Group for the each of the three years 31 December 2020 and the six months ended 30 June 2021 extracted from the Company’s annual reports for each of the years ended 31 December 2018, 2019, 2020, and the Company’s interim report for the six months ended 30 June 2021, respectively. Unless otherwise defined in this circular or the context otherwise requires, capitalised terms used in this section shall have the same meanings as those ascribed in the abovementioned annual reports and interim report of the Company, as the case may be.

FOR THE YEAR ENDED 31 DECEMBER 2018

In 2018, the Group strived to promote the integration of industry sectors with finance function, through supply chain technology services, financial services and asset management services as our core business and competitive edge in the market. Through the implementation of capital operations and business structure optimization, we have completed the initial establishment of supply chain business structure and improved our asset structure. We therefore possessed the prerequisites to commence the core business of industry centric supply chain technology and financial services.

Financial Key Performance Indicators

The financial key performance indicators are analysed as below:

	2018	2017	+/(-)
	*HK$’000*	HK$’000	Change
Financial performance
Revenue	96,623	109,512	-12%
Gross profit margin (%)	56%	54%	2%
Loss attributable to owners of the Company	(58,882)	(11,332)	420%
Key financial indicators
Total cash	806,150	320,080	152%
Total assets	2,218,214	2,630,955	-16%
Total liabilities	592,124	1,051,498	-44%
Bank borrowings	494,541	896,494	-45%
Equity attributable to owners of the Company	1,339,688	1,281,917	5%
Current ratio	447%	184%	263%
Net debt to total equity	N/A	36%	N/A
Basic loss per share (HK cents)	(2.00)	(0.43)	365%

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial Overview

The Group recorded loss of approximately HK$58,882,000 for the year ended 31 December 2018 attributable to owners of the Company, when compared with a loss of approximately HK$11,332,000 for the year ended 31 December 2017 attributable to owners of the Company. The increase was due to the increase in the share of loss of an associate. Revenue of the Group for the year ended 31 December 2018 was approximately HK$96,623,000, which represented a decrease of approximately 12% when compared with that of approximately HK$109,512,000 for the year of 2017. The decrease was mainly attributable to the decrease in income from the finance leasing and other financial services segment. The Group recorded a gross profit of approximately HK$54,196,000 for the year ended 31 December 2018, representing a gross profit margin of approximately 56%, which is an increase of approximately 2% when compared with the gross profit margin of approximately 54% for the year 2017. Basic loss per share for the year ended 31 December 2018 was HK2.00 cents (2017: loss per share was HK0.43 cents).

Revenue for the year ended 31 December 2018 was approximately HK$96,623,000, representing a decrease of approximately 12% when compared with that of approximately HK$109,512,000 for the year 2017. The decrease was mainly attributable to the decrease in income from the finance leasing and other financial services segment by approximately HK$12,406,000.

The Group made a gross profit of approximately HK$54,196,000 for the year ended 31 December 2018, representing a gross profit margin of approximately 56%, which is an increase of 2% when compared with the gross profit margin of approximately 54% for the year 2017 which was mainly attributable to the increase in gross profit margin from the finance leasing and other financial services segment.

Other income for the year ended 31 December 2018 amounted to approximately HK$15,620,000 (2017: HK$4,389,000), representing an increase of approximately 2.6 times. The increase was mainly due to the increase in interest income from bank deposits.

Administrative expenses for the year ended 31 December 2018 amounted to approximately HK$58,798,000 (2017: HK$40,530,000), representing an increase of approximately 45%. The increase was mainly due to the rise in professional services fee driven by business development. The increase in professional services fee amounted to approximately HK$10,500,000.

For the year ended 31 December 2018, share of loss of associates amounted to approximately HK$122,547,000 (2017: HK$11,947,000), the reversal of impairment loss of approximately HK$75,640,000 (2017: impairment loss of HK$9,626,000) on interest in an associate was made during the year.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Business Review and Outlook

In terms of business expansion, in 2018, the Group seized the opportunities of favourable policies for innovative and modern supply chain business in China and the Shougang Group’s dual core business industry upgrade strategy. Building on the foundation of its existing financial and lease business, the Group has obtained all the prerequisite licenses in relation to our supply chain financial business and has established the supply chain technology financial services platform through acquisition, reorganization and new business establishment. The Group will stick fast to the strategic transformation target of “supply chain technology finance”, leverage on its strength in the smart supply chain management service platform supported by internet of things and big data, improve supply chain transaction efficiency with technology based financial engineering solutions, and concentrate its efforts on expanding its lease, factoring, loan and asset management business.

During the year, revenue from the finance leasing and other financial services segment decreased by approximately 12% to approximately HK$93,490,000 (2017: HK$105,896,000), while the segment result recorded a profit of approximately HK$47,874,000 (2017: HK$46,452,000). The decrease in revenue from the business of finance leasing and other financial services segment was mainly attributed to the decrease in interest-bearing finance lease receivables balance. The segment result was close to that of the previous year.

During the year, revenue from the property leasing and building management services segment decreased by approximately 13% to approximately HK$3,133,000 (2017: HK$3,616,000), w h i l e t h e s e g m e n t r e s u l t r ec o r d e d a p r o f i t o f a p p r o x i m a t e l y H K $5,869,000 (2017: HK$13,604,000). The decrease in revenue from the property leasing and building management services segment was mainly attributed to the decrease in rentable floor area due to disposal of part of the properties during the year. The decrease in segment result was mainly attributable to the decrease in fair value gain of investment properties of the Group. The Group recorded an increase in fair value of investment properties of approximately HK$3,147,000 during the year (2017: fair value increase of HK$10,781,000).

During the year, the assets management segment result recorded a profit of approximately HK$466,000 (2017: HK$752,000). The decrease in segment result profit was mainly attributable to the decrease in interest income from bank deposits.

In 2019, the Group will establish unified brand, products and services for our supply chain technology and financial business, develop a trade platform and big data system for our supply chain business, and commence the development of an online risk management system for asset-securitization and steel industry financial services. The Group will focus on the steel business of Shougang Group, our largest shareholder, and its subsidiaries on the factoring business of upstream procurement for the Shougang Group and its subsidiaries, as well as the downstream sales business of steel products for our customers. The Group will also commence online supply chain financing services, offline factoring services and trade financing services. The Group will commence its supply chain financial services, in the healthcare, auto and urbanization industries as and when appropriate.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In terms of risk management infrastructure, prudent and effective risk management helps in untapping the commercial value of long-term investment, as well as laying a solid foundation of the Group’s sustainable development. In view of a volatile credit environment in China and changes in international economic environment, we will put emphasis on strengthening our risk control system, introducing information technology platform, improving and optimizing our risk control mechanism, adjusting our management and control strategies in a timely manner, and continuing our management optimization. We will also promote the development of our online risk management platform for asset-securitization and steel industry financial services as an efficient tool for the Group’s risk management.

Liquidity, Financial Resources and Financing Activities

The Group aimed to maintain stable funding sources and financing is arranged to match business requirements and cash flows. The financial leverage of the Group as at 31 December 2018 as compared to 31 December 2017 is summarized below:

	31 December	31 December
	2018	2017
	*HK$’000*	HK$’000
Total borrowings
Current borrowings	238,859	535,048
Non-current borrowings	255,682	361,446
Sub-total	494,541	896,494
Total cash
Bank balances and cash	806,150	288,221
Structured deposit	–	12,048
Restricted bank deposits	–	19,811
Sub-total	806,150	320,080
Net borrowings	N/A	576,414
Total equity	1,626,090	1,579,457
Total assets	2,218,214	2,630,955
Financial leverage
Net debt to total equity	N/A	36%
Net debt to total assets	N/A	22%
Current ratio	447%	184%

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 31 October 2018, the Company issued 1,336,096,234 new shares of the Company by way of rights issue, and the net proceeds from rights issue was approximately HK$179,521,000 (the “ Rights Issue ”). The Company completed the issue of rights shares to fund the acquisition and capital increase as set out in the circular of the Company dated 4 September 2018 (“ Acquisition and Capital Increase ”). The net proceeds from the issue of right shares was approximately HK$179,521,000, in which approximately HK$1,696,500 and HK$45,560,000 have been used for payment of the consideration in relation to the acquisition of 86.7143% equity interest of Shouhua Jingxi Cooperative Innovation (Beijing) Technology Development Co., Ltd. (“ Shouhua Jingxi Cooperative Innovation ”) and partial fulfillment of the capital contribution obligation to Shouhua Jingxi Cooperative Innovation, respectively. The unutilised net proceeds was kept in deposit at banks. Details of the amendments of the Acquisition and Capital Increase were disclosed in the announcement of the Company dated 31 December 2018.

As at 31 December 2018, the Group had bank balances and cash of approximately HK$806,150,000 (31 December 2017: HK$288,221,000), structured deposit of approximately HK$Nil (31 December 2017: HK$12,048,000) and restricted bank deposits of approximately HK$Nil (31 December 2017: HK$19,811,000) which were mainly denominated in Hong Kong dollars, US dollars and Renminbi. The increase was mainly attributable to net cash from operating activities of approximately HK$649,430,000, proceeds from disposal of an investment property of approximately HK$52,351,000, dividends from an associate of approximately HK$49,533,000 and net proceeds on rights issue of approximately HK$179,521,000, netting off with the net repayment of bank loans of approximately HK$350,590,000 and payment of purchase of bond investment of approximately HK$70,116,000.

As at 31 December 2018 the Group’s borrowings amounted to approximately HK$494,541,000, of which approximately HK$238,859,000 were repayable within twelve months from 31 December 2018 and approximately HK$255,682,000 were repayable after twelve months from 31 December 2018. During the year, the Group obtained new bank loans of approximately HK$140,000,000 for operating cash flow of the Group. All loans bore interest at market rates.

Capital Structure

The equity attributable to owners of the Company amounted to approximately HK$1,339,688,000 as at 31 December 2018 (31 December 2017: HK$1,281,917,000). The increase was mainly due to the new rights shares of approximately HK$179,521,000, netting off with the loss for the year ended 31 December 2018 attributable to owners of the Company of approximately HK$58,882,000 and the exchange differences arising on translation of approximately HK$57,907,000 in total during the year. The Company issued 1,336,096,234 new shares during the year. The issued share capital of the Company was approximately HK$40,083,000 (represented by approximately 4,008,289,000 issued ordinary shares).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Material Acquisition, Disposals and Significant Investments

On 13 June 2018, On Hing Investment Company, Limited (“ On Hing ”, a wholly owned subsidiary of the Company) entered into an agreement with Beijing Services New Shougang Venture Capital Investment LLP (“ Beijing Services New Shougang ”) and Beijing West Business Factoring Company Limited (“ Beijing West Business Factoring ”), pursuant to which On Hing agreed to purchase 41.41% equity interest of Beijing West Business Factoring from Beijing Services New Shougang for RMB75,262,645.50 (the “ First Transaction ”). The First Transaction has not been completed. Beijing West Business Factoring is engaged in the provision of business factoring services.

On 13 June 2018, Grand Cheers Property Limited (“ Grand Cheers ”, a wholly owned subsidiary of the Company) entered into an agreement with Jingji Cooperative Development Demonstration Zone (Tangshan) Fund Management Co., Ltd. (“ Jingji Cooperative ”) and Shouhua Jingxi Cooperative Innovation, pursuant to which Grand Cheers agreed to purchase 85.7143% equity interest of Shouhua Jingxi Cooperative Innovation (“ Sale Shares ”) from Jingji Cooperative for RMB1,500,000, and Grand Cheers will be responsible for the outstanding capital contribution obligation to the Sale Shares in the amount of RMB58,500,000 (the “ Second Transaction ”). The Sale Shares had been completed. The principal business of Shouhua Jingxi Cooperative Innovation is providing supply chain financial consulting services and management services.

On 13 June 2018, Gold Cosmos Development Limited (“ Gold Cosmos ”, a wholly owned subsidiary of the Company) entered into a capital increase agreement with Beijing Shougang Fund Co., Ltd. (“ Shougang Fund ”) and Beijing Jingxi Supply Chain Management Co., Ltd. (“ Beijing Jingxi Supply Chain ”), pursuant to which Gold Cosmos agreed to contribute additional capital in the amount of RMB200,000,000 to the registered capital of Beijing Jingxi Supply Chain and thereby increasing its shareholding in Beijing Jingxi Supply Chain from 10% to 70% (the “ Capital Increase ”). The Capital Increase has not been completed. Beijing Jingxi Supply Chain is principally engaged in providing supply chain financial management services.

On 1 August 2018, Gold Cosmos contributed capital in the amount of RMB10,000,000 to the registered capital of Beijing Jingxi Supply Chain pursuant to an agreement entered into in April 2018 in exchange for 10% equity interest of Beijing Jingxi Supply Chain. The capital contribution had been completed.

On 21 November 2018, SCG Investment (BVI) Limited (a wholly owned subsidiary of the Company), as vendor, entered into the a sale and purchase agreement with Shougang Holding (Hong Kong) Limited, as purchaser, in relation to the restructuring by way of disposal of Upper Nice Assets Ltd. (the “ Disposal ”) which holds 619,168,023 shares, representing approximately 40.78% equity interests, of Global Digital Creations Holdings Limited (Stock Code: 8271), at a consideration of HK$154,792,005.75. The Disposal was approved at the Special General Meeting held on 28 December 2018 and was completed on 8 January 2019.

Saved as disclosed above, the Group had no material acquisitions, disposals and significant investment.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Charge on Assets

As at 31 December 2018, the Group had the following charge on assets:

(i) The Group’s investment properties with an aggregate carrying value of approximately HK$37,500,000 were pledged to banks to secure for bank loans with outstanding amount of approximately HK$13,632,000.
(ii) The Group’s finance lease receivables with a carrying value of approximately HK$335,876,000 were pledged to banks to secure for bank loans with outstanding amount of approximately HK$340,909,000.

Foreign Exchange Exposure

The normal operations and investments of the Group are mainly in Hong Kong and China, with revenue and expenditure denominated in Hong Kong dollars and Renminbi. The Directors believe that the Group does not have significant foreign exchange exposure. However, if necessary, the Group will consider using forward exchange contracts to hedge against foreign exchange exposures. As at 31 December 2018, the Group has no significant foreign exchange exposure.

Contingent Liabilities

The Group had no significant contingent liabilities as at 31 December 2018.

Employees

As at 31 December 2018, the Group employed 46 (31 December 2017: 51) full time employees (excluding those under the payroll of associates of the Group). The Group remunerated its employees mainly with reference to the prevailing market practice, individual performance and experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund, discretionary bonus and employees share option scheme are also available to employees of the Group. Remuneration packages are reviewed either annually or through special increment.

During the year ended 31 December 2018, the Company and its subsidiaries have not paid or committed to pay to any individual any amount as an inducement to join or upon joining the Company and/or its subsidiaries.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FOR THE YEAR ENDED 31 DECEMBER 2019

In 2019, the Group took great efforts in business development of sale and leaseback arrangements, business factoring, supply chain management and asset management, and is committed to develop the integrated service platform to empower industry with finance. It has made initial achievements after going through the hard time through concerted efforts and constantly exploring the development path to optimizing and strengthening its businesses. In 2019, the Group successfully turned losses into gains and increased the scale and safety of its business assets, laying a solid foundation for business growth.

Financial Key Performance Indicators

The key financial performance indicators are analysed as below:

	2019	2018	+/(-)
	*HK$’000*	HK$’000	Change
Financial performance
Revenue	77,702	96,623	-20%
Gross profit margin (%)	74%	56%	18%
Profit/(loss) before income tax	15,413	(35,558)	Turnaround
Profit/(loss) for the year	583	(50,089)	Turnaround
Loss attributable to owners of the Company	(7,921)	(58,882)	-87%
Key financial indicators
Total cash	702,164	806,150	-13%
Total assets	2,294,032	2,218,214	3%
Total liabilities	550,534	592,124	-7%
Bank borrowings	465,557	494,541	-6%
Capital and reserves attributable to
owners of the Company	1,355,149	1,339,688	1%
Current ratio	305%	447%	-142%
Basic loss per share (HK cents)	(0.20)	(2.00)	-90%

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial Overview

The Group recorded loss of approximately HK$7,921,000 for the year ended 31 December 2019 attributable to owners of the Company, which represented a decrease when compared with a loss of approximately HK$58,882,000 for the year ended 31 December 2018 attributable to owners of the Company. The decrease was mainly due to the share of loss of an associate in 2018. Revenue of the Group for the year ended 31 December 2019 was approximately HK$77,702,000, which represented a decrease of approximately 20% when compared with that of approximately HK$96,623,000 for the year 2018. The decrease was mainly attributable to the decrease in revenue from the sale and leaseback arrangements services segment. The Group recorded a gross profit of approximately HK$57,644,000 for the year ended 31 December 2019, representing a gross profit margin of approximately 74%, which is an increase of approximately 18% when compared with the gross profit margin of approximately 56% for the year 2018. Basic loss per share for the year ended 31 December 2019 was HK0.2 cent (2018: loss per share was HK2 cents).

Revenue for the year ended 31 December 2019 was approximately HK$77,702,000, representing a decrease of approximately 20% when compared with that of approximately HK$96,623,000 for the year 2018. The decrease was mainly attributable to the decrease in revenue from the sale and leaseback arrangements services segment by approximately HK$21,889,000.

The Group made a gross profit of approximately HK$57,644,000 for the year ended 31 December 2019, representing a gross profit margin of approximately 74%, which is an increase of 18%, when compared with the gross profit margin of approximately 56% for the year 2018, which was mainly attributable to the increase in gross profit margin from the sale and leaseback arrangements services segment.

Other income for the year ended 31 December 2019 amounted to approximately HK$21,191,000 (2018: HK$15,620,000), representing an increase of approximately 36%. The increase was mainly due to the increase in interest income from bank deposits.

Administrative expenses for the year ended 31 December 2019 amounted to approximately HK$65,232,000 (2018: HK$58,798,000), representing an increase of approximately 11%. The increase was mainly due to the rise in labor cost driven by business development.

For the year ended 31 December 2019, share of profit of associates amounted to approximately HK$2,614,000 (2018: loss of HK$122,547,000), the reversal of impairment loss of approximately HK$75,640,000 on interest in an associate was made for the year 2018 while there was no impairment loss for this year. Share of profit of associates for this year was attributable to the completion of the acquisition of a business factoring company during the year. Share of loss of associates for last year was attributable to 619,168,023 shares held, representing approximately 40.78% equity interests, of Global Digital Creations Holdings Limited (“ GDC ”) (Stock Code: 8271). The disposal of equity interest held in GDC was approved at the special general meeting held on 28 December 2018 and was completed on 8 January 2019.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Business Review and Outlook

Following the strategy of combination of industry and finance promoted by empowering industry with finance, the Group reshuffled the cultural recreation business which is not closely relevant to our principal business of integrated financial service and strengthened its capital through rights issue. The Group built the integrated service platform to empower industry with finance based on improved financial service framework and management team, which forms the key foundation for business expansion. As for business expansion, during the year, with the target of realizing collaborative development among different segments including financial leasing, business factoring, supply chain management and asset management, based on the principal steel business, the Group has made substantive progress in developing into an integrated cross-border industrial and financial service platform.

During the year, revenue from the sale and leaseback arrangements services segment decreased by approximately 23% to approximately HK$71,601,000 (2018: HK$93,490,000), and the profit of the segment was approximately HK$48,331,000 (2018: HK$47,874,000). The decrease in revenue from the sale and leaseback arrangements services segment was mainly attributable to the postponement of certain projects as a result of modifications to the financial leasing business plan and projects in hand affected by uncertainties in relation to the macro-economic conditions and certain economic events, after taking into account relevant risks. There were several relatively large-scale projects carried out under this segment in the second half of 2019, which partially offset decline of revenue and contributed to the growth of financial leasing business size and interest-earning financial leasing balances. The growth of sale and leaseback arrangements services segment results was mainly due to the increase in project gross profit resulting from increased new projects and more flexible financial resource usage.

In February 2020, China Banking and Insurance Regulatory Commission issued an announcement on the Interim Measures for Supervision and Administration of the Financial Leasing Companies (Exposure Draft) (《融資租賃公司監督管理暫行辦法(徵求意見稿)》) for public suggestions. It is expected that laws and regulations relating to the industry will be introduced and regulatory system will be improved, which will be beneficial for the sustainable and orderly development of the industry.

During the year, the assets management and consultancy services segment recorded a revenue of approximately HK$5,528,000 (2018: Nil) and a loss of the segment of approximately HK$2,375,000 (2018: profit of HK$466,000). For the first time, the assets management and consultancy services segment recorded revenues from supply chain financing management service, asset securitization and investment and financing consultancy businesses. However, due to the impacts of resource investment at the initial stage of business expansion and the amortization costs incurred for the building of technology platform, a loss was recorded for the segment.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the year, revenue from the property leasing services segment decreased by approximately 82% to approximately HK$573,000 (2018: HK$3,133,000), and the profit of the segment was approximately HK$2,065,000 (2018: HK$5,869,000). The decrease in revenue from the property leasing services segment was mainly attributed to the decrease in rentable floor area. The decline in segment results was mainly attributable to the decrease in fair value gain of investment properties of the Group. The Group recorded an increase in fair value of investment properties of approximately HK$2,400,000 during the year (2018: fair value increase of HK$3,147,000).

Looking ahead into 2020, under the policy environment and market environment of promoting financial innovation, the Group will grasp opportunities brought by the policies in relation to financial service and the upgrading strategies of industries in which core target enterprises operate to provide innovative financial product and service portfolios to those core target enterprises and their upstream and downstream customers, so as to serve the real economy. We will strive to capitalize on the advantage of cross-border operation while actively exploring new models of innovative financial service business and taking advantage of Hong Kong’s excellent geographical location and favorable financing environment as an international financial market, to make meaningful exploration under The Belt and Road Initiative and seize relevant policy opportunities.

In terms of risk management infrastructure, prudent and effective risk management can help in untapping the commercial value of long-term investments, as well as laying a solid foundation for the Group’s sustainable development. We will put emphasis on strengthening our risk control system, introducing information technology platform, and adjusting our management and control strategies in a timely manner and continuously improving our management by improving and optimizing our risk control mechanism. In addition, we will also continue to promote the development of our online risk management platform so as to provide an effective tool for the Group’s risk management.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity, Financial Resources and Financing Activities

The Group aimed to maintain stable funding sources and financing is arranged to balance between business requirements and cash flows. The financial leverage of the Group as at 31 December 2019 as compared to 31 December 2018 is summarized below:

	31 December	31 December
	2019	2018
	*HK$’000*	HK$’000
Total borrowings
Current borrowings	297,018	238,859
Non-current borrowings	168,539	255,682
Sub-total	465,557	494,541
Total cash
Cash and cash equivalents	607,782	806,150
Term deposits with initial term over three months	94,382	–
Sub-total	702,164	806,150
Total equity	1,743,498	1,626,090
Total assets	2,294,032	2,218,214
Current ratio	305%	447%

On 31 October 2018, the Company issued 1,336,096,234 new shares of the Company by way of rights issue, and the net proceeds from rights issue were approximately HK$179,521,000 (the “ Rights Issue ”). The Company completed the issue of rights shares to fund the acquisition and capital injection as set out in the circular of the Company dated 4 September 2018 (the “ Acquisition and Capital Injection ”). The net proceeds from the issue of right shares were approximately HK$179,521,000, all of which have been fully utilised for the Acquisition and Capital Injection. Details of the amendments to the Acquisition and Capital Injection were disclosed in the announcement of the Company dated 31 December 2018.

As at 31 December 2019, the Group had cash and cash equivalents of approximately HK$607,782,000 (31 December 2018: HK$806,150,000) and term deposits with initial term over three months of approximately HK$94,382,000 (31 December 2018: HK$Nil), which were mainly denominated in Hong Kong dollars, US dollars and Renminbi. The decrease was mainly attributable to the combined effects of net cash used in operating activities of approximately HK$254,462,000, payment of consideration for acquisition of an associate of approximately HK$85,526,000 and the net repayment of bank borrowings of approximately HK$32,602,000, netting off with proceeds received from disposal of an associate of approximately HK$154,792,000 and proceeds received from disposal of bond investments of approximately HK$40,448,000.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2019, the Group’s borrowings amounted to approximately HK$465,557,000, of which approximately HK$297,018,000 were repayable within twelve months from 31 December 2019 and approximately HK$168,539,000 were repayable after twelve months from 31 December 2019. During the year, the Group obtained new bank borrowings of approximately HK$70,000,000 as working capital of the Group. All borrowings bore interest at market rates.

Capital Structure

The capital and reserves attributable to owners of the Company amounted to approximately HK$1,355,149,000 as at 31 December 2019 (31 December 2018: HK$1,339,688,000). The increase was mainly due to the capital contribution from the intermediate holding company of approximately HK$44,580,000, netting off with the loss for the year ended 31 December 2019 attributable to owners of the Company of approximately HK$7,921,000 and the exchange differences arising on translation of approximately HK$14,320,000 in total during the year. The Company did not issue any new shares during the year. In July 2019, pursuant to the general mandate given to the Directors, the Company repurchased a total of 23,649,000 ordinary shares of HK$0.01 each of the Company on the Stock Exchange at an aggregate consideration of approximately HK$3,647,000 (excluding the trading fee). On 30 July 2019, 23,649,000 shares were cancelled. The issued share capital of the Company was approximately HK$39,846,000 (represented by approximately 3,984,640,000 issued ordinary shares).

Material Acquisition, Disposals and Significant Investments

On 13 June 2018, On Hing Investment Company, Limited (“ On Hing ”, a wholly owned subsidiary of the Company) entered into an agreement with 北京服務新首鋼股權創業投資企業(有限合夥) (Beijing Services New Shougang Venture Capital Investment LLP) (“ Services New Shougang ”) and 京西商業保理有限公司 (Beijing West Business Factoring Company Limited) (“ Beijing West Business Factoring ”), pursuant to which On Hing agreed to purchase 41.41% equity interest in Beijing West Business Factoring from Services New Shougang for RMB75,262,645.5 (the “ First Acquisition ”), subject to certain conditions precedent. On 31 December 2018, a supplemental agreement was entered into to extend the long stop date of the First Acquisition from 31 December 2018 to 31 May 2019. On 31 May 2019, a further supplemental agreement was entered into to extend the long stop date of the First Acquisition from 31 May 2019 to 31 May 2020 and change the contract party from On Hing to South China International Leasing Co., Ltd.. The First Acquisition was completed on 24 July 2019. Beijing West Business Factoring was engaged in the provision of business factoring services.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 13 June 2018, Gold Cosmos Development Limited (“ Gold Cosmos ”, a wholly owned subsidiary of the Company) entered into a capital increase agreement with 北京首鋼基金有限公司 (Beijing Shougang Fund Co., Ltd.) (“ Shougang Fund ”) and 北京京西供應鏈管理有限公司 (Beijing Jingxi Supply Chain Management Co., Ltd.) (“ Beijing Jingxi Supply Chain ”), pursuant to which Gold Cosmos agreed to contribute additional capital in the amount of RMB200,000,000 to the registered capital of Beijing Jingxi Supply Chain and thereby increasing its shareholding in Beijing Jingxi Supply Chain from 10% to 70% (the “ Capital Injection ”). On 31 December 2018, a supplemental agreement was entered into to change the contract party from Gold Cosmos to 悅康融滙投資咨詢(北京)有限公司 (formerly known as 悅康融滙投資咨詢(深圳)有限公司) (Ecko Investment Company Limited*). The Capital Injection was completed on July 2019.

On 21 November 2018, SCG Investment (BVI) Limited (a wholly owned subsidiary of the Company), as vendor, entered into a sale and purchase agreement with Shougang Holding (Hong Kong) Limited, as purchaser, in relation to the restructuring by way of disposal of Upper Nice Assets Limited (the “ Disposal ”) which holds 619,168,023 shares, representing approximately 40.78% equity interests, of Global Digital Creations Holdings Limited (Stock Code: 8271), at a consideration of HK$154,792,006. The Disposal was approved at the special general meeting held on 28 December 2018 and was completed on 8 January 2019.

Saved as disclosed above, the Group had no material acquisitions, disposals and significant investment.

Charge on Assets

As at 31 December 2019, the Group had the following charge on assets:

(i) The Group’s investment properties with an aggregate carrying value of approximately HK$24,700,000 and the Group’s land and building with a carrying value of approximately HK$14,921,000 were pledged to banks to secure for bank borrowings with outstanding amount of approximately HK$10,950,000.
(ii) The Group’s receivables under sale and leaseback arrangements with a carrying value of approximately HK$308,478,000 were pledged to banks to secure for bank borrowings with outstanding amount of approximately HK$314,607,000.

Foreign Exchange Exposure

The normal operations and investments of the Group are mainly in Hong Kong and Mainland China, with revenue and expenditure denominated in Hong Kong dollars and Renminbi. The Directors believe that the Group does not have significant foreign exchange exposure. However, if necessary, the Group will consider using forward exchange contracts to hedge against foreign exchange exposures. As at 31 December 2019, the Group had no significant foreign exchange exposure.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent Liabilities

The Group had no significant contingent liabilities as at 31 December 2019.

Employees

As at 31 December 2019, the Group employed 60 (31 December 2018: 46) full time employees (excluding those under the payroll of associates of the Group). The Group remunerated its employees mainly with reference to the prevailing market practice, individual performance and work experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund, discretionary bonus and employees share option scheme are also available to employees of the Group. Remuneration packages are reviewed either annually or through special increment.

During the year ended 31 December 2019, the Company and its subsidiaries have not paid or committed to pay to any individual any amount as an inducement to join or upon joining the Company and/or its subsidiaries.

FOR THE YEAR ENDED 31 DECEMBER 2020

In 2020, Shougang Concord Grand continued to push ahead the development philosophy of financial leasing, commercial factoring, supply chain management services and assets management services as core businesses, and endeavored to build an integrated service platform with financial empowerment. The year 2020 was an exceptional year. Faced with the sudden outbreak of COVID-19, with the team’s firm confidence and persistence in epidemic prevention and control as well as operational development, we achieved a year-on-year growth in both revenue and profit.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial Key Performance Indicators

The key financial performance indicators are analysed as below:

	2020	2019	+/(-)
	*HK$’000*	HK$’000	Change
Financial performance
Revenue	85,378	77,702	10%
Gross profit margin (%)	86%	74%	12%
Profit for the year	18,194	583	3,021%
Profit/(loss) attributable to owners of
the Company	5,980	(7,921)	Turnaround
Key financial indicators
Total cash	318,818	702,164	-55%
Total assets	2,161,473	2,294,032	-6%
Total liabilities	397,484	550,534	-28%
Bank borrowings	290,303	465,557	-38%
Capital and reserves attributable to
owners of the Company	1,445,637	1,355,149	7%
Current ratio	458%	305%	153%
Basic earnings/(loss) per share (HK cents)	0.15	(0.20)	Turnaround

Financial Overview

The Group recorded profit attributable to owners of the Company of approximately HK$5,980,000 for the year ended 31 December 2020, which represented a turnaround when compared with loss attributable to owners of the Company of approximately HK$7,921,000 for the year ended 31 December 2019. The turnaround from loss to profit was mainly due to the increase in profit from the sale and leaseback arrangements services segment and the recognition of profit from the supply chain management services segment for the first time. Revenue of the Group for the year ended 31 December 2020 was approximately HK$85,378,000, which represented an increase of approximately 10% when compared with that of approximately HK$77,702,000 for the year 2019. The increase was mainly attributable to the increase in revenue from the sale and leaseback arrangements services segment and the increase in revenue from the supply chain management services segment. The Group recorded a gross profit of approximately HK$73,760,000 for the year ended 31 December 2020, representing a gross profit margin of approximately 86%, which is an increase of approximately 12% when compared with the gross profit margin of approximately 74% for the year 2019. Basic earnings per share for the year ended 31 December 2020 was HK0.15 cent (2019: basic loss per share was HK0.20 cent).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Revenue for the year ended 31 December 2020 was approximately HK$85,378,000, representing an increase of approximately 10% when compared with that of approximately HK$77,702,000 for the year 2019. The increase was mainly attributable to the increase in revenue from the sale and leaseback arrangements services segment by approximately HK$7,090,000 and the increase in revenue from the supply chain management services segment by approximately HK$4,578,000.

The Group made a gross profit of approximately HK$73,760,000 for the year ended 31 December 2020, representing a gross profit margin of approximately 86%, which is an increase of 12%, when compared with the gross profit margin of approximately 74% for the year 2019, which was mainly attributable to the increase in gross profit margin from the sale and leaseback arrangements services segment.

Other income for the year ended 31 December 2020 amounted to approximately HK$12,388,000 (2019: HK$21,191,000), representing a decrease of approximately 42%. The decrease was mainly due to the decrease in interest income from term deposits.

Administrative expenses for the year ended 31 December 2020 amounted to approximately HK$68,079,000 (2019: HK$65,232,000), representing an increase of approximately 4%. The increase was mainly due to the rise in labor cost driven by business development.

For the year ended 31 December 2020, share of profit of associates amounted to approximately HK$1,258,000 (2019: HK$2,614,000). The decrease was mainly attributable to the pandemic.

Business Review and Outlook

Closely following the strategy of integration of industry and finance for its core business and market competitiveness, we built an integrated financial service platform with financial empowerment leveraging on the business synergies arising from the financial leasing, commercial factoring, supply chain management services and assets management services. Taking the provision of supply chain management services, financial services and assets management services as our core businesses and competitive strengths in the market, the Group endeavors to provide financial leasing, commercial factoring, supply chain management, investment and financing advisory services and other portfolios of financial products to the two groups of target core enterprises including steel companies and domestic conglomerates, as well as their upstream and downstream customers, in order to provide customized financial service solutions for core enterprises, meet the strategic needs of core enterprises and their upstream and downstream companies for industrial upgrading and give full play to the important role of financial services in empowering real economy.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the year, revenue from the sale and leaseback arrangements services segment increased by approximately 10% to approximately HK$78,691,000 (2019: HK$71,601,000), and the segment results recorded a profit of approximately HK$65,976,000 (2019: HK$48,331,000). The increase in revenue from the sale and leaseback arrangements services segment was mainly due to the increase in project gross profit resulting from increased new projects and more flexible financial resource usage.

During the year, revenue from the supply chain management services segment was approximately HK$5,294,000 (2019: HK$716,000), and the segment results recorded a profit of approximately HK$2,431,000 (2019: loss of approximately HK$2,070,000). Based on the business scenarios of the target companies, the supply chain management services segment carefully analyzed the capital flow, information flow, business flow, logistics, etc. of the industrial chain where the target companies are located, and solved customers’ capital and management needs with the most convenient and diversified products, so as to reduce the transaction cost of the industrial chain and empower the industry. The supply chain management services segment carried out business and recorded revenue.

During the year, revenue from the assets management and consultancy services segment was approximately HK$1,054,000 (2019: HK$4,812,000), and the segment results recorded a loss of approximately HK$5,259,000 (2019: HK$305,000). The decline in revenue from and segment results of the assets management and consultancy services segment was mainly attributable to the pandemic and international macroeconomic fluctuations, which made customers more prudent about the outlook and slowdown their investment in projects.

During the year, revenue from the property leasing services segment decreased by approximately 41% to approximately HK$339,000 (2019: HK$573,000), and the segment results recorded a loss of approximately HK$970,000 (2019: profit of approximately HK$2,065,000). The decrease in revenue from the property leasing services segment was mainly attributable to the increase in vacancy rate. The decline in segment results was mainly attributable to the decrease in fair value of investment properties of the Group of approximately HK$1,000,000 (2019: increase in fair value of investment properties of approximately HK$2,400,000).

Looking ahead into 2021, under the policy environment and market environment of promoting financial innovation, Shougang Concord Grand will grasp opportunities brought by the policies in relation to China’s innovation of modern supply chain area and the upgrading strategies of industries in which target core enterprises operate to provide innovative financial product and service portfolios to those target core enterprises and their upstream and downstream customers, so as to serve the real economy. We will strive to capitalize on the advantage of cross-border operation while actively exploring new models of innovative financial service business and taking advantage of Hong Kong’s excellent geographical location and favorable financing environment as an international financial market, to make meaningful exploration under The Belt and Road Initiative and seize relevant policy opportunities.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In terms of risk management infrastructure, prudent and effective risk management can help in untapping the commercial value of long-term investments, as well as laying a solid foundation for the Group’s sustainable development. We will put emphasis on strengthening our risk control system, introducing information technology platform, and adjusting our management and control strategies in a timely manner and continuously improving our management by improving and optimizing our risk control mechanism. In addition, we will also continue to promote the development of our online risk management platform based on asset securitization and industry supply chain business so as to provide an effective tool for the Group’s risk management.

Liquidity, Financial Resources and Financing Activities

The Group aimed to maintain stable funding sources and financing is arranged to balance between business requirements and cash flows. The financial leverage of the Group as at 31 December 2020 as compared to 31 December 2019 is summarized below:

	31 December	31 December
	2020	2019
	*HK$’000*	HK$’000
Total borrowings
Current borrowings	143,308	297,018
Non-current borrowings	146,995	168,539
Sub-total	290,303	465,557
Total cash
Cash and cash equivalents	318,818	607,782
Term deposits with initial term over three months	–	94,382
Sub-total	318,818	702,164
Total equity	1,763,989	1,743,498
Total assets	2,161,473	2,294,032
Current ratio	458%	305%

As at 31 December 2020, the Group had cash and cash equivalents of approximately HK$318,818,000 (31 December 2019: HK$607,782,000) and term deposits with initial term over three months of approximately HK$Nil (31 December 2019: HK$94,382,000), which were mainly denominated in Hong Kong dollars, US dollars and Renminbi. The decrease was mainly attributable to the combined effects of net cash used in operating activities of approximately HK$146,343,000, the net repayment of bank borrowings of approximately HK$187,280,000, and proceeds received from disposal of debt instruments of approximately HK$15,506,000.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2020, the Group’s borrowings amounted to approximately HK$290,303,000, of which approximately HK$143,308,000 were repayable within twelve months from 31 December 2020 and approximately HK$146,995,000 were repayable after twelve months from 31 December 2020. During the year, the Group obtained new bank borrowings of approximately HK$283,683,000 for the finance leasing business and working capital of the Group. All borrowings bore interest at market rates.

Capital Structure

The capital and reserves attributable to owners of the Company amounted to approximately HK$1,445,637,000 as at 31 December 2020 (31 December 2019: HK$1,355,149,000). The increase was mainly due to the profit attributable to owners of the Company of approximately HK$5,980,000 for the year ended 31 December 2020 and the exchange differences arising on translation of approximately HK$73,498,000 in total during the year. The Company did not issue any new shares during the year. The issued share capital of the Company was approximately HK$39,846,000 (represented by approximately 3,984,640,000 issued ordinary shares).

Material Acquisition, Disposals and Significant Investments

During the year, the Group had no material acquisitions, disposals and significant investment.

Charge on Assets

As at 31 December 2020, the Group had the following charge on assets:

(i) The Group’s investment properties with an aggregate carrying value of HK$23,700,000 and the Group’s building with carrying value of HK$14,549,000 were pledged to banks to secure for bank borrowings with outstanding amount of HK$8,170,000.
(ii) The Group’s receivables under sale and leaseback arrangements with a carrying value of HK$321,283,000 were pledged to banks to secure for bank borrowings with outstanding amount of HK$212,133,000.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign Exchange Exposure

The normal operations and investments of the Group are mainly in Hong Kong and China, with revenue and expenditure denominated in Hong Kong dollars and Renminbi. The Directors believe that the Group does not have significant foreign exchange exposure. However, if necessary, the Group will consider using forward exchange contracts to hedge against foreign exchange exposures. As at 31 December 2020, the Group had no significant foreign exchange exposure.

Contingent Liabilities

The Group had no significant contingent liabilities as at 31 December 2020.

Employees

As at 31 December 2020, the Group employed 50 (31 December 2019: 60) full time employees (excluding those under the payroll of associates of the Group). The Group remunerated its employees mainly with reference to the prevailing market practice, individual performance and work experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund, discretionary bonus and employees share option scheme are also available to employees of the Group. Remuneration packages are reviewed either annually or through special increment.

During the year ended 31 December 2020, the Company and its subsidiaries have not paid or committed to pay to any individual any amount as an inducement to join or upon joining the Company and/or its subsidiaries.

FOR THE SIX MONTHS ENDED 30 JUNE 2021

Closely following the development path of empowering the industrial chain by financial services, the Company prioritised the development of its supply chain financial services in the steel industry through serving the upstream and downstream customers of Shougang Group, and centred around core enterprises in the industry to expand supply chain management and financial service business. Focusing on the two types of target core enterprises namely steel companies and domestic large-scale enterprise groups as well as their upstream and downstream customers, after thorough analysis and research, the Group seized market opportunities and continued to optimise product mix. During the period under review, the Group adhered to the main tone of fundamental work development, stressed on efficient allocation of resources and focused on steady efficiency improvement. Accordingly, the Group continued to achieve a year-on-year growth in both revenue and profit.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial Key Performance Indicators

The key financial performance indicators are analysed as below:

	Six months ended 30 June	Six months ended 30 June
	2021	2020	+/(-)
	*HK$’000*	HK$’000	Change
Financial performance
Revenue	1,124,219	38,601	2,812%
Gross profit margin (%)	5%	84%	(79%)
– Sale and leaseback arrangements services
segment	86%	84%	2%
– Supply chain management business segment	1%	N/A	N/A
Profit before income tax for the period	27,327	13,606	101%
Profit for the period	17,922	8,482	111%
Profit attributable to owners of the Company	11,418	2,117	439%
Basic earnings per share (HK cents)	0.29	0.05	480%
	30 June	31 December
	2021	2020	+/(-)
	*HK$’000*	HK$’000	Change
Key financial indicators
Total cash	204,285	318,818	(36%)
Total assets	2,211,859	2,161,473	2%
Total liabilities	431,251	397,484	8%
Bank borrowings	264,145	290,303	(9%)
Equity attributable to owners of the Company	1,455,438	1,445,637	1%
Current ratio	405%	458%	(53%)
Debt asset ratio	19.5%	18.4%	1.1%

Financial Overview

The Group recorded profit attributable to owners of the Company of approximately HK$11,418,000 for the six months ended 30 June 2021, representing an increase of approximately 4.4 times when compared with the profit attributable to owners of the Company of approximately HK$2,117,000 for the same period last year. Revenue of the Group for the six months ended 30 June 2021 was approximately HK$1.12 billion, representing an increase of approximately 28 times when compared with that of approximately HK$38,601,000 for the same period of 2020. The increase was mainly attributable to the increase in revenue from the supply chain management business segment. The Group recorded a gross profit of approximately HK$52,161,000 for the six months ended 30 June 2021, representing an increase of approximately 60% when compared with that of approximately HK$32,609,000 for the six months ended 30 June 2020. The Group’s gross profit margin was approximately 5% for the six months ended 30 June 2021, representing a significant decrease when compared with the gross profit margin of approximately 84% for the same period of 2020.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s revenue for the six months ended 30 June 2021 was approximately HK$1.12 billion, representing an increase of approximately 28 times when compared with that of approximately HK$38,601,000 for the same period of 2020. The increase was mainly attributable to the significant increase in revenue from the commencement of business covering full-process services including steel product trading and logistics under the supply chain management business segment by approximately HK$1.08 billion. At the same time, the sale and leaseback arrangements services segment also recorded an increase in revenue of approximately HK$5,519,000.

The Group made a gross profit of approximately HK$52,161,000 for the six months ended 30 June 2021, representing an increase of approximately 60% when compared with that of approximately HK$32,609,000 for the six months ended 30 June 2020. The Group’s gross profit margin was approximately 5% for the six months ended 30 June 2021, representing a significant decrease when compared with the gross profit margin of approximately 84% for the same period of 2020, which was mainly attributable to the lower gross profit margin from the supply chain management business segment.

The Group’s administrative expenses for the six months ended 30 June 2021 amounted to approximately HK$25,443,000, representing a decrease of approximately 10% when compared with that of approximately HK$28,257,000 for the same period of 2020. The decrease was mainly due to the decrease in labor cost.

The Group recorded a share of loss of associates of approximately HK$219,000 for the six months ended 30 June 2021 (2020: profit of HK$366,000). The loss was mainly due to the impact of the epidemic and the seasonality of the industry and the increase in business promotion expenses. The Company expects the business development of associates to pick up steadily and generate returns.

Basic earnings per share of the Group for the six months ended 30 June 2021 was HK0.29 cents (six months ended 30 June 2020: earnings per share of HK0.05 cents).

Business Review and Outlook

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the period under review, revenue from the sale and leaseback arrangements services segment increased by approximately 15% to approximately HK$43,303,000 (six months ended 30 June 2020: HK$37,784,000), while the segment results recorded a profit of approximately HK$32,325,000 (six months ended 30 June 2020: HK$31,362,000). The increase in revenue and segment results from the sale and leaseback arrangements services segment were mainly attributable to the increase in project gross profit resulting from increased new projects and more flexible financial resource usage.

During the period under review, the supply chain management business segment recorded a significant growth in revenue of approximately HK$1.08 billion (six months ended 30 June 2020: HK$645,000). The results of the supply chain management business segment experienced a turnaround and recorded a profit of approximately HK$7,178,000 (six months ended 30 June 2020: loss of HK$557,000). Based on the business scenario of the target enterprise, the supply chain management business segment carefully analyses the capital flow, information flow, business flow, logistics, etc. of the target enterprise’s industrial chain, and solves customers’ capital and management needs with the most convenient and diversified products to reduce the transaction cost of industrial chain and empower the industry. During the period under review, the supply chain management business segment commenced business covering full-process services including steel product trading and logistics, which contributed to significant increases in revenue and segment results of the Group.

During the period under review, the assets management and consultancy services segment of the Group recorded a revenue of approximately HK$1,459,000 (six months ended 30 June 2020: HK$63,000). The results of the assets management and consultancy services segment experienced a turnaround and recorded a profit of approximately HK$415,000 (six months ended 30 June 2020: loss of HK$1,977,000). The increase in revenue and the turnaround in the segment results was mainly due to the commencement of the consultancy business at the end of last year.

During the period under review, revenue from the property leasing services segment increased to approximately HK$309,000 (six months ended 30 June 2020: HK$109,000), while the segment results recorded a profit of approximately HK$829,000 (six months ended 30 June 2020: loss of HK$991,000). The increase in revenue from the segment was mainly due to the increased occupancy rate. The increase in segment results was mainly attributable to the increase in fair value of investment properties of the Group. The Group recorded an increase in fair value of investment properties of approximately HK$500,000 during the period under review (six months ended 30 June 2020: fair value decrease of HK$1,000,000).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity, Financial Resources and Financing Activities

The Group has been focusing on maintaining stable funding sources and financing is arranged to match business requirements and cash flows. The financial leverage of the Group as at 30 June 2021 as compared to 31 December 2020 is summarised below:

	30 June	31 December
	2021	2020
	*HK$’000*	HK$’000
Total borrowings
Current borrowings	156,299	143,308
Non-current borrowings	107,846	146,995
Sub-total	264,145	290,303
Total cash	204,285	318,818
Total equity	1,780,608	1,763,989
Total assets	2,211,859	2,161,473
Financial leverage
Current ratio	405%	458%
Debt asset ratio	19.5%	18.4%

As at 30 June 2021, the Group had cash and cash equivalents of approximately HK$204,285,000 (31 December 2020: HK$318,818,000), which were mainly denominated in Hong Kong dollars and Renminbi. The decrease was mainly attributable to the net repayment of bank borrowings of approximately HK$26,356,000 and cash flows used in operating activities amounted to approximately HK$73,038,000 which was mainly attributable to the inventories purchased as a result of the expansion of the supply chain business.

As at 30 June 2021, the Group’s borrowings amounted to approximately HK$264,145,000, of which approximately HK$156,299,000 were repayable within twelve months from 30 June 2021 and approximately HK$107,846,000 were repayable after twelve months from 30 June 2021. During the period under review, the Group obtained new bank borrowings of approximately HK$12,240,000 for the supply chain management business. All loans bore interest at market rates.

Capital Structure

The equity attributable to owners of the Company amounted to approximately HK$1,455,438,000 as at 30 June 2021 (31 December 2020: HK$1,445,637,000). The increase was mainly due to the profit for the period amounting to approximately HK$11,418,000. The Company did not issue any new shares during the period under review. The issued share capital of the Company was approximately HK$39,846,000 (represented by approximately 3,984,640,000 issued ordinary shares).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Material Acquisition, Disposals and Significant Investment

During the six months ended 30 June 2021, the Group had no material acquisition, disposals and significant investment.

Charge on Assets

As at 30 June 2021, the Group had the following charge on assets:

(i) The Group’s investment properties with an aggregate carrying value of HK$38,600,000 were pledged to banks to secure for bank borrowings with outstanding amount of HK$6,747,000.
(ii) The Group’s receivables under sale and leaseback arrangements with a carrying value of HK$284,591,000 were pledged to banks to secure for bank borrowings with outstanding amount of HK$181,446,000.
(iii) The Group’s trade and other receivables with an aggregate carrying value of HK$11,123,000 were pledged to a bank to secure for bank borrowing with outstanding amount of HK$5,952,000.

Foreign Exchange Exposure

The normal operations and investments of the Group are mainly in Hong Kong and Mainland China, with revenue and expenditure denominated in Hong Kong dollars and Renminbi. The Directors believe that the Group does not have significant foreign exchange exposure. However, if necessary, the Group will consider using forward exchange contracts to hedge against foreign exchange exposures. As at 30 June 2021, the Group has no significant foreign exchange exposure.

Contingent Liabilities

The Group had no significant contingent liabilities as at 30 June 2021.

Employees

As at 30 June 2021, the Group employed 51 (31 December 2020: 50) full time employees (excluding those under the payroll of associates of the Group). The Group remunerated its employees mainly with reference to the market practice, individual performance and experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund, discretionary bonus and employees share option scheme are also available to employees of the Group. Remuneration packages are reviewed either annually or individually.

During the six months ended 30 June 2021, the Company and its subsidiaries have not paid or committed to pay to any individual any amount as an inducement to join or upon joining the Company and/or its subsidiaries.

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 respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors’ and Chief Executive’s interests and short positions in Shares, underlying Shares and debentures

As at the Latest Practicable Date, none of the Directors and Chief Executive of the Company had any interest or short position in the Shares, underlying Shares and debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which were required (a) 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 (b) pursuant to section 352 of the SFO, to be recorded in the register required to be kept; or (c) pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

None of the Directors is a director or employee of a company which has an interest in the Shares and underlying Shares of the Company which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO.

(b) Directors’ 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 relevant member of the Group within one year without payment of compensation other than statutory compensation).

(c) As at the Latest Practicable Date

(1) none of the Directors had any direct or indirect interest in any assets which had been, since the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by, or leased to the Company or any of its subsidiaries, or are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries; and
(2) none of the Directors was materially interested in any contract, save for service contracts, or arrangement entered into by the Company or any of its subsidiaries which contract or arrangement is subsisting at the date of this circular and which is significant in relation to the business of the Group.

GENERAL INFORMATION

APPENDIX II

(d) Directors’ interests in competing business

As at the Latest Practicable Date, in so far as the Directors were aware, save for Mr. Xu Liang’s interest as a director in Shougang Holding (being an entity principally engages in property investment, which is considered to compete or likely to compete with the businesses of the Group) as further described in the annual report of the Company dated 19 March 2021, none of the Directors or their respective close associates had any interest in a business that competed or was likely to compete with the business of the Group.

(e) Substantial Shareholders’ and other Shareholders’ interests

As at the Latest Practicable Date, according to the register kept by the Company pursuant to Section 336 of SFO, the following persons and companies (other than the Directors or chief executive of the Company) had an interest or short position in the Shares and/or the underlying Shares which fell to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

Long positions in the Shares/underlying Shares

			Interests as to
			% of the
			issued share
		Number of	capital of the
		Shares/	Company as at
	Capacity in which	underlying	the Latest
Name of Shareholder	interests were held	Shares	Practicable Date	Note(s)
Shougang Group	Interests of controlled	2,425,736,972	60.88%	1
	corporations
Shougang Holding	Interests of controlled	2,025,736,972	50.84%	1
	corporation
Wheeling Holdings Limited	Beneficial owner	2,025,736,972	50.84%	1
Shougang Fund	Interests of controlled	400,000,000	10.04%	1
	corporation
Jingxi Holdings Limited	Beneficial owner	400,000,000	10.04%	1
Yip Wang Ngai	Interests of controlled	213,600,000	5.36%	2
	corporation
HY Holdings Limited	Beneficial owner	213,600,000	5.36%	2
Mak Siu Hang Viola	Interests of controlled	254,413,000	6.38%	3
	corporation
VMS Investment Group Limited	Beneficial owner	254,413,000	6.38%	3

VMS Investment Group Limited

GENERAL INFORMATION

APPENDIX II

Notes:

Shougang Group indicated in its disclosure form dated 30 July 2019 (being the latest disclosure form filed up to the Latest Practicable Date) that as at 30 July 2019, its interest in the Company was held by Shougang Holding and Shougang Fund respectively, wholly owned subsidiaries of Shougang Group. Shougang Holding’s interest in the Company was the Shares held by Wheeling Holdings Limited, a wholly owned subsidiary of Shougang Holding, and Shougang Fund’s interest in the Company was the Shares held by Jingxi Holdings Limited, a wholly owned subsidiary of Shougang Fund.
Mr. Yip Wang Ngai indicated in his disclosure form dated 1 August 2019 (being the latest disclosure form filed up to the Latest Practicable Date) that as at 30 July 2019, his interest in the Company was held by HY Holdings Limited which in turn was held as to 80% by Mr. Yip Wang Ngai.
Ms. Mak Siu Hang Viola indicated in her disclosure form dated 22 January 2021 (being the latest disclosure form filed up to the Latest Practicable Date) that as at 20 January 2021, her interest in the Company was held by VMS Investment Group Limited which in turn was wholly owned by Ms. Mak Siu Hang Viola.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company was aware of any other person or corporation who had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who/which was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group, or any options in respect of such capital.

3. EXPERT’S QUALIFICATION AND CONSENT

The following is the qualification of the expert who has given its opinion or advice which is contained in this circular:

Name Qualification Messis Capital Limited a licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

As at the date of this circular, the above-mentioned expert 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, the above-mentioned expert did not have any direct or indirect interest in any asset which had been acquired, disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group, since 31 December 2020, being the date to which the latest audited financial statements of the Group was made up; and was not beneficially interested in the share capital of any member of the Group and did not have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

GENERAL INFORMATION

APPENDIX II

4. LITIGATION

As at the Latest Practicable Date, to the best of the knowledge, information and belief of the Directors, neither the Company nor any member of the Group was engaged in any litigation or claims of material importance and there was no litigation or claims of material importance known to the Directors to be pending or threatened against any member of the Group.

5. MATERIAL CONTRACTS

The Company has not entered into any material contracts (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of this circular which are or may be material.

6. MISCELLANEOUS

(a) The registered office of the Company is at Victoria Place, 5th Floor, 31 Victoria Street, Hamilton, HM 10, Bermuda and the principal place of business of the Company in Hong Kong is at 5/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(b) The Company’s Hong Kong branch share registrar and transfer office is Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(c) The company secretary of the Company is Ms. Li Po Ki. She is a member of The Hong Kong Institute of Certified Public Accountants, and a member of The Chartered Governance Institute and The Hong Kong of Chartered Governance Institute.
(d) The English text of this circular shall prevail over their respective Chinese text for the purpose of interpretation.

7. DOCUMENTS ON DISPLAY

Copies of the following documents are on display and are published on the website of the Stock Exchange at www.hkexnews.com and the website of the Company at www.shougang-grand.com.hk for a period of 14 days from the date of this circular:

(a) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 25 to 26 of this circular;
(b) the letter from Messis Capital Limited to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 27 to 65 of this circular;
(c) the written consent referred to in the paragraph headed “Expert’s Qualification and Consent” in this Appendix;
(d) the Master Facilities Agreement; and
(e) the Master Purchase Agreement.

NOTICE OF SPECIAL GENERAL MEETING

==> picture [47 x 55] intentionally omitted <==

**首長四方（集團）有限公司[*] SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability) (Stock Code: 730)

NOTICE IS HEREBY GIVEN that a special general meeting of Shougang Concord Grand (Group) Limited (the “ Company ”) will be held at 3:00 p.m. on Tuesday, 25 January 2022 at 11/F, China Railway Construction Building, No. 20, Shijingshan Road, Shijingshan District, Beijing, PRC (the “ SGM ”) for the purposes of considering and, if thought fit, passing with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT
(a) the agreement (the “ Master Facilities Agreement ”) dated 23 August 2021 entered into between the Company and Shougang Group Co., Ltd. (首鋼集團有限公司) (“ Shougang Group ”), a copy of which is tabled at the Meeting and marked “A” and initialed by the Chairman of the Meeting for identification purpose, pursuant to which, the Company has conditionally agreed to provide or procure its subsidiaries to provide the facilities of up to an aggregate principal amount of RMB2,000,000,000 (equivalent to approximately HK$2,410,000,000) to Shougang Group and/or its subsidiaries be and is hereby approved, ratified and confirmed;
(b) the annual caps of the facilities to be provided under the Master Facilities Agreement of RMB2,264,000,000 (equivalent to approximately HK$2,728,000,000) as set out in the circular of the Company dated 24 December 2021 be and is hereby approved; and
(c) any one director of the Company, or any two directors of the Company if the affixation of the common seal is necessary, be and is/are hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him/her to be incidental to, ancillary to or in connection with the matters contemplated in the Master Facilities Agreement.”
For identification purpose only

NOTICE OF SPECIAL GENERAL MEETING

“ THAT
(a) the agreement (the “ Master Purchase Agreement ”) dated 23 August 2021 entered into between Beijing Jingxi Supply Chain Management Co., Ltd. (北京京西供應鏈管理有限公司) (“ Beijing Jingxi Supply Chain ”) and Beijing Shougang Co., Ltd. (北京首鋼股份有限公司)(“ Beijing Shougang* ”), a copy of which is tabled at the Meeting and marked “B” and initialed by the Chairman of the Meeting for identification purpose, pursuant to which, Beijing Jingxi Supply Chain agreed to purchase steel products from Beijing Shougang for a term of three financial years ending 31 December 2023 be and is hereby approved, ratified and confirmed;
(b) the annual caps of the transactions to be conducted under the Master Purchase Agreement of RMB1,000,000,000 (equivalent to approximately HK$1,205,000,000) as set out in the circular of the Company dated 24 December 2021 be and is hereby approved; and
(c) any one director of the Company, or any two directors of the Company if the affixation of the common seal is necessary, be and is/are hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him/her to be incidental to, ancillary to or in connection with the matters contemplated in the Master Purchase Agreement.”

By order of the Board Shougang Concord Grand (Group) Limited Xu Liang Chairman

Hong Kong, 24 December 2021

Registered office:

Victoria Place, 5th Floor 31 Victoria Street Hamilton HM 10 Bermuda

Principal office in Hong Kong:

5th Floor Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong

100

NOTICE OF SPECIAL GENERAL MEETING

Notes:

(1) In view of the ongoing novel coronavirus (COVID-19) pandemic and recent requirements for prevention and control of its spread, the Company will implement certain preventive measures at the SGM, the details of which are set out under “Precautionary Measures for the Special General Meeting” on page ii of the circular of the Company dated 24 December 2021 to safeguard the health and safety of the attending shareholders, staff and other stakeholders of the Company.
(2) Any member of the Company entitled to attend and vote at the SGM is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him/her. A proxy needs not be a member of the Company. The Company does not in any way wish to diminish the opportunity available to the shareholders of the Company to exercise their rights and to vote, but is conscious of the pressing need to protect the Shareholders from possible exposure to COVID-19. For the health and safety of the Shareholders, and in view of the limit on attendance and seating capacity as may be legally required, the Company would like to encourage Shareholders to exercise their right to vote at the SGM by appointing the Chairman of the SGM as their proxy instead of attending the SGM in person. Physical attendance is not necessary for the purpose of exercising Shareholders’ rights.
(3) The instrument appointing a proxy shall be in writing under the hand of the appointer or of his/her attorney duly authorised in writing or, if the appointer is a corporation, either under seal or under the hand of any officer or attorney duly authorised.
(4) In order to be valid, the 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 such power or authority, must be deposited with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as practicable and in any event not less than 48 hours before the time appointed for the holding of the SGM, or any adjourned Meeting thereof.
(5) The record date for determining the entitlement of members of the Company to attend and vote at the SGM is fixed at the close of business on Monday, 24 January 2022. In order to qualify for the entitlement to attend and vote at the SGM, all documents for the transfer of shares of the Company accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, for registration no later than 4:30 p.m. on Monday, 24 January 2022.
(6) Completion and return of the form of proxy shall not preclude members of the Company from attending and voting in person at the SGM or at any adjourned Meeting thereof should they so wish, and in such event, the form of proxy shall be deemed to be revoked.
(7) Where there are joint registered holders of any share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she was solely entitled thereto, but if more than one of such joint holders are present at the SGM, whether in person or by proxy, the joint registered holder present whose name stands first on the register of members of the Company in respect of the shares shall alone be entitled to vote in respect thereof.

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Ulferts International Limited — Proxy Solicitation & Information Statement 2021

50108_rns_2021-12-24_7888705c-abdb-49fa-b39b-83a37d1b96e1.pdf

首長四方（集團）有限公司[*] SHOUGANG CONCORD GRAND (GROUP) LIMITED

(1) VERY SUBSTANTIAL ACQUISITION AND CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER FACILITIES AGREEMENT; AND (2) CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER PURCHASE AGREEMENT; AND NOTICE OF SPECIAL GENERAL MEETING

PRECAUTIONARY MEASURES FOR THE SPECIAL GENERAL MEETING

CONTENTS

VOTING BY PROXY IN ADVANCE OF THE SGM:

PRECAUTIONARY MEASURES AT THE SGM

DEFINITIONS

DEFINITIONS

DEFINITIONS

首長四方（集團）有限公司[*] SHOUGANG CONCORD GRAND (GROUP) LIMITED

(1) VERY SUBSTANTIAL ACQUISITION AND CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER FACILITIES AGREEMENT; AND (2) CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER PURCHASE AGREEMENT; AND NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

1. THE MASTER FACILITIES AGREEMENT

Major terms of the Master Facilities Agreement

(A) Major terms of an entrusted payment:

(B) Major terms of the finance lease:

LETTER FROM THE BOARD

(C) Major terms of the credit financing:

Basis of determining of the Facilities and the annual caps thereof

LETTER FROM THE BOARD

Historical transactions under the 2018 Facilities Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Basis of determining the interest rate

Information on Shougang Group

Financial effects of the transactions contemplated under the Master Facilities Agreement

Reasons for entering into of the Master Facilities Agreement

Policy and Internal Control of the Group in Relation to the Master Facilities Agreement

Listing Rules Implications

Future compliance with the notifiable transaction requirements for the transactions under the Master Facilities Agreement

2. THE MASTER PURCHASE AGREEMENT

LETTER FROM THE BOARD

Basis of determining the price of the products supplied to the Group

Condition

Information on Beijing Jingxi Supply Chain and Beijing Shougang

Beijing Jingxi Supply Chain

Beijing Shougang

Reasons for Entering into of the Master Purchase Agreement

Internal Control Procedures of the Group in Relation to the Master Purchase Agreement

Internal control and pricing policies

Internal review policies

LETTER FROM THE BOARD

Listing Rules Implications

Relationship with Shougang Group

LETTER FROM THE BOARD

3. GENERAL

4. SGM

5. RECOMMENDATIONS

首長四方（集團）有限公司[*] SHOUGANG CONCORD GRAND (GROUP) LIMITED

(1) VERY SUBSTANTIAL ACQUISITION AND CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER FACILITIES AGREEMENT; AND (2) CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER PURCHASE AGREEMENT; AND NOTICE OF SPECIAL GENERAL MEETING

The Independent Board Committee of Shougang Concord Grand (Group) Limited Tam King Ching, Kenny Zhang Xingyu Ng Man Fung, Walter On Danita

(1) VERY SUBSTANTIAL ACQUISITION AND CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER FACILITIES AGREEMENT; AND (2) CONTINUING CONNECTED TRANSACTION IN RESPECT OF MASTER PURCHASE AGREEMENT

INTRODUCTION

BASIS OF OUR ADVICE AND RECOMMENDATIONS

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background information of the Group

1.1 Background of the Group

1.2 Financial information of the Group

Financial performance of the Group

Financial position of the Group

As at 31 December 2020

As at 30 June 2021

2.1 Information of Beijing Jingxi Supply Chain

2.2 Information of Beijing Shougang

2.3 Information of Shougang Group

3. The Master Facilities Agreement

3.1 Background to and reasons for entering into of the Master Facilities Agreement

3.2 Key terms of the Master Facilities Agreement

Major terms of the Master Facilities Agreement

(A) Major terms of the entrusted payment:

(B) Major terms of the finance lease:

(C) Major terms of the credit financing:

3.2.1 Interest rate

(a) Entrusted payment

(b) Finance lease

(c) Credit financing

3.2.2 Handling fees

Ulferts International Limited Proxy Solicitation & Information Statement 2021

**首長四方（集團）有限公司[*] SHOUGANG CONCORD GRAND (GROUP) LIMITED**

**首長四方（集團）有限公司[*] SHOUGANG CONCORD GRAND (GROUP) LIMITED**

**首長四方（集團）有限公司[*] SHOUGANG CONCORD GRAND (GROUP) LIMITED**