WH Group Limited — Capital/Financing Update 2018

Mar 9, 2018

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

This announcement appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

==> picture [35 x 53] intentionally omitted <==

China Baoli Technologies Holdings Limited 中國寶力科技控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 164)

SUPPLEMENTAL ANNOUNCEMENT – DISCLOSEABLE TRANSACTION IN RELATION TO THE ACQUISITION OF 10% OF THE ISSUED SHARE CAPITAL OF YOTA INVOLVING AN ISSUE OF CONSIDERATION SHARES UNDER GENERAL MANDATE

Reference is made to the announcement of China Baoli Technologies Holdings Limited (the “ Company ”) dated 9 February 2018 in relation to the acquisition of 10% of the issued share capital of Yota involving an issue of consideration shares under general mandate (the “ Announcement ”). Unless otherwise defined, capitalized terms used in this announcement shall bear the same meanings as those defined in the Announcement.

1

The Company would like to provide further information as follows:

BACKGROUND OF, REASONS FOR AND BENEFITS OF THE ACQUISITION

The Vendor first approached the shareholders of Yota, including the Group, with a view to selling its 10% equity interest in Yota and initiated the Acquisition. The Group saw this as an opportunity to increase its equity stake in Yota and grasped such opportunity. The Company started the negotiation for the Acquisition on 14 December 2017 and entered into the Agreement for the Acquisition with the Vendor on 9 February 2018. Through the Acquisition, the equity stake of the Group in Yota will increase from 30% to 40% upon Completion and Yota will remain to be accounted for as an associated company of the Company upon completion of the Acquisition.

As set out in the Announcement, the Company can have greater influence over the development of Yota through the Acquisition. The Group will have larger equity interest in Yota and become the single largest shareholder of Yota. In addition, upon completion of the Acquisition, the number of shareholders of Yota will decrease from 4 to 3 and the Vendor will no longer be a shareholder of Yota. The director originally appointed by the Vendor to the board of directors of Yota will be replaced by a director to be appointed by the Group on or before completion of the Acquisition. The Group will therefore have more influence on the governing body of Yota which is responsible for the management and development of Yota.

The Acquisition is in line with the long-term business strategy and development direction of the Group. In future, while the Group will keep on seeking new growth opportunities to create greater values to the Group and the Shareholders, the Group will put its main focus in the mobile technologies business as it believes that mobile technologies including but not limited to dual-screen technologies and related applications have high growth potential and ubiquitous demand. It can improve the Group’s profitability and would deliver long-term benefits to the Group and the Shareholders. After the successful launch of the latest version of YotaPhone (YOTA 3) in China in late October 2017, the Group has already established a foothold in the smartphone industry in China. The Group will continue to expand its market share in the Greater China region and make the most out of the exclusive intellectual property license to market and sell any connectivity devices and ancillary products in the Greater China granted to the Group in 2016 (the “ IP License ”). At the same time, the Group sees the potential

2

of YotaPhone in the global market as Yota is an international brand and is well-known for having the dual-screen mobile devices technologies. It is the Group’s long-term business strategy and development direction to expand its mobile technologies business on a global basis as opportunities arise. The acquisition of further equity interest in Yota pursuant to the terms of the Agreement is therefore in line with the Group’s long-term business strategy and development direction.

As at the date of this announcement, other than the Acquisition, the Company has not started any formal negotiation or entered into any agreement or arrangement with any existing or potential shareholder of Yota as to acquisition of further equity interest or other investments in Yota by the Group. However, the Company remains open to the acquisition of further equity interest in Yota as future opportunities arise.

GOVERNANCE OF YOTA

The Group currently has two representatives on the board of directors of Yota. The Group will have three representatives on the board of directors of Yota on or before completion of the Acquisition. Given that the Group has three representatives on the board of directors of Yota comprising a total of six directors, the Group does not have a majority control over the board of directors of Yota.

To the best knowledge, information and belief of the Directors, the current shareholding structure of Yota as at the date of this announcement is as follows:

	Shareholding
	percentage
Name of shareholder	in Yota
Telconet Capital Limited Partnership (“Telconet”)	34.9%
China Baoli Technologies Services Limited (a wholly-owned subsidiary
of the Company)	30%
Yota Holding Limited	25.1%
MTH Limited (i.e. the Vendor)	10%

3

As at the date of this announcement, the Group holds 30% of the issued share capital of Yota. To the best knowledge, information and belief of the Directors, save as disclosed in the circular of the Company dated 31 March 2016 (the “ 2016 Circular ”) and the entering into of the Agreement with the Vendor, the current shareholder(s) of the remaining 70% shareholding of Yota, being Telconet, the Vender and Yota Holding Limited, do not have any connection or business/other relationship with the Company or its connected persons. To the best knowledge, information and belief of the Directors, Telconet is a limited partnership incorporated and existing under the laws of the Cayman Islands and its principal business is investment holding; Yota Holding Limited is a company incorporated in the British Virgin Islands with limited liability; and the Vender is a company incorporated in the Cayman Islands and its principal business is investment holding.

The Company entered into a shareholders’ agreement with the other shareholders of Yota (the “ Shareholders’ Agreement ”) on 22 April 2016. The terms of the Shareholders’ Agreement would not be changed upon completion of the Acquisition except that the right of the Vender to appoint one director to the board of directors of Yota will be transferred to the Company. Please refer to the 2016 Circular for details of the terms of the Shareholders’ Agreement.

CONSIDERATION

As set out in the Announcement, the Issue Price and the Consideration were determined after arm’s length negotiations between the Vendor and the Purchaser with reference to (i) the cost of acquisition of 30% of the issued share capital of Yota pursuant to the 30% SPA, being US$46,225,000, (ii) the business prospects of Yota, including the launch of YOTA 3 in October 2017 and (iii) the means of settlement of the Consideration including the allotment and issue of the Consideration Shares in tranches at the market price of the Shares.

After the launch of YOTA 3 in China, the Company has been deeply encouraged by the potential of YOTA 3 in the China market and the purchasing power of the Chinese buyers. The Group is now even more confident about the prospect of YotaPhone and Yota. The efforts of the Group are coming to fruition and the Group is beginning to yield favourable financial performance in its mobile technologies business.

Yota is an international brand and is well-known for having the dual-screen mobile devices technologies. The Company believes that YotaPhone also has great prospect in other parts of the world. Yota currently operates with a licensing model as its business strategy where royalties is its main income source. Moreover, most high technology companies tend to incur losses during their initial stage of development before generating any sustainable profit as

4

they focus on developing new products and building up their market shares, as it was the case in Yota where significant amount of research and development expenses have been incurred since its commencement of operation. The Group successfully launched YOTA 3 in China with the help of R&D team of Yota. It proves that Yota has the talents to develop new technologies. Yota can develop updated technologies and register those technologies with the relevant authorities. Therefore, Yota can negotiate with new customers for licensing out the technologies and receive royalties income. The innovative Yota R&D team has been working hard on developing new technologies for licensing out to generate cash inflow. The Company will provide support for the development of Yota such as helping in lining up Yota and the investors who are interested in the technologies developed by Yota. The Company believes that Yota’s financial performance will improve.

In addition, the Directors consider that the consideration for 10% of the issued share capital of Yota in the amount of US$15,500,000 pursuant to the Agreement is attractive given that the Group acquired 30% of the issued share capital of Yota pursuant to the 30% SPA in 2016 at the consideration of US$46,225,000. After the launch of YOTA 3 in China, the prospect of Yota is better than two years ago. The consideration for 10% of the issued share capital of Yota under the Agreement reflects a valuation of Yota similar to that in 2016.

Furthermore, the Consideration will be payable by way of cash payment and the allotment and issue of Consideration Shares. The payment by way of allotment and issue of Consideration Shares allows the Company to preserve its cash flow.

Based on the above, the Directors consider that the Consideration is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

The outstanding loan amount (including interests) provided by the Group to Yota group is approximately USD69,760,000 as disclosed in the interim report of the Company as at 30 September 2017. The loans are repayable on demand. As at the date of this announcement, the Company has not demanded for repayment of the loan.

IMPLICATIONS UNDER THE LISTING RULES

The Company entered into the sale and purchase agreement for the acquisition of 30% of Yota on 23 December 2015 (the “ Previous Acquisition ”) and the Group entered into the sale and purchase agreement for the acquisition of 10% of Yota on 9 February 2018.

5

Pursuant to Rule 14.22 of the Listing Rules, the Stock Exchange may require listed issuers to aggregate a series of transactions and treat them as if they were one transaction if they are all completed within a 12 month period or are otherwise related.

The Previous Acquisition has been completed for almost two years which is longer than the 12 month period mentioned above. The two acquisitions are two different transactions and are not related to each other. The sellers of the two transactions are different. In addition, the business of Yota has formed part of the Company’s principal businesses by way of the licensing arrangement between the Group and Yota, as shown in the Company’s latest annual and interim reports. Accordingly, the two acquisitions should not be aggregated pursuant to Rules 14.22 and 14.23 of the Listing Rules.

The Acquisition should not constitute a reverse takeover under Rule 14.06(6) of the Listing Rules. The Acquisition, even if aggregated with the Previous Acquisition, should not constitute a reverse takeover under Rule 14.06(6) of the Listing Rules for the following reasons:

• (a) the Acquisition (whether aggregated with the Previous Acquisition or not) falls outside the bright line tests under Rules 14.06(6)(a) and (b) of the Listing Rules;

• (b) the size of the Acquisition (even if aggregated with the Previous Acquisition) relative to the size of the Group is small and very far from being a very substantial acquisition;

• (c) under the Acquisition, the Consideration will be settled in cash and by the allotment and issue of the Consideration Shares to the Vendor. The allotment and issue of the Consideration Shares is not expected to result in or cause a change in control (as defined in the Takeovers Code) of the Company upon completion of the Acquisition. No consideration shares were allotted and issued to the seller under the Previous Acquisition. There is no issue of restricted convertible securities to provide the Vendor under the Acquisition or the seller under the Previous Acquisition with de facto control; and

• (d) the Company is principally engaged in the mobile technologies business which is sustainable and viable. The acquisition of equity interest in Yota is a genuine and legitimate expansion of the Group’s existing principal businesses.

6

SHAREHOLDING STRUCTURE

To the best knowledge, information and belief of the Directors, the shareholding structure of the Company as at the date of this announcement and immediately after the allotment and issue of the maximum of 847,494,553 Consideration Shares (assuming no other change in the issued share capital of the Company) is as follows:

Name of Shareholder Lui Lai Yan (Note 1) Yeung Chun Wai, Anthony (Note 1) Rising Elite Global Limited (Note 1) Nova Investment Group Limited (Note 1) Sub-total One Faith Investments Limited (Note 2) Public Shareholders Vendor Other public Shareholders Sub-total Total	As at the date of this announcement Number of Shares Approximate % 152,000,000 0.44% 786,862,205 2.28% 90,000,000 0.26% 1,521,007,187 4.41% 2,549,869,392 7.39% 2,153,475,000 6.24% – – 29,801,700,062 86.37% 29,801,700,062 86.37% 34,505,044,454 100%	Immediately after the allotment and issue of the maximum of 847,494,553 Consideration Shares (assuming no other change in the issued share capital of the Company) Number of Shares Approximate % 152,000,000 0.43% 786,862,205 2.23% 90,000,000 0.25% 1,521,007,187 4.30% 2,549,869,392 7.21% 2,153,475,000 6.09% 847,494,553 2.40% 29,801,700,062 84.30% 30,649,194,615 86.70% 35,352,539,007 100%	Immediately after the allotment and issue of the maximum of 847,494,553 Consideration Shares (assuming no other change in the issued share capital of the Company) Number of Shares Approximate % 152,000,000 0.43% 786,862,205 2.23% 90,000,000 0.25% 1,521,007,187 4.30% 2,549,869,392 7.21% 2,153,475,000 6.09% 847,494,553 2.40% 29,801,700,062 84.30% 30,649,194,615 86.70% 35,352,539,007 100%
			100%

Notes:

• (1) Mr. Yeung Chun Wai, Anthony is an executive Director. Rising Elite Global Limited and Nova Investment Group Limited are beneficially wholly owned by Mr. Yeung Chun Wai, Anthony. Ms. Lui Lai Yan is the spouse of Mr. Yeung Chun Wai, Anthony.

• (2) Mr. Zhang Yi is an executive Director and the Chairman of the Board. One Faith Investments Limited is beneficially wholly owned by Mr. Zhang Yi.

7

BUSINESS UPDATE

Mobile technologies business

As set out in the interim report of the Company for the six months ended 30 September 2017, YOTA 3 was successfully launched by the Group in October 2017. There was a delay in the launch of YOTA 3 due to the following reasons:

• (a) after completion of the Previous Acquisition, it has taken time for the Group to apply for registration of trademark YOTA in the PRC for the new version of the mobile devices;

• (b) as mentioned in the announcements of the Company dated 3 November 2016, 22 November 2016 and 19 May 2017, the Group formed a joint venture with Yulong Computer Telecommunication Scientific (Shenzhen) Co., Ltd, an indirect whollyowned subsidiary of Coolpad Group Limited (“ Coolpad ”), with a view to leverage on the experience and expertise of Coolpad and expedite the development of the Group’s mobile technologies businesses. However, Coolpad, which is the R&D and ODM partner for YOTA 3, underwent several rounds of restructuring and this caused delay in the launch of YOTA 3; and

• (c) there was a repositioning of YOTA 3 so as to position YOTA 3 as the leader in the mobile reading market in China. It took some time for the Group to form strategic partnerships with the content providers in China.

The license period of the IP License has not been and would not be changed due to the postponement in the launch of YOTA 3.

The Group has been able to secure distribution/sales contracts with large PRC telecommunication players. YOTA 3 is currently sold through the following two distribution channels:

1. JD.com（京東商城）, one of two most prominent B2C e-commerce platforms in China by transaction volume and revenue, a member of the Fortune Global 500. As of September 2017, the platform has 266.3 million active users.

8

1. Shenzhen Aisidi Co. Ltd. (“ Aisidi ”) as the Group’s exclusive offline distributor in China. It has established long and stable strategic partnerships with outstanding mobile phone manufacturers in China and abroad and China Mobile, China Unicom and China Telecom. The number of Aisidi’s customers is more than 100,000. Aisidi has built firstclass retail stores to provide better shopping experience in high-end fashion shopping centers in 25 cities of 15 provinces in China.

Apart from the research, marketing and sale of Yota devices in China, the Group also formed alliances with other content providers such as Shanghai Yuewen（上海閱文）, Migu（咪咕）, Ireader（掌閱）and JDRead（京東閱讀）to build a mobile reading ecosystem in the China market.

In addition, the Group is also exploring the business opportunities with some large state owned enterprises to build customized versions of mobile devices for their customers. The Group is also constantly evaluating other business models such as licensing the technologies to other mobile operators and/or industry players.

Tourism and hospitality business and other businesses

As set out in the interim report of the Company for the six months ended 30 September 2017, the Group has temporarily suspended the passenger service on the cruise ship to perform routine and preventive maintenance. As at the date of this announcement, the passenger service remains suspended.

As at the date of this announcement, given that the passenger service on the cruise ship is still in suspension, the Company’s tourism and hospitality business which is active involves only the business of We Fly Travel Limited acquired on 1 March 2017.

As at the date of this announcement, the Company does not have any plan to further downsize or sell its tourism and hospitality business and businesses other than mobile technologies business. However, the Company is monitoring the market environment to rationalize the resources and product mix within the tourism and hospitality business.

9

The Group is also exploring suitable investment opportunities to maintain a stable growth of the other businesses of the Group so as to achieve a balanced business mix of the Group.

By order of the Board China Baoli Technologies Holdings Limited Zhang Yi Chairman

Hong Kong, 9 March 2018

As at the date of this announcement, the executive Directors are Mr. Zhang Yi (Chairman), Ms. Chu Wei Ning (Chief Executive Officer), Mr. Yeung Chun Wai, Anthony and Mr. Wong King Shiu, Daniel; and the independent non-executive Directors are Mr. Chan Chi Yuen, Mr. Chan Kee Huen, Michael, Mr. Han Chunjian and Mr. Wong Hoi Kuen.

10