Changfeng Axle China : Announcements and Notices - Announcement - Discloseable Transaction

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.

(Incorporated in the Cayman Islands with limited liability)

After trading hours on 27 June 2014, Fujian Changfeng, Longyan Shengfeng and Longyan Special Vehicle entered into the Equity Transfer Agreement pursuant to which Longyan Special Vehicle agreed to acquire the entire equity interest in the JV Company and Fujian Changfeng and Longyan Shengfeng agreed to sell their respective 60% and 40% equity interest in the JV Company at a total consideration of RMB35,000,000 (equivalent to approximately HK$43,750,000).
As certain of the applicable percentage ratios as set out in the Listing Rules in respect of the transaction under the Equity Transfer Agreement exceed 5% but all are less than 25%, the transaction under the Equity Transfer Agreement constitutes a discloseable transaction for the Company under the Listing Rules.

Reference is made to the circular of the Company dated 14 February 2014 (the "Circular") in relation to the acquisition of equity interest in the JV Company. Save as defined herein, terms used in this announcement shall have the same meanings as used in the Circular.

After trading hours on 27 June 2014, Fujian Changfeng, Longyan Shengfeng and Longyan Special Vehicle entered into the Equity Transfer Agreement pursuant to which Longyan Special Vehicle agreed to acquire the entire equity interest in the JV Company and Fujian Changfeng and Longyan Shengfeng agreed to sell their respective 60% and 40% equity interest in the JV Company at a total consideration of RMB35,000,000 (equivalent to approximately HK$43,750,000).
1

The principal terms of the Equity Transfer Agreement are as follows:

27 June 2014 (after trading hours)

(1) Fujian Changfeng;
(2) Longyan Shengfeng; and (3) Longyan Special Vehicle Subject matter
Pursuant to the Equity Transfer Agreement, Longyan Special Vehicle agreed to acquire the entire equity interest in the JV Company and Fujian Changfeng and Longyan Shengfeng agreed to sell their respective
60% and 40% equity interest in the JV Company at a total consideration of RMB35,000,000 (equivalent to approximately HK$43,750,000).
The JV Company was incorporated in the PRC with limited liability on 21 July 2011. It is principally engaged in the manufacturing and sales of high quality gears for automobile and construction machinery in the PRC. As at the date of this announcement, the paid-up capital of the JV Company is RMB100,000,000 and is attributable as to 60% to Fujian Changfeng and as to 40% to Longyan Shengfeng.
Fujian Changfeng and Longyan Shengfeng shall, within three months of the First Payment, as defined below, and before completion of the Equity Transfer Agreement, arrange for the current assets of the JV Company as at 31 May 2014 in the amount of approximately RMB61,000,000 be assigned to the entities controlled by Fujian Changfeng and Longyan Shengfeng and the current liabilities of the JV Company as at 31 May 2014 in the amount of approximately RMB30,000,000 be fully settled or discharged by, or the obligation in respect thereof be assigned to, Fujian Changfeng and Longyan Shengfeng, as the case may be.
Following the assignment of the current assets and the settlement or assignment of the current liabilities, the interests in the current assets of the JV Company as at 31 May 2014 in the amount of approximately RMB61,000,000 and the obligation in respect of the current liabilities of the JV Company as at 31 May
2014 in the amount of approximately RMB30,000,000 would be extinguished and cease to be recognised in the financial accounts of the JV Company, and net current assets of approximately RMB31,000,000 would become accrued to the Group and the net asset value of the JV Company is expected to be reduced to approximately RMB39,000,000, which represents mainly prepaid land lease payment, property, plant
and equipment.
2

The consideration was determined after arm's length negotiations among Fujian Changfeng, Longyan Shengfeng and Longyan Special Vehicle with reference to the net asset value of the JV Company at completion, which is expected to be approximately RMB39,000,000 and taking into account the illiquidity discount of the JV Company. Please refer to the section headed "Subject matter" above for an estimate of the net asset value of the JV Company at completion.
The consideration of RMB35,000,000 is to be satisfied by Longyan Special Vehicle in the following manners:
(i) as to RMB15,000,000 by cash payable within three days upon the entering into of the Equity
Transfer Agreement (the "First Payment"); and
(ii) as to RMB20,000,000 by cash payable within five days upon the completion of the equity transfer registration with the relevant PRC government authorities.

After the completion of the assignment and settlement of the current assets and current liabilities as aforesaid, completion of the Equity Transfer Agreement shall take place where the parties shall complete the required transfer registration and procedure with the relevant PRC government authorities.
Upon completion, the JV Company will be wholly owned by Longyan Special Vehicle and cease to be a subsidiary of the Company.

It is estimated that as a result of the disposal of the JV Company, the Company will recognize a loss of approximately RMB4,000,000 (equivalent to approximately HK$5,000,000), being the difference between the net asset value of the JV Company less the net carrying value of the current assets and the current liabilities as at 31 May 2014 and the consideration in the sum of RMB35,000,000, and the proceeds generated therefrom will be applied as general working capital of the Group.

The Company considers that (i) the sales proceeds from the disposal of the JV Company will provide additional funding to the Group to prepare for the expected challenging business environmental in the future by enhancing cashflow of the Group and therefore will improve the working capital and financial strength of the Group; and (ii) the disposal of the JV Company will enable the Group to better utilize and devote its resources to the operation of the business of the Group and improve the overall operational efficiency, as disclosed in the Circular. Please refer to the Circular for the then future plan of the Group with regard to the JV Company.
The Company considers that the terms of the Equity Transfer Agreement are on normal commercial terms and fair and reasonable and in the interests of the Company and the Shareholders as a whole.
3

The JV Company was incorporated in PRC with limited liability on 21 July 2011 and is an indirect non-wholly owned subsidiary of the Company. As at the date of this announcement, the JV Company is owned as to 60% by Fujian Changfeng and 40% by Longyan Shengfeng. The paid-up capital of the JV Company is RMB100,000,000 and is attributable as to 60% to Fujian Changfeng and as to 40% to Longyan Shengfeng.
The scope of business of the JV Company includes the manufacturing and sales of high quality gears for automobile and construction machinery in the PRC.
Set out below is the unaudited financial information of the JV Company based on the general accepted accounting principles in PRC for the two years ended 31 December 2012 and 31 December 2013:

Fujian Changfeng is a company established in the PRC with limited liability on 8 July 2013 and a wholly-owned subsidiary of the Company;
Longyan Shengfeng is a company established in the PRC with limited liability on 29 March 2006 and is an indirect wholly-owned subsidiary of Fujian Changfeng.
Their scope of business includes manufacturing and sales of axle assemblies and axle components in the
PRC.

Longyan Special Vehicle is a company established with limited liability in the PRC on 25 June 2002. The scope of business mainly includes sale of machinery components and wholesale of steel. To the best knowledge, information and belief of the Directors having made all reasonable enquiries, Longyan Special Vehicle and its ultimate beneficial owner are Independent Third Parties.
4

As certain of the applicable percentage ratios as set out in the Listing Rules in respect of the transactions under the Equity Transfer Agreement exceed 5% but all are less than 25%, the transaction under the Equity Transfer Agreement constitutes a discloseable transaction for the Company under the Listing Rules.

In this announcement, the following expressions have the following meanings unless otherwise requires: "Board" the board of Directors;
"Company" Changfeng Axle (China) Company Limited, a company incorporated in the
Cayman Islands with limited liability, the shares of which are listed on the
Main Board of the Stock Exchange;
"Director(s)" the director(s) of the Company;
"Equity Transfer
Agreement"
the equity transfer agreement dated 27 June 2014 entered into among Fujian Changfeng, Longyan Shengfeng and Longyan Special Vehicle in relation to the disposal of the 60% and 40% equity interest in the JV Company by Fujian Changfeng and Longyan Shengfeng, respectively, to Longyan Special
Vehicle;
"Fujian Changfeng" Fujian Changfeng Machinery Manufacturing Co., Ltd.* ( 福建暢豐機械製

造有限公司 ), a company established in PRC with limited liability on 8 July

2013 and a wholly-owned subsidiary of the Company;
"Group" the Company and its subsidiaries;
"Independent Third
Party"
an independent third party, to the best of the Directors' knowledge, information and belief having made all reasonable enquiry, who is not connected with the Company and its connected persons (as defined in the
Listing Rules);
"JV Company" Changfeng Gear Manufacturing Co., Ltd.* ( &Jrrf'11@fff�&0PJ ), a
company established in the PRC with limited liability on 21 July 2011 and an indirect wholly-owned subsidiary of the Company;
"Listing Rules" the Rules Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited;
5
"Longyan Shengfeng" Longyan Shengfeng Machinery Manufacturing Co., Ltd.* ( FJ:!5:§11tl.i'J�

��&0PJ), a limited liability company established in the PRC on 29 March

2006 and wholly-owned by Fujian Changfeng;
"Longyan Special
Vehicle"
Longyan Changfeng Special Vehicle Co., Ltd.* ( FJ:!5rf'11:Wl'*�&0

PJ), a limited liability company established in the PRC on 25 June 2002 and

an Independent Third Party;
"PRC" the People's Republic of China;
"RMB" Renminbi, the lawful currency of the PRC; "Shareholder(s)" the shareholder(s) of the Company;
"Stock Exchange" The Stock Exchange of Hong Kong Limited; "%" per cent.

For illustration purposes, amounts in RMB in this announcement have been translated into HK$ at

RMB1.00 = HK$1.25.

By Order of the Board

Chairman

Hong Kong, 29 June 2014

As at the date of this announcement, the executive directors of the Company are Mr. Wong Kwai Mo, Ms. Wu Ching and Mr. Lai Fengcai; the non-executive director of the Company is Ms. Dong Ying, Dorothy; and the independent non-executive directors of the Company are Mr. Zhu Weizhou, Dr. Li Xiuqing and Mr. Chong Ching Hei.

* For identification purpose only

6

distributed by