Changfeng Axle (China) Company Limited : Announcements and Notices - Discloseable Transaction

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(Incorporated in the Cayman Islands with limited liability)

On 27 December 2013, the JV Company, Shandong Haina and Shandong Fengrun entered into the Assets Acquisition Agreement pursuant to which Shandong Haina has agreed to acquire and the JV Company has agreed to sell the Assets at a consideration of RMB38,000,000 (equivalent to HK$48,260,000). Pursuant to the Assets Acquisition Agreement, Shandong Fengrun has agreed to take up the payment obligation of Shandong Haina.
As the applicable percentage ratios as set out in the Listing Rules in respect of the transaction under the Assets Acquisition Agreement exceed 5% but are less than 25%, the transaction under the Assets Acquisition Agreement constitutes a discloseable transaction for the Company under the Listing Rules.

Reference is made to the announcement of the Company dated 27 December 2013 (the "Announcement") in relation to the Equity Transfer Agreement and the Debt Waiver Agreement. Save as defined herein, terms used in this announcement shall have the same meanings as used in the Announcement.

On 27 December 2013, the JV Company, Shandong Haina and Shandong Fengrun entered into the Assets Acquisition Agreement pursuant to which Shandong Haina has agreed to acquire and the JV Company has agreed to sell the Assets at a consideration of RMB38,000,000 (equivalent to HK$48,260,000). Pursuant to the Assets Acquisition Agreement, Shandong Fengrun has agreed to take up the payment obligation of Shandong Haina.

The principal terms of the Assets Acquisition Agreement are as follows:
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27 December 2013

(1) JV Company;
(2) Shandong Haina; and
(3) Shandong Fengrun

Pursuant to the Assets Acquisition Agreement, Shandong Haina has agreed to acquire and the JV Company has agreed to sell the Assets at a consideration of RMB38,000,000 (equivalent to HK$48,260,000).
The Asset comprises certain tools, equipments and machinery for the production of gear, which were mainly injected by Lonking Machinery as capital injection and under the Debt Waiver Agreement. The carrying value of the Assets as at 30 November 2013 was RMB48,452,000 (equivalent to HK$61,534,040). Please refer to the announcement of the Company dated 27 December 2013 for further details.

The consideration of RMB38,000,000 (equivalent to HK$48,260,000) was determined after arm's length negotiations between the JV Company and Shandong Haina with reference to the estimated market value of the Assets.
Pursuant to the Assets Acquisition Agremment, Shandong Fengrun has agreed to take up the payment obligation of Shandong Haina. The consideration of RMB38,000,000 (equivalent to HK$48,260,000) is to be satisfied by Shandong Fengrun in the following manners:
(i) as to the advance payment of RMB2,000,000 (equivalent to HK$2,540,000) by way of assigning the
Liability by Shandong Fengrun to the JV Company; and
(ii) as to the remaining balance by way of set-off of the amount payable by Shandong Fengrun for the gears to be supplied to the Group by Shandong Fengrun according to the production schedule of the Group from time to time, such amount to be determined with reference to the existing pricing mechanism between the JV Company and Shandong Fengrun as further adjusted with the then prevailing market value.
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Delivery of the Assets to Shandong Haina shall take place within 2 months from the date of the Assets Acquisition Agreement and Shandong Fengrun shall complete the assignment of the Liability to the JV Company within 10 days of the date of the Assets Acquisition Agreement.

Subject to the final audit of the financial figures of the Group, it is estimated that as a result of the sale of the Assets, the Company will recognize an estimated loss of approximately RMB16,200,000 (equivalent to HK$20,574,000).

The Group is principally engaged in the manufacturing and sales of axle assemblies and axle components in the PRC.
In view of the increasing uncertainty in the global economic situation and fierce competition in the PRC market, the Directors consider that the business environment will remain challenging in the future. In order to maintain competitiveness of the Group, the Company has formulated a number of strategies and measures which include products diversification, overseas market expansion, marketing network expansion and implementation of cost control measures. In addition, the Group has been reviewing its operations and intends to gradually restructure its operations and consolidate production facilities so as to improve the overall operational efficiency. As such, the Company believes that the sale of the Assets, can increase the efficiency of the future operation and enable the Group to better utilize and devote its resources to the operation of other businesses as of the Group and to improve the working capital of the Group.
The terms of the Assets Acquisition Agreement have been determined after arm's length negotiations on normal commercial terms and the Directors consider that the terms of the Assets Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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 scope of business of the JV Company includes the manufacturing and sales of high quality gears for automobile and construction machinery in the PRC. Following completion of the Equity Transfer Agreement, the JV Company will become an indirect wholly-owned subsidiary of the Company.
For further details, please refer to the announcements of the Company dated 11 November 2010,
30 December 2010, 30 December 2011, 31 December 2012, 27 May 2013 and 27 December 2013.
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Shandong Haina is a company established with limited liability in the PRC on 24 April 2012. The scope of business is mainly manufacturing and sale of gear and machinery components.
Shangdong Fengrun is a company established with limited liability in the PRC on 7 November 2006. The scope of business is mainly sale of machinery components and wholesale of steel.
To the best knowledge, information and belief of the Directors having made all reasonable enquiries, Shandong Haina and Shandong Fengrun and their respective ultimate beneficial owners are third parties independent of the Company and its connected persons as defined under the Listing Rules.

As the applicable percentage ratios as set out in the Listing Rules in respect of the transaction under the Assets Acquisition Agreement exceed 5% but are less than 25%, the transaction under the Assets Acquisition 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: "Assets" certain tools, equipments and machinery for the production of gear;
"Assets Acquisition
Agreement"
the assets acquisition agreement dated 27 December 2013 entered into among the JV Company, Shandong Haina and Shandong Fengrun in
relation to the sale and acquisition of the Assets;
"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;
"Fujian Changfeng" Fujian Changfeng Machinery Manufacuring Co., Ltd ( iJ!M'll:m;ff