China Rongsheng Heavy : Announcements and Notices - Discloseable Transaction and Share Transaction, Acquisition of 60% Interest in Kyrgyzstan Project

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 purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

中國熔盛重工集團控股有限公司

(Incorporated in the Cayman Islands with limited liability)

The Board is pleased to announce that on 21 August 2014 (after trading hours), the Purchaser (an indirectly wholly-owned subsidiary of the Company), the Vendor and the Guarantors entered into the Share Purchase Agreement, pursuant to which the Purchaser conditionally agreed to acquire a
60% equity interest in the Target Company at the consideration of HK$2,184,000,000, which shall be satisfied by the allotment and issue of the Consideration Shares.
As the applicable percentage ratios exceed 5% but are less than 25% and the consideration shall be satisfied by the allotment of issue of the Consideration Shares, the Acquisition constitutes a discloseable transaction and share transaction for the Company, and is subject to the announcement requirement but is exempt from shareholders' approval under Chapter 14 of the Listing Rules.
The Board is pleased to announce that on 21 August 2014 (after trading hours), the Purchaser (a wholly-owned subsidiary of the Company), the Vendor and the Guarantors entered into the Share Purchase Agreement, pursuant to which the Purchaser conditionally agreed to acquire a
60% equity interest in the Target Company at the consideration of HK$2,184,000,000, which shall be satisfied by the allotment and issue of the Consideration Shares.
The principal terms of the Share Purchase Agreement are set out below:

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The consideration for the Acquisition is HK$2,184,000,000, which shall be satisfied by the allotment and issue of 1,400,000,000 Consideration Shares by the Company to the Vendor or person(s) nominated by the Vendor with prior written notice. The Consideration Shares shall rank pari passu in all respects with each other and with all other existing Shares in issue as at the date of allotment and issue of the Consideration Shares, and have all the rights to dividends and other distributions. Application will be made to the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares.

Completion and the Vendor's performance of its obligations under the Share Purchase Agreement are subject to the fulfillment of the following conditions and the delivery of relevant documents, provided that the Vendor shall have the right to waive in writing any part or all of such conditions or documents at its sole discretion:
(i) All of the Purchaser's statements and guarantees are true, accurate and not misleading as at
the date of signing of the Share Purchase Agreement and the Completion Date.
(ii) The Purchaser has performed its undertakings and obligations under the Share Purchase
Agreement prior to the Completion Date.
(iii) The Purchaser has executed and delivered all the transaction documents to which it is a party.
Completion and the Purchaser's performance of its obligations under the Share Purchase Agreement are subject to the fulfillment of the conditions and the delivery of relevant documents as follows, amongst others, provided that the Purchaser shall have the right to waive in writing any part or all of such conditions or documents at its sole discretion:
(i) The Vendor shall have completed the Reorganisation in a lawful and valid manner on the Long Stop Date or such later date as agreed by the parties in writing, and all approvals, registration and filing relating to the Reorganisation shall have been completed with the incurring taxes fully paid. The Purchaser or the professional adviser as designated by it shall have completed the due diligence on Crown Winner Investments, the Project Company and the Target Company after Reorganisation and the Kyrgyzstan Project (including but not limited to legal, financial, tax, engineering, compliance and market aspects and due diligence relating to the Reorganisation), and the results of such due diligence being satisfactory to the Purchaser.
(ii) All of the Vendor's statements and representations and the statements and representations of the Guarantors are true, accurate and not misleading as at the date of signing of the Share Purchase Agreement and the Completion Date.
(iii) The Vendor and the Guarantors having performed their respective undertakings and obligations in all respects under the transaction documents pursuant to the Share Purchase Agreement prior to the Completion Date.
(iv) There shall be no circumstances which have a material and adverse impact on the business, operation, property, financial conditions or prospects of the Vendor, the Guarantors, the Target Company or, the Project Company from the date of signing of the Share Purchase Agreement to the Completion Date.
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(v) Each of the Vendor, the Guarantors and the Target Company having obtained all the consents, licenses and approvals that are required for the execution and delivery of documents pursuant to the Share Purchase Agreement and the completion of the transactions contemplated thereunder, including but not limited to all licenses, approvals and consents given or required by relevant governments or regulatory authorities (including but not limited to the government of Kyrgyzstan) or any stock exchange or third party in respect of the transactions under the Share Purchase Agreement.
(vi) The Target Company shall have appointed three additional persons nominated by the Purchaser as the new directors of the Target Company, and the revised register of directors of the Target Company shall show three persons and two persons nominated by the Purchaser and the Vendor as directors, respectively.
(vii) The approval of the Stock Exchange of the listing of the Consideration Shares having been obtained and any other approval from third parties as required by the Company and its affiliated persons in respect of the signing of the Share Purchase Agreement and performance of obligations thereunder by the Purchaser.

Completion shall take place on the fifth business day after the satisfaction of all the conditions precedent (or if not satisfied, waiver from the other party in writing of such unsatisfied conditions precedent). The parties shall endeavour to undertake Completion within one month from the date of the Share Purchase Agreement. In any event, Completion shall occur no later than the Long Stop Date, being two months after the date of the Share Purchase Agreement or such later date as agreed by the parties in writing.

The Guarantors agreed to act as guarantors and in the capacity of principal obligor(s) to unconditionally and irrevocably guarantee to the Purchaser that the Vendor will appropriately and duly perform and assume any and all of its obligations under the Share Purchase Agreement. In the event the Vendor fails to appropriately or duly perform and assume any and all of its obligations under the Share Purchase Agreement, the Guarantors shall, at the written request of the Purchaser, perform and undertake or procure the performance and undertaking of all of the Vendor's obligations.

The Guarantors further undertake that for so long as the Purchaser or its affiliated persons holds, directly or indirectly, not less than 50% of the shares in the Target Company in aggregate, except with the prior written consent from the Purchaser; (i) the Vendor shall not in any manner, directly or indirectly, transfer, sell, give or dispose of its shares in the Target Company and the interest attached thereto, nor shall it create any encumbrance or any option or preference in respect of such shares; and (ii) within three years from the Completion Date, the Guarantors shall hold not less than 75% of the total share capital in the Vendor in aggregate through their respective wholly-owned companies. Notwithstanding the foregoing agreement, if the Vendor or the Guarantors dispose of the respective shares directly or indirectly held by them and the interest attached thereto after Completion, the Purchaser shall have the right of first refusal under the same conditions.
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As at the date of this announcement, (i) the Vendor holds 100% equity interest in New Continental (HK) through its wholly-owned subsidiary, which in turn holds 100% equity interest in the Target Company; (ii) New Continental (HK) owns 100% equity interest in Crown Winner Investments; and (iii) Crown Winner Investments owns 100% equity interest in the Project Company.
Prior to Completion, the Vendor will undergo the Reorganisation, pursuant to which 100% equity interest in the Target Company shall be transferred to the Vendor. Upon completion of the Reorganisation, the Target Company will hold 100% equity interest in Crown Winner Investments. Pursuant to the Share Purchase Agreement, the Purchaser shall acquire 60% equity interest in the Target Company from the Vendor, upon completion of which each of the Target Company, Crown Winner Investments and the Project Company will become an indirect non- wholly owned subsidiary of the Company.

The Project Company entered into agreements with the national oil company of Kyrgyzstan in respect of the four oilfields adjacent to the Fergana Valley of Kyrgyzstan (a country in Central Asia) comprising five oilfield zones namely, Maili-Su IV, Eastern Izbaskent, Izbaskent, Changyrtash and Chigirchik. Currently, all five oilfield zones have gradually commenced exploration. Under the agreements entered into with the national oil company of Kyrgyzstan, the Project Company was granted rights to cooperate with the national oil company of Kyrgyzstan in the operation of the five oilfields zones.
The Research Institute of Petroleum Exploration & Development of Sinopec Henan Oilfield
Company (中石化河南油田分公司石油勘探開發研究院) conducted a feasibility assessment
on the development of the Kyrgyzstan Project in May 2014. It was determined that the petroleum exploration area is located in the Fergana Valley, with an established oil and gas area in Central Asia where oil and gas resources are abundant and the geological background is relatively favourable. As indicated by the review results of the reserves, the geological reserve of crude oil in such oilfields amounted to 276 million tons in aggregate, of which 97.13 million tons are exploitable, and the remaining exploitable reserve amounted to 88.34 million tons. In addition, two of the five oilfield zones contain large areas of oil reserves where development has not commenced, representing significant potential in development and increase in production.

The Target Company, Crown Winner Investments and the Project Company were incorporated on 19 June 2014, 8 November 2013 and 13 May 2013, respectively.
Based on the unaudited financial statements of the Project Company prepared in accordance with
International Standard on Related Services, the net asset value of the Project Company as at 30
June 2014 was US$2,453,574, and the net loss (before and after taxation) for the six months ended 30 June 2014 was US$56,350 and the net loss (before and after taxation) for the year ended 31 December 2013 was US$6,644.
Based on the unaudited proforma condensed consolidated financial statements of Crown Winner Investments prepared in accordance with China Certified Accountants Practice Standards, the net asset value of Crown Winner Investments as at 30 June 2014 was US$5,412,144, and the net loss (before and after taxation) for the six months ended 30 June 2014 was US$649,150.
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The table below sets out a summary of the shareholdings in the Company (i) as at the date of this announcement; and (ii) upon the issuance of the Consideration Shares:

Notes:

(a) Among these 2,052,281,157 Shares, 1,943,557,157 Shares are directly held by Fine Profit Enterprises Limited and 108,724,000 Shares are directly held by Wealth Consult Limited, which is a wholly-owned subsidiary of Fine Profit Enterprises Limited. Both of Fine Profit Enterprises Limited and Wealth Consult Limited are 100% directly or indirectly beneficially owned by Mr. Zhang.
(b) Among these 1,046,000,000 Shares (before taking into account of the 70,000,000 Shares that may be granted to Mr. Chen Qiang pursuant to share options), 136,000,000 Shares,
420,000,000 Shares and 490,000,000 Shares are directly held by Boom Will Limited, Leader World Investments Limited and Outspace Limited, respectively. Boom Will Limited, Leader World Investments Limited and Outspace Limited are 100%, 38.33% and 100% directly beneficially owned by Mr. Chen Qiang, respectively.
(c) Gallop Sun Limited is 100% directly beneficially owned by Mr. Zhang De Huang, the father of Mr. Zhang.

The Company believes that the Acquisition offers the Group a great opportunity to enter into the energy sector. Given the relatively adverse market conditions for shipbuilding industry for the time being, the Acquisition can assist the Group in diversifying operations and broadening its source of revenue, and promoting the Group's transformation to a comprehensive heavy industry player in the energy industry, in order to make a larger contribution to the interests of the Company and its shareholders as a whole.
The global energy industry possesses great potential for growth, and the gradual recovery of global economy also brings increasing demand for energy. In addition, the PRC is also seeking more energy supply countries to reduce the risks relating to energy procurement. The Company is of the view that its business activities involving oil exploration projects will help the Company to enhance its profit margins and competitiveness, which in turn help the Company to strengthen its ability to withstand risks and to alleviate the periodic effects from the shipbuilding business.
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The oilfields to be explored by the Project Company have been verified by an independent third party. After the analysis on the national political and economic conditions, assessment on the geographic location and the reserve of petroleum reservoirs, the existing status of drilling works and project design, analysis on the ground works and project design recommendations for engineering weakness and adjustment as well as the overall economic appraisal and other aspects, the Company expects to realise a dramatic increase of oil output through upgrade and consolidation of the existing exploration technology and thereby to generate steady operating cash flows.
The consideration for the Acquisition was determined by the Purchaser and the Vendor based on normal commercial terms and arm's length negotiations having considered various factors, including (i) the assets, operating conditions, current and expected production volume of the Project Company, the reserves of the Kyrgyzstan Project and the value of the rights to cooperate with the national oil company of Kyrgyzstan in the operation of the five oilfield zones of the Project Company; (ii) the prevailing market price of the Shares; and (iii) the Company's historical share price performance and its present financial position as well as current market conditions.
The Directors are of the view that the terms and conditions of the Acquisition are fair and reasonable and the Acquisition is in the interest of the Group and the shareholders of the Company as a whole.

Pursuant to the Share Purchase Agreement, the consideration of HK$2,184,000,000 shall be satisfied by the issue and allotment of 1,400,000,000 Consideration Shares, which equates to an issue price per Consideration Share of HK$1.56, representing:
(i) a premium of approximately 12.23% to the closing price of HK$1.39 per Share as quoted on the Stock Exchange on 21 August 2014, being the date of signing the Share Purchase Agreement;
(ii) a premium of approximately 1.96% to the average closing price of HK$1.53 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately preceding the date of signing the Share Purchase Agreement; and
(iii) a premium of approximately 0.65% to the average closing price of HK$1.55 per Share as quoted on the Stock Exchange for the last ten consecutive trading days immediately preceding the date of signing the Share Purchase Agreement
The allotment and issue of the Consideration Shares will be made pursuant to the General Mandate obtained at the AGM on 21 May 2014. The 1,400,000,000 Consideration Shares to be allotted and issued will fully utilize the General Mandate, and hence is not subject to the Shareholders' further approval.
As at the date of this announcement, the Company has 7,107,881,019 Shares in issue. Assuming there is no other change in the shareholding structure of the Company, the 1,400,000,000
Consideration Shares represent approximately 19.70% of the current issued share capital of the Company and approximately 16.46% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares.
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The Group is a leading diversified large heavy industries group in the PRC and is principally engaged in shipbuilding, offshore engineering, marine engine building and engineering machinery.
The Vendor is an investment holding company incorporated in the British Virgin Islands, engaged in the oil exploitation, prospecting, storage and transportation and sale as well as the natural gas-related businesses, and indirectly owns the Project Company which was granted rights to cooperate in the operation of the four oilfields adjacent to the Fergana Valley of Kyrgyzstan (a country in Central Asia) comprising five oilfield zones namely, Maili-Su IV, Eastern Izbaskent, Izbaskent, Changyrtash and Chigirchik.
The Guarantors are Mr. Liu Buruo, Mr. Zhang Jiping, Mr. Wang Jiawei and Mr. Li Dongtai. As at the date of this announcement, the Guarantors hold in aggregate 100% of the issued share capital of the Vendor through their respective wholly-owned companies.
To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, as at the date of this announcement, each of the Vendor, and the Guarantors, is a third party independent from the Company and is not connected with the Company and its connected persons.

As the applicable percentage ratios exceed 5% but are less than 25% and the consideration shall be satisfied by the allotment of issue of the Consideration Shares, the Acquisition constitutes a discloseable transaction and share transaction for the Company, and is subject to the announcement requirement but is exempt from shareholders' approval under Chapter 14 of the Listing Rules.

In this announcement, unless the context otherwise requires, the following terms shall have the following meanings:

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"connected person(s)" has the meanings ascribed thereto in the Listing Rules
"Consideration Shares" new shares to be allotted and issued by the Company to the Vendor or person(s) nominated by the Vendor pursuant to the Share Purchase Agreement

"General Mandate" the general mandate granted at the AGM by the Shareholders to the Board to allot, issue and deal with additional Shares not exceeding 20% of the issued share capital of the Company as at the date of the AGM

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* for identification purposes only

By Order of the Board

Company Secretary

Hong Kong, 21 August 2014
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As at the date of this announcement, the directors of the Company are:

Executive directors:

Mr. CHEN Qiang (Chairman), Mr. WU Zhen Guo, Mr. HONG Liang, Mr. Sean S J WANG, Mr. WANG Tao, Mr. WEI A Ning and Ms. ZHU Wen Hua;

Independent non-executive directors:

Mr. XIA Da Wei, Mr. HU Wei Ping, Mr. WANG Jin Lian and Ms. ZHOU Zhan.

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