China Huarong Energy : Announcements and Notices - INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2021

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CHINA HUARONG ENERGY COMPANY LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 01101)

INTERIM RESULTS ANNOUNCEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2021

The board of directors (the "Board") of China Huarong Energy Company Limited (the "Company") hereby announces the unaudited condensed consolidated interim financial information of the Company and its subsidiaries (together, the "Group") for the six months ended 30 June 2021 (the "Period") together with comparative figures. This condensed consolidated interim financial information has not been audited, but has been reviewed by the audit committee of the Company (the "Audit Committee").

MANAGEMENT DISCUSSION AND ANALYSIS

Boosted by the Acquisition (as defined below) of Nantong Zhuosheng (as defined below) in January 2021 and the growth in the trading business, the overall operational business performance of the Group improved significantly in the Period compared to the six months ended 30 June 2020 (the "Comparative Period").

The Group recorded a revenue of RMB135.4 million, compared to the revenue of RMB14.3 million for the Comparative Period. The Group generated a gross profit of RMB22.9 million (for the Comparative Period: RMB3.8 million) from the oil exploration business, as well as the newly acquired oil storage business.

Loss attributable to the equity holders of the Company was RMB82.8 million for the Period, while profit attributable to the equity holders of the Company was RMB465.0 million for the Comparative Period. The decrease of profit attributable to equity holders of the Company was mainly driven by the discharge of the Relevant Guarantees (as defined below). There was no Relevant Guarantees discharged during the Period, and the accrued interest for the financial guarantee contracts and net finance cost contributed RMB94.0 million to the loss attributable to the equity holders of the Company.

The Group's net deficit position was improved during the Period. Compared to 31 December 2020, the net deficit decreased by RMB123.3 million which was largely driven by the Acquisition of Nantong Zhuosheng (as defined below).

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Disposal and Relevant Guarantees

On 9 October 2018, the Company entered into a conditional sale and purchase agreement (the "Agreement"), to dispose of the core assets and liabilities of shipbuilding, offshore engineering, engineering machinery and marine engine building segments (the "Shipbuilding and Engineering Businesses", together with the holding company of the Shipbuilding and Engineering Businesses referred to as the "Disposal Group") with an independent third party, Unique Orient Limited (the "Purchaser") (the "Disposal"). The Disposal constituted a very substantial disposal for the Company under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules"). An extraordinary general meeting of the Company was held on 13 December 2018 in which the Disposal was approved by the shareholders.

The Company signed the second supplemental agreement (the "Second Supplemental Agreement") on 3 March 2019 regarding the Disposal, pursuant to which (1) the transfer of sale share of Able Diligent Limited, the holding company of Disposal Group, to the Purchaser shall take place on or before 31 March 2020; (2) the Purchaser agreed to procure the release or discharge of the relevant guarantees provided by the Company in respect of borrowings owed by the Disposal Group (the "Relevant Guarantees"); and (3) the Purchaser agreed to execute a share charge over the sale share in favour of the Company.

The Disposal was completed on 10 March 2019 (the "Disposal Day") when the sale share of Able Diligent Limited (the "Sale Share") was transferred to the Purchaser. All the assets and liabilities associated to the Disposal were derecognized on the Disposal Day. The Company signed the third, fourth and fifth supplemental agreements on 29 August 2019, 30 October 2019 and 25 March 2021, respectively. According to the latest supplemental agreements, the Purchaser will procure the discharge or release the Relevant Guarantees and complete the relevant registration before 31 December 2021.

The Group and the Purchaser have been working closely to procure the release or discharge of all remaining Relevant Guarantees in full and it was agreed that all debts owing by the Disposal Group will be assigned to the Purchaser when the Relevant Guarantees have been released or discharged in full and the relevant registration have been completed.

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Despite there is no Relevant Guarantees discharged during the Period, the Company has taken the following actions in respect of the discharge of the Relevant Guarantees during the last two and a half years:

1. the Company has ongoing discussions with the Purchaser on a regular basis regarding the progress and status of the discharge of the Relevant Guarantees;
2. the Company, together with the Purchaser, has been actively negotiating with the relevant banks and lenders to release or discharge the Relevant Guarantees; and
3. the Company is also maintaining its relationship with the banks and the lenders of the Disposal Group so that no action will be taken by them to demand immediate repayment of its outstanding borrowings under the Relevant Guarantees.

The Company and/or the Purchaser (as appropriate) have prepared and submitted discharging proposals to the relevant banks and lenders since 2018, with an initial goal of discharging the Relevant Guarantees in batches by 2020. However, despite that the above actions had been taken by the Company and the Purchaser, the Relevant Guarantees could not be fully discharged in 2020 because of (1) the distraction and suspension of business caused by the novel coronavirus pneumonia (the "COVID-19") in the most of 2020; and

1. the fact that the discharging process of banks was time-consuming and procedurally and administratively complicated, particularly given that each bank or lender would have its own internal review procedures as well as approval hierarchy. As the discharging progressed further, additional time was required for the relevant banks and lenders to conduct their internal risk assessment in respect of the discharging proposals. As the Company is only in the capacity as the guarantor of the Relevant Guarantees, the Company may not always be in the position to negotiate with the relevant banks and lenders concerning certain financial conditions or obligations which would be imposed on the Purchaser. Such discussions could only be initiated by the Purchaser, and the Company would not have control over the relevant progress and timing.

Nonetheless, both the Company and the Purchaser are committed to procuring the full discharge of the Relevant Guarantees by 2021.

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As at the date of this announcement, the latest status of the Relevant Guarantees (classified by the Company as Relevant Guarantees A to D for ease of reference) and the expected time for discharging are summarized as follows:

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As at the date of this announcement, the Relevant Guarantees provided by the Company to the Disposal Group in the process of being discharged or released amounted to RMB5,938.6 million, inclusive of principals and interests. In consideration of such financial guarantees, the Group recognized financial guarantee contracts of RMB4,626.6 million (31 December 2020: RMB4,545.1 million) which will be released upon the releasing or discharging of these Relevant Guarantees.

Details of the Disposal were disclosed in note 18 of the 2019 annual report, and the announcements of the Company dated 9 October 2018, 15 November 2018, 25 December 2018, 4 March 2019, 11 March 2019, and the circular of the Company dated 23 November 2018.

Debt Restructuring

Together with the Disposal, the Group has also conducted and executed a series of debt restructuring arrangements with an aim to ease the financial burden of the Group. The lenders have been supportive in general to the Group and the overall situation has been consistently improving.

1. Repayment of a secured bank loan
   The secured bank loan was secured by certain assets of the Disposal Group, and the Group has bundled the settlement of the bank loan in together with Relevant Guarantees D.
   It is the intention of the Company to repay such secured bank loan by utilizing the US dollar facility entered with a shareholder of the Company (the "Shareholder") in 2018 (the "Facility"). The Facility has a total amount of USD250 million. It is an interest-free and unsecured facility with a maturity date of 30 June 2023. The Company expects to utilise the Facility to repay the outstanding secured bank loan by batches and all such repayments shall be made by the fourth quarter of 2021. Based on the best knowledge and information available to the Company after having discussed with the Shareholder, the Shareholder is committed to providing the Facility required by the Company to settle the outstanding secured bank loan in full in 2021.

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