Chinney Alliance : DISCLOSEABLE TRANSACTION INVOLVING THE BUY BACK OF SHARES IN CHINNEY SHUN CHEONG HOLDINGS LIMITED

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.

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(Incorporated in Bermuda with limited liability)

(Stock Code: 385)

DISCLOSEABLE TRANSACTION

INVOLVING THE BUY BACK OF SHARES IN

CHINNEY SHUN CHEONG HOLDINGS LIMITED

THE SETTLEMENT DEED

On 18 August 2020 (after trading hours), the Company and FRO Management entered into a Settlement Deed, pursuant to which (i) the Company agreed to buy back and FRO Management agreed to sell to the Company the CSC Conversion Shares at the Consideration of HK$40 million together with the payment by the Company to FRO Management the Interest in the sum of HK$6,630,137; and (ii) FRO Management waives all rights and claims it may have under or arising from the Subscription Agreement, the Convertible Bond, the Conversion or otherwise in connection with FRO Management's potential investment in the E&M Engineering Business howsoever contemplated.

Completion of the Buy Back took place upon execution of the Settlement Deed. As Chinney Shun Cheong was held as to 25% by FRO Management and 75% by the Company and the CSC Conversion Shares represented 25% of the issued share capital of Chinney Shun Cheong immediately prior to Completion, Chinney Shun Cheong has become wholly-owned by the Company upon Completion.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios calculated in accordance with Rule

14.07 of the Listing Rules in respect of the Buy Back are above 5% and all applicable percentage ratios are less than 25%, the Buy Back constituted a discloseable transaction for the Company and is therefore subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.

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INTRODUCTION

References are made to (i) the Subscription Announcements of the Company dated 9 February 2017 and 27 April 2017 in relation to, among other matters, the issue of the Convertible Bond by Chinney Shun Cheong to FRO Management; and (ii) the announcement of the Company dated 28 December 2018 in relation to the conversion of the Convertible Bond by FRO Management.

As disclosed in the Subscription Announcements, the Convertible Bond was issued in contemplation of Chinney Shun Cheong and its Affiliates undergoing the Reorganisation and the proposed Spin-off. As at the date of this announcement, the Reorganisation has not been implemented and the proposed Spin-off of the E&M Engineering Business has not been proceeded with. Given the current market sentiment, the relevant preparation works in respect of the proposed Spin-off have been suspended and there is no specific timetable as to when it would resume. As such, the Company has negotiated with FRO Management on the settlement arrangement of the CSC Conversion Shares.

The Company is pleased to announced that on 18 August 2020 (after trading hours), the Company entered into the Settlement Deed with FRO Management, details of which are set out.

THE SETTLEMENT DEED

Date

18 August 2020 (after trading hours)

Parties

1. the Company; and
2. FRO Management.

To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, notwithstanding the shareholding of FRO Management in Chinney Shun Cheong, which is an insignificant subsidiary, FRO Management and its ultimate beneficial owners are Independent Third Parties.

Settlement Terms

In full and final settlement of any and all claims, rights, demands, actions and causes of action of every kind and character FRO Management may have against the Company under or arising from the Subscription Agreement, the Convertible Bond, the Conversion or otherwise in connection with FRO Management's potential investment in the E&M Engineering Business howsoever contemplated:

1. the Company shall buy back from FRO Management, and FRO Management shall, as legal and beneficial owner, sell to the Company the CSC Conversion Shares, together with all rights and interest attached thereto and free from encumbrances, at the consideration of HK$40 million payable in cash; and

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1. the Company shall, on Completion, pay to FRO Management interest on the Subscription Price at the rate of 5% calculated from the date of the issuance of the Convertible Bond to the date of the Settlement Deed, being the sum of HK$6,630,137.

The CSC Conversion Shares represented 25% of the issued share capital of Chinney Shun Cheong as at the date hereof.

Given that the Consideration is equivalent to the proceeds raised from the issue of the Convertible Bond and the Interest is calculated using the prescribed interest rate as set out in the terms of the Convertible Bond, the Directors are therefore of the view that the Consideration and the Interest, are fair and reasonable.

Completion

Completion took place immediately after execution of the Settlement Deed and Chinney Shun Cheong became wholly-owned by the Company upon Completion. The Consideration and the Interest have been paid on Completion, which was made out of the Company's internal resources.

INFORMATION OF FRO MANAGEMENT

According to the information provided by FRO Management, it is a special purpose vehicle established for holding the Convertible Bond and the CSC Conversion Shares and as at the date of this announcement is wholly-owned by six segregated portfolios which in turn are wholly-owned by PIX FUND SPC.

PIX FUND SPC is an exempted company incorporated with limited liability and registered as a segregated portfolio company under the Companies Law of the Cayman Islands. It is principally engaged in investment in private equities and the equity-related securities in leading market players in different industries.

INFORMATION OF CHINNEY SHUN CHEONG

Chinney Shun Cheong is a company incorporated in Bermuda with limited liability on 17 January 2017 and, immediately prior to Completion, held as to 25% by FRO Management and 75% by the Company.

Chinney Shun Cheong is a special purpose vehicle incorporated for the purpose of holding the E&M Engineering Business contemplated under the Reorganisation and the Spin-off. As the Reorganisation has not been implemented, Chinney Shun Cheong has no business activity and does not have any subsidiaries or interest in any other entities.

For each of the years ended 31 December 2018 and 2019, the unaudited net loss before and after tax of Chinney Shun Cheong was approximately HK$10,466,000 and HK$7,354,000 respectively. As at 31 December 2018 and 2019, the net assets of Chinney Shun Cheong were approximately HK$35,280,000 and HK$27,925,000 respectively.

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REASONS FOR AND BENEFITS OF THE SETTLEMENT DEED

The Group is mainly engaged in (i) trading of plastics and chemical products; (ii) the E&M Engineering Business; (iii) superstructure construction works for both public and private sectors in Hong Kong and Macau; (iv) foundation construction and drilling and site investigation works for both public and private sectors in Hong Kong and overseas;

1. the distribution of aviation system and other hi-tech products; and (vi) other investment activities such as equity investments and investment in real estates.

The Directors has been considering the feasibility and possibility of the Spin-off of the E&M Engineering Business on the Stock Exchange since 2017, and at that time introduced FRO Management as a strategic partner with the aim to leverage on their business network and capital to expand the E&M Engineering Business to the PRC and in the area of data centre. The issue of the Convertible Bond raised net proceeds of approximately HK$39.7 million in 2017 and was subsequently on-lent to a subsidiary of the Company under the E&M Engineering Business for the construction and purchase of equipment for a data centre in Longgang District, Shenzhen, the PRC.

Through several years of development, the E&M Engineering Business is performing satisfactorily. However, due to certain regulatory issues, there is little progress on the Spin-off. While the management of the Group has considered other possible ways to tackle those issues, it is uncertain that the Spin-off could materialise or not.

The recent outbreak of the COVID-19 pandemic and the unstable global economic and political environment further affected the possibility of the Spin-off and, as a result, all relevant preparation works in respect of the Spin-off have been suspended and there is no specific timetable as to when it would resume. As the CSC Conversion Shares have already been issued in contemplation of the Reorganisation, the Company has to look for an agreed settlement arrangement with FRO Management regarding the CSC Conversion Shares.

After discussion and negotiation with FRO Management, the Company agreed to buy back the CSC Conversion Shares from FRO Management at the amount equivalent to the principal amount of the Convertible Bond and also to pay interest of 5% calculating from the date of the issuance of the Convertible Bond to the date of the Settlement Deed. Such 5% interest rate was the prescribed interest rate under the terms of the Convertible Bond.

Given the matters mentioned above and that the Consideration is equivalent to the proceeds raised from the issue of the Convertible Bond and the Interest is calculated using the prescribed interest rate as set out in the terms of the Convertible Bond, the Directors are therefore of the view that the terms of the Settlement Deed, including the Consideration and the Interest, are fair and reasonable and the Settlement Deed is in the interest of the Company and its shareholders as a whole.

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LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios calculated in accordance with Rule

14.07 of the Listing Rules in respect of the Buy Back are above 5% and all applicable percentage ratios are less than 25%, the Buy Back constituted a disclosable transaction for the Company and is therefore subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.

DEFINITIONS

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

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By Order of the Board

Yun-Sang Lo

Company Secretary

Hong Kong, 18 August 2020

At the date of this announcement, the board of Directors comprises of eight Directors, of which four are executive Directors, namely Dr. James Sai-Wing Wong, Mr. Yuen-Keung Chan, Mr. James Sing-Wai Wong and Mr. Philip Bing-Lun Lam; and one is non-executive Director, namely Ms. Wendy Kim-See Gan; and three are independent non-executive Directors, namely Mr. Yuen-Tin Ng, Mr. Chi-Chiu Wu and Mr. Ronald James Blake.

• For identification purpose only

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