Sapphire : (1) Proposed Capital Reduction; And (2) Proposed Scrip Distribution Scheme

SAPPHIRE CORPORATION LIMITED

(Incorporated in the Republic of Singapore)

(Company Registration No. 198502465W)

1. PROPOSED CAPITAL REDUCTION; AND
2. PROPOSED SCRIP DISTRIBUTION SCHEME AND ITS APPLICATION TO THE PROPOSED CASH DISTRIBUTION

1. INTRODUCTION

1. The board of directors (the "Board") of Sapphire Corporation Limited (the "Company") wishes to announce the Company's intention to:
2. 1. undertake a capital reduction exercise, pursuant to Section 78A read with 78C of the Companies Act (Chapter 50) of Singapore ("Companies Act"), which will involve a reduction of the share capital of the Company that has been lost or is unrepresented by available assets to the extent of the amount of the Accumulated Losses of the Company up till 30 June 2020 and the Proposed Cash Distribution (as defined below) to Shareholders (the "Proposed Capital Reduction"); and
   2. introduce a scrip distribution scheme by the Company which will be named the Sapphire Corporation Scrip Scheme (the "Proposed Scrip Distribution Scheme"), and which will be applied to the Proposed Cash Distribution (as defined below).
3. The Board refers to the announcements dated 2 June 2020, 3 July 2020, 9 October 2020, 24 October 2020, 26 October 2020 and 30 October 2020 ("Previous Announcements") in respect of the Company's sale of equity interests in and material dilution of effective equity interests in Ranken Railway Construction Group Co., Ltd. ("Ranken Railway"), which resulted in Ranken Railway ceasing to be a subsidiary of the Company ("Disposal"), the press release made on 9 October 2020 in relation to the Disposal and the circular dated 9 October 2020 in relation to the Disposal. The Company had on 27 October 2020 completed the Disposal.
4. Unless otherwise expressly defined or described herein, all capitalised terms used in this announcement ("Announcement") shall have the same meanings as defined in the Previous Announcements.
5. The Company will be consulting further with the SGX-ST("SGX-ST Consultation") on the Proposed Capital Reduction and Proposed Scrip Distribution Scheme as described in the subsequent sections of this Announcement before undertaking the same and in connection therewith, seek SGX-ST's approval for variation of the SGX-ST Voluntary Undertaking to accommodate the Proposed Capital Reduction and Proposed Scrip Distribution Scheme, and will accordingly provide further updates of any material developments. The Proposed Capital Reduction is subject to the outcome of the SGX-ST Consultation, Board and Shareholders' approval, and the application of the Proposed Scrip Distribution Scheme to the Proposed Cash Distribution is subject to the approval of the SGX-ST for the listing and quotation of, and permission to deal in, the new Shares as may be required to be issued pursuant to the Proposed Scrip Distribution Scheme ("Scrip Distribution Shares") on the SGX-ST.
6. The Board wishes to highlight that, the Proposed Capital Reduction, adoption of the Proposed Scrip Distribution Scheme and application of the Proposed Scrip Distribution Scheme to the Proposed Cash Distribution is subject to the outcome of the SGX-ST Consultation, and specifically, SGX-ST's approval of a variation in the SGX-ST Voluntary Undertaking to

accommodate the Proposed Capital Reduction, adoption of the Proposed Scrip Distribution Scheme and application of the Proposed Scrip Distribution Scheme to the Proposed Cash Distribution, on terms that are acceptable to the Company.

1.6. Assuming that the outcome of the SGX-ST Consultation is favourable and a variation of the SGX-ST Voluntary Undertaking is approved by the SGX-ST on terms acceptable to the Company, the Company will be seeking approval from the Shareholders for the Proposed Capital Reduction and for the authority to adopt the Proposed Scrip Distribution Scheme and issue the Scrip Distribution Shares pursuant thereto (the "Proposed Transactions") at a general meeting of the Company to be convened.

2. DETAILS OF THE PROPOSED CAPITAL REDUCTION

2.1. Introduction

1. The Proposed Capital Reduction will be effected in the following manner:
2. 1. by the cancellation of the Company's issued and fully paid up share capital as at the effective date of the Proposed Capital Reduction (such date to be announced by the Company on SGXNET) to the extent of the sum of the accumulated losses of the Company as at 30 June 2020 of approximately S$3,006,310 (RMB 6,946,0001) ("Accumulated Losses") and S$17,322,570 (approximately RMB 86,444,5562);
   2. the amount of approximately S$3,006,310 (RMB 6,946,0001), being the credit arising from the aforesaid cancellation of share capital, shall be applied to write off the Accumulated Losses; and
   3. the aggregate amount of S$17,322,570 or approximately RMB 86,444,5562 (approximately 33.63% of Net Proceeds), shall be a return to Shareholders of the surplus capital of the Company in excess of its needs by way of a cash distribution of S$0.0425 per Share ("Proposed Cash Distribution"), being the sum of the estimated distributable amount to Shareholders of RMB 77.1 million (approximately 30.0% of Net Proceeds) and the estimated PRC withholding tax which would have otherwise been payable if the distribution is via dividend payment of RMB 9.3 million (approximately 3.63% of the Net Proceeds)
3. As at the date of this Announcement, the Company's issued and fully paid up share capital (excluding treasury shares) is S$98,458,091 divided into 407,589,893 ordinary shares in the capital of the Company ("Shares").
4. The Accumulated Losses arose mainly from corporate expenses over the years, and the Proposed Capital Reduction will reduce the Company's Accumulated Losses by the cancellation of the share capital of the Company to the extent of approximately S$3,006,310 (RMB 6,946,0001).
5. Save for any issuance and allotment of Scrip Distribution Shares in lieu of the Proposed Cash Distribution pursuant to the Proposed Scrip Distribution Scheme, there will be no change in the total number of issued Shares in the Company held by the

• Approximately equivalent to S$3,006,310 based on the historical exchange rates across various years in respect of the accumulated losses of the Company totaling RMB 16,043,000. In adopting SFRS(I) on 1 January 2018, cumulative currency translation differences for all foreign operations were deemed to be zero on the date of transition, 1 January 2017. The Company's foreign currency translation reserve ("FCTR") also decreased by RMB 9,097,000 and retained earnings increased by the same amount as at 31 December 2017. Hence the retained earnings as at 30 June 2020 was RMB (-16,043,000 + 9,097,000) = RMB (-6,946,000) and the Accumulated Losses is RMB 6,946,000.

• Approximately equivalent to RMB 86,444,556 based on the illustrative exchange rate of S$1.00 : RMB 4.99 which is the 6-month exchange rate average between 25 June 2020 to 24 December 2020. This illustrative exchange rate is solely for illustrative purposes and should not be construed as a representation that the relevant amount has been or could be converted at this rate or at any other rate.

Shareholders immediately after the Proposed Capital Reduction. Each Shareholder will hold the same number of Shares before and immediately after the Proposed Capital Reduction.

1. Rationale for the Proposed Capital Reduction
2. 1. The purpose of the Proposed Capital Reduction is to write off the Accumulated Losses with a view to restructure the finances of the Company. This serves to rationalise the balance sheet of the Company for it to be an accurate reflection of the financial position of the Company. In addition, the Proposed Capital Reduction will facilitate future equity- related fund raising exercises to recapitalise and strengthen the balance sheet of the Company. The Company would also be in a better position to retain profits and enhance its ability to pay future dividends, when appropriate, if the Accumulated Losses are written off.
   2. Additionally, the Proposed Cash Distribution would accelerate the time at which the Dividend Allocation Sum arising from the Disposal may be distributed to Shareholders, since a distribution of the Dividend Allocation Sum by way of dividends to Shareholders would require the Company to generate sufficient profits to enable such dividend to be paid out and the Company anticipates that this may only be possible in the second half of 2021 or in 2022. Furthermore, the Proposed Cash Distribution is of a higher amount than if the Dividend Allocation Sum had been paid out by way of dividends as PRC withholding tax is not applicable. The estimated higher amount of distribution to shareholders is RMB 9.3 million (approximately 3.63% of the Net Proceeds), which was the estimated PRC withholding tax which would have otherwise been payable had distribution been made via a dividend payment.
   3. The Proposed Cash Distribution comprises the issued and paid-up capital in excess of the immediate requirements of the Company. The Proposed Capital Reduction and Proposed Cash Distribution, if effected, would result in the Company having a more efficient capital structure, thereby also improving Shareholders' return on equity.
3. Financial Effects of the Proposed Capital Reduction

For illustrative purposes only and based on the latest unaudited consolidated financial statements of the Company for the six-month financial period ended 30 June 2020 ("1H2020"), the financial effects of the Proposed Capital Reduction and Proposed Cash Distribution on the Group are set out below.

The pro forma financial effects are calculated based on the assumptions that:

1. the Proposed Capital Reduction and Proposed Cash Distribution were completed on 30 June 2020;
2. the Company has sufficient cash required for distribution; and
3. the estimated transaction costs of approximately RMB 750,000 have been taken into account in the computation of the financial effects.
4. 1. Share capital
      The Proposed Capital Reduction and Proposed Cash Distribution will not have any impact on the number of Shares held by Shareholders after the Proposed Capital Reduction and Proposed Cash Distribution. The pro forma financial effects of the Proposed Capital Reduction and Proposed Cash Distribution on the share capital of the Company for 1H2020 are as follows:

Notes:

1. 1. As at the date of this Announcement, the Company does not have any treasury shares.
2. Earnings per Share ("EPS")
   The Proposed Capital Reduction and Proposed Cash Distribution will have no impact on the EPS of the Company. The pro forma financial effects of the Proposed Capital Reduction and Proposed Cash Distribution on the EPS of the Group for 1H2020 are as follows:

Notes:

1. The calculation of the EPS was computed based on profit attributable to Shareholders divided by the weighted average number of Shares as at the six-month financial period ended 1H2020 detailed below:
   1H2020
   Weighted407,589,893 average number
   of Shares(2)
2. The weighted average number of shares in 1H2020 is calculated based on the number of Shares outstanding at the beginning of the respective year, adjusted by the number of Shares issued during the year multiplied by a time-weighted factor.

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