The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. (Incorporated in Bermuda with limited liability) (Stock Code: 711) (Warrant Code: 654) CONNECTED TRANSACTION ACQUISITION OF 38% EQUITY INTEREST IN MANDARIN GROUP LIMITED On 20 May 2008, the Purchaser and the Vendor had entered into the Agreement, pursuant to which the Vendor agreed to sell and the Purchaser agreed to acquire (i) the Sales Shares, being 38% of the total issued share capital of the Target; and (ii) the Sale Loan, being 38% of the shareholder s loans due and owing by the Target to the Vendor as at Completion at a consideration of HK$23 million. The Target is principally engaged in investment holding and the principal asset of which is the 100% equity interest in Shanwei Hong Hai. Shanwei Hong Hai is a property development company and the principal asset of which is a property development site located in Shanwei, Guangdong Province, the PRC. The Vendor is a connected person of the Company under Chapter 14A of the Listing Rules by virtue of Mr. Pang s interest in the Vendor. The Acquisition therefore constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. As the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) are less than 2.5%, the Acquisition is subject to reporting and announcement requirements and is exempt from the approval by the independent Shareholders pursuant to Rule 14A.32 of the Listing Rules. 1
THE AGREEMENT DATED 20 MAY 2008 Parties Purchaser: Chun Wo China Construction Limited, a direct wholly owned subsidiary of the Company Vendor: Pacific Group Limited To the best of the Directors knowledge, information and belief, and after making all reasonable enquiries, there is no prior transaction between the Vendor and the Company, and each of their respective associates and ultimate beneficial owners which require aggregation under Rule 14.22 and Rule 14A.25 of the Listing Rules. The Vendor is an investment holding which is wholly owned by Mr. Pang and is a connected person of the Company. Assets to be acquired Pursuant to the Agreement, the Vendor agreed to sell and the Purchaser agreed to acquire (i) the Sale Shares, being 38% of the total issued share capital of the Target; and (ii) the Sale Loan, being 38% of the shareholder s loans due and owing by the Target to the Vendor as at Completion which are unsecured, repayable on demand and non-interest bearing. Consideration The total consideration for the sale and purchase of the Sale Shares and the Sale Loan is HK$23 million and shall be payable by cash to the Vendor or such other person(s) as the Vendor may direct on Completion. The consideration has been satisfied by the internal resources of the Group. The total consideration was determined on arm s length basis with reference to (i) the market value of the property held by the Target Group as at 14 May 2008 of HK$56 million valued by an independent valuer using the direct comparison method; (ii) the unaudited total net assets value of the Target Group (based on the original acquisition cost of the property) of approximately HK$25.8 million as at 31 March 2008 as adjusted by the fair value of the property as at 14 May 2008 of HK$56.0 million; and (iii) the shareholder s loans of approximately HK$8.3 million as at Completion. 2
The Directors are of the view that the consideration is fair and reasonable and on normal commercial terms and is in the interests of the Company and the Shareholders as a whole. Completion Completion of the Agreement has taken place on 20 May 2008 immediately after the signing of the Agreement. Upon Completion, the Purchaser and the Vendor have entered into a shareholders agreement, for the purpose of governing, among others, the rights and obligations of the shareholders of the Target and setting out the arrangements between them with respect to the ownership, management and operation of the Target Group. Pursuant to the shareholders agreement, the board of the Target shall comprise three directors, of whom, two shall be appointed and removed at the request of the Vendor and one shall be appointed and removed at the request of the Purchaser. INFORMATION ON THE TARGET GROUP The Target is principally engaged in investment holding and the principal asset of which is the 100% equity interest in Shanwei Hong Hai. Shanwei Hong Hai is a property development company and the principal asset of which is a property development site located in Shanwei, Guangdong Province, the PRC. The property is located near northeastern section of Shanwei Middle Road, Urban District, Shanwei City, Guangdong Province, the PRC and has an expected total gross floor area of approximately 68,578 square meters. The property is currently under construction and has been granted land-use rights for commercial use and residential use until August 2045 and August 2075 respectively. According to the unaudited consolidated accounts for the financial year ended 31 March 2008 (prepared in accordance with Hong Kong Financial Reporting Standards), the Target Group recorded a loss of approximately HK$66,000 and approximately HK$48,000 for the financial years ended 31 March 2007 and 2008 respectively which were mainly attributable to administrative expenses. Upon Completion, the Target will be 38% owned by the Purchaser and 62% owned by the Vendor. Therefore, taking into account of the Company s interest in the Sale Shares and the Sale Loan, and the constitution of the board of the Target pursuant to the shareholders agreement as described in above section headed Completion, the Company will participate in the financing and operating activities of the Target Group. The Target will become an associated company of the Company and its financial results will be accounted for under equity method upon Completion. 3
REASONS FOR THE ACQUISITION The Company is an investment holding company. Its subsidiaries are principally engaged in construction works, property development, property investments and professional services. The Group has been seeking business opportunities to diversify its investment portfolio in the PRC and are expected that the property market in the PRC will continue to grow in coming years. The Directors believe that the Acquisition provides an opportunity for the Company to further penetrate into the property development market in the PRC. The Directors are of the view that substantial value can be realised through reconstruction, modification or redevelopment of the property development project and hence generate attractive returns to the Group in the medium to long term spectrum. Looking ahead, the Directors are optimistic about the development potential and prospects of the PRC property market. In addition, the Directors consider that the strengthening of the asset base of the Group by the Acquisition would enhance its asset backing to support the future expansion of the business of the Group. Taking into account the original acquisition cost of the 100% interest in the property paid by the Target Group at approximately HK$27.5 million (including additional expenses of approximately HK$6.6 million incurred for preliminary development of the property site), and the fair value of the property of HK$56.0 million as at 14 May 2008, the unaudited net asset value of the Target Group of approximately HK$25.8 million as at 31 March 2008 is adjusted to approximately HK$54.3 million. Based on the consideration of HK$23 million for the Sale Shares and the Sale Loan, the entire Target Group was valued at approximately HK$60.5 million, representing a discount of approximately 3.4% to the aforesaid adjusted total net asset value of the Target Group of approximately HK$54.3 million and the total shareholders loan of approximately HK$8.3 million as a whole. Therefore, the Directors (including the independent non-executive Directors) believe that the terms of the Agreement are on normal commercial terms and fair and reasonable and the Acquisition is in the interest of the Company and the Shareholders as a whole. LISTING RULES IMPLICATION The Vendor is a connected person of the Company under Chapter 14A of the Listing Rules by virtue of Mr. Pang s interest in the Vendor. The Acquisition therefore constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. As the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) are less than 2.5%, the Acquisition is subject to reporting and announcement requirements and is exempt from the approval by the independent Shareholders pursuant to Rule 14A.32 of the Listing Rules. 4
DEFINITIONS Acquisition : the acquisition of the Sale Shares and the Sale Loan pursuant to the Agreement Agreement : the sale and purchase agreement dated 20 May 2008 entered into between the Vendor and the Purchaser in relation to the Acquisition Company : Chun Wo Development Holdings Limited, a company incorporated in Bermuda with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange Completion : completion of the Acquisition pursuant to the terms and conditions of the Agreement connected person : has the meaning as ascribed to it in the Listing Rules Director(s) : the director(s) of the Company Group : the Company and its subsidiaries HK$ : Hong Kong dollars, the lawful currency of Hong Kong Hong Kong : the Hong Kong Special Administrative Region of the PRC Listing Rules : the Rules Governing the Listing of Securities on the Stock Exchange Mr. Pang : Mr. Pang Kam Chun, a controlling Shareholder and a Director who wholly owns the Target immediately prior to the Completion PRC : the People s Republic of China which, for the purpose of this announcement, excludes Hong Kong, the Macau Special Administrative Region and Taiwan Purchaser : Chun Wo China Construction Limited, a company incorporated in the British Virgin Islands with limited liability and a direct wholly owned subsidiary of the Company 5
Sale Loan : the aggregate amount of HK$3,153,835, representing 38% of the shareholder s loans due and owing by the Target to the Vendor as at Completion which are unsecured, repayable on demand and noninterest bearing Sale Shares : 8,797,000 shares of the Target, representing 38% of the total issued share capital of the Target Shanwei Hong Hai : (Shanwei City Hong Hai Hotel Limited)*, a chinese-foreign co-operative joint venture company established in the PRC Shareholder(s) : holder(s) of the shares of HK$0.10 each in the share capital of the Company Stock Exchange : The Stock Exchange of Hong Kong Limited Target : Mandarin Group Limited, a company incorporated in British Virgin Islands with limited liability and is wholly owned by the Vendor before Completion Target Group : the Target and its subsidiary Vendor : Pacific Group Limited, a company incorporated in British Virgin Islands with limited liability and is wholly owned by Mr. Pang % : Per cent. By the Order of the Board Chun Wo Development Holdings Limited Kwok Yuk Chiu, Clement Executive Director Hong Kong, 20 May 2008 * For identification only As at the date of this announcement, the executive Directors are Mr. Pang Kam Chun, Madam Li Wai Hang, Christina and Mr. Kwok Yuk Chiu, Clement and the independent non-executive Directors are Mr. Au Son Yiu, Mr. Chan Chiu Ying, Mr. Hui Chiu Chung JP and Mr. Lee Shing See GBS, OBE, JP. 6