1. Art and Diseño

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed
securities dealer, bank manager, solicitor, professional accountant or other professional adviser.
If you have sold or transferred all your shares in Art Textile Technology International Company Limited, you should at
once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, licensed
securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or
transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for
the contents of this circular, 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 circular.
ART TEXTILE TECHNOLOGY INTERNATIONAL COMPANY LIMITED
錦藝紡織科技國際有限公司
(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 565)
MAJOR TRANSACTION
IN RELATION TO
THE ACQUISITION OF 75% EQUITY INTERESTS IN
ZHENGZHOU JIACHAO PROPERTY SERVICES
COMPANY LIMITED
Financial adviser to the Company
A notice convening the EGM to be convened at Jade Room, 6th Floor, Marco Polo Hongkong Hotel, Harbour City, 3 Canton
Road, Kowloon, Hong Kong on Friday, 27 March 2015 at 10:45 a.m. is set out on pages 86 to 88 of this circular.
A form of proxy for use at the EGM is enclosed with this circular. Whether or not you plan to attend the EGM, you are
requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the
Company’s branch share registrar, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East,
Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the EGM
or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in
person at the EGM or any adjournment thereof should you so wish.
30 January 2015
CONTENTS
Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Appendix I
– Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
Appendix II
– Financial Information of the Target Company . . . . . . . . . . . . . . . . . . .
16
Appendix III – Unaudited Pro Forma Financial Information
of the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Appendix IV
– Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61
Appendix V
– General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86
–i–
DEFINITIONS
In this circular, the following expressions shall have the following meanings unless otherwise
stated:
“Acquisition”
the acquisition of an aggregate of 75% equity interests
from the Vendors by the Purchaser pursuant to the Sale and
Purchase Agreement
“Board”
board of directors of the Company
“Business Day”
a day (other than Saturday, Sunday or public holiday)
on which commercial banks in Hong Kong are open for
business
“Company”
Art Textile Technology International Company Limited（ 錦
藝紡織科技國際有限公司）, a company incorporated in
the Cayman Islands with limited liability, whose Shares are
listed on the Stock Exchange
“Consideration”
consideration for the Acquisition
“Controlling Shareholders”
Mr. Chen Jinyan, Mr. Chen Dong, Mr. Chen Jinqing, Ms.
Lin Lin, Fully Chain Limited, Jinjie Limited and Ultimate
Name Limited and their respective associates
“Directors”
the director(s) of the Company
“Enlarged Group”
the Group upon the Acquisition
“EGM”
the extraordinary general meeting of the Company to be
convened to approve, among others, the Acquisition
“Group”
the Company and its subsidiaries
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Latest Practicable Date”
26 January 2015, being the latest practicable date prior
to the printing of this circular for ascertaining certain
information in this circular
–1–
DEFINITIONS
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock
Exchange
“Mall”
the whole of Zones A & B of a 4-storey shopping mall built
over one level of basement commercial space and having a
total site area of approximately 38,500 square metres and
total registered gross floor area of approximately 125,200
square metres located at No. 36 Mian Fang West Road,
Zhongyuan District, Zhengzhou Shi, Henan Province, the
PRC
“PRC”
the People’s Republic of China which, for the purpose
of this circular, excludes Hong Kong, the Macau Special
Administrative Region of the PRC and Taiwan
“Purchaser”
鄭州昌盾資產管理有限公司 (Zhengzhou Changdun Asset
Management Company Limited), a wholly foreign-owned
enterprise established in the PRC on 7 July 2014 and is an
indirect wholly-owned subsidiary of the Company
“Sale and Purchase Agreement”
the sale and purchase agreement dated 18 December 2014
and entered into between the Vendors and the Purchaser in
relation to the Acquisition
“SFO”
Securities and Futures Ordinance (Cap. 571 of Laws of
Hong Kong)
“Share(s)”
ordinary share(s) of HK$0.01 each in the share capital of
the Company
“Shareholder(s)”
holder(s) of the Share(s)
“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“Target Company”
鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property
Services Company Limited)
“Vendor (1)”
鄭州第一紡織有限公司 (Zhengzhou Diyi Textile Company
Limited)
–2–
DEFINITIONS
“Vendor (2)”
新 疆 金 鋒 源 棉 花 產 業 有 限 公 司 (Xinjiang Jinfengyuan
Cotton Industry Company Limited)
“Vendors”
Vendor (1) and Vendor (2)
“HK$”
Hong Kong dollar, the lawful currency of Hong Kong
“RMB”
Renminbi, the lawful currency of the PRC
“%”
per cent.
For the purpose of this circular, the conversion of RMB into HK$ is based on the
approximate exchange rate of HK$1.00 to RMB0.79 for illustration purpose only.
–3–
LETTER FROM THE BOARD
ART TEXTILE TECHNOLOGY INTERNATIONAL COMPANY LIMITED
錦藝紡織科技國際有限公司
(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 565)
Executive directors:
Mr. Chen Jinyan (Chairman)
Mr. Chen Dong
Mr. Chen Jinqing
Registered office:
Cricket Square
Hutchins Drive
P.O. Box 2681
Grand Cayman KY1 – 1111
Cayman Islands
Independent non-executive directors:
Mr. Lin Ye
Mr. Yang Zeqiang
Ms. Yau Lai Ying
Head office and principal place
of business:
Unit 1407, 14th Floor
China Merchants Tower
Shun Tak Centre
168-200 Connaught Road Central
Hong Kong
30 January 2015
To the Shareholders
Dear Sir or Madam,
MAJOR TRANSACTION
IN RELATION TO
THE ACQUISITION OF 75% EQUITY INTERESTS IN
ZHENGZHOU JIACHAO PROPERTY SERVICES
COMPANY LIMITED
INTRODUCTION
Reference is made to the announcement of the Company dated 18 December 2014 in relation
to the acquisition of 75% equity interests in Zhengzhou Jiachao Property Services Company
Limited.
–4–
LETTER FROM THE BOARD
As one or more of the applicable percentage ratios in respect of the Acquisition exceed 25%
but are less than 100%, the Acquisition under the Sale and Purchase Agreement constitutes a major
transaction for the Company under Chapter 14 of the Listing Rules. Therefore, the Acquisition is
subject to reporting, announcement and Shareholders’ approval requirements under Chapter 14 of
the Listing Rules.
The EGM will be convened for the purpose of considering, and if thought fit, approving
the Acquisition. As the Acquisition involves a diversification of the Group’s business to the
property operating business, despite that no Controlling Shareholder has a material interest in the
Acquisition, all of the Controlling Shareholders and their respective associates will abstain from
voting at the EGM.
The purpose of this circular is to provide the Shareholders with further details of the Sale
and Purchase Agreement and the transactions contemplated therein, together with such other
information as required by the Listing Rules.
SALE AND PURCHASE AGREEMENT
Date
18 December 2014 (after trading hours)
Parties
Purchaser:
鄭州昌盾資產管理有限公司 (Zhengzhou Changdun Asset Management
Company Limited), an indirect wholly-owned subsidiary of the Company
Vendors:
(a)
Vendor (1)
(b)
Vendor (2)
Vendor (1) is a limited company incorporated under the laws of the PRC and principally
engaged in the sale and purchase of textile products and textile raw materials. Vendor (2) is a
limited company incorporated under the laws of the PRC and principally engaged in the sale of
cotton and agricultural and domesticated animal products. Vendor (1) and Vendor (2) are suppliers
of the Group supplying raw materials including cotton. The Group has established business
relationship with Vendor (1) and Vendor (2) for more than five years. To the best of the Directors’
knowledge, information and belief and having made all reasonable enquiries, the Vendors and their
ultimate beneficial owner(s) is/are third party(ies) independent of the Company and its connected
persons (as defined in the Listing Rules).
–5–
LETTER FROM THE BOARD
Subject matter of the Acquisition
Pursuant to the Sale and Purchase Agreement,
(a)
Vendor (1) has conditionally agreed to sell and the Purchaser has conditionally
agreed to purchase 63% equity interests in the Target Company at a Consideration of
RMB496,994,000 (equivalent to approximately HK$629,107,000); and
(b)
Vendor (2) has conditionally agreed to sell and the Purchaser has conditionally
agreed to purchase 12% equity interests in the Target Company at a Consideration of
RMB94,666,000 (equivalent to approximately HK$119,830,000).
Consideration
The total Consideration of RMB591,660,000 (equivalent to approximately HK$748,937,000)
in relation to the acquisition of 75% equity interests in the Target Company was arrived at
after arm ’ s length negotiation among the parties to the Sale and Purchase Agreement with
reference to the opinion of value of the Mall of RMB1,780,000,000 (equivalent to approximately
HK$2,253,165,000) as advised by an independent professional valuer minus the book value of the
Mall of RMB979,071,000 (equivalent to approximately HK$1,239,330,000) plus the unaudited net
assets of RMB22,458,000 (equivalent to approximately HK$28,428,000), and with a discount of
RMB25,880,000 (equivalent to approximately HK$32,759,000).
All of the Consideration will be settled in cash upon completion by internal resources of the
Group, loans from independent banks/financial institutions and the net proceeds from the placing
of the Shares as referred to in the announcement of the Company dated 12 November 2014. The
Directors consider that the Group will have sufficient fund to complete the Acquisition.
The Consideration for the Acquisition will be satisfied in the following manner:
(a)
20% of the Consideration, being RMB118,332,000 (equivalent to approximately
HK$149,787,000), which has been paid as a refundable deposit after signing of
the Sale and Purchase Agreement on 18 December 2014, as to RMB99,399,000
(equivalent to approximately HK125,821,000) to Vendor (1) and RMB18,933,000
(equivalent to approximately HK$23,966,000) to Vendor (2);
(b)
a further refundable deposit of 30% of the Consideration, being RMB177,498,000
(equivalent to approximately HK$224,681,000), which has been paid after the
appointment of the legal representative and the director nominated by the Purchaser
to the Target Company, as to RMB149,098,000 (equivalent to approximately
HK$188,732,000) to Vendor (1) and RMB28,400,000 (equivalent to approximately
HK$35,949,000) to Vendor (2);
–6–
LETTER FROM THE BOARD
(c)
a further refundable deposit of 30% of the Consideration, being RMB177,498,000
(equivalent to approximately HK$224,681,000), will be payable upon completion
of the due diligence exercise of the Target Company by the Purchaser, as to
RMB149,098,000 (equivalent to approximately HK$188,732,000) to Vendor (1) and
RMB28,400,000 (equivalent to approximately HK$35,949,000) to Vendor (2); and
(d)
the balance of the Consideration, being RMB118,332,000 (equivalent to
approximately HK$149,788,000), will be paid within five (5) Business Days from the
completion of the Acquisition, as to RMB99,399,000 (equivalent to approximately
HK$125,822,000) to Vendor (1) and RMB18,933,000 (equivalent to approximately
HK$23,966,000) to Vendor (2).
Conditions precedent
Completion of the Acquisition is conditional upon fulfillment of, among other things, the
following conditions:
(a)
the Shareholders approving the transactions contemplated by the Sale and Purchase
Agreement in the EGM;
(b)
the obtain of all consents, authorisations, permits and approvals, including but not
limited to approval from the relevant Industry and Commerce Bureau, in respect of the
Sale and Purchase Agreement, the transfers of equity interests in the Target Company
and the transactions contemplated under the Sale and Purchase Agreement;
(c)
the obtain of 房屋所有權証 (building ownership certificate) of the Mall by the Target
Company; and
(d)
completion of the due diligence exercise on the Target Company by the Purchaser with
a result satisfactory to the Purchaser.
If the conditions are not fulfilled or waived (other than condition (a) above) on or before 31
May 2015, the Sale and Purchase Agreement shall lapse and be of no further effect, and no party
to the Sale and Purchase Agreement shall have any claim against or liabilities to the other parties,
save in respect of any antecedent breaches. As at the Latest Practicable Date, save for the conditions
precedent set out in paragraph (c) above, none of the conditions has been fulfilled or waived.
–7–
LETTER FROM THE BOARD
Completion
Completion shall take place within five (5) Business Days after the conditions are fulfilled or
waived or such other date as agreed by the parties to the Sale and Purchase Agreement.
Upon completion of the Acquisition, the Company will be indirectly interested in 75% of the
Target Company. The results of the Target Company will be consolidated with the accounts of the
Group. Vendor (1) will be interested in 25% of the Target Company and become a connected person
of the Company under the Listing Rules. The Group may continue to source raw materials including
cotton from Vendor (1) and such purchases will constitute connected transactions of the Company
under the Listing Rules. The Company will make announcement and/or obtain independent
Shareholders’ approval in respect of such purchases when and where appropriate.
INFORMATION ON THE TARGET COMPANY
The Target Company is a limited liability company incorporated in the PRC on 2 May 2013.
The principal business of the Target Company is property investment, general management and
agency. The principal asset of the Target Company is the Mall.
The Mall comprises the whole of Zones A & B of a 4-storey shopping mall built over one
level of basement commercial space and having a total site area of approximately 38,500 square
metres and total registered gross floor area of approximately 125,200 square metres. The Mall is
situated at No. 36 Mian Fang West Road, Zhongyuan District, Zhengzhou Shi, Henan Province,
the PRC. Most of the commercial space of the Mall had been leased out as retail shop, restaurant,
entertainment and/or leisure use for investment purposes. In spite of its high rent out rate as at
31 October 2014, the Mall was still under trial run since its opening at the end of 2012. As at 31
October 2014, its renovation work had not been fully completed but in progress and two innovative
elevators were to be set up for easing customer flow inside the Mall. The Mall is expected to be
fully opened in the first half year of 2015.
The Mall is a diverse shopping mall in Zhengzhou Shi and part of the Mall is grandly opened
at the end of 2012. The Mall is located at the western part of the heart of Zhengzhou Shi and
offers a wide range of services including shopping, dining and entertainment with over 180 shops,
including: a cinema, jewellery and watches, beauty, electrical appliances, international labels for
fashion, lifestyle, casual wear/sport, kid’s paradise and food and beverages outlets.
For the 18 months ended 31 October 2014 since its incorporation, the unaudited net profit
before and after tax of the Target Company amounted to approximately RMB4,175,000 (equivalent
to approximately HK$5,285,000) and RMB2,458,000 (equivalent to approximately HK$3,111,000)
respectively.
As at 31 October 2014, the unaudited net assets of the Target Company were approximately
RMB22,458,000 (equivalent to approximately HK$28,428,000).
–8–
LETTER FROM THE BOARD
POSSIBLE FINANCIAL EFFECTS OF THE ACQUISITION
Upon the completion of the Acquisition, the Target Company will become a subsidiary of the
Group and its financial statements will be consolidated to those of the Group.
As set out in Appendix III to this circular, assuming the Acquisition has been completed on
30 June 2014, the consolidated total assets of the Group would be increased from approximately
RMB979,308,000 (equivalent to approximately HK$1,239,631,000) to RMB2,313,164,000
(equivalent to approximately HK$2,928,056,000). The consolidated total liabilities of the
Group would be increased from approximately RMB128,526,000 (equivalent to approximately
HK$162,691,000) to approximately RMB1,308,447,000 (equivalent to approximately
HK$1,656,262,000). The increase of the consolidated total liabilities is primarily due to the
consolidation of the liabilities of the Target Company with that of the Group and the accrual for the
consideration of RMB591,660,000 (equivalent to approximately HK$748,937,000) payable to the
Vendors. As a result, the consolidated net assets of the Group would increase from approximately
RMB850,783,000 (equivalent to approximately HK$1,076,940,000) to RMB1,004,717,000
(equivalent to approximately HK$1,271,794,000).
Taking into account the synergy potential of the Acquisition, the Acquisition is expected to
broaden the revenue and earning base of the Group in future.
REASONS FOR AND THE BENEFITS OF THE ACQUISITION
The Company is an investment holding company. The Group is principally engaged in the
dyeing process of grey fabrics, trading of textile materials and property operating.
The Group tried to diversify its operations into different businesses during the year ended 30
June 2014 and also subsequent to the reporting period. Therefore resources have been placed into
property operating aspects in order to explore future prospects and develop the relevant markets,
with a view to magnify the Company’s development potential and the Shareholders’ return.
The Directors consider that the Acquisition signifies the first property operating project the
Group invested in and the first step of the Group to diversify its business into the property operating
business. The Mall will generate a stable and constant stream of income to the Group, which
ultimately will benefit the Company and its Shareholders as a whole. The Directors also expect that
there will be appreciation of property value in the long term. Moreover, the Directors have explored
the possible diversification of the Group’s business to the property operating segment because
of the increasing population and consuming power in the PRC and a strong market potential is
foreseeable.
–9–
LETTER FROM THE BOARD
The Directors (including the independent non-executive Directors) are of the view that the
terms of the Sale and Purchase Agreement are on normal commercial terms, fair and reasonable and
in the interests of the Company and its Shareholders as a whole.
LISTING RULES IMPLICATIONS
As one or more of the applicable percentage ratios in respect of the Acquisition exceed 25%
but are less than 100%, the Acquisition under the Sale and Purchase Agreement constitutes a major
transaction for the Company under Chapter 14 of the Listing Rules. Therefore, the Acquisition is
subject to reporting, announcement and Shareholders’ approval requirements under Chapter 14 of
the Listing Rules.
The EGM will be convened for the purpose of considering, and if thought fit, approving the
Acquisition. The Acquisition will result in a diversification of the Group’s business to engage in the
property operating business in addition to its existing business of dyeing process of grey fabrics and
trading of textile materials. The property operating business is a brand-new segment to the Group.
Despite that no Controlling Shareholder has a material interest in the Acquisition, in light of a good
corporate governance system and to safeguard the interests of the Company and its Shareholders as
a whole, the Board and the Controlling Shareholders would defer the Acquisition and therefore the
diversification of the Group’s business to the property operating segment to the voting of the other
Shareholders and all of the Controlling Shareholders and their respective associates will abstain
from voting at the EGM.
The shareholding of the Controlling Shareholders and their respective associates as at the
Latest Practicable Date was set forth below:
Number of
Shares
Percentage
Ms. Lin Lin and Jinjie Limited
184,550,000
14.78%
Fully Chain Limited
296,740,000
23.77%
83,000,000
6.65%
564,290,000
45.20%
Shareholders
Ultimate Name Limited
Total
– 10 –
LETTER FROM THE BOARD
Among the 184,550,000 Shares, 162,170,000 Shares were held by Jinjie Limited and
22,380,000 Shares were held by Ms. Lin Lin. Jinjie Limited is wholly-owned by the spouse of Mr.
Chen Dong, Ms. Lin Lin. Mr. Chen Dong is deemed to be interested in the 184,550,000 Shares of
the Company.
Fully Chain Limited is wholly-owned by Mr. Chen Jinyan. Mr. Chen Dong is the younger
brother of Mr. Chen Jinyan.
Ultimate Name Limited is wholly-owned by Mr. Chen Jinqing. Mr. Chen Jinqing is the
youngest brother of Mr. Chen Jinyan and Mr. Chen Dong. All three of them are executive Directors.
RECOMMENDATION
The Board considers that the terms of the Sale and Purchase Agreement are fair and
reasonable and the entering into of the Sale and Purchase Agreement is in the interests of the
Company and the Shareholders as a whole. Accordingly, the Directors would recommend the
Shareholders to vote in favour of a resolution approving the Sale and Purchase Agreement and the
transactions contemplated thereunder at the EGM.
ADDITIONAL INFORMATION
Your attention is drawn to the additional information set out in the appendices to this
circular.
By order of the Board
Art Textile Technology International Company Limited
Chen Jinyan
Chairman
– 11 –
APPENDIX I
1.
FINANCIAL INFORMATION OF THE GROUP
FINANCIAL INFORMATION OF THE GROUP
The financial information of the Group for the years ended 30 June 2012, 2013, 2014 are
disclosed on pages 26 to 73 of the annual report of the Company for the year ended 30 June 2012,
pages 30 to 81 of the annual report of the Company for the year ended 30 June 2013 and pages
31 to 85 of the annual report of the Company for the year ended 30 June 2014, respectively, all
of which are published on the website of the Stock Exchange at http://www.hkexnews.hk, and the
website of the Company at http://arttextile.etnet.com.hk. Quick links to the annual reports of the
Company published on the website of the Stock Exchange are set out below:
Annual report of the Company for the year ended 30 June 2012:
http://www.hkexnews.hk/listedco/listconews/SEHK/2012/1009/LTN20121009285.pdf
Annual report of the Company for the year ended 30 June 2013:
http://www.hkexnews.hk/listedco/listconews/SEHK/2013/1023/LTN20131023255.pdf
Annual report of the Company for the year ended 30 June 2014:
http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1007/LTN20141007617.pdf
2.
INDEBTEDNESS
Bank borrowings and other borrowings
As at 31 December 2014, the Enlarged Group had outstanding borrowings of
approximately HK$2,197,542,000, comprising (i) secured and guaranteed bank borrowings
of approximately HK$75,949,000; (ii) secured and unguaranteed bank borrowings of
approximately HK$917,722,000; (iii) unsecured, unguaranteed and unlisted bonds at face
values of HK$25,340,000; (iv) unsecured and guaranteed borrowings from a financial
institution of approximately HK$443,038,000; and (v) an amount due to a related company
of approximately HK$735,493,000. The amount due is unsecured, interest free and repayable
in February 2015.
As at 31 December 2014, the Enlarged Group’s secured bank borrowings are wholly
repayable within one to ten years and secured by the certain buildings, certain leasehold
interest in land, pledged bank deposits and cross guarantee from related companies
approximately HK$762,834,000, HK$17,972,000, HK$25,316,000 and HK$506,329,000
respectively.
– 12 –
APPENDIX I
FINANCIAL INFORMATION OF THE GROUP
Save as disclosed above and otherwise mentioned in this circular and apart from
normal trade payables in the normal course of business, none of the members of the Enlarged
Group had, as at 31 December 2014, being the latest practicable date for the purpose of this
statement of indebtedness prior to the printing of this circular, any outstanding mortgages,
charges, debenture, loan capital issued and outstanding or agreed to be issued, bank loan
and overdraft or other similar indebtedness, finance leases or hire purchase commitments,
liabilities under acceptances or acceptance credits or any guarantee or other material
contingent liabilities.
Contingent liabilities
As at 31 December 2014, the Enlarged Group had no material contingent liabilities.
3.
WORKING CAPITAL
Taking into account the proposed Acquisition, the Enlarged Group’s internal resources, the
presently confirmed available banking facilities and in the absence of unforeseen circumstances, the
Directors are of the opinion that, the Enlarged Group has sufficient working capital for its present
requirements that is for at least the next 12 months from the date of this circular.
4.
MATERIAL ADVERSE CHANGE
As at the Latest Practicable Date, the interim results of the Group for the period ended 31
December 2014 experienced a decline when compared with the corresponding period in year 2013
due to a number of adverse factors including the slow recovery of the global economy, reduction of
demand in both domestic and overseas textile markets and a cautious purchasing approach adopted
by downstream customers. Consequently, the reduction of gross sales margin was happened. Save
as the above, the Directors were not aware of any material adverse change in the financial position
or trading prospects of the Group since 30 June 2014, the date to which the latest audited financial
statements of the Company were made up.
5.
CONTINGENT LIABILITIES
The Enlarged Group has no other material contingent liabilities. The Enlarged Group is
not involved in any current material legal proceedings, nor is the Enlarged Group aware of such
material legal proceedings. The Group would record any loss contingencies when, based on
information then available, it is probable that a loss had been incurred and the amount of the loss
can be reasonably estimated. The Group confirms that there has not been any material change in the
level of its contingent liabilities since 30 June 2014 up to the Latest Practicable Date.
– 13 –
APPENDIX I
6.
FINANCIAL INFORMATION OF THE GROUP
OUTLOOK AND PROSPECTS
Although moderating performances in the first half year of 2014, the PRC’s economy was
still in good shape as a whole. Yet, a slowdown in the PRC’s textile industry was caused by a fall
in textile product prices in the second half year of 2014 which was attributable to the slow recovery
of the global economy and reduction of demand in both domestic and overseas markets, as well as
a fall in textile material prices by the end of 2014 due to the downward cotton price expectations.
Downstream customers have adopted a cautious approach to purchasing and a chain reaction has
thereby occurred, which in turn affected each upper level of upstream suppliers to place orders
to their own previous level of suppliers, and eventually has negatively impacted the sales volume
and selling prices of the Group’s textile products and materials, of which, the Group is one of the
upstream manufacturers in the textile industry in the PRC. A decrease in the Group’s sales volume
of garment fabrics and textile materials accordingly impacted its revenue along with a decline in
selling prices of the Group’s garment fabrics and textile materials, as well as its net profit.
Since the textile industry in the PRC faces significant challenges and uncertainties in the
business environment, the Group’s current strategic plan is to concentrate only on the dying process
of grey fabrics. Customers with long term business relationship with the Group and new customers
process the dying procedure of their own synthetic and cotton grey fabrics by the Group’s existing
state-of-the art dyeing machinery and equipment. In this case, the Group is still able to use its
advanced dying technology to maintain its position in the market during the hard time of the textile
industry in the PRC. On the other hand, the sales outlets in major cities of the PRC are closed
down in order to further limit the Group’s operating expenditures and strategy its future financial
plan efficiently. The Group has continuously implemented conservative and stringent cost control
policies so as to ensure sufficient working capital by imposing control over operating costs and
capital expenditure and strengthening accounts receivable management.
The PRC’s macro economy is still considered to be growing fairly steadily. Economic,
financial and social reforms covering a wide range of areas will lead the economy and the society
towards a more healthy and sustainable development. The PRC government’s focus is on targeted
control measures to ensure a moderate to high pace of growth while continuing its economic
restructuring. With financial reforms in the banking system, capital markets and public finance such
as liberalisation of interest rates and better access to housing finance, a healthy property market will
be developed. With improvements done by the PRC government in household registration system,
property rights and land title registration system, the interests of the owners of the properties will
also be safeguarded. Furthermore, urbanisation has been another focus for the PRC government
in setting economic policy and objectives over the past few decades. A comprehensive policy
– 14 –
APPENDIX I
FINANCIAL INFORMATION OF THE GROUP
framework for urbanisation would narrow rural-urban inequalities and reduce wealth disparities.
Consequently, the living standard and consuming power in the PRC, in particular for the urban
Chinese population, have kept increasing over the past two decades, especially on the luxurious
consumer goods. Recently, easing of one-child policy will also increase demand for consumer
products, education and housing. The above reforms and improvements are all important to
establish a more sustainable consumption-led economy in the PRC. By leveraging on the Group’s
current strategic plan and established strengths, experience and foresight, the Group continues to
seize opportunities to meet the needs of dynamic textile markets, explore new market potentials and
increase profit margin.
The Company intends to manage and operate the property operating segment by the current
caliber management and skillful employees of the Target Company. The first key management is
Mr. Zhang Hongqiang (張紅強, “Mr. Zhang”), the general manager of the Target Company since
March 2014. Before joining the Target Company, Mr. Zhang, aged 40, was the general manager and
the vice president of a number of large and famous shopping centres in the PRC from March 2005
to February 2014. The second key management is Mr. Ge Wenhai (葛文海, “Mr. Ge”), the vice
general manager of the Target Company since May 2013. Before joining the Target Company, Mr.
Ge, aged 42, was the sales manager, the assistant operation manager and the vice general manger
of a number of large and famous shopping centres and a property management company, all in the
PRC, from May 2006 to May 2013.
Looking forward, the Group will maintain to focus on its current textile business by setting
up new and modern machinery and enhancing market promotion in both domestic and overseas
markets. The Group will also place additional resources to realise growth momentum from the
development of property operating market. The Mall is situated in Zhengzhou Shi and with good
economic and demographic fundamentals, hence, the Acquisition will be a milestone for the Group
to diversify its business operations into property operating market. The business growth of the
Group is expected to accelerate and accordingly, the positive outcome will be gradually reflected
in the future with full recovery of the worldwide economy. By continually diversifying the Group’s
business, the market value of the Company and the return to its Shareholders will be maximised
in long term, which in return for the constant trust and support bestowed to the Company by its
Shareholders.
– 15 –
APPENDIX II
A.
FINANCIAL INFORMATION OF THE TARGET COMPANY
ACCOUNTANTS’ REPORT OF THE TARGET COMPANY
The following is the text of a report on the Target Company for the period from 2 May
2013 to 31 October 2014, prepared for the sole purpose of inclusion in this circular, received from
Dominic K.F. Chan & Co., Certified Public Accountants, Hong Kong.
The Board of Directors
Art Textile Technology International Company Limited
Unit 1407, 14th Floor,
China Merchants Tower, Shun Tak Centre,
168-200 Connaught Road Central,
Hong Kong
Dear Sirs,
We set out below our report on the financial information regarding Zhengzhou Jiachao
Property Services Company Limited (the “Target Company”) for the period from 2 May 2013 (date
of incorporation) to 31 October 2014 (the “Relevant Period”), for inclusion in the shareholders’
circular of Art Textile Technology International Company Limited (the “Company”) dated 30
January 2015 (the “ Circular ” ) in connection with the Company ’ s proposed acquisition (the
“Acquisition”) of the 75% equity interests in the Target Company, pursuant to the Sale and
Purchase Agreement dated 18 December 2014 entered into among Zhengzhou Changdun Asset
Management Company Limited, an indirect wholly-owned subsidiary of the Company, Zhengzhou
Diyi Textile Company Limited and Xinjiang Jinfengyuan Cotton Industry Company Limited. The
financial information of the Target Company set out in Section II of this report comprises the
statement of financial position as at 31 October 2014, and the statement of profit or loss and other
comprehensive income, the statement of changes in equity and the statement of cash flows for the
period from 2 May 2013 (date of incorporation) to 31 October 2014, and a summary of significant
accounting policies and other explanatory information.
– 16 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
The Target Company was incorporated in the People’s Republic of China (the “PRC”) with
limited liability on 2 May 2013, with paid-in capital of RMB20,000,000. As at the date of this
report, the Target Company is principally engaged in property investment, general management and
agency.
No statutory financial statements are prepared by the Target Company since the date of
incorporation as there is no statutory requirement to do so.
For the purpose of this report, the director of the Target Company has prepared the financial
statements in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by
the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and accounting principles
generally accepted in Hong Kong (the “Underlying Financial Statements”), with no adjustments
considered necessary to comply with HKFRSs.
DIRECTOR’S RESPONSIBILITY
The director of the Target Company is responsible for the preparation of the financial
information in order to give a true and fair view. In preparing the financial information that gives
a true and fair view, it is fundamental that appropriate accounting policies are selected and applied
consistently, and that judgements and estimates made are prudent and reasonable.
REPORTING ACCOUNTANT’S RESPONSIBILITY
For the purpose of this report, we have carried out independent audit procedures on the
financial information in accordance with Hong Kong Standards on Auditing issued by the HKICPA,
and such additional procedures as we considered necessary in accordance with Auditing Guideline
3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA. It is our responsibility
to form an independent opinion, based on our procedures, on the financial information and to report
our opinion thereon.
OPINION
In our opinion, the financial information gives, for the purpose of this report, a true and fair
view of the results and cash flows of the Target Company for the Relevant Period and of the state of
affairs of the Target Company as at 31 October 2014.
– 17 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
MATERIAL UNCERTAINTY RELATING TO THE GOING CONCERN BASIS
Without qualifying our opinion, we draw attention to note 2 to the financial information
which mentions that the Target Company’s current liabilities exceed its current assets as at 31
October 2014 by RMB957,556,198. The conditions indicate the existence of a material uncertainty
which may cast significant doubt about the Target Company’s ability to continue as a going
concern. As further explained in note 2 to the financial information, the Target Company has
obtained the continuing financial supports from the holding companies. The financial information
has been prepared on a going concern basis, the validity of which depends upon the continuing
financial supports from the holding companies and the Target Company’s ability to generate
sufficient cash inflows from its operating activities. The financial information does not include any
adjustments that would result from failure to obtain of the above. We consider that the material
uncertainty has been adequately disclosed in the financial information.
Yours faithfully,
Dominic K.F. Chan & Co.
Certified Public Accountants (Practising)
Hong Kong, 30 January 2015
– 18 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Notes
6
Turnover
From 2 May 2013
(date of incorporation)
to 31 October 2014
RMB
68,514,046
Cost of sales
(37,892,158)
Gross profit
30,621,888
7
Other income
Administrative expenses
70,824
(26,517,780)
Profit before tax
4,174,932
Income tax expense
8
(1,717,028)
Profit and total comprehensive income for the period
9
2,457,904
– 19 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
STATEMENT OF FINANCIAL POSITION
Notes
NON-CURRENT ASSETS
Equipment
Property under development
13
14
At 31 October 2014
RMB
513,115
979,500,987
980,014,102
CURRENT ASSETS
Inventories
Trade and other receivables
Cash and bank balances
16
17
18
107,855
17,739,134
4,284,780
22,131,769
CURRENT LIABILITIES
Trade and other payables
Receipts in advance
Tax liabilities
19
974,254,792
5,336,190
96,985
979,687,967
NET CURRENT LIABILITIES
(957,556,198)
TOTAL ASSETS LESS CURRENT LIABILITIES
22,457,904
CAPITAL AND RESERVE
20
Paid-in capital
Retained profit
20,000,000
2,457,904
TOTAL EQUITY
22,457,904
– 20 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
STATEMENT OF CHANGES IN EQUITY
Note
Capital injection
20
Profit for the period
Balance as at 31 October 2014
– 21 –
Paid-in
capital
Retained
profit
Total
RMB
RMB
RMB
20,000,000
–
20,000,000
–
2,457,904
2,457,904
20,000,000
2,457,904
22,457,904
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
STATEMENT OF CASH FLOWS
Note
CASH FLOW FROM OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation
Interest income
Period from
2 May 2013
(date of incorporation)
to 31 October 2014
RMB
4,174,932
28,889
(70,824)
Operating cash flows before working capital changes
4,132,997
Working capital changes:–
Increase in inventories
Increase in trade and other receivables
Decrease in trade and other payables
Increase in receipts in advance
(107,855)
(17,739,134)
(4,816,195)
5,336,190
Cash used in operations
Income tax paid
(13,193,997)
(1,620,043)
NET CASH USED IN OPERATING ACTIVITIES
(14,814,040)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and part of
property under development
Interest received
(972,004)
70,824
NET CASH USED IN INVESTING ACTIVITIES
(901,180)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of registered capital
20,000,000
NET CASH GENERATED FROM
FINANCING ACTIVITIES
20,000,000
NET INCREASE IN CASH AND
CASH EQUIVALENTS
4,284,780
CASH AND CASH EQUIVALENTS
AT THE BEGINNING OF THE PERIOD
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD
–
18
– 22 –
4,284,780
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
NOTES TO THE FINANCIAL INFORMATION
1.
General
The Target Company was incorporated in the People’s Republic of China (the “PRC”)
with limited liability on 2 May 2013. As at the date of this report, the registered office of the
Target Company is located at 鄭州市中原區桐柏路178號4號樓801. Its holding companies
are Zhengzhou Diyi Textile Company Limited（ 鄭 州 第 一 紡 織 有 限 公 司）and Xinjiang
Jinfengyuan Cotton Industry Company Limited（ 新 疆 金 鋒 源 棉 花 產 業 有 限 公 司）. All
holding companies were incorporated in the PRC.
The financial information are presented in Renminbi (“RMB”), which is also the
functional currency of the Target Company, except when otherwise indicated.
During the Relevant Period, the Target Company was principally engaged in property
investment, general management and agency.
2.
Basis of preparation of financial information
The Target Company’s current liabilities exceed its current assets as at 31 October
2014 by RMB957,556,198. This condition indicates the existence of a material uncertainty
which may cast significant doubt about the Target Company’s ability to continue as a going
concern. Nevertheless, the sole director of the Target Company is of the opinion that the
Target Company will have sufficient working capital to meet its financial obligations as and
when they fall due for the next twelve months from 31 October 2014 given that:
i)
both holding companies of the Target Company continuously provides financial
supports to the Target Company prior to the completion of the Acquisition; and
ii)
both holding companies of the Target Company and Art Textile Technology
International Company Limited have agreed to provide financial supports to the
Target Company upon the completion of the Acquisition.
Accordingly, the sole director of the Target Company is of the opinion that it is
appropriate to prepare the financial information on a going concern basis.
– 23 –
APPENDIX II
3.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Application of new and revised hong kong financial reporting standards
(“HKFRSs”)
For the purpose of preparing and presentation the financial information for the
Relevant Period, the Target Company has applied Hong Kong Accounting Standards
(“HKASs”), HKFRSs and Interpretation (“HK(IFRC) – Int”) issued by the HKICPA which
are effective for the financial period beginning on 1 January 2014 and consistently applied
throughout the Relevant Period.
At the date of this report, the Target Company has not early applied the following new
and revised HKFRSs that have been issued but are not yet effective:
HKFRS 9
Financial Instruments4
HKFRSs (Amendments)
Annual Improvements to
HKFRSs 2010-2012 Cycle1
Annual Improvements to
HKFRSs 2011-2013 Cycle1
Annual Improvements to
HKFRSs 2012-2014 Cycle2
Mandatory Effective Date of HKFRS 9 and
Transition Disclosures5
Sale or Contribution of Assets between
an Investor and its Associate or Joint Venture2
Accounting for Acquisitions of Interests
in Joint Operations2
Regulatory Deferral Accounts2
Revenue from Contracts with Customers3
Clarification of Acceptable Methods of
Depreciation and Amortisation2
Agriculture: Bearer Plants2
HKFRSs (Amendments)
HKFRSs (Amendments)
HKFRSs 9 and 7 (Amendments)
HKFRSs 10 and
HKAS 28 (Amendments)
HKFRS 11 (Amendments)
HKFRS 14
HKFRS 15
HKAS 16 and HKAS 38
(Amendments)
HKAS 16 and HKAS 41
(Amendments)
HKAS 19 (Amendments)
HKAS 27
Defined Benefit Plans: Employee Contributions1
Equity Method in Separate Financial Statements2
1
Effective for annual periods beginning on or after 1 July 2014
2
Effective for annual periods beginning on or after 1 January 2016
3
Effective for annual periods beginning on or after 1 January 2017
4
Effective for annual periods beginning on or after 1 January 2018
5
Effective dates are to be determined
– 24 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
The director of the Target Company anticipates that the application of new and revised
HKFRSs will not have material impact on the results and the financial position of the Target
Company.
4.
Significant accounting policies
The financial information has been prepared on the historical cost basis, and
in accordance with accounting policies set out below which are in conformity with
HKFRSs issued by the HKICPA. Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date,
regardless of whether that price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or a liability, the Target Company takes
into account the characteristics of the asset or liability if market participants would take
those characteristics into account when pricing the asset or liability at the measurement
date. Fair value for measurement and/or disclosure purposes in the financial information
is determined on such a basis, except for share-based payment transactions that are within
the scope of HKFRS 2, leasing transactions that are within the scope of HKAS 17, and
measurements that have some similarities to fair value but are not fair value, such as net
realisable value in HKAS 2 or value in use in HKAS 36.
In addition, for financial reporting purposes, fair value measurements are categorised
into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements
are observable and the significance of the inputs to the fair value measurement in its entirety,
which are described as follows:
–
Level 1 inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities that the entity can access at the measurement date;
–
Level 2 inputs are inputs, other than quoted prices included within Level 1, that
are observable for the asset or liability, either directly or indirectly; and
–
Level 3 inputs are unobservable inputs for the asset or liability.
– 25 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
The principal accounting policies are set out below.
Equipment
Equipment including equipment held for use in the production or supply
of goods or services, or for administrative purposes are stated in the statement of
financial position at cost, less subsequent accumulated depreciation and subsequent
accumulated impairment losses, if any.
Depreciation is recognised so as to write off the cost of items of equipment less
their residual values over their estimated useful lives, using the straight-line method.
The estimated useful lives, residual values and depreciation method are reviewed at
the end of each relevant period, with the effect of any changes in estimate accounted
for on a prospective basis.
An item of equipment is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain
or loss arising on the disposal or retirement of an item of equipment is determined as
the difference between the sales proceeds and the carrying amount of the asset and is
recognised in profit or loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and
short term highly liquid investments that are readily convertible into known amounts
of cash, are subject to an insignificant risk of changes in value, and have a short
maturity of generally within three months when acquired, and form an integral part of
the Target Company’s cash management.
– 26 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
Provisions
Provisions are recognised when the Target Company has a present obligation
(legal or constructive) as a result of a past event, it is probable that the Target
Company will be required to settle the obligation, and a reliable estimate can be
made of the amount of the obligation. The amount recognised as a provision is the
best estimate of the consideration required to settle the present obligation at the end
of the relevant period, taking into account the risks and uncertainties surrounding the
obligation. When a provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of those cash flows (where
the effect of the time value of money is material). When some or all of the economic
benefits required to settle a provision are expected to be recovered from a third party,
a receivable is recognised as an asset if it is virtually certain that reimbursement will
be received and the amount of the receivable can be measured reliably.
Impairment losses
At the end of the relevant period, the Target Company reviews the carrying
amounts of its assets with finite useful lives to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine the
extent of the impairment, if any.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable amount. An
impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the
asset is increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset in prior years. A
reversal of an impairment loss is recognised as income immediately.
– 27 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable taking into account the amount of any trade discounts and rebates allowed
by the Target Company. Provided that it is probable that the economic benefits
associated with the revenue transaction will flow to the Target Company and the
revenue and the costs, if any, in respect of the transaction can be measured reliably,
revenue is recognised as follows:–
Rental income from operating leases is recognised as income on a straight-line
basis over the lease term, unless another systematic basis is more representative of the
time pattern of the user’s benefit.
Interest income is accrued on a time basis on the principal outstanding and at
the interest rate applicable.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other leases are
classified as operating leases.
The Group as lessor
Rental income from operating leases is recognised in profit or loss on a
straight-line basis over the lease term.
The Group as lessee
Operating lease payments are recognised as an expense on a straight-line basis
over the lease term, expect where another systematic basis is more representative of
the time pattern in which economic benefits from the leased asset are consumed.
In the event that lease incentives are received to enter into operating leases,
such incentives are recognised as a liability. The aggregate benefit of incentives is
recognised as a reduction of rental expense on a straight-line basis, except where
another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed.
– 28 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
Retirement benefit costs and termination benefits
Payments to state-managed retirement benefit schemes are charged as expenses
when employees have rendered service entitling them to the contributions.
Taxation
Income tax expense represents the sum of the tax currently payable and
deferred tax.
Current tax
The tax currently payable is based on taxable profit for the period. Taxable
profit differs from “profit before tax” as reported in the statement of profit or loss and
other comprehensive income because of items of income or expense that are taxable
or deductible in other years and items that are never taxable or deductible. The Target
Company’s liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the end of the relevant period.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying
amounts of assets and liabilities in the financial information and the corresponding tax
bases used in the computation of taxable profit. Deferred tax liabilities are generally
recognised for all taxable temporary differences. Deferred tax assets are generally
recognised for all deductible temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible temporary differences
can be utilised. Such deferred tax assets and liabilities are not recognised if the
temporary difference arises from goodwill or from the initial recognition (other than
in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at the end of each
reporting period and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected
to apply in the period in which the liability is settled or the asset realised, based on tax
rates (and tax laws) that have been enacted or substantively enacted by the end of the
reporting period.
– 29 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Target Company
expects, at the end of the reporting period, to recover or settle the carrying amount of
its assets and liabilities.
Current and deferred tax are recognised in profit or loss, except when they
relate to items that are recognised in other comprehensive income or directly in equity,
in which case, the current and deferred tax are also recognised in other comprehensive
income or directly in equity respectively.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
calculated using the weighted average method. Net realisable value represents the
estimated selling price for inventories less all estimated costs of completion and costs
necessary to make the sale.
Related parties
(a)
(b)
A person, or a close member of that person’s family, is related to the
Target Company if that person:
(i)
has control or joint control over the Target Company;
(ii)
has significant influence over the Target Company; or
(iii)
is a member of the key management personnel of the Target
Company or of a parent of the Target Company;
An entity is related to the Target Company if any of the following
conditions applies:
(i)
the entity and the Target Company are members of the same group
(which means that each parent, subsidiary and fellow subsidiary is
related to the others);
(ii)
one entity is an associate or joint venture of the other entity (or
an associate or joint venture of a member of a group of which the
other entity is a member);
– 30 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
(iii)
both entities are joint ventures of the same third party;
(iv)
one entity is a joint venture of a third entity and the other entity is
an associate of the third entity;
(v)
the entity is a post-employment benefit plan for the benefit of
employees of either the Target Company or an entity related to the
Target Company;
(vi)
the entity is controlled or jointly controlled by a person identified
in (a); and
(vii)
a person identified in (a)(i) has significant influence over the
entity or is a member of the key management personnel of the
entity (or of a parent of the entity).
Close members of the family of a person are those family members who may be
expected to influence, or be influenced by, that person in their dealings with the entity.
Financial instruments
Financial assets and financial liabilities are recognised in the statement of
financial position when an entity becomes a party to the contractual provisions of
the instrument. Financial assets and financial liabilities are initially measured at
fair value. Transaction costs that are directly attributable to the acquisition or issue
of financial assets and financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added to or deducted from the
fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of financial assets
or financial liabilities at fair value through profit or loss are recognised immediately in
profit or loss.
Financial assets
The Target Company’s financial assets are classified as loans and receivables.
The classification depends on the nature and purpose of the financial assets and is
determined at the time of initial recognition. The accounting policies adopted in
respect of loans and receivables are set out below.
– 31 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
Effective interest method
The effective interest method is a method of calculating the amortised cost
of a debt instrument and of allocating interest income over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash receipts
(including all fees on points paid or received that form an integral part of the effective
interest rate, transaction costs and other premiums or discounts) through the expected
life of the debt instrument, or, where appropriate, a shorter period, to the net carrying
amount on initial recognition.
Interest income is recognised on an effective interest basis for debt instruments.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Subsequent to initial
recognition, loans and receivables (including trade and other receivables and cash and
bank balances) are carried at amortised cost using the effective interest method, less
any identified impairment losses.
Interest income is recognised by applying the effective interest rate, except for
short-term receivables where the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at the end of
the relevant period. Financial assets are considered to be impaired where there is
objective evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the financial
assets have been affected.
For loans and receivables, objective evidence of impairment could include:
•
significant financial difficulty of the issuer or counterparty; or
•
breach of contract, such as default or delinquency in interest and
principal payments; or
•
it becoming probable that the borrower will enter bankruptcy or financial
re-organisation; or
– 32 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
•
the disappearance of an active market for that financial asset because of
financial difficulties.
For certain categories of financial assets, such as trade and other receivables,
assets that are assessed not to be impaired individually are, in addition, assessed for
impairment on a collective basis. Objective evidence of impairment for a portfolio
of receivables could include the Target Company’s past experience of collecting
payments, an increase in the number of delayed payments in the portfolio past the
average credit period, as well as observable changes in national or local economic
conditions that correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment loss
recognised is the difference between the asset’s carrying amount and the present value
of the estimated future cash flows, discounted at the financial asset’s original effective
interest rate.
For financial assets carried at cost, the amount of the impairment loss is
measured as the difference between the asset’s carrying amount and the present value
of the estimated future cash flows discounted at the current market rate of return for
a similar financial asset. Such impairment loss will not be reversed in subsequent
periods.
The carrying amount of the financial asset is reduced by the impairment loss
directly for all financial assets with the exception of trade and other receivables, where
the carrying amount is reduced through the use of an allowance account. Changes in
the carrying amount of the allowance account are recognised in profit or loss. When
trade and other receivables are considered uncollectible, they are written off against
the allowance account. Subsequent recoveries of amounts previously written off are
credited to profit or loss.
For financial assets measured at amortised cost, if, in a subsequent period, the
amount of the impairment loss decreases and the decrease can be related objectively to
an event occurring after the impairment loss was recognised, the previously recognised
impairment loss is reversed through profit or loss to the extent that the carrying
amount of the financial asset at the date the impairment is reversed does not exceed
what the amortised cost would have been had the impairment not been recognised.
– 33 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
Financial liabilities and equity instruments
Debt and equity instruments issued by a group entity are classified as either
financial liabilities or as equity in accordance with the substance of the contractual
arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of the Target Company after deducting all of its liabilities. Equity instruments
issued by the Target Company are recognised at the proceeds received, net of direct
issue costs.
Financial liabilities (including trade and other payables and receipts in advance)
are subsequently measured at amortised cost using the effective interest method.
Effective interest method
The effective interest method is a method of calculating the amortised cost of
a financial liability and of allocating interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash payments
(including all fees and points paid or received that form an integral part of the
effective interest rate, transaction costs and other premiums or discounts) through the
expected life of the financial liability, or, where appropriate, a shorter period, to the
net carrying amount on initial recognition.
Interest expense is recognised on an effective interest basis.
Derecognition
The Target Company derecognises a financial asset only when the contractual
rights to the cash flows from the asset expire, or when it transfers the financial
asset and substantially all the risks and rewards of ownership of the asset to another
entity. If the Target Company neither transfers nor retains substantially all the
risks and rewards of ownership and continues to control the transferred asset, the
Target Company continues to recognise the asset to the extent of its continuing
involvement and recognises an associated liability. If the Target Company retains
substantially all the risks and rewards of ownership of a transferred financial asset,
the Target Company continues to recognise the financial asset and also recognises a
collateralised borrowing for the proceeds received.
– 34 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
On derecognition of a financial asset in its entirety, the difference between the
asset’s carrying amount and the sum of the consideration received and receivable and
the cumulative gain or loss that had been recognised in other comprehensive income
and accumulated in equity is recognised in profit or loss.
On derecognition of a financial asset other than in its entirety, the Target
Company allocates the previous carrying amount of the financial asset between the
part it continues to recognise, and the part it no longer recognises on the basis of the
relative fair values of those parts on the date of the transfer. The difference between
the carrying amount allocated to the part that is no longer recognised and the sum
of the consideration received for the part no longer recognised and any cumulative
gain or loss allocated to it that had been recognised in other comprehensive income
is recognised in profit or loss. A cumulative gain or loss that had been recognised
in other comprehensive income is allocated between the part that continues to be
recognised and the part that is no longer recognised on the basis of the relative fair
values of those parts.
The Target Company derecognises financial liabilities when, and only
when, the Target Company’s obligations are discharged, cancelled or expire. The
difference between the carrying amount of the financial liability derecognised and the
consideration paid and payable is recognised in profit or loss.
5.
Critical accounting judgment and key sources of estimation uncertainty
In the application of the Target Company’s accounting policies, which are described
in note 4, the management are required to make judgment, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the estimate is
revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
– 35 –
APPENDIX II
6.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Turnover
Turnover represents income from rental income received and receivable and invoiced
value of services rendered during the Relevant Period, net of the PRC business tax and other
related tax, and is analysed as follows:
Period from
2 May 2013
(date of incorporation)
to 31 October 2014
RMB
Rental income
Management fee income
Operating service income
Others
57,783,697
12,613,106
1,063,255
900,130
72,360,188
Less: PRC business tax and other related tax charged on
rental income and service rendered
(3,846,142)
68,514,046
7.
Other income
Period from
2 May 2013
(date of incorporation)
to 31 October 2014
RMB
Interest income
70,824
– 36 –
APPENDIX II
8.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Income tax expense
Period from
2 May 2013
(date of incorporation)
to 31 October 2014
RMB
Income tax recognised in profit or loss:
PRC Enterprise Income Tax (“EIT”)
– Current income tax
1,717,028
Under the Law of the PRC on EIT (“EIT Law”) and Implementation Regulation of
the EIT Law, the statutory EIT rate of the Target Company is 25% with effective or at lower
preferential rates applicable in the respective jurisdictions.
The income tax expense for the Relevant Period can be reconciled to the profit before
tax per the statement of profit or loss and other comprehensive income as follows:
Period from
2 May 2013
(date of incorporation)
to 31 October 2014
RMB
Profit before tax
4,174,932
Tax at the domestic income tax rate of 25%
Tax effect of expenses not deductible for tax purpose
Tax effect of income not taxable for tax purpose
1,043,733
17,064,020
(16,390,725)
1,717,028
– 37 –
APPENDIX II
9.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Profit and total comprehensive income for the period
Period from
2 May 2013
(date of incorporation)
to 31 October 2014
RMB
Profit for the period has been arrived
at after charging:
Staff costs
– director’s emoluments
– other staff’s salaries and other benefits
– other staff’s retirement benefit scheme contributions
Depreciation of equipment
Operating lease rental on premises
10.
–
6,682,828
1,041,018
28,889
27,292,946
Director’s and employees’ emoluments
(a)
Director ’s emoluments
Apart from those disclosed above, there are no other salaries paid to the director
of the Target Company during the Relevant Period.
– 38 –
APPENDIX II
(b)
FINANCIAL INFORMATION OF THE TARGET COMPANY
Employees ’ emoluments
The emoluments of the five highest paid individuals of the Target Company for
the Relevant Period are as follows:
Period from
2 May 2013
(date of incorporation)
to 31 October 2014
RMB
Salaries and other benefits
Retirement benefit scheme contributions
1,041,947
49,355
1,091,302
Their emoluments were all within nil to RMB790,000 (approximately
HK$1,000,000).
During the Relevant Period, no remunerations were paid by the Target Company
to the five highest paid individuals of the Target Company, as an inducement to join or
upon joining the Target Company or as compensation for loss of office.
11.
Segment information
The director of the Target Company, being the chief operating decision maker,
regularly reviews the results of the Target Company for the purposes of assessing
performance and allocating resources. Therefore, the management of the Target Company
concluded that the property operating segment is the only single reportable segment and no
further analysis for segment information is presented.
All the non-current assets of the Target Company are located in the PRC.
Major customer
Revenue from a customer during the Relevant Period contributed over 10% of
the total revenue of the Target Company, amounting RMB16,334,773.
– 39 –
APPENDIX II
12.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Earnings per share
No earnings per share information is presented as its inclusion, for the purpose of this
report is not considered meaningful.
13.
Equipment
Furniture
and fixtures,
office
equipment
and motor
vehicle
Total
RMB
RMB
COST
Additions
542,004
542,004
At 31 October 2014
542,004
542,004
DEPRECIATION
Charged for the period
28,889
28,889
At 31 October 2014
28,889
28,889
513,115
513,115
CARRYING VALUE
At 31 October 2014
The above items of equipment are depreciated using the straight-line basis, after
taking into account of their estimated residual values, at the following rates per annum:
Furniture, fixtures, office equipment and motor vehicle
14.
20% – 33%
Property under development
Property under development refers to the purchase costs of two elevators and a
shopping mall located in Zhengzhou Shi, Henan Province of the PRC.
– 40 –
APPENDIX II
15.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Dividend
No dividend was paid or proposed for the period ended 31 October 2014 nor has any
dividend been proposed since the end of the Relevant Period.
16.
Inventories
As at
31 October 2014
RMB
Consumable goods
17.
107,855
Trade and other receivables
As at
31 October 2014
RMB
Trade receivables
Utility deposit and prepayment
Other receivables
1,357,906
5,121,398
11,259,830
17,739,134
Other receivables include RMB10,000,000, was deposited at Industrial and
Commercial Bank of China Limited for the arrangement of two bank loans. The amount
will be recognised as an arrangement fee in the statement of profit or loss and other
comprehensive income when the borrowings are completed.
– 41 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
The Target Company allows average credit period ranging from 45 days to 90 days
to its customers. The following is an aged analysis of trade receivables net of allowance for
doubtful debts presented based on the invoice date at the end of the Relevant Period, which
approximated the respective revenue recognition dates:
As at
31 October 2014
RMB
0 – 90 days
Over 90 days
657,524
700,382
Trade receivables
1,357,906
The Target Company assesses the potential customer’s credit quality and defines credit
limits by customer. Limits attributed to customers are reviewed regularly. 48.4% of the trade
receivables that are neither past due nor impaired have good credit rating under internal
credit assessment adopted by the Target Company.
Included in the Target Company’s trade receivable balances are debtors with aggregate
carrying amount of RMB700,382 which are past due at the end of the Relevant Period for
which the Target Company has not provided for impairment loss. The Target Company
does not hold any collateral over these balances. The average age of these receivables was
between 0 to 60 days for the period ended 31 October 2014.
Ageing of trade receivables which are past due but not impaired
As at
31 October 2014
RMB
1 – 90 days
Over 90 days
433,949
266,433
Trade receivables
700,382
– 42 –
APPENDIX II
18.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Cash and bank balances
Cash and bank balances comprise cash held by the Target Company and bank balances
that carry interest rates at 0.35% per annum and have original maturity of three months or
less.
19.
Trade and other payables
As at
31 October 2014
RMB
Payables for purchasing a shopping mall
Trade payables
Deposits received
Other payables
929,405,437
10,811,216
4,361,785
29,676,354
974,254,792
In September and October 2014, the Target Company signed several sales and
purchase agreements with a related company to purchase a shopping mall at a cost of
RMB979,070,987. The full payment will be settled in February 2015.
Other payables mainly represented an amount due to another related company which
had arranged business operation cash flow to the Target Company during the Relevant
Period. The amount due to the related company was unsecured, non-interest bearing and
repayable on demand. This amount was subsequently settled in November 2014.
20.
Paid-in capital
As at
31 October 2014
RMB
Registered and paid-in capital:
At 31 October 2014
20,000,000
The Target Company was incorporated on 2 May 2013 with a registered and paid-in
capital of RMB20,000,000 was fully paid on 24 April 2013.
– 43 –
APPENDIX II
21.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Operating leases
Rental income, management fee income and operating service income net of outgoings
of RMB38,139,088 earned during the Relevant Period was RMB33,320,970. Committed
tenants ranging from the next one to eighteen years are expected to generate rental yield of
approximately 3.4% per annum on an ongoing basis.
At the end of the Relevant Period, the Target Company’s total future minimum rental
under non-cancellable operating leases are receivable as follows:–
As at
31 October 2014
RMB
Within one year
In the second to fifth year inclusive
Over five years
74,096,635
267,618,328
728,415,263
1,070,130,226
22.
Capital risk management
The Target Company’s objective when managing capital is to safeguard its ability to
continue as a going concern, so that it can continue to provide returns for shareholder.
The capital structure of the Target Company consists of cash and bank balances and
equity, comprising paid-in capital and retained profit.
The management of the Target Company reviews the capital structure on a regular
basis. As part of this review, the management of the Target Company considers the cost of
capital and the risks associated with each class of capital, and takes appropriate actions to
balance its overall capital structure.
– 44 –
APPENDIX II
23.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Financial instruments
(a)
Categories of financial instruments
The carrying amounts of each category of financial instruments at the end of the
Relevant Period are as follows:–
As at
31 October 2014
RMB
Financial assets
Loans and receivables:
Trade and other receivables
Cash and bank balances
17,739,134
4,284,780
22,023,914
As at
31 October 2014
RMB
Financial liabilities
Other financial liabilities at amortised cost:
Trade and other payables
Receipts in advance
974,254,792
5,336,190
979,590,982
(b)
Financial risk management objectives and policies
The Target Company’s major financial instruments include trade and other
receivables, cash and bank balances, trade and other payables and receipts in advance.
Details of these financial instruments are disclosed in respective notes.
The risks associated with these financial instruments and the policies on
how to mitigate these risks are set out below. The management of the Target
Company manages and monitors these exposures to ensure appropriate measures are
implemented on a timely and effective manner.
– 45 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
Market risk
Interest rate risk
The Target Company’s cash flow interest rate risk is mainly concentrated
on the fluctuation of the rate determined by the People’s Bank of China arising
from the Target Company’s RMB in relation to bank balances.
The Target Company currently does not have an interest rate hedging
policy. However, management monitors interest rate change exposure and will
consider hedging significant interest rate change exposure should the need
arise.
Sensitivity analysis
No sensitivity analysis has been presented as the director considers
that the impact to profit or loss for the Relevant Period is insignificant, taking
into account that the fluctuation in interest rates on bank balances is minimal.
Accordingly, no sensitivity analysis is presented.
Credit risk
At the end of reporting period, the Target Company’s maximum exposure
to credit risk which will cause a financial loss to the Target Company due to
failure to discharge an obligation by the counterparties is arising from the
carrying amount of the respective recognised financial assets as stated in the
statement of financial position.
In order to minimise the credit risk, the management of the Target
Company has policies in place to recover overdue debts. In addition, the
management of the Target Company reviews the recoverable amount of each
receivable at the end of reporting period to ensure that adequate impairment
losses are made for irrecoverable amounts. In this regard, the management of
the Target Company considers that the credit risk is significantly reduced.
The Target Company has no significant concentration of credit risk, with
exposure spread over a number of counterparties having similar characteristics.
– 46 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
The credit risk of these liquid funds is limited because the counterparties
are either state-owned banks located in the PRC or banks with high credit
ratings.
Liquidity risk
The Target Company’s current liabilities exceed its current assets as at
31 October 2014 by RMB957,556,198. The management of the Target Company
is of the opinion that the Target Company will have sufficient working capital to
meet its financial obligations, details of which are set out in note 2.
In the management of the liquidity risk, the Target Company monitors
and maintains a level of cash and cash equivalents deemed adequate by the
management to finance the Target Company’s operations and mitigate the
effects of fluctuations in cash flows.
The following table details the Target Company’s remaining contractual
maturity for its non-derivative financial liabilities. The table has been drawn
up based on the undiscounted cash flows of financial liabilities based on the
earliest date on which the Target Company can be required to pay. The table
includes both interest and principal cash flows. To the extent that interest flows
are floating rate, the undiscounted amount is derived from interest rate curves at
the end of each reporting period.
Non-derivative
financial liabilities
Trade and other payables
Receipts in advance
– 47 –
On demand or
within 1 year
RMB
Total
undiscounted
cash flow
RMB
As at
31 October
2014
RMB
974,254,792
5,336,190
974,254,792
5,336,190
974,254,792
5,336,190
979,590,982
979,590,982
979,590,982
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
Fair value measurements of financial instruments
The fair values of financial assets and financial liabilities are determined
in accordance with generally accepted pricing models based on a discounted
cash flow analysis using prices or rates from observable current market
transactions as input.
The management of the Target Company considers that the carrying
amounts of financial assets and financial liabilities recognised in the financial
information approximate their fair values.
24.
Subsequent events
Subsequent to the Relevant Period, the Target Company entered into 4 loan
agreements, amounting to RMB150 million and RMB200 million both from Bridge Trust
Co., Ltd（ 百瑞信託有限責任公司）and RMB350 million and RMB360 million both from
Industrial and Commercial Bank of China Limited (ICBC) for the settlement of a shopping
mall. The borrowings from Bridge Trust Co., Ltd. are borrowings which carry interest at 17%
and are repayable within one to two years, which are guaranteed by a related company and an
intermediate holding company. The borrowings from ICBC are secured by part of a shopping
mall, which carry interest at the People’s Bank of China prescribed interest rate and are
repayable within ten years.
25.
Retirement benefit scheme
The employees of the Target Company are members of state-managed retirement
benefit scheme operated by the PRC government. The Target Company is required to
contribute a certain percentage of their payroll costs to the retirement benefit scheme to fund
the benefits. The only obligation of the Target Company with respect to the retirement benefit
scheme is to make the specified contributions.
– 48 –
APPENDIX II
26.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Related party transactions
(a)
The Target Company entered into the following transactions with related
parties during the Relevant Period:
Period from
2 May 2013
(date of incorporation)
to 31 October 2014
RMB
Rental expense to a related company
Management fee to a related company
27,292,946
7,000,000
34,292,946
Rental expense and management fee are paid to a related company, which
is under the same holding company that has significant influence on the Target
Company.
Details of the Target Company’s outstanding balances with related companies
as at 31 October 2014 are set out in the financial information on note 19.
(b)
Compensation of key management personnel
The remuneration of key management personnel during the Relevant Period was
as follows:
Period from
2 May 2013
(date of incorporation)
to 31 October 2014
RMB
Salaries and other benefits
Retirement benefit scheme contributions
1,041,947
49,355
1,091,302
The remuneration of key management personnel is determined by the Target
Company having regard to the performance of individuals and market trends.
– 49 –
APPENDIX II
27.
FINANCIAL INFORMATION OF THE TARGET COMPANY
Subsequent financial information
No audited financial statements have been prepared by the Target Company in respect
of any period subsequent to 31 October 2014.
B.
MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET COMPANY
Set out below is the management discussion and analysis of the Target Company for the
Relevant Period, which is based on the financial information of the Target Company as set out in
part A of Appendix II to this Circular.
OPERATIONAL AND FINANCIAL REVIEW
The Target Company was incorporated in the PRC with limited liability on 2 May 2013.
The Target Company is principally engaged in property investment, general management and
agency. The principal asset of the Target Company is the Mall. The Mall comprises the whole of
Zones A & B of a 4-storey shopping mall built over one level of basement commercial space and
having a total site area of approximately 38,500 square metres and total registered gross floor area
of approximately 125,200 square metres. The Mall is situated at No. 36 Mian Fang West Road,
Zhongyuan District, Zhengzhou Shi, Henan Province, the PRC. Most of the commercial space
of the Mall had been leased out as retail shop, restaurant, entertainment and/or leisure use for
investment purposes.
The Mall is a diverse shopping mall in Zhengzhou Shi and part of the Mall is grandly
opened at the end of 2012. The Mall is located at the western part of the heart of Zhengzhou Shi
and offers a wide range of services including shopping, dining and entertainment with over 180
shops, including: a cinema, jewellery and watches, beauty, electrical appliances, international labels
for fashion, lifestyle, casual wear/sport, kid’s paradise and food and beverages outlets. The Target
Company rents out the shops in the Mall to various kinds of tenants and also provides management
and operating services to them.
Turnover and Gross Profit
Turnover, amounted to RMB68,514,046 (equivalent to approximately HK$86,726,641),
represents rental income, management fee income and operating service income received and
receivable and invoiced value of services rendered during the Relevant Period through renting
out/managing the shops to over hundreds of tenants carrying out various kinds of business in
the Mall. Rental income are charged either on the fixed rental amount or based on the monthly
turnover generated by the tenant. Gross profit of RMB30,621,888 (equivalent to approximately
HK$38,761,884) was earned from the income stated above net of outgoings such as electricity
and air-conditioning charges, rental expenses and management fee incurred as an agent before
– 50 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
the purchase of the Mall, the PRC business tax and other related tax. The Mall started the trial
run at the end of 2012. The number of tenants kept increasing throughout the Relevant Period
from 92 at the end of 2012 to 108 as at 31 December 2013 and 124 as at 31 October 2014. The
more the tenants rented shops in the Mall, the higher the turnover and gross profit generated from
property operating segment. In addition, most of the shops are rented out as at 31 October 2014
and committed tenants ranging from the next 1 to 18 years are expected to produce rental yield of
approximately 3.4% per annum on an ongoing basis.
Profit and Total Comprehensive Income for the Period
The Target Company’s profit and total comprehensive income for the Relevant Period of
RMB2,457,904 (equivalent to approximately HK$3,111,271) was made after adding other income
of RMB70,824 (equivalent to approximately HK$89,651) and deducting administrative expenses of
RMB26,517,780 (equivalent to approximately HK$33,566,810) which are further described below.
Other Income
The Target Company’s other income for the financial period ended 31 October 2014 was
RMB70,824 (equivalent to approximately HK$89,651) which was the interest income of bank
deposits throughout the Relevant Period.
Administrative Expenses
The Target Company incurred administrative expenses of RMB26,517,780 (equivalent
to approximately HK$33,566,810) during the Relevant Period which included advertisement
and promotion expenses, salary and wages, repair and maintenance expenses and some regular
operational expenses such as insurance and cleaning charges for managing the daily business of the
Mall.
CAPITAL STRUCTURE, LIQUIDITY AND FINANCIAL RESOURCES
During the Relevant Period, the Target Company funded its operations mainly by the
proceeds from issuance of registered capital of RMB20,000,000 (equivalent to approximately
HK$25,316,456). As at 31 October 2014, the Target Company had cash and bank balances of
RMB4,284,780 (equivalent to approximately HK$5,423,772). As at 31 October 2014, the Target
Company had no borrowings. The majority of its assets were property under development of
RMB979,500,987 (equivalent to approximately HK$1,239,874,667), which were non-current in
nature, while the majority of its liabilities were the amount payable for the purchase of the Mall
of RMB929,405,437 (equivalent to approximately HK$1,176,462,578). Therefore, the Target
Company recorded net current liabilities of RMB957,556,198 (equivalent to approximately
HK$1,212,096,453) as at 31 October 2014.
– 51 –
APPENDIX II
FINANCIAL INFORMATION OF THE TARGET COMPANY
During the Relevant Period, the Target Company did not have any formal hedging policies
and no financial instrument was used for hedging purpose.
As at 31 October 2014, the Target Company’s current ratio (“Current Ratio”, represented by
current assets as a percentage of current liabilities) and gearing ratio (“Gearing Ratio”, represented
by total liabilities as a percentage of total assets) were approximately 2.3% and approximately
97.8% respectively.
FOREIGN EXCHANGE RISK AND INTEREST RATE RISK
During the Relevant Period, the Target Company was not exposed to any material foreign
currency risk as most of its business transactions, assets and liabilities were denominated in RMB.
CHARGE ON ASSETS
As at 31 October 2014, the Target Company did not have any charges on assets.
SIGNIFICANT INVESTMENT HELD
As at 31 October 2014, the Target Company did not hold any significant investment.
ACQUISITION OR DISPOSAL OF SUBSIDIARY OR ASSOCIATED COMPANY
During the Relevant Period, the Target Company did not have any significant acquisition or
disposal of any subsidiary or associated company.
CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
As at 31 October 2014, the Target Company had no significant capital commitments for the
Acquisition and contingent liabilities.
STAFF POLICY
The Target Company had 132 employees in the PRC as at 31 October 2014. The Target
Company offers a comprehensive and competitive remuneration, retirement scheme and benefit
package to its employees. Discretionary bonus is offered to the Target Company’s staff depending
on their performance. There is no share option scheme offered by the Target Company to its staff.
The Target Company is required to make specified contributions to a state-managed retirement
benefit scheme in the PRC. The Target Company also provides periodic internal training to its
employees. During the Relevant Period, the Target Company incurred staff’s salaries and other
benefits of RMB6,682,828 (equivalent to approximately HK$8,459,276) and staff’s retirement
benefit scheme contributions of RMB1,041,018 (equivalent to approximately HK$1,317,744) but no
director’s remuneration.
– 52 –
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP
A.
Introduction
The unaudited pro forma statement of assets and liabilities of the Enlarged Group (the
“Statement”) set out in Appendix III below has been prepared by the directors, for illustrative
purposes only, to provide information about how the proposed Acquisition might have affected the
financial position of the Group as if the Acquisition had been completed on 30 June 2014.
Pursuant to the Sale and Purchase Agreement dated 18 December 2014, Zhengzhou
Changdun Asset Management Company Limited, an indirect wholly-owned subsidiary of the
Company, has agreed to acquire the 75% equity interests in Zhengzhou Jiachao Property Services
Company Limited which will be satisfied by cash consideration of RMB591,660,000 (equivalent
to approximately HK$748,937,000) upon the completion of the Acquisition. The settlement will
be completed by internal resources of the Group and loans from independent banks/financial
institutions.
The Statement has been prepared based on the audited consolidated statement of financial
position of the Group as at 30 June 2014, which has been extracted from the published annual
report of the Company for the year ended 30 June 2014, after making certain pro forma adjustments
that are (i) directly attributable to the Acquisition and (ii) factually supportable, as further described
in the accompanying notes.
The Statement is prepared based on a number of assumptions, estimates, uncertainties and
currently available information, and is provided for illustrative purposes only. Accordingly, as a
result of the nature of the Statement, it may not give a true picture of the actual financial position of
the Enlarged Group that would have been attained had the Acquisition been completed on 30 June
2014. Furthermore, the Statement does not purport to predict the Enlarged Group’s future financial
position.
The Statement should be read in conjunction with the financial information of the Group and
the Target Company as set out in Appendix II of this Circular, the Company’s announcement dated
18 December 2014 and other financial information included elsewhere in this Circular.
– 53 –
APPENDIX III
B.
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
Unaudited pro forma consolidated statement of assets and liabilities of the Enlarged
Group
NON-CURRENT ASSETS
Property, plant and equipment
Property under development
Prepaid lease payments
Goodwill
CURRENT ASSETS
Inventories
Trade and other receivables
Pledged bank deposits
Bank balances and cash
CURRENT LIABILITIES
Trade and other payables
Tax liabilities
Secured bank borrowings
NET CURRENT
ASSETS/(LIABILITIES)
TOTAL ASSETS LESS
CURRENT LIABILITIES
NON-CURRENT
LIABILITIES
Deferred tax liabilities
Bond
NET ASSETS
The Group
as at
30 June
2014
(Audited)
HK$’000
(Note 1)
The Target
Company
as at
31 October
2014
(Unaudited)
HK$’000
(Note 2)
91,236
–
18,619
–
649
1,239,875
–
–
109,855
1,240,524
2,521,548
12,325
351,476
25,316
740,659
137
22,455
–
5,424
12,462
373,931
25,316
(5,201)
1,129,776
28,016
406,508
82,272
2,880
56,962
1,239,989
123
–
1,322,261
3,003
56,962
142,114
1,240,112
1,382,226
987,662
(1,212,096)
(975,718)
1,097,517
28,428
1,545,830
10,808
9,769
–
–
20,577
–
274,036
1,076,940
28,428
1,271,794
– 54 –
Pro forma
adjustment
(Unaudited)
HK$’000
(Note 3)
Pro forma
adjustment
(Unaudited)
HK$’000
(Note 4)
157,334
253,459
HK$’000
91,885
2,253,710
18,619
157,334
1,013,835
(748,937)
As at 30
June 2014
(2,347)
264,267
9,769
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
Notes:
1.
The figures were extracted from the consolidated statement of financial position of the Group as at 30 June
2014 as set out in the Company’s published annual report for the year ended 30 June 2014.
2.
The figures were extracted from accountant’s report of the Target Company in Appendix II of this Circular,
after foreign exchange translation at the exchange rate of HK$1 to RMB0.79 to conform the presentation
format of the Group, which is the prevailing exchange rate on 31 October 2014.
3.
The pro forma adjustment reflects the allocation of the cost of the Acquisition to the identifiable assets and
liabilities of the Target Company, which represents:
(a)
Fair value adjustment of the identifiable assets and liabilities of the Target Company
The fair value of a shopping mall based on directors’ estimation with reference to Valuation
Report in Appendix IV of this Circular is approximately RMB1,780,000,000 (equivalent to
HK$2,253,165,000) as at 31 October 2014. An amount of approximately HK$1,013,835,000,
being the difference between the fair value of a shopping mall and its cost of approximately
HK$1,239,330,000 is adjusted as an increase in fair value. The corresponding deferred tax
liability of approximately HK$253,459,000 is recognised based on the People’s Republic of China
Enterprise Income Tax rate of 25% for the increase in fair value.
The fair values of the identifiable assets and liabilities (including but not limited to the deposits for
the acquisition of a shopping mall) of the Target Company and the amount of goodwill are subject
to change upon the finalisation of the valuation for the completion date, which may be substantially
different from their estimated amounts used in the preparation of this unaudited pro forma financial
information.
For the purpose of the preparation of the unaudited pro forma financial information, the directors
of the Company have assessed whether the goodwill may be impaired as at 30 June 2014 on a
pro forma basis in accordance with Hong Kong Accounting Standard 36 “Impairment of Assets”
and concluded that there is no impairment on the goodwill arising from the Acquisition as at 30
June 2014 based on the management’s assessment on the business plan to be executed and the
recoverable amount of the cash generating unit comprising the goodwill with reference to Valuation
Report in Appendix IV of this Circular. The actual amount of impairment of goodwill arising
from the Acquisition at the date of completion may be different from that presented above and the
difference may be significant.
– 55 –
APPENDIX III
(b)
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
Recognition of goodwill in relation to the Acquisition
Cash consideration of approximately HK$748,937,000 is to be paid by the Group for the
Acquisition of 75% equity interests in the Target Company, assuming the Acquisition was taken
place on 30 June 2014.
Goodwill of the Enlarged Group represents the excess of the cost of the Acquisition over the
estimated fair value of the identifiable net assets of the Target Company. The calculation is as
follows:
As at
31 October 2014
HKD’000
Consideration of the Acquisition
748,937
Less: identifiable net assets acquired
(788,804)
Add: non-controlling interests
197,201
Goodwill arising from the Acquisition
157,334
The Directors confirm that the basis used in the preparation of the unaudited pro forma financial
information of the Enlarged Group is consistent with the accounting policies of the Company, and the
accounting policies and the principal assumptions will be consistently adopted in the first set of the
financial statements of the Company after the completion of the Acquisition.
4.
The pro forma adjustment represents the acquisition-related costs incurred by the Group and the
total transaction costs, including legal, accounting and other professional parties are approximately
HK$2,347,000.
5.
Apart from the Acquisition, no other adjustments have been made to the unaudited pro forma financial
information of the Enlarged Group to reflect any trading results or other transactions of the Enlarged Group
entered into subsequent to 30 June 2014. In particular, the unaudited pro forma financial information has
not taken into account the following event:
Subsequent to 30 June 2014, the Target Company obtains additional financing through financial institution
and bank for the settlement of a shopping mall. One short term loan amounting to RMB200,000,000
(equivalent to HK$253,165,000) and one long term loan amounting to RMB150,000,000 (equivalent
to HK$189,873,000) are sourced from a financial institution and two long term loans amounting to
RMB350,000,000 (equivalent to HK$443,038,000) and RMB360,000,000 (equivalent to HK$455,696,000)
are sourced from a bank. Upon obtaining the loans, the net current liabilities of the Enlarged Group will be
decreased by HK$1,088,607,000 with the increase in the same amount of long term loans. Therefore, the
situation of net current liabilities would be improved.
– 56 –
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE
COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE
ENLARGED GROUP
The following is the text of a report from the reporting accountants, Dominic K. F. Chan &
Co., Certified Public Accountants, on the unaudited pro forma financial information of the Enlarged
Group, for inclusion in this circular.
The Board of Directors
Art Textile Technology International Company Limited
Unit 1407, 14th Floor,
China Merchants Tower, Shun Tak Centre,
168-200 Connaught Road Central,
Hong Kong
Dear Sirs,
We have completed our assurance engagement to report on the compilation of pro forma
financial information of Art Textile Technology International Company Limited (the “Company”)
and its subsidiaries (collectively the “Group”) by the directors of the Company (the “Directors”)
for illustrative purposes only. The pro forma financial information consists of the pro forma
consolidated statement of assets and liabilities of the Enlarged Group as at 30 June 2014 and
related notes as set out in section headed “Unaudited Pro Forma Financial Information of the
Enlarged Group” in Appendix III of the circular issued by the Company dated 30 January 2015 (the
“Circular”). The applicable criteria on the basis of which the Directors have compiled the pro forma
financial information are also described in the section headed “Unaudited Pro Forma Financial
Information of the Enlarged Group” in Appendix III of the Circular.
– 57 –
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
The pro forma financial information has been compiled by the Directors to illustrate the
impact of the proposed acquisition (the “Acquisition”) of 75% equity interest in Zhengzhou Jiachao
Property Services Company Limited (the “Target Company”) on the Group’s assets and liabilities
of the Group as at 30 June 2014 as if the transaction was completed on 30 June 2014. As part of
this process, information about the Group’s financial position has been extracted by the Directors
from the Group’s annual report for the year ended 30 June 2014, on which an audit report has been
published.
Directors’ Responsibility for the Pro Forma Financial Information
The Directors are responsible for compiling the pro forma financial information in
accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline
7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”)
issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).
Reporting Accountants’ Responsibilities
Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing
Rules, on the pro forma financial information and to report our opinion to you. We do not accept
any responsibility for any reports previously given by us on any financial information used in
the compilation of the pro forma financial information beyond that owed to those to whom those
reports were addressed by us at the dates of their issue.
We conducted our engagement in accordance with Hong Kong Standard on Assurance
Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial
Information Included in a Prospectus” issued by the HKICPA. This standard requires that the
reporting accountants comply with ethical requirements and plans and perform procedures to
obtain reasonable assurance about whether the Directors have compiled the pro forma financial
information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7
issued by the HKICPA.
For purposes of this engagement, we are not responsible for updating or reissuing any reports
or opinions on any historical financial information used in compiling the pro forma financial
information, nor have we, in the course of this engagement, performed an audit or review of the
financial information used in compiling the pro forma financial information.
– 58 –
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
The purpose of pro forma financial information included in an investment circular is solely to
illustrate the impact of a significant event or transaction on unadjusted financial information of the
Group as if the event had occurred or the transaction had been undertaken at an earlier date selected
for purposes of the illustration. Accordingly, we do not provide any assurance that the actual
outcome of the Acquisition at 30 June 2014 would have been as presented.
A reasonable assurance engagement to report on whether the pro forma financial information
has been properly compiled on the basis of the applicable criteria involves performing procedures
to assess whether the applicable criteria used by the Directors in the compilation of the pro forma
financial information provide a reasonable basis for presenting the significant effects directly
attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:
–
The related pro forma adjustments give appropriate effect to those criteria; and
–
The pro forma financial information reflects the proper application of those
adjustments to the unadjusted financial information.
The procedures selected depend on the reporting accountants’ judgment, having regard to the
reporting accountants’ understanding of the nature of the Group, the event or transaction in respect
of which the pro forma financial information has been compiled, and other relevant engagement
circumstances.
The engagement also involves evaluating the overall presentation of the pro forma financial
information.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
– 59 –
APPENDIX III
UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF THE ENLARGED GROUP
Opinion
In our opinion:
a.
the pro forma financial information has been properly compiled on the basis stated;
b.
such basis is consistent with the accounting policies of the Group; and
c.
the adjustments are appropriate for the purposes of the pro forma financial information
as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.
Dominic K. F. Chan & Co.
Certified Public Accountants (Practising)
Hong Kong, 30 January 2015
– 60 –
APPENDIX IV
VALUATION REPORT
The following is the text of a letter and valuation certificate received from International
Valuation Limited, an independent valuer, in connection with its valuation as at 31 October 2014 of
the Mall.
Room 1203A
Kai Tak Commercial Building
317-319 Des Voeux Road Central
Hong Kong
Date: 30 January 2015
The Board of Directors
Art Textile Technology International Company Limited
Unit 1407, 14/F
China Merchants Tower
Shun Tak Centre
168-200 Connaught Road Central
Hong Kong
Dear Sirs,
Re:
The whole of Zones A & B (including the commercial spaces in between at Basement 1)
of a shopping mall located at No. 36 Mian Fang West Road, Zhongyuan District,
Zhengzhou Shi, Henan Province, The People’s Republic of China
INSTRUCTIONS
In accordance with the instructions to us to value the captioned property which is proposed
to be acquired by Art Textile Technology International Company Limited or its subsidiaries
(hereinafter together referred to as the “Group”) in the People’s Republic of China (the “PRC”),
we confirm that we have carried out inspections, made relevant enquiries and searches and obtained
such further information as we consider necessary for the purpose of providing you with our
opinion of the market value of the property interests as at 31 October 2014 (the “valuation date”).
This letter which forms parts of our valuation report explains the basis and methodology of
valuation and clarifies our assumptions made, titleship of property and the limiting conditions.
– 61 –
APPENDIX IV
VALUATION REPORT
PREMISES OF VALUE
The valuation is our opinion of market value which is defined by the International Valuation
Standards of the International Valuation Standards Council and followed by the Hong Kong
Institute of Surveyors as “the estimated amount for which an asset or liability should exchange
on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction
after proper marketing where the parties had each acted knowledgeably, prudently and without
compulsion”.
BASIS OF VALUATION
In valuing the property interests, we have complied with all the requirements contained in
Chapter 5 and Practice Note 12 to the Rules Governing the Listing of Securities issued by The
Stock Exchange of Hong Kong Limited, the HKIS Valuation Standards (2012 Edition) published
by the Hong Kong Institute of Surveyors and the International Valuation Standards published from
time to time by the International Valuation Standards Council.
Our valuation excludes an estimated price inflated or deflated by special terms or
circumstances such as atypical financing, sale and leaseback arrangement, special considerations or
concessions granted by anyone associated with the sale, or any element of special value or costs of
sale and purchase or offset for any associated taxes.
Our valuation also excludes potential tax liability which might arise if the assets were to be
sold at the valuation date, including but not limited to profit tax, business tax, land appreciation tax,
capital gain tax and any other relevant taxes prevailing at the valuation date.
CATEGORISATION OF PROPERTY INTERESTS
In the course of our valuation, the appraised property interests have been categorised
according firstly to type of interests and then country where it is located, which in turn being
classified into the below group:
–
Property interests to be acquired by the Group for investment in the PRC
VALUATION METHODOLOGY
In the course of our valuation, unless otherwise stated, we have valued the property in its
designated uses with the understanding that the property will be used as such (hereafter referred to
as “continued uses”).
– 62 –
APPENDIX IV
VALUATION REPORT
The property had been subdivided into various units and most of which had been leased
out to various tenants for various lease terms whereas the remaining units were vacant as at the
valuation date. We have valued the property interests in its existing state and subject to existing
tenancies. In the course of our valuation, we have valued the tenanted units of the property by
market approach and employing a combination of investment method and comparison method to
find out their respective term and reversion values, which are then cross-checked with available
comparable market transactions. In assessing the term value, we have relied on the respective
tenancy information provided by the Group and capitalised the monthly rental income payable
under the respective tenancy agreements at an adopted term yield. Whilst in assessing the reversion
value, sale transaction and asking price of retail comparable properties as available in the market,
especially those within subject locality, have been assembled and analysed.
Adjustments are made for the differences in location, time, building age, size, level,
conditions, pedestrian flow, etc. between the comparable properties and the property. The
respective adjusted market values were then discounted for the respective remaining lease term of
the tenancies. The discounted values are the reversion value for the respective tenanted units in
question. Then we added up the respective term and reversion values. The sum is the market value
of the tenanted portions of the property as at the valuation date.
The adopted term yield and discount rate reflect the size, quality and market position of the
property together with the existing tenant, lease covenants, the then market conditions and costs of
borrowing.
Regarding the vacant units of the property, we have valued them by market approach
and using comparison method with reference to comparables sales evidence and asking price
as available in the relevant market subject to suitable adjustments between the property and the
comparable properties.
The sum of the then market value of the tenanted and vacant portions of the property was the
market value of the property in its existing state and subject to existing tenancies as at the valuation
date.
TITLE INVESTIGATION
We have been provided by the Group with copy of extract of the title documents and tenancy
agreements relating to the property interests. Where possible, we have examined the original
documents to verify the existing title to the property interests in the PRC and any tenancy or
material encumbrances that might be attached to the property interests or any amendments which
may not appear on the copies handed to us.
– 63 –
APPENDIX IV
VALUATION REPORT
However, we have not searched the original documents to verify ownership or to ascertain
any amendment. Due to the current registration system of the PRC under which the registration
information is not accessible to the public, no investigation has been made for the title of the
property interests in the PRC and the material encumbrances that might be attached. In the course
of our valuation, we have relied considerably on the legal opinion given by the Company’s PRC
legal adviser – 福建創元律師事務所 (Trend Associates), concerning the validity of property title,
tenancy and material encumbrances of the property in the PRC.
SITE INVESTIGATION
We have inspected the exterior and, where possible, the accessible portions of the interior
of the property being appraised. However, we have not been commissioned to carry out structural
survey nor to arrange for an inspection of the services. We are, therefore, not able to report whether
the property is free of rot, infestation or any other structural defects. We formulate our view as
to the overall conditions of the property taking into account the general appearance, the apparent
standard and age of fixtures and fittings and the existence of utility services. Hence it must be
stressed that we have had regard to you with a view as to whether the subject buildings are free
from defects or as to the possibility of latent defects which might affect our valuation. In the
course of our inspection, we did not note any serious defects. No tests were carried out on any of
the services. We have assumed that utility services, such as electricity, telephone, water, etc., are
available and free from defect. Moreover, we have assumed that there was not any alteration and
addition works being carried out within the property, as at the valuation date.
We have not arranged for any investigation to be carried out to determine whether or not high
alumina cement concrete or calcium chloride additive or pulverized fly ash, or any other deleterious
material has been used in the construction of the property. We are therefore unable to report that the
property is free from risk in this respect. For the purpose of this valuation, we have assumed that
deleterious material has not been used in the construction of the property.
We have not carried out any site investigation to determine the suitability of the ground
conditions or the services for any property development erected or to be erected thereon. Nor did
we undertake archaeological, ecological or environmental surveys for the property interests. Our
valuation is prepared on the assumption that these aspects are satisfactory and that no extraordinary
expenses or delays will be incurred during the construction period. Should it be discovered
that contamination, subsidence or other latent defects exists in the property or on adjoining or
neighbouring land or that the property had been or are being put to contaminated use, we reserve
right to revise our opinion of value.
– 64 –
APPENDIX IV
VALUATION REPORT
Moreover, we have not been commissioned to carry out detailed site measurements to verify
the correctness of the land or building areas in respect of the property but have assumed that the
areas provided to us are correct. Based on our experience of valuation of similar properties, we
consider the assumptions so made to be reasonable. We have also assumed that there was not any
material change of the property in between date of our inspection and the valuation date.
SOURCE OF INFORMATION
Unless otherwise stated, we shall rely to a considerable extent on the information provided
to us by you or your legal or other professional advisers, in particular, but not limited to, statutory
notices, planning approvals, zoning, easements, tenure, completion date of building, identification
of property, particulars of occupation, site areas, floor areas (including the gross floor area and
planned gross floor area), matters relating to tenure, tenancies and all other relevant matters.
Dimensions, measurements and areas included in the valuation certificate are based on information
contained in the documents provided to us and are therefore approximations and for reference only.
We have not searched original plans, developer brochures and the like to verify them.
We have taken every reasonable care to examine the information provided to us and also to
make relevant enquiries. We have had no reason to doubt the truth and accuracy of the information
provided to us by you, which is material to the valuation. We have also sought confirmation from
you that no material factors have been omitted from the information supplied. We consider that we
have been provided with sufficient information to reach an informed view and we have no reason to
suspect that any material information has been withheld.
VALUATION ASSUMPTIONS
For the properties which are held under long term land use rights, we have assumed that
transferable land use rights in respect of the property interests at nominal land use fees has been
granted and that any premium payable has already been fully settled. Unless stated as otherwise, we
have assumed that the title owner of the property has an enforceable title of the property interests
and have free and uninterrupted rights to occupy, use, sell, lease, charge, mortgage or otherwise
dispose of the property without the need of seeking further approval from and paying additional
premium to the Government for the unexpired land use term as granted. Unless otherwise stated in
the report, vacant possession is assumed for the property concerned.
Unless otherwise stated, we have assumed that the design and construction of the
subject development and the property are in compliance with the local planning regulations and
requirements and had been duly examined and approved by the relevant authorities.
– 65 –
APPENDIX IV
VALUATION REPORT
Continued uses assumes the property will be used for the purposes for which the property is
designed and built, or to which it is currently adapted. The valuation on the property in continued
uses does not represent the amount that might be realised from piecemeal disposition of the
property in the open market.
Unless otherwise stated in the report, no environmental impact study has been ordered or
made. Full compliance with applicable national, provincial and local environmental regulations and
laws is assumed. Moreover, it is assumed that all required licences, consents or other legislative
or administrative authority from any local, provincial or national government or private entity or
organisation either have been or can be obtained or renewed for any use which the report covers.
It is also assumed that all applicable zoning and use regulations and restrictions have been
complied with unless nonconformity has been stated, defined and considered in the valuation
report. In addition, it is assumed that the utilisation of the land and improvements are within the
boundaries of the property described and that no encroachment or trespass exists, unless noted in
the report.
We have not undertaken a survey to determine whether the mechanical and electrical
systems within the property (or the building(s) or development(s) in which they are located) will be
adversely affected on or after the year 2000 and as such have assumed that the property and those
systems were or will be unaffected.
No allowance has been made in our report for any charges, mortgages or amounts owing
on any of the property interests valued nor for any expenses or taxation which may be incurred in
effecting a sale. Unless otherwise stated, it is assumed that the property is free from alterations,
additions, illegal structures, encumbrances, restrictions and outgoings of an onerous nature, which
could affect its value.
We have further assumed that the property was not transferred or involved in any contentious
or non-contentious dispute as at valuation date. The property can be sold freely to both local and
overseas purchasers.
LIMITING CONDITIONS
Where the property is located in a relatively under-developed market, such as the PRC, those
assumptions are often based on imperfect market evidence. A range of values may be attributable to
the property depending upon the assumptions made. While the valuer has exercised his professional
judgement in arriving at the value, investors/report readers are urged to consider carefully the
nature of such assumptions that are disclosed in the valuation report and should exercise caution in
interpreting the valuation report.
– 66 –
APPENDIX IV
VALUATION REPORT
Wherever the content of this report is extracted and translated from the relevant documents
supplied in Chinese context and there are discrepancies in wordings, those parts of the original
documents will take prevalent.
CURRENCY
Unless otherwise stated, all amounts are denominated in Renminbi (RMB). Our valuation
certificate is attached herewith.
Yours faithfully,
For and on behalf of
International Valuation Limited
Sr K L Yuen MRICS MHKIS
Registered Professional Surveyor
(General Practice)
General Manager – Real Estate
Note:
Mr. K L Yuen is a Chartered Valuation Surveyor and a Registered Professional Surveyor (General Practice), who has
more than 15 years’ experience in the valuation of properties in the PRC, Hong Kong, New York and the South East
Asia. Mr. K L Yuen is also a valuer on the List of Property Valuers for Undertaking Valuations for Incorporation or
Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers published
by the HKIS and RICS Hong Kong.
– 67 –
APPENDIX IV
VALUATION REPORT
VALUATION CERTIFICATE
1.
Property
Description and tenure
Particular of occupancy
The whole of Zones
A & B (including the
commercial spaces in
between at Basement
1) of a shopping
mall located at No.
36 Mian Fang West
Road, Zhongyuan
District, Zhengzhou
Shi, Henan Province,
The People’s
Republic of China
The property comprises 2 blocks of
4-storey commercial building built
over 1 level of basement commercial
spaces within Zones A & B of a
shopping mall. The property also
consists of the commercial spaces
at Basement 1 situated in between
the 2 subject commercial buildings.
The property was completed in about
2012.
We have been informed
that as at the valuation
date, save and except the
vacant units as mentioned
in Note 1 below, the
property had been leased
out to various tenants on
various terms (See Note
2 below) either at fixed
rent or turnover rent
exclusive of management
fees, operating service
charges & utility charges
and offers a wide range
of shopping, dining and
entertainment services,
such as shops for cinema,
department store,
supermarket, electrical
appliances, food &
beverages outlets, game
centre, ATM point and
international fashion
labels.
The shopping mall is a local lifestyle
type shopping complex which at the
moment primarily consists of 2 blocks
of 4-storey commercial building built
over 1 level of basement commercial
spaces and 1 level of basement
carpark.
The shopping mall is located on
the western part of city proper of
Zhenghou Shi. It is situated about
3 minutes’ driving distance west of
Zhengzhou Train Station and about 45
minutes’ driving distance northwest
of Zhengzhou Xinzheng International
Airport.
The subject locality is the traditional
well established old residential area
of western part of Zhengzhou Shi
and undergoing substantial piecemeal
redevelopment.
Developments in the vicinity
comprise mainly residential buildings
such as Mian Fang West Road No.
29 Court, Yi Xin Court and Beautiful
Homeland interspersed with a few
commercial facilities.
The property yielded
a total rent of
RMB32,570,777.23
for the period from
1 November 2013 to
31 October 2014.
Operating service
charges and management
fees generated during
the same period were
RMB618,119.53 and
RMB9,397,769.04
respectively.
The last of lease expiry
will be in December
2032.
– 68 –
Market value
in existing state as at
31 October 2014
RMB
1,780,000,000
APPENDIX IV
Property
VALUATION REPORT
Description and tenure
Particular of occupancy
The property is located on the
northern side of Mian Fang West
Road, at its junction with Tong
Bai North Road. It is a convenient
location which is served by various
public transportation, such as, MRT
Line 1, BRT bus route Nos. B1, B12
& B13 and public bus route Nos. B23,
30, 34, 37 & 45.
In accordance with 96 subject
building ownership certificates
provided to us, the property extends
to a total registered gross floor area
of approximately 125,188.32 sq.m.
(1,347,527.08 sq.ft.). Details of which
are as follows:–
Zone A
Level
Approximate
Gross Floor
Area
(sq.m.)
4
3
2
1
Basement 1
12,263.62
12,239.91
12,131.34
11,650.00
13,795.97
Total:
62,080.84
– 69 –
Market value
in existing state as at
31 October 2014
RMB
APPENDIX IV
Property
VALUATION REPORT
Description and tenure
Particular of occupancy
Zone B
Level
Approximate
Gross Floor
Area
(sq.m.)
4
3
2
1
Basement 1
11,754.40
10,440.28
10,631.62
9,523.61
16,311.24
Total:
58,661.15
Commercial space in between Zones
A&B
Level
Approximate
Gross Floor
Area
(sq.m.)
Basement 1
4,446.33
Total:
4,446.33
Pursuant to the subject 5 land use
rights certificates dated 30 March
2012, 26 October 2012, 26 October
2012, 26 October 2012 and 29
October 2013 respectively, the term
of land use rights of the property for
floor space on ground level & above
and at basement level are for a term of
40 years till 29 March 2052 and for a
term till 30 July 2053 respectively.
Permitted user of the land for floor
space on ground level & above
and at basement level are mixed
residential, commercial and service
and commercial, street and lane
respectively.
– 70 –
Market value
in existing state as at
31 October 2014
RMB
APPENDIX IV
VALUATION REPORT
Notes:
Vacant units of the property
1.
Vacant units of the property as at the valuation date were a portion of Unit No. Ancillary 101 on Level 1 of Zone
B and Unit No. Ancillary 415 on Level 4 of Zone B which accounted for a total vacancy rate of approximately
0.59%.
Tenancy status of the property
2.
The tenancy status of the property as at the valuation date is summarized as follows:–
Major Term of
Zone
Level
A
4
A
A
Tenancy
Last Lease Expiry
100.00%
20 years
December 2032
3
100.00%
20 years
December 2032
2
100.00%
20 years
December 2032
A
1
100.00%
20 years
December 2032
A
Basement 1
100.00%
20 years
December 2032
*
Occupancy Rate*
The whole of Zone A of the property had been leased out to a single tenant and operating as a department
store.
Major Term of
Zone
Level
B
4
B
3
B
2
B
1
B
Basement 1
In between
Basement 1
Occupancy Rate
Tenancy
Last Lease Expiry
99.24%
1 to 15 years
April 2028
100.00%
1 to 8 years
December 2020
100.00%
1 to 15 years
February 2028
93.18%
1 to 15 years
March 2028
100.00%
20 years
December 2032
100.00%
10 years
November 2022
Zones A & B
– 71 –
APPENDIX IV
VALUATION REPORT
Title of the property
3.
The land use rights of the property is held under 5 state-owned land use rights certificate issued by 鄭州市人民
政府 (Zhengzhou Municipal Government) to 鄭州翰園置業有限公司 (Zhengzhou Han Yuan Zhi Ye Co., Ltd.).
We have been advised by the Company’s PRC legal adviser that 鄭 州 翰 園 置 業 有 限 公 司 (Zhengzhou Han
Yuan Zhi Ye Co., Ltd.) and 鄭 州 佳 潮 物 業 服 務 有 限 公 司 (Zhengzhou Jiachao Property Services Company
Limited) are related companies. 鄭 州 佳 潮 物 業 服 務 有 限 公 司 (Zhengzhou Jiachao Property Services
Company Limited) acquired the property from 鄭 州 翰 園 置 業 有 限 公 司 (Zhengzhou Han Yuan Zhi Ye Co.,
Ltd.).
Pursuant to state-owned land use rights certificate 鄭國用 (2012) 第0106號 (No. 0106 of 2012) dated 30 March
2012, portion of land of the property having a site area of 3,744.87 sq.m. is held by 鄭州翰園置業有限公司
(Zhengzhou Han Yuan Zhi Ye Co., Ltd.) via assignment grant and subject to, inter alia, the following terms:–
(a)
User of the Land
:
Mixed residential, commercial and service
(b)
Land Area
:
3,744.87 sq.m.
(c)
Term
:
till 29 March 2052 (for commercial and service uses)
till 29 March 2082 (for residential use)
Pursuant to state-owned land use rights certificate 鄭國用 (2012) 第0346號 (No. 0346 of 2012) dated 26 October
2012, portion of land of the property having a site area of 5,699.18 sq.m. is held by 鄭州翰園置業有限公司
(Zhengzhou Han Yuan Zhi Ye Co., Ltd.) via assignment grant and subject to, inter alia, the following terms:–
(a)
User of the Land
:
Mixed residential, commercial and service
(b)
Land Area
:
5,699.18 sq.m.
(c)
Term
:
till 29 March 2052 (for commercial and service uses)
till 29 March 2082 (for residential use)
Pursuant to state-owned land use rights certificate 鄭國用 (2012) 第0347號 (No. 0347 of 2012) dated 26 October
2012, portion of land of the property having a site area of 19,880.90 sq.m. is held by 鄭州翰園置業有限公司
(Zhengzhou Han Yuan Zhi Ye Co., Ltd.) via assignment grant and subject to, inter alia, the following terms:–
(a)
User of the Land
:
Mixed residential, commercial and service
(b)
Land Area
:
19,880.90 sq.m.
(c)
Term
:
till 29 March 2052 (for commercial and service uses)
till 29 March 2082 (for residential use)
Pursuant to state-owned land use rights certificate 鄭國用 (2012) 第0348號 (No. 0348 of 2012) dated 26 October
2012, the remaining portion of land of the property having a site area of 9,139.37 sq.m. is held by 鄭州翰園置業
有限公司 (Zhengzhou Han Yuan Zhi Ye Co., Ltd.) via assignment grant and subject to, inter alia, the following
terms:–
(a)
User of the Land
:
Mixed residential, commercial and service
(b)
Land Area
:
9,139.37 sq.m.
(c)
Term
:
till 29 March 2052 (for commercial and service uses)
till 29 March 2082 (for residential use)
– 72 –
APPENDIX IV
VALUATION REPORT
Pursuant to state-owned land use rights certificate 鄭國用 (2013) 第0508號 (No. 0508 of 2013) dated 29 October
2013, the below ground portion of land of the property having a site area of 38,464.32 sq.m. is held by 鄭州翰
園置業有限公司 (Zhengzhou Han Yuan Zhi Ye Co., Ltd.) via assignment grant and subject to, inter alia, the
following terms:–
(a)
User of the Land
:
Mixed commercial, street and lane
(b)
Land Area
:
55,730.50 sq.m. (portion)
(c)
Term
:
till 30 July 2053 (for commercial use)
till 30 July 2063 (for street and lane uses)
4.
The building title of the property is held under 96 building ownership certificates registered with 鄭州市住房保
障和房地產管理局 (Zhengzhou Shi Housing Protection and Real Estate Management Bureau) and in favour of
鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property Services Company Limited).
Pursuant to building ownership certificate 鄭房權証第1401256261號及1401256264號至1401256267號 (Nos.
1401256261 & 1401256264 to 1401256267) registered on 30 October 2014, the legitimate owner of the whole
of Zone A of the property is 鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property Services Company
Limited). It covers a total registered gross floor area of 62,080.84 sq.m. for designated commercial and service
uses.
Pursuant to building ownership certificate 鄭 房 權 証 第1401256263號 (No. 1401256263) registered on 30
October 2014, the legitimate owner of Basement 1 of Zone B of the property is 鄭州佳潮物業服務有限公司
(Zhengzhou Jiachao Property Services Company Limited). It covers a registered gross floor area of 16,311.24
sq.m. for designated commercial and service uses.
Pursuant to building ownership certificate 鄭 房 權 証 第1401255678號 至1401255690號、1401255692號、
1401255694號及1401256128號至1401256138號 (Nos. 1401255678 to 1401255690, 1401255692, 1401255694
& 1401256128 to 1401256138) registered on 30 October 2014 and building ownership certificate 鄭房權証第
1401266092號 (No. 1401266092) registered on 6 November 2014, the legitimate owner of Level 1 of Zone B of
the property is 鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property Services Company Limited). It covers
a total registered gross floor area of 9,523.61 sq.m. for designated commercial and service uses.
Pursuant to building ownership certificate 鄭 房 權 証 第1401255735號、1401255739號、1401255741號、
1401255744號、1401255745號、1401255747號、1401255749號、1401255751號、1401255752號、1401255754
號、1401255757號、1401255759號、1401255760號、1401255762號、1401255763號、1401255765號、
1401256247號 至1401256250號、1401256252號 至1401256255號 及1401256260號 (Nos. 1401255735,
1401255739, 1401255741, 1401255744, 1401255745, 1401255747, 1401255749, 1401255751, 1401255752,
1401255754, 1401255757, 1401255759, 1401255760, 1401255762, 1401255763, 1401255765, 1401256247 to
1401256250, 1401256252 to 1401256255 & 1401256260) registered on 30 October 2014, the legitimate owner
of Level 2 of Zone B of the property is 鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property Services
Company Limited). It covers a total registered gross floor area of 10,631.62 sq.m. for designated commercial and
service uses.
– 73 –
APPENDIX IV
VALUATION REPORT
Pursuant to building ownership certificate 鄭 房 權 証 第1401255615號 至1401255620號、1401256587號、
1401256592號、1401256595號 至1401256600號、1401256602號 至1401256604號、1401256606號、1401256607
號及1401256609號至1401256611號 (Nos. 1401255615 to 1401255620, 1401256587, 1401256592, 1401256595
to 1401256600, 1401256602 to 1401256604, 1401256606, 1401256607 to 1401256609 & 1401256611)
registered on 30 October 2014, the legitimate owner of Level 3 of Zone B of the property is 鄭州佳潮物業服務
有限公司 (Zhengzhou Jiachao Property Services Company Limited). It covers a total registered gross floor area
of 10,440.28 sq.m. for designated commercial and service uses.
Pursuant to building ownership certificate 鄭 房 權 証 第1401255603號、1401255605號 至1401255613號、
1401255677號、1401256140號、1401256142號、1401256145號 及1401256146號 (Nos. 1401255603,
1401255605 to 1401255613, 1401255677, 1401256140, 1401256142, 1401256145 & 1401256146) registered
on 30 October 2014, the legitimate owner of Level 4 of Zone B of the property is 鄭州佳潮物業服務有限公
司 (Zhengzhou Jiachao Property Services Company Limited). It covers a total registered gross floor area of
11,754.40 sq.m. for designated commercial and service uses.
Pursuant to building ownership certificate 鄭 房 權 証 第1401256262號 (No. 1401256262) registered on 30
October 2014, the legitimate owner of Basement 1 commercial space in between Zones A & B of the property is
鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property Services Company Limited). It covers a registered
gross floor area of 4,446.33 sq.m. for designated commercial and service uses.
Material encumbrances
5.
We have been advised by the Company’s PRC legal adviser that the property was subject to the below material
encumbrances, as at 24 December 2014:–
(i)
Unit No. Ancillary 101 on Level 1 of Zone A and Unit No. Ancillary 201 on Level 2 of Zone A of the
property had been pledged to 中國工商銀行建設路支行 (Industrial and Commercial Bank of China
Limited (Construction Road Sub-branch)) under 房屋他項權証書第1403113944號 (Building Encumbrance
Certificate No. 1403113944). The pledging period is commencing from 5 December 2014 to 5 December
2024. The maximum amount of pledging is RMB350 million.
(ii)
The whole of Levels 1, 2 & 3 of Zone B of the property had been pledged to 中國工商銀行建設路支
行 (Industrial and Commercial Bank of China Limited (Construction Road Sub-branch)) under 房屋他
項權証書第1403115136號 (Building Encumbrance Certificate No. 1403115136). The pledging period is
commencing from 5 December 2014 to 5 December 2024. The maximum amount of pledging is RMB360
million.
– 74 –
APPENDIX IV
VALUATION REPORT
PRC legal opinion
6.
We have been provided with a legal opinion regarding the legality of title of the property issued by the
Comapny’s PRC legal adviser, which contains, inter alia, the followings:–
(i)
Although the subject 5 pieces of land of the property is still held under the name of original grantee of
land, 鄭州翰園置業有限公司 (Zhengzhou Han Yuan Zhi Ye Co., Ltd.), it is only in a transition stage
and will not affect the legal title of 鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property Services
Company Limited) for holding the property. 鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property
Services Company Limited) can still lease out the property and receive rental income from it. In addition,
there is no legal impediment and also 鄭州翰園置業有限公司 (Zhengzhou Han Yuan Zhi Ye Co., Ltd.) had
agreed to amend the name in favour of 鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property Services
Company Limited) in accordance with relevant government land administration procedure and the PRC
laws.
(ii)
鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property Services Company Limited) holds a good,
legal and valid title to the property which can be legally transferred, leased, mortgaged or treated in any
other ways in accordance with the relevant PRC laws by 鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao
Property Services Company Limited).
(iii) 鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property Services Company Limited) has the right to
lease out the property and the subject tenancy agreements are legal, valid and binding on the contracted
parties.
(iv) For some of the subject units where name of landlord has not yet been changed in favour of 鄭州佳潮物業
服務有限公司 (Zhengzhou Jiachao Property Services Company Limited) or formal tenancy agreement has
not been signed yet, the factual landlord and tenant relation is protected by the PRC laws.
(v)
The subject tenancy agreements have not been registered with the relevant government authority. It will
not affect their validity. However, 鄭州佳潮物業服務有限公司 (Zhengzhou Jiachao Property Services
Company Limited) may be ordered to pay an administrative penalty in an amount of RMB1,000 to
RMB10,000 for the non-registration.
(vi) 鄭 州 翰 園 置 業 有 限 公 司 (Zhengzhou Han Yuan Zhi Ye Co., Ltd.) and 鄭 州 佳 潮 物 業 服 務 有 限
公 司 (Zhengzhou Jiachao Property Services Company Limited) are related companies. 鄭 州 佳 潮 物 業
服 務 有 限 公 司 (Zhengzhou Jiachao Property Services Company Limited) acquired the property from 鄭
州 翰 園 置 業 有 限 公 司 (Zhengzhou Han Yuan Zhi Ye Co., Ltd.).
Land use zoning of the property
7.
In accordance with the subject 5 state-owned land use rights certificate dated 30 March 2012, 26 October 2012,
26 October 2012, 26 October 2012 and 29 October 2013 respectively, permitted user of the land of the property
for floor space on ground level & above and at basement level are mixed residential, commercial & service and
commercial, street & lane respectively.
– 75 –
APPENDIX IV
VALUATION REPORT
Status of major document relating to legality of the property
8.
The status of the title and grant of major approvals in accordance with the information provided by the Group are
as follows:–
Documents relating to property title:
Obtained
State-owned Land Use Rights Grant Contract
Yes
State-owned Land Use Rights Certificate
Yes
Environmental Impact Assessment Approval
Yes
Building Floor Area Surveying Report
Yes
Building Ownership Certificate
Yes
Inspection of the property
9.
The property was last inspected by Sr K L Yuen, MRICS MHKIS RPS(GP) on 31 October 2014 & 1 November
2014.
10.
We have inspected the exterior and, where possible, the accessible portions of the interior of the property.
However, we have not been commissioned to carry out structural survey nor to arrange for an inspection of the
services, but in the course of our inspection, we did not note any serious defects. We are, therefore, not able to
report whether the property is free of rot, infestation or any other structural defects. We formulate our view as to
the overall conditions of the property taking into account the general appearance, the apparent standard and age
of fixtures and fittings. In the course of our valuation, we have assumed that the property is structural sound, free
from defects or as to the possibility of latent defects. No tests were carried out on any of the services. We have
assumed that utility services, such as electricity, telephone, water, etc., are also free from defect.
Major assumptions of valuation
11.
Our key assumptions of the valuation are:–
Market Value
Term Yield
Discount Rate
(RMB/sq.m.(g))
(per annum)
(per annum)
17,000 – 35,000
5.35 % – 8.00 %
6.6 %
In the course of our valuation, we have made reference to sales transaction and asking prices within the subject
locality as well as similar properties within the same district. The major unit prices range from RMB21,500 per
sq.m. (g) to RMB43,200 per sq.m.(g).
– 76 –
APPENDIX IV
VALUATION REPORT
We have also assembled and analysed investment yield of relevant market segment and noted that the investment
yield are generally within a range of 6 % to 9 %. Discount rate has been made reference to the loan prime rate
adopted by Bank of China as at the valuation date, i.e. 5.75 %.
The above market value assumed by us are consistent with the relevant market comparables after due
adjustments. The term yield and discount rate adopted are considered to be reasonable with regard to the
analysed investment yield and the loan prime rate adopted by Bank of China in the PRC respectively after due
adjustments.
Potential tax liability for the proposed acquisition of the property
12.
We have been advised and confirmed by the Group that there will not be any potential tax liability charged to the
Group as a result of the acquisition of the property. Moreover, in accordance with our established practice, we
have neither verified nor taken into account of any tax liability, in the course of our valuation.
– 77 –
APPENDIX V
1.
GENERAL INFORMATION
RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Listing Rules for the purpose
of giving information with regard to the Company. The Directors collectively and individually
accept full responsibility for the accuracy of the information contained in this circular and confirm,
having made all reasonable enquiries, that to the best of their knowledge and belief the information
contained in this circular is accurate and complete in all material respects and not misleading or
deceptive, and there are no other matters the omission of which would make any statement herein or
this circular misleading.
2.
DISCLOSURE OF INTERESTS
(a)
Interests and short positions of Directors and chief executive in shares and
debentures
As at the Latest Practicable Date, the Directors and chief executive of the Company
had the following interests and short positions in the shares, underlying shares and
debentures of the Company and its associated corporations (within the meaning of Part XV
of the SFO) which had to be notified to the Company and the Stock Exchange pursuant to
Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they
were taken or deemed to have under such provisions of the SFO) or which were required,
pursuant to section 352 of the SFO, to be entered in the register of the Company referred to
therein or which were required, pursuant to the Model Code for Securities Transactions by
Directors of Listed Issuers contained in Appendix 10 to the Listing Rules, to be notified to
the Company and the Stock Exchange:
Long positions
(a)
Shares
Number of
issued Shares held
Percentage of the
issued share
capital of the
Company
Name of Director
Capacity
Mr. Chen Dong
Held by spouse
(Note 1)
184,550,000
14.78%
Mr. Chen Jinyan
Held by controlled
corporation (Note 2)
296,740,000
23.77%
Mr. Chen Jinqing
Held by controlled
corporation (Note 3)
83,000,000
6.65%
– 78 –
APPENDIX V
GENERAL INFORMATION
Notes:
(1)
The 184,550,000 Shares are held as to 162,170,000 Shares by Jinjie Limited and
22,380,000 Shares by Ms. Lin Lin. Jinjie Limited is a company incorporated in the British
Virgin Islands (the “BVI”), the entire issued share capital of which is beneficially owned by
the spouse of Mr. Chen Dong, Ms. Lin Lin. Mr. Chen Dong is deemed to be interested in
184,550,000 Shares.
(2)
The Shares are held by Fully Chain Limited (“Fully Chain”), a company incorporated in the
BVI, the entire issued share capital of which is beneficially owned by Mr. Chen Jinyan. Mr.
Chen Dong is the younger brother of Mr. Chen Jinyan.
(3)
The Shares are held by Ultimate Name Limited (“Ultimate Name”), a company
incorporated in the BVI, the entire issued share capital of which is beneficially owned by
Mr. Chen Jinqing. Mr. Chen Jinqing is the youngest brother of Mr. Chen Jinyan and Mr.
Chen Dong. All three of them are executive Directors.
Long positions
(b)
Share options
Number
of share
options held
Number of
underlying
shares
Name of Director
Capacity
Mr. Chen Jinyan
Beneficial owner
1,900,000
1,900,000
Mr. Chen Jinqing
Held by spouse (Note)
2,400,000
2,400,000
Mr. Lin Ye
Beneficial owner
1,040,000
1,040,000
Mr. Yang Zeqiang
Beneficial owner
1,040,000
1,040,000
Ms. Yau Lai Ying
Beneficial owner
1,040,000
1,040,000
Note:
Mr. Chen Jinqing, the youngest brother of Mr. Chen Jinyan and Mr. Chen Dong, is deemed
to be interested in 2,400,000 options to subscribe for Shares, being the interest held
beneficially by his spouse.
– 79 –
APPENDIX V
GENERAL INFORMATION
Save as disclosed above, as at the Latest Practicable Date, none of the Directors and
chief executive of the Company had any interest or short position in the Shares, underlying
shares and debentures of the Company or any of its associated corporations (within the
meaning of Part XV of the SFO) which had to be notified to the Company and the Stock
Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and
short positions which he was taken or deemed to have under such provisions of the SFO)
or which were required, pursuant to section 352 of the SFO, to be entered in the register
of the Company referred to therein or which were required, pursuant to the Model Code
for Securities Transactions by Directors of Listed Issuers contained in Appendix 10 to the
Listing Rules, to be notified to the Company and the Stock Exchange.
(b)
Notifiable interests and short positions of substantial shareholders and other
persons in Shares
As at the Latest Practicable Date, so far as was known to the Directors and chief
executive of the Company, no substantial shareholders of the Company within the meaning
of the Listing Rules and any other persons (in each case other than the Directors and chief
executive of the Company) had an interest or a short position in Shares or underlying Shares
which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3
of Part XV of the SFO.
As at the Latest Practicable Date, the register of substantial shareholders maintained
by the Company pursuant to section 336 of the SFO shows that the following shareholders
had notified the Company of relevant interests in the issued share capital of the Company.
Long positions – Ordinary shares of HK$0.01 each of the Company
Name of
shareholders
Capacity
Number of
shares held
Percentage of
the issued share
capital of
the Company
Lin Lin
Beneficial owner
and interest in a
controlled corporation
184,550,000
14.78%
Fully Chain
Beneficial owner
296,740,000
23.77%
Ultimate Name
Beneficial owner
83,000,000
6.65%
Dresdner VPV N.V.
Investment manager
69,877,600
5.60%
– 80 –
APPENDIX V
GENERAL INFORMATION
Save as disclosed above, as at the Latest Practicable Date, the Directors and chief
executive of the Company were not aware of any substantial shareholder of the Company
within the meaning of the Listing Rules or other person (in each case other than a Director
or chief executive of the Company) who had, as at the Latest Practicable Date, an interest
or a short position in Shares or underlying Shares which was required to be notified to the
Company pursuant to Divisions 2 and 3 of Part XV of the SFO.
(c)
Interests in 10% or more of shares in subsidiaries
As at the Latest Practicable Date, so far as was known to the Directors and chief
executive of the Company, no persons who (not being a member of the Group or a Director
or chief executive of the Company) were, directly or indirectly, interested in 10% or more
of the nominal value of any class of share capital carrying rights to vote in all circumstances
at general meetings of the subsidiaries of the Company or in any options in respect of such
capital.
3.
DIRECTORS’ SERVICE CONTRACTS
Executive Directors
Each of the executive Directors has entered into a service contract with the Company.
Particulars of these contracts are set out below:
The service contract of Mr. Chen Jinyan is for an initial term of two years
commencing from 1 September 2013 and the service contracts of Mr. Chen Dong and Mr.
Chen Jinqing are for an initial term of one year commencing from 1 September 2014 and
1 February 2014, respectively, unless terminated by not less than three months’ notice in
writing served by either the Director or the Company. In certain other circumstances, each
service contract can also be terminated by the Company, including but not limited to serious
breaches of the Directors’ obligations under the service contract or serious misconduct.
The current basic annual salaries of the executive Directors are as follows:
Name of Director
Amount
(HK$)
Executive Directors
Chen Jinyan
Chen Dong
Chen Jinqing
600,000
1,800,000
1,200,000
There is no discretionary bonus arrangement for any of the executive Directors.
– 81 –
APPENDIX V
GENERAL INFORMATION
Independent non-executive Directors
Letters of appointment have been signed by the Company with the independent nonexecutive Directors. The independent non-executive Directors have been appointed for a
term of one year commencing from either 19 September or 15 October each year. Save
for directors’ fees of HK$36,000 per annum for each of the two of the independent nonexecutive Directors and HK$120,000 per annum for one of the independent non-executive
Directors, none of the independent non-executive Directors is expected to receive any other
remuneration for holding their office as an independent non-executive Director.
Save as disclosed above, as at the Latest Practicable Date, none of the Directors
had entered into or proposed to enter into any service contract with the Enlarged Group
(excluding contracts expiring or determinable by the employer within one year without
payment of compensation, other than statutory compensation).
4.
COMPETING INTERESTS
As at the Latest Practicable Date, none of the Directors and their respective close associates
(as defined in the Listing Rules) was interested in any business apart from the business of the
Enlarged Group, which competes or is likely to compete, either directly or indirectly, with the
business of the Enlarged Group.
5.
INTERESTS OF DIRECTORS OR EXPERTS IN ASSETS/CONTRACTS AND OTHER
INTERESTS
As at the Latest Practicable Date:
(a)
none of the Directors was materially interested in any contract or arrangement
subsisting at the date of this circular which is significant in relation to the business of
the Enlarged Group; and
(b)
none of the Directors or experts named in the section headed “Experts and Consents”
in this appendix had any direct or indirect interest in any assets which had been, since
30 June 2014 (the date to which the latest published audited accounts of the Company
were made up), acquired, disposed of by, or leased to any member of the Enlarged
Group, or were proposed to be acquired, disposed of by, or leased to any member of
the Enlarged Group.
– 82 –
APPENDIX V
6.
GENERAL INFORMATION
MATERIAL CONTRACTS
The following contracts, not being contracts in the ordinary course of business of the
Enlarged Group, were entered into by the Company and its subsidiaries during the period
commencing two years preceding the date of this circular and are or may be material:
7.
(i)
the Sale and Purchase Agreement; and
(ii)
the placing agreement dated 12 November 2014 entered into between the Company
and Ample Orient Capital Limited in relation to the placing of up to 208,000,000
Shares at a price of HK$0.335 per Share. Details of which are set out in the
Company’s announcement dated 12 November 2014.
MATERIAL ADVERSE CHANGE
As at the Latest Practicable Date, the interim results of the Group for the period ended 31
December 2014 experienced a decline when compared with the corresponding period in year 2013
due to a number of adverse factors including the slow recovery of the global economy, reduction of
demand in both domestic and overseas textile markets and a cautious purchasing approach adopted
by downstream customers. Consequently, the reduction of gross sales margin was happened. Save
as the above, the Directors were not aware of any material adverse change in the financial position
or trading prospects of the Group since 30 June 2014, the date to which the latest audited financial
statements of the Company were made up.
8.
EXPERTS AND CONSENTS
The following is the qualification of the expert or professional adviser who has given opinion
or advice contained in this circular:
Name
Qualification
Dominic K. F. Chan & Co.
Certified Public Accountants
International Valuation Limited
Independent Professional Valuers
福建創元律師事務所 (Trend Associates)
PRC Legal Advisers
As at the Latest Practicable Date, each of Dominic K. F. Chan & Co., International Valuation
Limited and 福建創元律師事務所 (Trend Associates) has given and has not withdrawn its written
consent to the issue of this circular with the inclusion of its letter and references to its name in the
form and context in which they respectively appear.
– 83 –
APPENDIX V
GENERAL INFORMATION
As at the Latest Practicable Date, Dominic K. F. Chan & Co., International Valuation Limited
and 福建創元律師事務所 (Trend Associates) did not have any shareholding in any member of the
Enlarged Group or any right (whether legally enforceable or not) to subscribe for securities in any
member of the Enlarged Group.
As at the Latest Practicable Date, each of Dominic K. F. Chan & Co., International Valuation
Limited and 福建創元律師事務所 (Trend Associates) was not interested, directly or indirectly,
in any assets which have been or are proposed to be acquired or disposed of by or leased to any
member of the Enlarged Group since 30 June 2014, the date to which the latest audited financial
statements of the Company were made up.
9.
LITIGATION
As at the Latest Practicable Date, neither the Company nor any member of the Enlarged
Group was engaged in any litigation or arbitration or claim of material importance and no litigation
or claim of material importance is known to the Directors to be pending or threatened by or against
the Company or any member of the Enlarged Group.
10.
GENERAL
(1)
The registered office of the Company is located at Cricket Square, Hutchins Drive,
P.O. Box 2681, Grand Cayman KY1 – 1111, Cayman Islands.
(2)
The head office and principal place of business of the Company in Hong Kong is
located at Unit 1407, 14th Floor, China Merchants Tower, Shun Tak Centre, 168-200
Connaught Road Central, Hong Kong.
(3)
The branch share registrar and transfer office of the Company in Hong Kong is Tricor
Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East,
Hong Kong.
(4)
The principal share registrar and transfer office is Royal Bank of Canada Trust
Company (Cayman) Limited at 4th Floor, Royal Bank Houses, 24 Shedden Road,
George Town, Grand Cayman KY1 – 1110, Cayman Islands.
(5)
The company secretary of the Company is Ms. Yeow Mee Mooi. Ms. Yeow, aged
52, graduated from The University of Southestern Louisiana, the United States
of America, with a bachelor degree in business administration. Ms. Yeow further
obtained her post graduate diploma in financial management from The University of
New England, Australia. Ms. Yeow is a certified practicing accountant of The Hong
Kong Institute of Certified Public Accountants and a certified practicing accountant
of CPA Australia. Ms. Yeow has over 23 years’ taxation auditing and commercial
experience in Hong Kong. Ms. Yeow is now a director of a management consulting
firm in Hong Kong.
– 84 –
APPENDIX V
11.
GENERAL INFORMATION
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection during normal business
hours at Unit 1407, 14th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road
Central, Hong Kong up to and including the date which is 14 days from the date of this circular:
(a)
the memorandum and articles of association of the Company;
(b)
the Sale and Purchase Agreement;
(c)
the PRC legal opinion issued by 福建創元律師事務所(Trend Associates) dated 30
January 2015;
(d)
the accountants’ report on the Target Company, the text of which is set out in
Appendix II to this circular;
(e)
the accountants’ report in respect of the unaudited pro forma financial information of
the Enlarged Group, the text of which is set out in Appendix III to this circular;
(f)
the Valuation Report prepared by International Valuation Limited in respect of the
Mall, the text of which are set out in Appendix IV to this circular;
(g)
the letters of consent referred to under the paragraph headed “Experts and Consents”
in this appendix;
(h)
the annual reports of the Company for the years ended 30 June 2013 and 30 June
2014, respectively;
(i)
the service contracts referred to in the paragraph headed “ Directors ’ Service
Contracts” in this appendix;
(j)
the material contracts referred to in the paragraph headed “Material Contracts” in this
appendix; and
(k)
this circular.
– 85 –
NOTICE OF EGM
ART TEXTILE TECHNOLOGY INTERNATIONAL COMPANY LIMITED
錦藝紡織科技國際有限公司
(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 565)
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Art Textile
Technology International Company Limited (the “Company”) will be held at Jade Room, 6th Floor,
Marco Polo Hongkong Hotel, Harbour City, 3 Canton Road, Kowloon, Hong Kong on Friday,
27 March 2015 at 10:45 a.m. for the purpose of considering and, if thought fit, passing, with or
without amendments, the following resolutions as ordinary resolutions:
ORDINARY RESOLUTIONS
1.
“THAT:–
(a)
the sale and purchase agreement dated 18 December 2014 (the “Sale and
Purchase Agreement”) entered into between 鄭 州 昌 盾 資 產 管 理 有 限 公 司
(Zhengzhou Changdun Asset Management Company Limited), an indirect
wholly-owned subsidiary of the Company as the purchaser (the “Purchaser”),
鄭 州 第 一 紡 織 有 限 公 司 (Zhengzhou Diyi Textile Company Limited) (the
“ Vendor (1)” ) and 新 疆 金 鋒 源 棉 花 產 業 有 限 公 司 (Xinjiang Jinfengyuan
Cotton Industry Company Limited) (which together with Vendor (1), the
“Vendors”) as the vendors, in relation to the acquisition of an aggregate of
75% equity interests in 鄭 州 佳 潮 物 業 服 務 有 限 公 司 (Zhengzhou Jiachao
Property Services Company Limited) from the Vendors by the Purchaser
for a total consideration of RMB591,660,000 (equivalent to approximately
HK$748,937,000), a copy of which has been produced to this meeting
marked “A” and signed by the Chairman of the meeting for the purpose of
identification, and the transactions contemplated thereunder be and are hereby
approved, confirmed and ratified; and
– 86 –
NOTICE OF EGM
(b)
any one or more of the directors of the Company be and is/are hereby generally
and unconditionally authorized to do all such acts and things, to sign and
execute all such documents for and on behalf of the Company and to take
such steps as he/they may in his/their absolute discretion consider necessary,
appropriate, desirable or expedient to give effect to or in connection with the
Sale and Purchase Agreement and the transactions contemplated thereunder.”
Yours faithfully,
For and on behalf of the Board
Art Textile Technology International Company Limited
Chen Jinyan
Chairman
Hong Kong, 30 January 2015
Registered office:
Cricket Square
Hutchins Drive
P.O. Box 2681
Grand Cayman KY1 – 1111
Cayman Islands
Head office and principal place of business:
Unit 1407, 14th Floor
China Merchants Tower
Shun Tak Centre
168-200 Connaught Road Central
Hong Kong
– 87 –
NOTICE OF EGM
Notes:
1.
Any member of the Company entitled to attend and vote at the meeting convened by the above notice shall be
entitled to appoint another person (who must be an individual) as his proxy to attend and vote instead of him. A
proxy need not be a member of the Company.
2.
Where there are joint registered holders of any share, any one of such person may vote at the meeting, either
personally or by proxy, in respect of such share as if he were solely entitled thereto. However, if more than one of
such joint holders by present at the meeting personally or by proxy, that one of the said persons so present being the
most or, as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding.
For this purpose, seniority shall be determined by reference to the order in which the names of the joint holders
stand on the register in respect of the relevant joint holding.
3.
The instrument appointing a proxy and (if required by the Board) the power of attorney or other authority, if any,
under which it is signed or a certified copy of such power or authority must be delivered at the Company’s branch
share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre,
183 Queen’s Road East, Hong Kong no less than 48 hours before the time appointed for holding the meeting or any
adjournment thereof.
4.
Delivery of any instrument appointing a proxy shall not preclude a member from attending and voting in person at
the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked.
– 88 –