THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
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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 stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.
If you have sold or transferred all your shares in Legend Holdings Corporation, you should at once hand this circular, together with the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.
聯想控股股份有限公司 Legend Holdings Corporation
(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 03396)
CONTINUING CONNECTED TRANSACTIONS PROVISION OF CONTINUING GUARANTEES TO A CONNECTED SUBSIDIARY AND NOTICE OF 2020 SECOND EXTRAORDINARY GENERAL MEETING
Independent Financial Adviser to the Independent Board Committee and Independent Shareholders
Karl Thomson Financial Advisory Limited
This circular is despatched together with the notice of 2020 second extraordinary general meeting of Company dated May 13, 2020 to be held at B-17, Raycom Info Tech Park, No. 2 Ke Xue Yuan South Road, Haidian District, Beijing, the People’s Republic of China at 2:15 p.m. on Friday, June 12, 2020 (the “EGM”). The notice of the EGM is set out on pages 51 to 53 of this circular.
A letter from the Board is set out on pages 4 to 21 of this circular and a letter from the Independent Board Committee is set out on pages 22 to 23 of this circular. A letter from Karl Thomson Financial Advisory Limited, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, containing its advice in relation to the terms of the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement is set out on pages 24 to 44 of this circular.
If you intend to attend the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible but in any event not less than 24 hours before the time fixed for convening the EGM or any adjournment thereof to the H Share registrar (for H Shareholders) or the Company (for Domestic Shareholders). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so wish.
In the interest of health and safety of all Shareholders and in order to prevent and control the spread of COVID-19, the Company reminds all Shareholders that physical attendance in person at the EGM is not necessary for the purpose of exercising voting rights. Shareholders may appoint the chairman of the EGM as their proxy to vote on the relevant resolutions proposed at such meeting instead of attending the EGM in person, by completing and returning the form of proxy attached in the circular.
May 13, 2020 CONTENTS
Page
DEFINITIONS...... 1
LETTER FROM THE BOARD...... 4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE...... 22
LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED...... 24
APPENDIX — GENERAL INFORMATION...... 45
NOTICE OF 2020 SECOND EXTRAORDINARY GENERAL MEETING...... 51
– i – DEFINITIONS
In this circular, unless the context otherwise requires, the following expressions have the following meanings:
“2019 AGM” the annual general meeting of the Company to be held at B-17, Raycom Info Tech Park, No. 2 Ke Xue Yuan South Road, Haidian District, Beijing, the PRC at 2:00 p.m. on Friday, June 12, 2020. The notice of 2019 AGM was dated and published on April 24, 2020
“Articles of Association” the articles of association of the Company (as amended, modified or otherwise supplemented from time to time)
“Associate” has the meanings ascribed thereto under Chapter 14A of the Listing Rules
“Board” the board of Directors
“CAS Holdings” Chinese Academy of Sciences Holdings Co., Ltd. * 中國 科學院控股有限公司, a company with limited liability established in accordance with the laws of the PRC and validly subsisting, the single largest shareholder of the Company with approximately 29.04% equity interest and a substantial shareholder of the Company
“Company” or “Legend Holdings” Legend Holdings Corporation, a joint stock limited liability company incorporated under the laws of the PRC and listed on the main board of the Hong Kong Stock Exchange
“Connected Person” has the meanings ascribed thereto under the Listing Rules
“Continuing Guarantee Support the framework agreement dated April 3, 2020 entered into Framework Agreement” between the Company and Levima Advanced Materials in relation to the provision of Guarantees by the Company to Levima Advanced Materials
“Director(s)” the director(s) of the Company
“Domestic Share(s)” domestic share(s) in the ordinary share capital of the Company with the nominal value of RMB1.00 each
“Domestic Shareholder(s)” the domestic Shareholder(s) of the Company
“Domestic Share Class Meeting” the 2020 first class meeting of the Domestic Shareholders scheduled to be held at B-17, Raycom Info Tech Park, No.2 Ke Xue Yuan South Road, Haidian District, Beijing, the PRC at 2:00 p.m. on Friday, June 12, 2020 or immediately following the conclusion of the H Share Class Meeting or any adjournment thereof
– 1 – DEFINITIONS
“EGM” The 2020 second extraordinary general meeting of the Company scheduled to be held at B-17, Raycom Info Tech Park, No. 2 Ke Xue Yuan South Road, Haidian District, Beijing, the People’s Republic of China at 2:15 p.m. or immediately following the conclusion of the Domestic Share Class Meeting on Friday, June 12, 2020
“Effective Date” the effective date of the Continuing Guarantee Support Framework Agreement, being the date on which the Continuing Guarantee Support Framework Agreement is approved by the Independent Shareholders at the general meeting of the Company
“Group” the Company and its subsidiaries
“Guarantees” the continuing guarantee(s) support provided or to be provided by the Company in favour of third parties in respect of the credit and bill facilities granted to Levima Advanced Materials by any third party(ies) with an aggregate amount not exceeding RMB3,800 million any time during the Term pursuant to the Continuing Guarantee Support Framework Agreement
“H Share(s)” overseas listed share(s) in the ordinary share capital of the Company with a nominal value of RMB1.00 each, listed on the Hong Kong Stock Exchange and trade in HKD
“H Shareholder(s)” the H Shareholder(s) the Company
“H Share Class Meeting” the 2020 first class meeting of H Shareholders scheduled to be held at B-17, Raycom Info Tech Park, No.2 Ke Xue Yuan South Road, Haidian District, Beijing, the PRC at 2:00 p.m. on Friday, June 12, 2020 or immediately following the conclusion of the 2019 AGM or any adjournment thereof
“HKD” the lawful currency of Hong Kong
“Hong Kong” Hong Kong Special Administrative Region of the PRC
“Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited
“Levima Advanced Materials” Levima Advanced Materials Co., Ltd. * (聯泓新材料科技股 份有限公司), a joint stock limited company established in the PRC, which is held as to approximately 60.44% equity interest by the Group and as to approximately 29.50% equity interest by CAS Holdings * for identification only
– 2 – DEFINITIONS
“Independent Board Committee” an independent committee under the Board comprising all independent non-executive Directors to advise the Independent Shareholders on the continuing connected transaction
“Independent Financial Adviser” Karl Thomson Financial Advisory Limited, a corporation or “Karl Thomson Financial licensed under the SFO to carry out type 6 regulated activities Advisory Limited” (advising on corporate finance), the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the continuing connected transaction and the cap
“Independent Shareholders” shareholders of the Company other than those who have material interests in the continuing connected transaction in respect of the provision of the Guarantees, being the shareholders other than CAS Holdings and its associates
“Latest Practicable Date” May 8, 2020, being the latest practicable date prior to printing of the circular for ascertaining certain information contained herein
“Link Market Services” Link Market Services (Hong Kong) Pty Limited, the Company’s H share registrar
“Listing Rules” the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange
“Model Code” the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules
“PRC” or “State” the People’s Republic of China excluding, for the purpose of this circular, Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
“RMB” the lawful currency of the PRC
“SFO” the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong
“Shareholder(s)” the shareholder(s) of the Company
“Supervisors” the supervisors of the Company
“Term” the term of the Continuing Guarantee Support Framework Agreement, commencing from Effective Date till June 30, 2021
“%” per cent
– 3 – LETTER FROM THE BOARD
聯想控股股份有限公司 Legend Holdings Corporation
(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 03396)
Executive Directors: Registered office: Mr. NING Min (Chairman) Room 1701, 17/F Mr. LI Peng (Chief Executive Officer) Block 1, Court No. 2 Ke Xue Yuan South Road Non-executive Directors: Haidian District Mr. ZHU Linan Beijing Mr. ZHAO John Huan PRC Mr. WU Lebin Mr. SUO Jishuan Principal place of business in Mr. WANG Yusuo Hong Kong: 27/F Independent Non-executive Directors: One Exchange Square Mr. MA Weihua Central Mr. ZHANG Xuebing Hong Kong Ms. HAO Quan Mr. YIN Jian’an May 13, 2020
To the Shareholders
Dear Sir or Madam,
CONTINUING CONNECTED TRANSACTIONS PROVISION OF CONTINUING GUARANTEES TO A CONNECTED SUBSIDIARY AND NOTICE OF 2020 SECOND EXTRAORDINARY GENERAL MEETING
1. INTRODUCTION
The purposes of this circular are to provide you with, among other things, (i) details of the proposed continuing connected transactions in respect of the provision of the continuing Guarantees to a connected subsidiary; (ii) a letter from the Independent Board Committee to the Independent Shareholders in relation to the continuing connected transactions in respect of the provision of the continuing Guarantees (including the cap for the Guarantees); (iii) a letter from the independent financial advisor in relation to the continuing connected transactions in respect of the provision of the continuing Guarantees (including the cap for the Guarantees) and (iv) the notice of the EGM.
– 4 – LETTER FROM THE BOARD
2. PROVISION OF CONTINUING GUARANTEES TO A CONNECTED SUBSIDIARY
2.1 Background
As the indirect controlling shareholder of Levima Advanced Materials, the Company has been providing guarantees for the repayment obligations under the financing contracts entered into between Levima Advanced Materials (as the borrower) and individual financing institutions in the PRC (as the lenders) in respect of the credit and bill facilities offered to Levima Advanced Materials. On May 8, 2017, the Company and Levima Advanced Materials entered into the continuing financial assistance framework agreement (the “Previous Agreement”), pursuant to which the Company agreed to grant the financial assistance to Levima Advanced Materials not exceeding RMB5,200 million in aggregate upon the requests made by Levima Advanced Materials for a term of 36 months from June 16, 2017. Please refer to the announcement of the Company dated May 8, 2017 regarding the Company’s provision of financial assistance to Levima Advanced Materials for details. The aforementioned continuing financial assistance framework agreement will expire on June 16, 2020.
The movements of the guarantee supports provided to Levima Advanced Materials under the Previous Agreement for the last 36 months are set out below:
RMB RMB RMB
Aggregate guarantee amount of Legend Holdings as at May 30, 2017 4,399,333,333
Add: Aggregate amount of New Guarantees (note 1) committed 634,993,000
Aggregate amount of Existing Guarantees (note 2) being renewed 3,536,800,000
Less: Termination upon expiry of loans (672,533,333)
Termination due to early repayment of borrowing (90,000,000)
Aggregate guarantee amount of Legend Holdings as at December 31, 2017 4,271,793,000
– 5 – LETTER FROM THE BOARD
RMB RMB RMB
Aggregate guarantee amount of Legend Holdings as at January 1, 2018 4,271,793,000
Add: Aggregate amount of New Guarantees committed 3,258,067,760
Aggregate amount of Existing Guarantees being renewed 1,160,933,400
Less: Termination upon expiry of loans (2,134,059,360)
Termination due to early repayment of loans (1,280,000,000)
Aggregate guarantee amount of Legend Holdings as at December 31, 2018 4,115,801,333
Aggregate guarantee amount of Legend Holdings as at January 1, 2019 4,115,801,333
Add: Aggregate amount of New Guarantees committed 3,274,980,984
Aggregate amount of Existing Guarantees being renewed 338,400,000
Less: Termination upon expiry of loans (3,382,901,400)
Termination due to early repayment of loans (641,500,000)
Aggregate guarantee amount of Legend Holdings as at December 31, 2019 3,366,380,984
Aggregate guarantee amount of Legend Holdings as at January 1, 2020 3,366,380,984
Add: Aggregate amount of New Guarantees committed up from January 1, 2020 to April 15, 2020 500,000,000
Aggregate amount of Existing Guarantees being renewed from January 1, 2020 up to April 15, 2020 338,400,000
– 6 – LETTER FROM THE BOARD
RMB RMB RMB
Less: Termination upon expiry of loans from January 1, 2020 up to April 15, 2020 (529,997,984)
Termination due to early repayment of loans from January 1, 2020 up to April 15, 2020 0
Aggregate guarantee amount of Legend Holdings as at April 15, 2020 3,336,383,000
Note 1: New Guarantees refers to the guarantee contracts entered by Legend Holdings after the Shareholders’ approval of the Previous Agreement on June 15, 2017.
Note 2: Existing Guarantees refers to the guarantee contracts committed by Legend Holdings prior to the Shareholders’ approval of the Previous Agreement on June 15, 2017.
Note 3: The maximum and minimum amounts of underlying loans which were guaranteed by Legend Holdings for the years ended December 31, 2017, December 31, 2018 and December 31, 2019 ranged from RMB1,900,000,000 to RMB10,000,000, RMB620,000,000 to RMB10,000,000 and RMB300,000,000 to RMB12,000,000 respectively.
During the terms of the Previous Agreement, there was no any default in relation to the repayment obligations of Levima Advanced Materials under its credit and bill facilities which would trigger the Company to repay any outstanding loans due to any financial institutions and no guarantee fee was charged by the Company.
The table below sets out the breakdown of the guarantee amount and underlying loans transacted with certain financial institutions as at April 15, 2020:
Underlying loan Underlying Loan Maximum drawdown date/ expiry date/ guarantee amount/ guarantee guarantee underlying commencement termination Financial Institutions loan amount date date RMB (Y/M/D) (Y/M/D)
Bank of China, ZaoZhuang Yicheng Sub-branch 100,360,000 2014.4.30 2021.12.2 Bank of China, ZaoZhuang Yicheng Sub-branch 44,000,000 2014.12.12 2021.12.2 The Export-Import 72,000,000 2014.3.17 2021.12.2 Bank of China, Qingdao Branch The Export-Import 40,000,000 2014.6.30 2021.12.2 Bank of China, Qingdao branch The Export-Import 40,000,000 2014.10.17 2021.12.2 Bank of China, Qingdao branch The Export-Import 12,000,000 2015.3.31 2021.12.2 Bank of China, Qingdao branch The Export-Import 30,040,000 2015.6.29 2021.12.2 Bank of China, Qingdao branch
– 7 – LETTER FROM THE BOARD
Underlying loan Underlying loan Maximum drawdown date/ expiry date/ guarantee amount/ guarantee guarantee underlying commencement termination Financial Institutions loan amount date date RMB (Y/M/D) (Y/M/D)
The Export-Import 300,000,000 2019.3.27 2021.3.26 Bank of China China Minsheng Bank, Beijing Branch 145,228,541 2019.4.17 2022.4.8 Agricultural Bank of China, Tengzhou Sub-branch 100,000,000 2019.6.19 2020.6.18 Industrial and Commercial Bank of 30,000,000 2019.8.26 2020.8.6 China Tengzhou Sub-branch Agricultural Bank of China, Tengzhou Sub-branch 75,000,000 2019.9.18 2020.9.16 Agricultural Bank of China, Tengzhou Sub-branch 75,000,000 2019.9.23 2020.9.16 China Construction Bank, Tengzhou Sub-branch 60,000,000 2019.9.26 2022.9.24 China Construction Bank, Tengzhou Sub-branch 70,000,000 2019.10.17 2020.10.17 China Construction Bank, Tengzhou Sub-branch 130,000,000 2018.11.16 2021.11.13 China Minsheng Bank, Beijing Branch 199,500,000 2019.4.23 2022.4.23 China Minsheng Bank, Beijing Branch 154,271,459 2019.5.7 2022.5.7 The Export-Import 100,000,000 2019.6.26 2021.6.24 Bank of China Industrial and Commercial Bank of China, 20,000,000 2019.8.31 2020.8.2 Tengzhou Sub-branch Industrial Bank, Jinan Branch 99,000,000 2019.5.8 2022.5.7 China Construction Bank, Tengzhou Sub-branch 69,986,000 2019.11.19 2020.11.19 China Construction Bank, Tengzhou Sub-branch 59,997,000 2019.11.19 2020.11.19 Agricultural Bank of China, Tengzhou Sub-branch 75,000,000 2019.11.21 2020.11.18 Agricultural Bank of China, Tengzhou Sub-branch 75,000,000 2019.11.27 2020.11.18 Weihai City Commercial Bank of China 50,000,000 2019.11.29 2020.11.28 Industrial Bank,Tianjin Branch 50,000,000 2019.12.6 2020.12.3 Bank of Jining 50,000,000 2019.12.16 2020.12.16 China Merchants Bank, Jinan Branch 60,000,000 2019.12.18 2020.12.18 Industrial Bank,Tianjin Branch 100,000,000 2019.12.20 2020.12.20 Agricultural Bank of China, Tengzhou Sub-branch 100,000,000 2019.12.20 2020.12.18 Agricultural Bank of China, Tengzhou Sub-branch 100,000,000 2019.12.23 2020.12.18 Bank of China, Tengzhou Sub-branch 150,000,000 2019.12.25 2020.12.25 Industrial Bank,Tianjin Branch 100,000,000 2020.1.19 2021.1.19 Agricultural Bank of China, Tengzhou Sub-branch 100,000,000 2020.3.18 2021.3.17 Agricultural Bank of China, Tengzhou Sub-branch 100,000,000 2020.3.25 2021.2.25 Bank of China, Tengzhou Sub-branch 150,000,000 2020.3.26 2021.3.26 Industrial and Commercial Bank of China, 50,000,000 2020.4.2 2021.3.26 Tengzhou Sub-branch
3,336,383,000
– 8 – LETTER FROM THE BOARD
2.2 Continuing Guarantee Support Framework Agreement
On April 3, 2020, the Company and Levima Advanced Materials entered into the Continuing Guarantee Support Framework Agreement, pursuant to which the Company agreed to grant the Guarantees to Levima Advanced Materials for an aggregate amount not exceeding RMB3,800 million in aggregate upon the requests made by Levima Advanced Materials during the Term, subject to the then financial positions of the Company and compliance with the Listing Rules.
The major terms of the Continuing Guarantee Support Framework Agreement are as follows:—
Date: April 3, 2020
Parties: the Company; and Levima Advanced Materials
Underlying Principles The parties agreed that the Guarantee will for the Guarantees: be granted and determined in accordance with the principle that upon reasonable and arm’s length negotiations between the parties and provided that it is in the interests of the shareholders of the Company as a whole, the Company has the discretion to decide whether or not to approve each Guarantee.
The Company will not charge Levima Advanced Materials any fees for the Guarantees it agrees to provide.
Cap of the Guarantees: During the Term, the maximum amount for the Guarantees to be provided by the Company upon requests from Levima Advanced Materials is RMB3,800 million.
During the Term, the cap of the Guarantees can be rolled over, provided that the aggregate amount of all Guarantees granted shall not exceed RMB3,800 million at any time during the Term. Details of the exact amount and term of the further guarantees granted shall be negotiated by the parties in accordance with the foregoing provisions of the agreement, and subject to the approval of the Board of Directors of the Company.
– 9 – LETTER FROM THE BOARD
Term: The validity period will commence from the date of obtaining the approval of the Independent Shareholders till June 30, 2021.
In principle, every separate Guarantee granted under the Continuing Guarantee Support Framework Agreement during the Term will be valid until the expiry date of the separate guarantee contract to be entered into. If the term of any of the proposed guarantee contracts to be entered into by the Company during the Term lasts beyond the Term, the Company will comply with the applicable requirements under the Listing Rules as and when necessary by issuing announcement and obtaining prior approval from Independent Shareholders of the Company.
2.3 Basis for Determination of the Proposed Cap of Guarantees
In determining the proposed cap of the Guarantees of RMB3,800 million (which does not exceed the average of the balance of guarantees provided by the Company to Levima Advanced Materials at the end of the last three financial years) is an appropriate amount, the Board considered the following factors as set out below:—
a) the maximum guarantees provided by the Company for Levima Advanced Materials for the three financial years from December 31, 2017 to December 31, 2019 were approximately RMB4,455 million, RMB4,792 million and RMB4,116 million, respectively. As of December 31, 2017, December 31, 2018 and December 31, 2019, the actual guarantees provided by the Company for Levima Advanced Materials were approximately RMB4,272 million, RMB4,116 million and RMB3,366 million, respectively (Note 1);
b) it is expected that in the next twelve months, the market share of the products of Levima Advanced Materials and its operational management will continue to improve (“Levima’s Prospects”). On account of the future internal resources of Levima Advanced Materials and the relevant measures to be adopted to broaden its financing channels and optimize its debt structures;
– 10 – LETTER FROM THE BOARD
Basis and assumptions adopted by Directors in respect of Levima’s Prospects are as follows:
(i) As disclosed in the section headed “Information on Levima Advanced Materials” on page 17 of the circular, Levima Advanced Materials has been an industry-leader in terms of its production and operations. Levima Advanced Materials owns a number of core technologies and core production processes and has made many advanced and leading technological achievements internationally and domestically;
(ii) In recent years, the State has stepped up its support for the development of advanced polymer materials industry and special chemical industry, and has promulgated a number of encouraging policies, which has promoted the steady growth of the industries and the rapid development of the downstream markets. These have provided great opportunities for Levima Advanced Materials to grow and develop;
(iii) Historically, the financial performance of Levima Advanced Materials has improved significantly each year. For the financial years 2017, 2018 and 2019, the gearing ratios of Levima Advanced Materials were 69.79%, 68.46% and 58.61% respectively. Its net profit was RMB55,197,200, RMB229,490,400 and RMB541,241,600 respectively. Its net cash flows generated from operating activities were RMB692,863,700, RMB878,704,900 and RMB1,483,563,100 respectively. Going forward, Levima Advanced Materials is planning to raise a total of approximately RMB1,610,000,000 from its proposed A-share listing. If the A-share listing is successful, the net assets and liquidity of Levima Advanced Materials will increase significantly and its gearing ratio and cash flows will improve, thus further optimizing its asset-liability structure and strengthening its financial position. In addition, the proceeds of the A-share listing will also be used to invest in projects relating to its main business and products, such as “The Upgrading Project Concerning the Comprehensive Use of 100,000 Tonnes/Year of C4 and C5 By-products and the Auxiliary Technology for the Olefin Separation System”(10 萬噸╱年副產碳四碳五綜合利用及烯 烴分離系統配套技術改造項目), “The Upgrading Project Concerning the Tubular Tail Expansion of EVA Equipment” (EVA 裝置管式尾技術升級 改造項目) and “The 65,000 Tonnes/Year of Specialty Refined Chemicals Project”(6.5 萬噸/年特種精細化學品項目). The revenue and profit of Levima Advanced Materials will be expected to increase following the completion of these projects; and
– 11 – LETTER FROM THE BOARD
(iv) Since the outbreak of the Novel Coronavirus (COVID-19), Levima Advanced Materials actively participated in the prevention and control of the pandemic and made full use of the key functions of its main products in the provision of supplies, sterilization, disinfection, cleaning and protection. Levima Advanced Materials was listed as one of the “Manufacturers of Key Emergency Supplies for the Prevention and Control of the Outbreak of COVID-19 in Shandong Province”(山東省疫情防控重點保障物資生產 企業).
(c) the annual budget and funding plans submitted by Levima Advanced Materials to the Company each year (Notes 2 and 3);
(d) the need for maintaining the current financing level and credit amount to ensure that Levima Advanced Materials has sufficient working capital and funds to further grow and develop its business;
(e) to ensure financial stability of Levima Advanced Materials, in particulars during the A-share listing process; and
(f) to allow for a transitional period for Levima Advanced Materials to substitute its current loans and debts with the funds raised from different financing channels after the listing is completed.
Notes:—
(1) The balances of the borrowings of Levima Advanced Materials without the guarantee supports from Legend Holdings as at the last three financial years ended December 31, 2019 and the period from January 1, 2020 and April 15, 2020 were RMB169.90 million, RMB1,374.99 million, RMB424.02 million and RMB731.42 million respectively.
(2) When approving the annual budgets and funding plans of Levima Advanced Materials, the Directors had annually taken into considerations its major operating working capital inflow and outflow conditions, including but not limited to, cash requirements for its special projects, the existing loans repayment and renewal schedules. The Directors determined the proportion of the borrowing structures of Levima Advanced Materials with and without Legend Holdings’ Guarantees after considering (i) the estimated annual savings in the costs of borrowings of Levima Advanced Materials of approximately RMB9.87 million, RMB8.93 million and RMB3.22 million for the last three financial years ended December 31, 2019 respectively (which amounted to approximately 17.88%, 3.89% and 0.59% of its audited profits for the corresponding previous accounting year); and (ii) the progress of its A-share listing plan.
– 12 – LETTER FROM THE BOARD
(3) Despite Levima Advanced Materials has recently received several indicative credit facilities offers without any guarantee, it has not taken into consideration such offers when preparing the 2020 funding plan since it is crucial to maintain its total debt to total assets structure unchanged in the process of its A-share listing. In the event the A-share listing of Levima Advanced Materials has been completed, it will reconsider accepting these offers depending on its then overall business development and funding needs as well as whether the terms the conditions of these credit facilities offers are in the interests of both Levima Advanced Materials and Legend Holdings and their respective shareholders.
The proposed cap of the Guarantees provided by the Company is determined by the Company and Levima Advanced Materials after arm’s length negotiations between the two parties and is on normal commercial basis.
2.4 Reasons for and Benefits of Provision of Guarantees
As at December 31, 2019, the total borrowings of Levima Advanced Materials and key debt repayment indicators are as follows:
Approximate Amount RMB million
Project loans 360 Working capital loans 2,540 Bank acceptance bills 884 Total borrowings: 3,785 Total borrowings guaranteed by Legend Holdings as at December 31, 2019 3,366
Percentage of the total borrowings guaranteed by Legend Holdings compared to total borrowings as at December 31, 2019 89%
Key indicators Current ratio 60% Debt to asset ratio 59% Interest coverage (times) 5.13
– 13 – LETTER FROM THE BOARD
Cash Positions:
As of As of As of December 31, 2017 December 31, 2018 December 31, 2019 RMB million RMB million RMB million
Cash and Cash Equivalents 509 1,102 929
Early release of the existing guarantees or refinancing of existing borrowings by unsecured loans and debts before the expiry of the Previous Agreement on June 16, 2020 or before the completion of the A-share listing would not be feasible and will not be in the best interest of Levima Advanced Materials or Legend Holdings (as its parent) since it will bear considerable sum of additional borrowing costs, legal costs and early termination penalties and the negotiation of new financings will take a lot of time and efforts.
Nevertheless, Levima Advanced Materials has obtained indicative offers from several financial institutions to provide credit facilities in the aggregate sum of RMB5,700 million (which significantly exceed the proposed cap of RMB3,800 million) without any guarantee or security from Legend Holdings or any third parties. The indicative offers are subject to further negotiations between the financial institutions and Levima Advanced Materials. The Directors believe that Levima Advanced Materials will not be financially dependent on Legend Holdings. Furthermore, after completion of the A-share listing, Levima Advance Materials intends to use part of the IPO proceeds to replenish floating capital and will be expected to further reduce the amount of Guarantees provided by the Company.
The measures taken or to be taken as and when appropriate by Levima Advanced Materials to reduce its reliance on the Company in respect of the Guarantees and to broaden financing channels and optimizing debt structures include, but not limited to, the followings:
(i) to maintain healthy operating cash flow, profitability and credit status to ensure that it has stable source of funds for the repayment of its debts;
(ii) to build a long-term relationship with various financial institutions and ensuring that the total amount of credit obtained shall exceed its actual credit needs;
(iii) to gradually adjust the proportion of medium to long-term loans and to enhance its repayment capability;
(iv) after completion of the A-share listing, substituting its own capital, bank loans and other debt financing used in the early stages of investment projects with the proceeds from the A-share listing, which will help to reduce corporate debts and supplement its working capital;
– 14 – LETTER FROM THE BOARD
(v) to continue to obtain financing which does not require the guarantee supports and other forms of security by Legend Holdings; and
(vi) subject to its strategy and capital needs in various development stages, raising funds through capital market.
Due to the fact that Levima Advanced Materials is in era of crucial development and has invested in its upstream and downstream operations in recent years, the provision of Guarantees enables Levima Advanced Materials to secure sufficient working capital and reduce financial costs, to grasp favourable opportunities for its procurement and inventory replenishment so as to achieve costs reduction, to boost its profitability, to utilize its earnings and funds for its evolving business development and to establish solid fundamentals for its financial resources. This would enable Levima Advanced Materials to achieve a better profit returns for its shareholders in the future, as well as to improve its enterprise value, which is in line with the overall strategic development of the Group. As the indirect controlling shareholder of Levima Advanced Materials and taking into account of its own financial positions, the Company will continue to provide Levima Advanced Materials with the Guarantees in accordance with the Continuing Guarantee Support Framework Agreement.
To the best knowledge of the Directors, it is a common practice in the PRC for a controlling shareholder to provide guarantees to its subsidiary for obtaining credit facilities from financial institutions without charging any guarantee fees. Levima Advanced Materials is a greenfield investment cultivated by Legend Holdings. Relying on Levima Advanced Materials’ professional and experienced management team, the optimisation of its product mix, its profound technological expertise as well as the resources contributed from its other shareholder, CAS Holdings, the business of Levima Advanced Materials has grown rapidly and has become one of the key pillar assets of Legend Holdings. Sufficient and stable financial resource is the primary need of Levima Advanced Materials to accelerate its business growth. The continued guarantee supports of Legend Holdings by not charging any guarantee fee since its incorporation has improved its cash positions and reduced its borrowings costs all along. The active preparation of its A-share listing is expected to obtain further capital resources through the equity and debt markets and to expand its financing capabilities and in turn will significantly drive the enterprise value of Levima Advanced Materials. The Company’s overall performance and its value creation ability will also be enhanced which are in line with the Company’s strategic development objectives.
Levima Advanced Materials submits its financial statements to the Company on a regular basis. The profit contributions of Levima Advanced Materials has increased steadily over the past three years. The Company’s continued provision of guarantee to Levima Advanced Materials will have no impact on the profit, asset and liability positions of the Company. Besides, the guarantee agreements enter into between the Company and the financing institutions that provide credit facility to Levima Advanced Materials are all on normal commercial terms. The Board believes, from a commercial perspective, the liability risks assumed by the Company is reasonable and controllable.
– 15 – LETTER FROM THE BOARD
Each new Guarantee or existing Guarantee to be rolled over must undergo internal review and approval procedures of the Company before it is approved. Such procedures involve: (i) the Treasury Department considering the overall debt situation of the Company, (ii) the Finance Department considering the financial impacts on the Company and Levima Advanced Materials, (iii) the Legal Department considering the legal risks of the Company and Levima Advanced Materials under the relevant financing contracts and the Listing Rules compliance obligations of the Company, and (iv) after consolidating the opinions of various departments, the executive Directors, based on the funding and cash flow projections of Levima Advanced Materials at the time of application and subject to the confirmation of the overall solvency of the Company and Levima Advanced Materials, approve the guarantee amount that meets the requirements of Levima Advanced Materials and ensure that each guaranteed loan is in line with the business development needs of Levima Advanced Materials. Before such approval is granted and in the event that Levima Advanced Materials may not be able to repay its debts when they fall due, the Company will not be obliged to enter into any agreement or arrangements granting any new Guarantees or to renew existing Guarantees.
Given all the above, the Directors believe that the continued provision of the Guarantees without charging any guarantee fees to Levima Advanced Materials at the proposed cap of RMB3,800 million pursuant to the Continuing Guarantee Support Framework Agreement are on normal commercial terms in the usual course of business of Legend Holdings and are fair and reasonable and in the interest of the Company and its Shareholders as a whole. The term of the Continuing Guarantee Support Framework Agreement is valid for 12 months only. Before the expiration of such agreement, the Company will re-assess the progress of A-share listing of Levima Advanced Materials and the results of the diversification of its financing channels. Accordingly, with the full consideration of the interests of Company and Levima Advanced Materials, the Company may consider, if appropriate, to reduce the Guarantee cap or to charge guarantee fees with reference to market conditions subject to the compliance of applicable Listing Rules requirements.
– 16 – LETTER FROM THE BOARD
2.5 Information on Levima Advanced Materials
Levima Advanced Materials is a high-tech enterprise engaging in the research and development, manufacturing and sales of advanced materials as well as specialty chemicals. Through years of continuous development, Levima Advanced Materials has completed the olefin deep processing industrial chain that uses methanol as raw material to produce high value-added products, and owns multiple sets of advanced equipment for methanol to olefin (DMTO), ethylene-vinyl acetate (EVA), polypropylene (PP), ethylene oxide (EO) and ethylene oxide derivatives (EOD). The production and operation have been maintaining a leading level in the field. Among them, the DMTO equipment uses methanol as the main raw material to produce ethylene and propylene; the EVA equipment uses ethylene as the main raw material to produce ethylene-vinyl acetate copolymer; the PP equipment uses propylene as the main raw material to produce polypropylene special material; the EO equipment uses ethylene as the main raw material to produce ethylene oxide; the EOD equipment uses ethylene oxide as the main raw material to produce ethylene oxide derivatives. Levima Advanced Materials has established a leading domestic alkoxylation synthesis and application laboratory and an advanced polymer material research and development laboratory and has mastered a number of core technologies and core production processes. At the Latest Practicable Date, Levima Advanced Materials has applied for and obtained 19 invention patents. The Group and CAS Holdings hold approximately 60.44% and 29.50% equity interest in Levima Advanced Materials respectively.
Levima Advanced Materials has been preparing for its A-share listing on the SME Board of the Shenzhen Stock Exchange. On June 6, 2019, the application documents for an initial public offering and listing were accepted by the China Securities Regulatory Commission (“CSRC”). The prospectus pre-disclosure updates were submitted on December 12, 2019 and it is expected that the review by the Public Offering Review Committee of the CSRC will be completed and Levima Advanced Materials will become listed in 2020.
2.6 Information of the Company
Legend Holdings Corporation is a leading diversified investment holding group in the PRC and has developed an innovative, two-wheel-driven synergy business model by “strategic investments + financial investments”. Its strategic investments business diversifies into five segments: IT, financial services, innovative consumption and services, agriculture and food, and advanced manufacturing and professional services. Its financial investments business primarily consists of angel investments, venture capital investments, private equity investments and other investments that cover all stages of a company’s life cycle. As at the Latest Practicable Date, the single largest shareholder of the Company, CAS Holdings, holds approximately 29.04% interest in the Company.
– 17 – LETTER FROM THE BOARD
2.7 Implications Under the Listing Rules
Pursuant to rule 14.04(1)(e)(ii) of the Listing Rules, the provision of financial assistance by a listed issuer to its subsidiaries does not fall within the definition of “transaction” under chapter 14 of the Listing Rules. Therefore, the granting of the Guarantees by the Company to Levima Advanced Materials, a subsidiary of the Company, does not constitute a notifiable transaction.
CAS Holdings is a substantial shareholder and a connected person of the Company, holding approximately 29.50% of the equity interest of Levima Advanced Materials, therefore Levima Advanced Materials is a connected subsidiary of the Company and the provision of the Guarantees to Levima Advanced Materials constitutes a continuing connected transaction of the Company in accordance with chapter 14A of the Listing Rules.
As one of the applicable percentage ratios (other than profit ratio) (within the meaning of rule 14.07 of the Listing Rules) for the cap of the Guarantees under the Continuing Guarantee Support Framework Agreement exceeds 5%, the transaction contemplated under the Continuing Guarantee Support Framework Agreement constitutes a non- exempt continuing connected transaction of the Company and is therefore subject to the reporting, announcement, annual review and the independent shareholders’ approval requirements under chapter 14A of the Listing Rules.
2.8 General
The Independent Board Committee consisting of all independent non-executive Directors has been established to advise the Independent Shareholders on the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees to be provided by the Company). The Company has appointed Karl Thomson Financial Advisory Limited as the independent financial advisor of the Company to advise the Independent Board Committee and the Independent Shareholders in the aforesaid issues.
Mr. SUO Jishuan, a non-executive Director, is the chairman of the board of directors of CAS Holdings. As such, he was abstained from voting on the resolution of the Board approving the provision of Guarantees and the cap of the Guarantees. Save for Mr. SUO Jishuan, no Director had a material interest in relation to the aforesaid matters and therefore none of them was required to abstain from voting on the relevant resolutions of the Board.
As at the Latest Practicable Date, CAS Holdings held 684,376,910 Domestics Shares. As CAS Holdings has material interest in the proposed continuing connected transaction, CAS Holdings together with its associates are required to abstain from voting on the ordinary resolutions approving the proposed continuing connected transaction at the EGM. Save as aforesaid, no other Shareholders are required to abstain from voting on the ordinary resolutions approving the proposed continuing connected transaction.
– 18 – LETTER FROM THE BOARD
In the event that the Continuing Guarantee Support Framework Agreement is not approved by the Independent Shareholders, the pre-existing arrangement shall be ceased and the Company will negotiate with the relevant parties for revised terms, early repayment or other arrangement (as the case may be). Each new Guarantee to be provided to Levima Advanced Materials in the future will constitute a new connected transaction of the Company. The Company will ensure that such transaction to be entered into is in compliance with the reporting, announcement, annual review and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. There are certain credit facilities which will be expired beyond the expiry date of the Term (the “Relevant Credit Facilities”). Prior to the expiry of the Term, the Company and Levima Advanced Materials will negotiate and renew the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees) (the “Renewed Framework Agreement”). The Company shall comply with the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules regarding the Renewed Framework Agreement. In the event that no agreement could be reached between the Company and Levima Advanced Materials or no Independent Shareholders’ approval could be obtained for the Renewed Framework Agreement, Levima Advanced Materials and the Company will negotiate with the relevant financing institutions to arrange early repayment of the Relevant Credit Facilities by debt restructuring and termination of the Guarantees provided by the Company as the case may be before the expiry date of the Term.
3. Recommendations
The Board is of the view that (i) the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees) are on normal commercial terms; (ii) the provision by the Company of the proposed Guarantees is in the ordinary and usual course of business; and (iii) the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees) are fair and reasonable and in the interests of the Company and the Shareholders as a whole. An ordinary resolution will be proposed at the EGM to consider and, if thought fit, to approve the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees) by poll. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the ordinary resolution as set out in the notice of the EGM.
After taking into account of the advice of Karl Thomson Financial Advisory Limited, the Independent Board Committee is of the view that the Continuing Guarantee Support Framework Agreement are on normal commercial term and the terms of the Continuing Guarantee Support Framework Agreement and the cap of the Guarantees are in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee
– 19 – LETTER FROM THE BOARD
recommends the Independent Shareholders to vote in favour of the ordinary resolution as set out in the notice of the EGM to approve the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees). You are advised to read carefully the letter from the Independent Board Committee set out on pages 22 to 23 of this circular. You are also advised to read carefully the letter from Karl Thomson Financial Advisory Limited containing its advice to the Independent Board Committee and the Independent Shareholders in respect of the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees), as set out on pages 24 to 44 of this circular.
4. Other information
Your attention is drawn to other general information set out in the appendice on pages 45 to 50 to this circular and the notice of the EGM set out in pages 51 to 53 to this circular.
The Company will convene the EGM at 2:15 p.m. or immediately following the conclusion of the Domestic Share Class Meeting on Friday, June 12, 2020 at B-17, Raycom Info Tech Park, No. 2 Ke Xue Yuan South Road, Haidian District, Beijing, the People’s Republic of China, to consider and, if thought fit, pass the ordinary resolution as set out in the notice of the EGM on pages 51 to 53 of this circular. The form of proxy has been dispatched together with this circular to the Shareholders on May 13, 2020 (Wednesday).
In order to determine the Shareholders entitled to attend and vote at the EGM, the register of members of the Company will be closed from Monday, June 8, 2020 to Friday, June 12, 2020 (both days inclusive), during which time no transfer of the Shares of the Company will be registered. Accordingly, unregistered H Shareholders shall lodge relevant share transfer documents with the H Share registrar, Link Market Services, not later than 4:30 p.m. on Friday, June 5, 2020.
According to Rule 13.39(4) of the Listing Rules, all votes of the Shareholders at a general meeting must be taken by poll. Therefore, the chairman of the meeting will demand a poll for the resolution(s) proposed at the meeting pursuant to Article 78 of the Articles of Association.
On a poll, every Shareholder present in person or by proxy (or being corporation, is present by a duly authorised representative) shall have one vote for each ordinary share registered in his/ her name in the register of members of Domestic Shares and H Shares. A Shareholder entitled to more than one vote needs not use all his/her votes or cast all the votes he/she uses in the same manner.
The Company will announce the results of the poll in accordance with the Listing Rules of Hong Kong after the conclusion of the EGM.
– 20 – LETTER FROM THE BOARD
In the interest of health and safety of all Shareholders and in order to prevent and control the spread of COVID-19 (“Epidemic”), the Company reminds all Shareholders that physical attendance in person at the EGM is not necessary for the purpose of exercising voting rights. Shareholders may appoint the chairman of the EGM as their proxy to vote on the relevant resolutions proposed at such meeting instead of attending the EGM in person, by completing and returning the form of proxy attached in the circular.
The Company will implement appropriate precautionary measures against the Epidemic at the EGM, details of which have been disclosed on pages 51 to 53 of the notice of the EGM. The Company will closely monitor the development of Epidemic and may make relevant adjustments and arrangements for the EGM to the extent as permitted by applicable laws and regulations and will issue further announcement(s) for such adjustments or re-arrangements, if any, as appropriate.
By the order of the Board Legend Holdings Corporation NING Min Chairman
– 21 – LETTER FROM THE INDEPENDENT BOARD COMMITTEE
聯想控股股份有限公司 Legend Holdings Corporation
(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 03396)
May 13, 2020
To the Independent Shareholders,
Dear Sir or Madam,
CONTINUING CONNECTED TRANSACTIONS PROVISION OF CONTINUING GUARANTEES TO A CONNECTED SUBSIDIARY
Reference is made to the circular of the Company dated May 13, 2020 (the “Circular”), of which this letter forms a part. Unless the context requires otherwise, all capitalised terms used in this letter shall have the same meanings as defined in the Circular.
We have been appointed as members of the Independent Board Committee to consider the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees) and advise the Independent Shareholders on its reasonableness and fairness. Karl Thomson Financial Advisory Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.
RECOMMENDATIONS
You are also advised to read carefully the letter from the Board set out on pages 4 to 21 of the Circular and the letter from Karl Thomson Financial Advisory Limited set out pages 24 to 44 of the Circular containing its advice to the Independent Board Committee and the Independent Shareholders in respect of the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees).
– 22 – LETTER FROM THE INDEPENDENT BOARD COMMITTEE
After taking into account of the opinions of Karl Thomson Financial Advisory Limited, we concur with Karl Thomson Financial Advisory Limited, being (i) the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees) are on normal commercial terms and fair and reasonable; (ii) the provision by the Company of the proposed Guarantees is in the ordinary and usual course of business; and (iii) the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees) is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution as set out in the notice of the EGM to be proposed at the EGM to approve the proposed continuing connected transactions contemplated under the Continuing Guarantee Support Framework Agreement (including the cap of the Guarantees).
Yours faithfully For and on behalf of Independent Board Committee of Legend Holdings Corporation
MA Weihua ZHANG Xuebing HAO Quan YIN Jian’an Independent Independent Independent Independent non-executive non-executive non-executive non-executive Director Director Director Director
– 23 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
The following is the text of the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Continuing Guarantee Support Framework Agreement and the transactions contemplated thereunder which has been prepared for the purpose of incorporation in this circular.
Karl Thomson Financial Advisory Limited Rm606-610, 6/F Tai Yau Building, 181 Johnston Road, Wan Chai, Hong Kong 香港灣仔莊士敦道181號大有大廈6 字樓606-610室
May 13, 2020
To the Independent Board Committee and the Independent Shareholders of Legend Holdings Corporation
Dear Sir or Madam,
CONTINUING CONNECTED TRANSACTIONS
INTRODUCTION
We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Continuing Guarantee Support Framework Agreement and the Proposed Cap, details of which are set out in the Letter from the Board contained in the circular of the Company dated May 13, 2020 (the “Circular”) to the Shareholders, of which this letter forms part. Capitalized terms used in this letter shall have the same meaning as those defined in the Circular unless the context otherwise requires.
On May 8, 2017, the Company and Levima Advanced Materials entered into the Continuing Financial Assistance Framework Agreement, pursuant to which the Company agreed to grant the Shareholder’s Loans and the Guarantees to Levima Advanced Materials not exceeding RMB5,200 million in aggregate upon the written requests made by Levima Advanced Materials for the term of 36 months from June 16, 2017.
– 24 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
As the indirect controlling shareholder of Levima Advanced Materials, the Company has been providing guarantees for the repayment obligations under the financing contracts entered into between Levima Advanced Materials (as the borrower) and the individual financing institutions in the PRC (as the lenders) in respect of the credit and bill facilities offered to Levima Advanced Materials. In view of the expiry of the Continuing Financial Assistance Framework Agreement (the “Previous Agreement”) by June 16, 2020, the Company has entered into the Continuing Guarantee Support Framework Agreement with Levima Advanced Materials on April 3, 2020, pursuant to which the Company agreed to grant the Guarantees to Levima Advanced Materials for an aggregate amount not exceeding RMB3,800 million upon the requests made by Levima Advanced Materials for a term commencing from the date on which the Continuing Guarantee Support Framework Agreement is approved by the Independent Shareholders at the general meeting of the Company till June 30, 2021 (the “Term”).
CAS Holdings is a substantial shareholder and a connected person of the Company, directly holds approximately 29.04% of the Company. Currently, the Group and CAS Holdings hold approximately 60.44% and 29.50% equity interest of Levima Advanced Materials respectively, therefore Levima Advanced Materials is a connected subsidiary of the Company. The provision of the Guarantees to Levima Advanced Materials therefore constitutes a continuing connected transaction of the Company (the “Continuing Connected Transaction”) in accordance with Chapter 14A of the Listing Rules.
As one of the applicable percentage ratios (other than profit ratio) for the cap under the Continuing Guarantee Support Framework Agreement exceeds 5% and the annual consideration is more than HK$10,000,000, the proposed transaction contemplated under the Continuing Guarantee Support Framework Agreement constitutes a non-exempt continuing connected transaction of the Company and is therefore subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.
The Independent Board Committee, which comprises all the independent non-executive Directors, namely Mr. Ma Weihua, Mr. Zhang Xuebing, Ms. Hao Quan and Mr. Yin Jian’an, has been established to make a recommendation to the Independent Shareholders in relation to the Continuing Connected Transaction as to whether the cap and terms of the Continuing Guarantee Support Framework Agreement and the transactions contemplated thereunder are fair and reasonable.
Karl Thomson Financial Advisory Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders of the Company as to whether the terms of the Continuing Guarantee Support Framework Agreement and the Proposed Cap are fair and reasonable.
– 25 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
OUR INDEPENDENCE
As at the Latest Practicable Date, we are not connected with the directors, chief executive and substantial shareholders of the Company or any of their respective subsidiaries or their respective associates and, as at the Latest Practicable Date, did not have any shareholding, directly or indirectly, in any of their respective subsidiaries or their respective associates and, as at the Latest Practicable Date, did not have any shareholding, directly or indirectly, in any member of the Group or any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group. We were not aware of any relationships or interest between us and the Company or any other parties that could be reasonably be regarded as hindrance to our independence as defined under Rule 13.84 of the Listing Rules to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Continuing Guarantee Support Framework Agreement and the Proposed Cap. We are eligible to give independent advice and recommendations on the Continuing Guarantee Support Framework Agreement and the Proposed Cap.
Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, no arrangement exists whereby we will receive any fees from the Company, its subsidiaries, its associates or their respective substantial shareholders or associates. We have not acted as the financial adviser or independent financial adviser to the Company’s other transactions during the last two years.
BASIS OF OUR OPINION AND RECOMMENDATION
In formulating our opinion and advice to the Independent Board Committee, we have relied upon accuracy of the statements, information, opinion and representations contained in the Circular and representations provided to us by the Company, the executive Directors and the senior management (the “Representatives”) of the Company. We have assumed that all statements information and representations provided by the Directors and the senior management of the Company, for which they are solely responsible, are true and accurate at the time when they were made and continue to be true in all material respects up to the Latest Practicable Date. We have also assumed that all statements of belief, opinion and intention made by the Representatives of the Company in the Circular have been reasonably made after due enquiry based on their best knowledge and belief. We consider that we have been provided with sufficient information to form a reasonable basis for issuing our opinion. Furthermore, we have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Representatives of the Company and have no reason to doubt that any relevant material facts have been withheld or omitted. We have not, however, conducted any independent investigation into the business and affairs or the future prospects of the Company, nor have we carried out any independent verification of the information supplied.
– 26 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
PRINCIPAL FACTORS AND REASONS CONSIDERED
In formulating and giving our independent financial advice to the Independent Board Committee and the Independent Shareholders regarding the Continuing Connected Transaction, we have taken into account the following principal factors:
I. Background Information on the Group
(a) Principal business
The Group is a leading diversified investment holding group in the PRC. Its strategic investments are distributed in five segments including IT, financial services, innovative consumption and service, agriculture and food, and advanced manufacturing and professional services. Its financial investments business primarily consists of angel investments, venture capital investments and private equity investments and other investments that cover all stages of a company’s life cycle.
(b) Financial highlights of the Group
Set out below are the financial highlights of the Group for the year ended 31 December 2018 and the year ended December 31, 2019 as extracted from the annual reports of the Company for the financial years ended December 31, 2018 (the “2018 Annual Report”) and December 31, 2019 (the “2019 Annual Report”) respectively:
For the financial year ended December 31, 2019 2018 RMB’000 RMB’000 (audited) (audited)
Revenue 389,218,264 358,919,679 Profit attributable to equity holders of the Company 3,606,896 4,361,525
As at December 31, 2019 2018 RMB’000 RMB’000 (audited) (audited)
Total assets 624,075,194 558,266,891 Total liabilities 532,250,769 475,248,918 Cash and cash equivalents 62,339,559 60,023,193 Net current liabilities 100,220,702 94,586,886 Net assets 91,824,425 83,017,973
– 27 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
For the year ended December 31, 2019 (the “FY 2019”), revenue recorded a positive growth and increased by approximately 8.44% as compared to the year ended December 31, 2018 (the “FY 2018”). As disclosed in the 2019 Annual Report, the increase of revenue was mainly attributed to the growth of IT, financial services, and agriculture and food segments. Despite the increase in revenue, the profit attributable to equity holders of the Company for the FY2019 amounted to RMB3,607 million, representing a decrease of 17% as compared with the corresponding period of last year. As revealed in the 2019 Annual Report, the decrease in the net profit attributable to equity holders of the Company was mainly due to the decrease in the net profit attributable to equity holders of the Company from innovative consumption and services segment as well as the financial services segment.
During the FY2019, the revenue of advanced manufacturing and professional services segment decreased by approximately 6% from RMB6,331 million in the same period of last year to RMB5,947 million while the net profit of the segment increased by 95% from RMB355 million in the same period of last year to RMB693 million, mainly due to the profit growth of Levima Group Limited (“Levima Group”).
During the FY2019, the working capital of the Group was mainly financed by internal cash flows generated from its operation and external borrowings. As at December 31, 2019 the Group’s cash and cash equivalents remained relative stable amounting to approximately RMB62,340 million as compared to that of RMB60,023 million as at December 31, 2018 whilst net assets slightly increased to approximately RMB91,824 million from approximately RMB83,018 million.
II. Background Information on Levima Advanced Materials
Levima Advanced Materials is a limited liability company incorporated in the PRC in 2009. As at the Latest Practicable Date, the Group through Levima Group and CAS Holdings hold approximately 60.44% and 29.50% equity interest in Levima Advanced Materials respectively and thus Levima Advanced Materials is a connected subsidiary of the Company.
Levima Advanced Materials is a high-tech enterprise engaging in the research and development, manufacturing and sales of advanced materials as well as specialty chemicals. Its main products includes ethylene-vinyl acetate copolymer (EVA), polypropylene (PP) special materials, ethylene oxide (EO), special ethylene oxide derivatives (EOD) which can be widely used in disposable food containers (lunch box), wire and cable, photovoltaic film materials, daily chemical supplies, textiles, building materials, electronic parts and other products. Currently, Levima Advanced Materials is the major supplier of the abovementioned products in the PRC.
– 28 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
In 2019, Levima Advanced Materials has made positive progress in scientific and technological innovation and was recognized as a special fine chemicals engineering technology research center in Shandong. At the same time, it was awarded the honorary title of Shandong Province New Materials Leading Enterprise, Shandong Chemical New Materials Industry Top Ten Enterprises, 2019 Shandong Top 100 Private Enterprises, 2019 Shandong Top 10 New Energy and New Materials Industry Leading Private Enterprises, etc.
In order to achieve further business development, Levima Advanced Materials is in the process of preparing for its A-share listing on the SME Board of the Shenzhen Stock Exchange. In June 2019, Levima Advanced Materials has received from CSRS the notice of accepting its IPO and listing application. The prospectus pre-disclosure updates were submitted in December 2019 and it is expected that the listing process will be completed in 2020.
Set out below are the financial highlights of the Levima Advanced Materials for the FY2018 and the FY2019 as extracted from the audited financial statements of Levima Advanced Materials for the financial year ended 31 December 2019:
For the financial year ended December 31 2019 2018 RMB’000 RMB’000 (audited) (audited)
Revenue 5,674,492 5,794,746 Net profit 541,242 229,490
As at December 31 2019 2018 RMB’000 RMB’000 (audited) (audited)
Total assets 7,903,475 8,333,512 Total liabilities 4,632,290 5,704,885 Cash and cash equivalents 929,020 1,101,715 Total bank borrowings 3,784,756 5,490,792 Net assets 3,271,185 2,628,627
– 29 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
During the FY2019, Levima Advanced Materials recorded revenue of approximately RMB5,674 million, representing a decrease of 2% when compared to FY2018. Such slight decrease in revenue was mainly due to the impact of product price fluctuations. Benefiting from the optimized product mix, continuous improvement in operation and reduced cost of major raw materials, the net profit of Levima Advanced Materials reached RMB541 million, up by 136% when compared to FY2018. The cash and cash equivalents as at December 31, 2019 was approximately RMB929 million with net asset value amounting to approximately RMB3,271 million. As at December 31, 2019, Levima Advanced Materials recorded bank borrowings of approximately RMB3,785 million and accordingly the gearing ratio amounted to approximately 58.61%.
As illustrated in the table sets out on page 7 and page 8 of the Letter from the Board of the Circular showing the breakdown of the guarantee amount and underlying loans of Levima Advanced Materials transacted with certain financial institutions as at April 15, 2020, we note that the guaranteed bank borrowings of approximately RMB3,336 million were provided by eleven different financial institutions in the PRC of which around 86% were drawdown from 2019 onwards. We also noted that the amount of guaranteed bank borrowings to be due before the expiry of Continuing Guarantee Support Framework Agreement is approximately RMB2,600 million. Details of which is set out as follows:
Amount of guaranteed Due on or before bank borrowings (approximately RMB million)
December 31, 2020 1,513 June 30, 2021 1,087
III. Background and reasons of entering into the Continuing Guarantee Support Framework Agreement
“Equity investment+loan+guarantee” is the unique investment model of the Group and are important means by which the Group can have the opportunities to invest in high-quality projects with the advantage to provide financial and technical supports. In this case, through providing corporate guarantees to support subsidiary’s development, the Company can be more competitive as an investor and hence can obtain better returns.
As the ultimate controlling shareholder of Levima Advanced Materials, the Company has been providing the Guarantees to the commercial financial institutions in respect of the banking facilities granted to Levima Advanced Materials since 2012. The banking facilities contain term loans and bank acceptance bill which is used to finance the general operation and business development of Levima Advanced Materials. The amount of Guarantees provided by the Company for Levima Advanced Materials as at December 31, 2019 were approximately RMB3,366 million.
– 30 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
In view of the expiry of the Previous Agreement by June 16, 2020, the Company and Levima Advanced Materials have entered into the Continuing Guarantee Support Framework Agreement. By entering into the Continuing Guarantee Support Framework Agreement, Levima Advanced Materials will continue to obtain banking facilities guaranteed by the Company after the expiry of the Previous Agreement so that it could be secured with sufficient liquidity funding as well as enhancing its ability to obtain other financing , and it also allows flexibility to approve and finalise relevant loans and borrowings in a timely manner, which is important to the implementation of the business operation and expansion of Levima Advanced Materials. More importantly, the Continuing Connected Transactions will enable Levima Advanced Materials, to maintain their existing financial resources for daily operation and business development and to continue the advanced materials as well as specialty chemicals business, without any disruption to its financial operation.
As illustrated in the paragraph headed “II. Background Information on Levima Advanced Materials’’ above, we note the financial performance of Levima Advanced Materials in FY2019 is strong where revenue amounted to approximately RMB5,674 million while net profit amounted to approximately RMB541 million. In particular, the net profit recorded in FY2019 is significant higher than that of FY2018. In view of strong business growth of Levima Advanced Materials, we are of the view that the business performance of Levima Advanced Materials is indeed encouraging. Accordingly, the provision of Guarantees would be beneficial to Levima Advanced Materials since it would provide it with the necessary working capital to fund its business. Meanwhile, the Group will also benefit from its business growth through its shareholding interest in Levima Advanced Materials.
Based on our review on the audited financial statements of Levima Advanced Materials for the financial year ended 31 December 2019, we also note that as at December 31, 2019 Levima Advanced Materials had total assets amounting to approximately RMB7,903 million and current assets amounting to approximately 1,578 million. Even though there is bank borrowings of approximately RMB2,600 million to be due before the expiry of Continuing Guarantee Support Framework Agreement, we are of the view that Levima Advanced Materials would have sufficient internal resources to repay the banking facilities upon demand for repayments. Furthermore, we are advised by the Company that based on the historical record for the three financial years ended December 31, 2019, Levima Advanced Materials did not have any default or late in repayment of the banking facilities previously granted.
Given the fact that it is common commercial practice for commercial financial institutions to require privately owned companies to provide a third-party guarantee (likely by its major shareholders) before granting a banking facilities and the provision of Guarantees would be mutually beneficial to the Group and Levima Advanced Materials, we consider that the provision of Guarantees is commercially justifiable and is therefore in the interests of the Company and the Shareholders as a whole.
– 31 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
IV. Terms of the Continuing Guarantee Support Framework Agreement
Key terms of the Continuing Guarantee Support Framework Agreement are summarized as below:
Date
April 3, 2020
Parties
(1) the Company (2) Levima Advanced Materials
Proposed cap of the Guarantees
The maximum amount for the Guarantees, to be provided by the Company upon receiving the requests from Levima Advanced Materials during the Term is RMB3,800 million.
The cap of the Guarantees can be rolled over during the Term, provided that, the aggregate amount of all Guarantees granted shall not exceed RMB3,800 million at any time during the Term. Details of the exact amount and term of the further guarantees granted shall be negotiated by the parties in accordance with the foregoing provisions of the agreement, and subjected to the approval of the Board of Directors of the Company.
Term
The Continuing Guarantee Support Framework Agreement is for the term commences from the date of obtaining the approval of the Independent Shareholders of the Company till June 30, 2021. In principle, every separate Guarantees granted under the Continuing Guarantee Support Framework Agreement during the Term will be valid until the expiry date of the separate guarantee contract to be entered into. If the term of any of the proposed guarantee contracts to be entered into by the Company during the Term lasts beyond the Term, the Company will comply with the applicable requirements under the Listing Rules as and when necessary by issuing announcement and obtaining prior approval from Independent Shareholders of the Company.
Guarantee fee
If the Company agrees to provide Guarantees for Levima Advanced Materials, the Company will not charge Levima Advanced Materials any fees.
– 32 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
According to the terms of the Continuing Guarantee Support Framework Agreement, the Company will not be obligated to provide prescribed amount of Guarantees to Levima Advanced Materials. Details of the exact amount and term of the guarantees granted are to be determined and agreed between the parties from time to time. The Guarantees will be granted and determined in accordance with the principle that upon reasonable and arm’s length negotiations between the parties and provided that it is in the interests of the shareholders of the Company as a whole. The Guarantees shall be provided on normal commercial. In any case, the Company has the discretion to decide whether or not to approve each Guarantee.
Furthermore, at any point of time during the Term, the aggregate amount of Guarantees provided by the Company shall not exceed RMB3,800 million. It means that any additional amount of the Guarantees granted in respect of the loan to be provided by the Company to Levima Advanced Materials shall not exceed the unutilized portion of cap during the Term.
Regarding the length of term, we note that the agreement is renewed for further one year instead of three years. We are advised that Levima Advanced Materials is in the process of its A-share listing which is expected to be completed in 2020. Under such circumstance, the Company will re-evaluate the listing process of Levima Advanced Materials and its financing channel before the expiration of Continuing Guarantee Support Framework Agreement, and will consider whether or not to renew the continuing connected transactions with reference to the then market conditions subject to the compliance of applicable Listing Rules requirements.
Regarding the guarantee fee, as advised by the management of the Company, it is the Company’s strategy not to charge the subsidiaries engaging in core businesses for the guarantee fee when providing the Guarantees in respect of the banking facilities with reference to the Group’s unique investment model. No guarantee fee will be charged on the provision of Guarantees for Levima Advanced Materials in this regard.
Guarantee fee analysis
In assessing the fairness and reasonableness of the terms of the Continuing Guarantee Support Framework Agreement, we have conduct an analysis on the guarantee fee for the common market practice of similar guarantee arrangements (the “Guarantee Fee”).
As advised by the management of the Company, it is a common commercial practice for a controlling shareholder to act as a guarantor to provide corporate guarantee for its subsidiaries in the PRC to obtain banking facility from commercial financial institutions without charging the guarantee fee. When determining the guarantee fee under the Continuing Guarantee Support Framework Agreement, the Company has made reference to the research regarding the practice of certain PRC listed companies that received guarantee from its controlling shareholders (the “PRC Comparable Companies”). We have reviewed the information provided by the Company and noted that those PRC Comparable Companies which are listed in A-share market who had received guarantee from their controlling shareholders without paying any guarantee fees.
– 33 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
Furthermore, we have tried to conduct a research on the website of the Stock Exchange on a best effort basis, on the continuing connected transaction involving the provision of guarantee provided by companies listed on the Stock Exchange to their respective connected subsidiaries as announced within approximately six months prior to and including April 3, 2020 (the “Reviewed Period”), being the date of the Continuing Guarantee Support Framework Agreement and to compare against the Guarantee Fee. However, on a best effort basis, we cannot identify any of the comparable transaction which is comparable to the Company’s case. Such continuing connected transactions mainly involve the provision of guarantee by companies listed on the Stock Exchange to their respective connected persons which are irrelevant.
During our course of research, we note that the guarantee fee rate charged by the listed companies to their connected persons ranged from 0.45% to 1% per annum. Although the Company is not charging Levima Advanced Materials for any guarantee fee under the Continuing Guarantee Support Framework Agreement, having considered that (i) Levima Advanced Materials is a connected subsidiary of the Company engaging in one of its core businesses with significant profits instead of its connected person without any business connection; (ii) it is a common commercial practice in the PRC for a controlling shareholder to act as a guarantor to provide corporate guarantee for its subsidiaries to obtain banking facility from commercial financial institutions without charging the guarantee fee; (iii) the provision of Guarantees would be mutually beneficial to the Group and Levima Advanced Materials since Levima Advanced Materials will be provided with the necessary working capital to fund its business, in turn the Group will also benefit from its business growth, we consider that the benefits of entering into the Guarantees, on balance, outweigh the potential risk of default by Levima Advanced Materials, thus we are of the view that the provision of the guarantee without charging the guarantee fee under the Continuing Guarantee Support Framework Agreement is fair and reasonable and in the interest of the Company and the Shareholders as a whole.
– 34 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
Other continuing connected transactions
We have also reviewed other continuing connected transactions entered into between the Group and its subsidiaries or its connected persons in relation to the provision of guarantee under the Listing Rules during the three financial years ended December 31, 2019 and up to the Latest Practicable Date.
Guaranteed Date of agreement Parties amount Guaranteed fee Term
February 8, 2018 Guarantor: HK$226.2 million An annual rate A term of three Right Lane Limited, of 1% on the years a wholly-owned outstanding loan subsidiary of the balance Company;
Borrower: Smart Fellow Limited and Forture Eight Deacon Limited (“FED”), a connected person of the Company at the subsidiary level (note 1)
August 30, 2018 Guarantor: A maximum amount Nil A term of three the Company; of US$250 years million Borrower: (approximately Better Education HK$1,950 Group million) Corporation (“Better Education”), a connected subsidiary of the Company (note 2)
– 35 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
Guaranteed Date of agreement Parties amount Guaranteed fee Term
August 2, 2019 Guarantor: A maximum amount 1% per annum A term of four years Right Lane Limited, of US$130 on the maximum a wholly-owned million amount of the subsidiary of the (approximately term loan Company; HK$1,014 million) Borrower: Well Faith Management Limited (“Well Faith”), a connected person of the Company (note 3)
Notes:
1. Mr. Zhao John Huan, a non-executive director (formerly an executive director and executive vice president of the Company) (“Mr. Zhao”), is a connected person of the Company under Chapter 14A of the Listing Rules. Mr. Zhao indirectly controls over 30% equity interests in Hony Capital Fund VIII. FED, a wholly- owned subsidiary of Hony Capital Fund VIII, is deemed an associate of Mr. Zhao. FED, a shareholder of Better Education which is an indirect subsidiary of the Company, owns 29% of the issued shares of Better Education and is a connected person of the Company at the subsidiary level under Chapter 14A of the Listing Rules.
2. Mr. Zhao is a connected person of the Company and indirectly controls over 30% equity interests in Hony Capital Fund VIII. He is deemed an associate of Hony Capital Fund VIII which indirectly holds 29% of the issued share capital of Better Education. Under Chapter 14A of the Listing Rules, Better Education is a connected subsidiary of the Company.
3. Well Faith, a 30%-controlled company held indirectly by Mr. Zhao and therefore a connected person of the Company.
4. For the purpose of this table, conversion of US$ into HK$ is based on the exchange rate of US$1.0 to HK$7.8. The exchange rate has been used, where applicable, for the purposes of the illustration only and does not constitute a representation in that any amounts were or may have been exchanged at this or any other rates at all.
– 36 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
Save as disclosed above, the Group has not entered into any other similar arrangements, the scope of which is material comparable to the Continuing Guarantee Support Framework Agreement, with which we would consider to compare and review in the production of this letter of advice. As shown in the table above, the maximum amount under guarantee in respect of the continuing connected transactions ranged from approximately HK$226.2 million to approximately HK$1,950 million while the guarantee fee under the respective continuing connected transactions ranged from nil to 1%. Among three continuing connected transactions, one of which was entered into between the Company and its connected subsidiary and no guarantee fee was charged. The other two transactions were entered by the Group and its connected persons and the guarantee fee of 1% per annum was charged.
Based on the aforesaid review, we note that the terms offered by the Company to Levima Advanced Materials under the Continuing Guarantee Support Framework Agreement is in line with those offered to other connected subsidiary.
V. Internal Control
We are advised that the Company has implemented its own internal policy and a set of internal control procedures in order to minimise the risk exposure of the Company in relation to the provision of Guarantees.
The internal policy on approving capital lending and corporate guarantees covers the adequate standards, controls and procedures for capital lending and provision of guarantee to its subsidiaries, associates and independent third parties. Based on the guidelines set out in the internal policy, the borrowers and guaranteed entities are separated into three categories. Different restrictions and principals as well as approval procedures applied to each category.
We are further advised by the Company, for each and every Guarantee granted or to be granted to the Levima Advanced Materials, the treasury department will consider the overall debt situation of the Company, the legal department will consider the legal risks of the Company and Levima Advanced Materials by reviewing the terms of relevant financing contracts and related corporate guarantee documents to ensure that they are on normal commercial terms and comply to the Listing Rules obligations. The finance department will assess the default risks of Levima Advanced Materials taking into account the business operations and financial position of Levima Advanced Materials, The finance department will also check and confirm that the aggregate amount of the Guarantees to be granted is no more than the approved annual cap under the agreement before passing it on to the Board approval. The Board will approve the guarantee amount that meets the requirements of Levima Advanced Materials based on the funding and cash flow projections of Levima Advanced Materials at the time of application and subject to the confirmation of the overall solvency of the Company and Levima Advanced Materials, to ensure that each guaranteed loans is in line with the business development needs of Levima Advanced Materials.
After such Guarantee is approved by the Board, the Finance Department will periodically monitor the performance of Levima Advanced Materials by reviewing its management accounts and relevant financial information; and check if there are any material changes in its business and operations and any material adverse event or litigation issues that will substantially affect its financials and operations. Relevant financial information will be sent to the Board regularly for review.
– 37 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
Apart from the abovementioned control and monitoring procedures, the Group has implemented the following internal control measures to monitor the continuing connected transactions of the Company such that all these transactions are on normal commercial terms and in the interest of the Company as well as complying with the Listing Rules:
1. The finance department of the Group would review the implementation of the annual caps of the continuing connected transactions on regular basis and to ensure the amounts of guarantees provided by the Company would not excess the approved annual caps.
2. The audit committee of the Group would review the implementation of the continuing connected transaction such as the summaries of continuing connected transactions during the period and the approval documents on regular basis.
3. The external auditor of the Group would review the connected transactions and report the factual findings to the management of the Group on an annual basis.
Besides, it was stated in the 2018 Annual Report and 2019 Annual Report that the auditors of the Company confirmed that the continuing connected transaction (i) has been approved by the Board; (ii) had been entered into in accordance with the terms of the relevant agreements governing the transactions; and (iii) the actual transaction amount did not exceed the respective approved annual caps for the two financial years ended December 31, 2019.
We have reviewed a copy of the Group’s internal policy on approving and monitoring continuing connected transactions and a copy of the Group’s internal policy on approving capital lending and corporate guarantees. We have also reviewed one set of approval documents in relation to the guarantee granted to Levima Advanced Materials in 2019. Based on our review, we noted that (i) the relevant documents has been reviewed and confirmed by legal department and treasury department prior passing it on to the Board approval; and (ii) the finance department of the Company has confirmed and regularly monitored the cumulative amounts of guarantees provided against the approved annual cap.
The Company has assessed and will continue to assess the default risks of Levima Advanced Materials from time to time. Having considered that (i) the underlying business of Levima Advanced Materials has been established in terms of its production and operations with a stable income and profits (ii) Levima Advanced Materials is in the process of A-share listing; and (iii) the profitability of Levima Advanced Materials as shown by its financial results for the year ended December 31, 2019, the default risks of Levima Advanced Materials is low. In addition, based on the discussion above, we note that the Company would be able to closely monitor the business development and operation conditions of Levima Advanced Materials, and will be aware of and be able to react to any possible risks of default by Levima Advanced Materials.
– 38 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
Having considered that (i) the Company has adequate internal control procedures as aforementioned; and (ii) the documents reviewed by us are consistent with the relevant internal control measures as aforementioned; we are of the view that the internal control procedures are in place and in compliance with the internal measures as mentioned above.
VI. Historical amounts and the proposed cap
The proposed cap for under the Continuing Guarantee Support Framework Agreement for the Term is RMB3,800 million (the “Proposed Cap”), which means in any point of time the aggregate amount of Guarantees provided by the Company shall not exceed RMB3,800 million during the Term. In determining the Proposed Cap, the management of the Company has taken into account (i) the maximum guarantees provided by the Company for Levima Advanced Materials for the three financial years from December 31, 2017 to December 31, 2019 and as of December 31, 2017, December 31, 2018 and December 31, 2019, the actual guarantees provided by the Company for Levima Advanced Materials respectively; and (ii) it is expected that in the next twelve months, the market share of the products of Levima Advanced Materials and its operational management will continue to improve. On account of the future internal resources of Levima Advanced Materials and the relevant measures to be adopted to broaden its financing channels and optimize its debt structures.
(i) Historical amount of Guarantees provided by the Company for Levima Advanced Materials for the three financial years from December 31, 2017 to December 31, 2019
In assessing the reasonableness of the Proposed Cap, we have compared the Proposed Cap with the historical amount of Guarantees provided by the Company for Levima Advanced Materials. The historical amount of Guarantees provided by the Company are shown in the table below.
As at For the year ended April 15, 31 December 2020 2017 2018 2019
Historical maximum amount 4,455 4,792 4,116 3,336* of guarantees provided by the Company (RMB million) Annual Caps (RMB million) 5,200 5,200 5,200 % of utilization 85.67 92.15 79.15
* the actual amount of guarantees provided by the Company for Levima Advanced Materials as at April 15, 2020.
– 39 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
As shown in the table above, the historical maximum amount of Guarantees provided by the Company for the three financial years ended December 31, 2017, 2018 and 2019 were approximately RMB4,455 million, RMB4,792 million and RMB4,116 million, respectively which were lower than the annual caps of RMB5,200 million for each of the respective year. In particular, the utilization rates of the annual caps for the last three years are 85.67%, 92.15% and 79.15% respectively.
We noted that the Proposed Cap is lower than the historical maximum amount of Guarantees provided by the Company in the past three years and is close to the existing amount of Guarantees. We have discussed with the management of the Company, the basis and assumption underlying the estimation of Proposed Cap. As advised by the Company, given the fact that Levima Advanced Materials has been continued to improve its market share and operational management, its revenue and profit have recorded significant growth in recent years and its creditability has been also established. Such creditability could enable Levima Advanced Materials to broaden its financing channel without further supplementary assistance of the Company. Under such circumstance, the need for the Guarantees to be provided by the Company will remain stable or even less.
We have also compared the amount of total bank borrowings with the amount of bank borrowings with the Company’s guarantee, details of which are set out as follows:
Amount of borrowing with Historical amount the Company’s As at December 31, of borrowings guarantee (RMB million) (RMB million)
2017 4,442 4,272 2018 5,491 4,116 2019 3,785 3,366
We noted that over 85% of the existing bank borrowings are guaranteed by the Company. We have discussed with the management of the Company, the intention or future plan to release certain amount of existing guarantees. We are advised that since Levima Advanced Materials is actively preparing of A-share listing , it is necessary to maintain and secure the current financing level and credit amount to ensure that Levima Advanced Materials has sufficient working capital and funds to its business. Under such circumstance, early release of the existing guarantees or refinancing of existing borrowings by unsecured loans and debts before the expiry of the Previous Agreement or completion of A-share listing would not be feasible. Even if Levima Advanced Materials
– 40 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
were able to obtain banking facilities from financial institutions without the guarantee from the Company, there would be no certainty that Levima Advanced Materials would be able to procure favorable terms in such new financing given the current unfavourable economic environment. And it will probably bear additional borrowing costs, legal costs and early termination penalties. Furthermore, entering into new financings may subject to lengthy due diligence and negotiations with the banks with reference to the Group’s financial position, capital structure and the then financial market condition which will take time and efforts.
In this respect, we understand that with the support from the Company, Levima Advanced Materials was able to secure a relatively large sum of banking facilities at competitive terms, including interest rate, as opposed to Levima Advanced Materials attempting to borrow from financial institutions separately. And we are in the opinion that the early release of guarantees might not be commercially sound and practical where financial institutions might be more likely to impose stricter or less favourable terms for banking facilities and will not be in the best interest of the Company and Levima Advanced Materials.
(ii) Future prospect, internal resources and financing channels of Levima Advanced Materials
After years of technological innovation and production, Levima Advanced Materials has managed a number of core technologies and core production processes in the field, boasting many technological achievements considered advanced in the world and industry-leading in the PRC. As mentioned in the previous section, the business performance of Levima Advanced Materials is strong where the financial figures indicate significant growth in profit during last year.
According to China’s 13th Five-Year Plan, advanced materials industry is regarded as one of the key high-tech industry sectors that would be given priority for development. The PRC government has launched a number of incentive policies in recent years to promoted the development of the industry. According to the statistics released by Ministry of Industry and Information Technology (“MIIT”) of China, the total output value of the advanced materials industry increased from RMB 1 trillion in 2012 to RMB 2.65 trillion in 2016, with an annual growth rate of 27.6%. The advanced materials industry has become one of the strategic and fundamental for the national economy. Given that China has strong demand for the advanced chemicals, it will bring business opportunities to the leading chemical and material companies. MIIT also expected that the output value of advanced materials industry is expected to reach RMB 10 trillion by 2025 and will maintain an average annual growth rate of 20%. In view of the rapid growth of the advanced materials industry, it is expected that the business performance Levima Advanced Materials will remain strong over the next year.
– 41 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
Going forward, Levima Advanced Materials is planning to raise a total of approximately RMB1,610,000,000 from its proposed A-share listing and certain proceeds will also be utilized to invest in projects relating to its main business and products. It is expected that, under the support from the incentive policies of the PRC government, the revenue and profit of Levima Advanced Materials will further increase following the completion of these projects. Furthermore, after the funds raised from the A-share listing are in place, the net assets and liquidity of Levima Advanced Materials will increase significantly and its gearing ratio and cash flows will improve and thus further optimizing its asset- liability structure and strengthening its financial position. In this regard, Levima Advanced Materials will then have a higher degree of financial flexibility for the repayment of the bank borrowings. It is also the intention for Levima Advance Material to substitute its own capital, bank loans and other debt financing used in the early stages of investment projects with the proceeds from the A-share listing, which will help to reduce corporate debts.
We are further advised by the management of the Company that Levima Advanced Materials has obtained indicative offers from several financial institutions to provide credit facilities in the aggregate sum of RMB5,700 million without any guarantee or security from the Company or any third parties which is much higher than the Proposed Cap. Under such basis, we believe that Levima Advanced Materials has built a long- term relationship with various financial institutions and its creditability has been also established which enable it to obtain banking facilities without the corporate guarantee and other forms of security offered by the Company. With the incentives and measures to broaden financing channels, it is expected that the reliance of Levima Advanced Materials on the Company in respect the Guarantees will be reduced.
(iii) Funding requirements of Levima Advanced Materials
In order to assess the fairness and reasonableness of the Proposed Cap, we have obtained and reviewed the summary of annual budget and funding plan of Levima Advanced Materials for the financial year ended December 31, 2020 provided by the management of the Company and also discussed with the management of the Company about the underlying principal bases and assumptions relating thereto. We were given to understand that when preparing the annual budget and funding plan, the management of Levima Advanced Materials has principally considered (i) its operating working capital requirement; (ii) the payment for development costs of the existing projects; (iii) capital requirement for its invested project and potential business developments; and (iv) the existing loans repayment and renewal schedules.
According to the audited financial statements of Levima Advanced Materials for FY2019, we noted that (i) its cash position as at December 31, 2019 was approximately RMB929 million, and (ii) the net cash inflow generated from operating activities for FY2019 was approximately RMB1,484 million.
– 42 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
We also noted that as at April 15, 2020, the total bank borrowings of Levima Advanced Materials amounted to approximately RMB3,810 million, of which approximately RMB1,617 million were due by the end of 2020. Under such circumstance, the available cash may not be sufficient to repay the existing bank borrowings as they fall due, additional capital is required for repayment or refinancing such bank borrowings.
Apart from repayment of existing bank borrowings, also taking into account (i) payment for the development costs of existing projects; and (ii) possible funding needs for potential business development and investments which may arise which may arise from time to time, we consider that certain buffer on the Proposed Cap would allows more flexibility to Levima Advanced Materials to obtain banking facilities so as to fulfil such capital requirements and to capture potential business opportunities. Having considered the bases for determining the Proposed Cap and our assessment set out above, we are of the view that the size of the Proposed Cap is justified.
In light of the above discussion, we concur with the management’s view that the key purpose of entering into the Continuing Guarantee Support Framework Agreement is to maintain the existing Guarantees provided by the Company so as to maintain steady financial resources to Levima Advanced Materials during the A-share listing processes and to allow for a transitional period for Levima Advanced Materials to substitute its current loans and debts with the proceeds from the A-share listing. Having considered that (i) the bank borrowings of Levima Advanced Materials with the Company’s guarantee will maintain at the existing level for the coming year; (ii) Levima Advanced Materials will be able to obtain banking facilities without the guarantee from the Company and it is expected that existing Guarantees will be subsequently released after A-share listing; and (iii) A-share listing could allow Levima Advanced Materials to obtain further capital resources and to expand its financing capabilities and in turn will broaden its financing channels in the future without further supplementary assistance of the Company, we consider that the size of the Proposed Cap and the bases in which the Company has taken into account in determining the size of the proposed annual caps of the Continuing Guarantee Support Framework Agreement are fair and reasonable.
VII. Financial effects of provision of Guarantees
The provision of Guarantees will not have any immediate effect on the earnings, assets and liabilities of the Company unless and until such time that an event of default is materialised and the guarantee is called upon. In the event that Levima Advanced Materials fails to make payment of any Guaranteed banking facilities, or fails to perform its other obligations and undertakings, the Company, as the guarantor, will be responsible for up to the maximum amount of RMB3,800 million, being the maximum amount of Guarantees provided by the Company under the Continuing Guarantee Support Framework Agreement and such amount of liabilities will be recorded in the Group’s statement of financial position. Save as disclosed above, the Directors are of the view that the provision of the Guarantees under the Continuing Guarantee Support Framework Agreement will not have any material effects on the earnings, assets and liabilities of the Group.
– 43 – LETTER FROM KARL THOMSON FINANCIAL ADVISORY LIMITED
Recommendation
Having considered the principal factors and reasons for the Continuing Connected Transaction, we are of the view the entering into the Continuing Guarantee Support Framework Agreement is in the ordinary and usual course of business of the Company and the terms of the Continuing Guarantee Support Framework Agreement and the size of Proposed Cap are on normal commercial terms, fair and reasonable and in the interest of the Company and the Independent Shareholders as a whole. Accordingly, we would recommend the Independent Shareholders, and advise the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the ordinary resolution in respect of the Continuing Guarantee Support Framework Agreement and the transactions contemplated thereunder at the EGM.
Yours faithfully, For and on behalf of Karl Thomson Financial Advisory Limited Alex Chow Director
Mr. Alex Chow is a licensed person registered with the Securities and Future Commission of Hong Kong and a responsible officer of Karl Thomson Financial Advisory Limited to carry out type 6 (advising on corporate finance) regulatory activity under the SFO and has over 20 years of experience in corporate finance industry.
– 44 – Appendix GENERAL INFORMATION
1. RESPONSIBILITY STATEMENT
This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm 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. DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SECURITIES
As at the Latest Practicable Date, the interests or short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) as notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or as recorded in the register maintained by the Company under Section 352 of the SFO, or as notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code were as follows:
(i) Interests in the shares of the Company Approximate Approximate percentage of Class of Number of percentage of holding Shares/ Shares/ Total holding in the Name of Nature of underlying underlying Number of in the relevant total issued Director interest shares Shares held Long Position class of Shares(i) Shares(i)
NING Min Beneficial owner H Shares 36,000,000 Restricted 1,000,000 Shares (ii) Share Options (iii) 1,900,000 38,900,000 3.05% 1.65%
LI Peng Beneficial owner H Shares 544,100 Restricted 1,000,000 Shares (ii) Share Options (iii) 1,900,000 3,444,100 0.27% 0.14%
ZHU Linan Beneficial owner H Shares 48,000,000 Restricted 1,800,000 Shares (ii) Share Options (iii) 3,600,000 53,400,000 4.19% 2.26%
ZHAO John Huan Beneficial owner Restricted 600,000 Shares (ii) Share Options (iii) 1,200,000 1,800,000 0.14% 0.07%
– 45 – Appendix GENERAL INFORMATION
Notes:
(i) As at the Latest Practicable Date the Company issued 1,271,853,990 H Shares and 1,084,376,910 Domestic Shares and the total number of Shares in issue were 2,356,230,900 Shares.
(ii) Refers to the restricted Share issued under the medium to long-term incentive plan for the year 2019 approved by the Shareholders of the Company on June 13, 2019. Please refer to the Company’s circular dated April 18, 2019 for details of the rules of the restricted Shares incentive plan.
(iii) Refers to the share options granted under the medium to long-term incentive plan for the year 2019 approved by the Shareholders of the Company on June 13, 2019 for a term commencing on January 1, 2021 and ending on December 31, 2025, at an exercise price HK$16.856. Please refer to the Company’s circular dated April 18, 2019 for details of the rules of the share options incentive plan.
(ii) Interests in the shares of associated corporations
Approximate Number of percentage of Name of shares/ holding in associated Nature of Long Position/ underlying the total issued Name of Director corporation interest Short Position shares held shares (c)
ZHU Linan Lenovo Group Beneficial owner Long Position 6,155,780 (a) 0.05% Limited ZHAO John Huan Lenovo Group Beneficial owner Long Position 5,009,195 (b) 0.04% Limited NING Min Lenovo Group Beneficial owner Long Position 1,370,401 0.01% Limited
Notes:
(a) Mr. ZHU Linan owns 2,600,330 ordinary shares and 3,555,450 units of share awards which are convertible into ordinary shares.
(b) Mr. ZHAO John Huan owns 603,437 ordinary shares and 4,405,758 units of share awards which are convertible into ordinary shares.
(c) The calculation is based on the total number of 12,014,791,614 shares issued by Lenovo as at the Latest Practicable Date.
– 46 – Appendix GENERAL INFORMATION
3. INTERESTS OF THE SUBSTANTIAL SHAREHOLDERS
As at the Latest Practicable Date, so far as the Directors are aware, the following persons had an interest and/or a short position in the Shares or underlying Shares of the Company which will be required to be disclosed to the Company and the Hong Kong Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, and an interest and/or a short position as recorded by the Company in the register required to be kept under section 336 of the SFO:
Approximate Approximate percentage of percentage of shareholding shareholding Name of Number of in the relevant in the total Shareholder Class of Shares Nature of interest Shares held class of Shares issued Shares
CAS Holdings Domestic Shares Beneficial owner 684,376,910 63.11% 29.04%
Beijing Lian Chi H Shares-Long Beneficial owner 480,000,000 37.74% 20.37% Zhi Yuan Management Position Consulting Center Limited Partnership
Beijing Lian Chi Zhi H Shares-Long Interest in controlled 480,000,000 37.74% 20.37% Tong Management Position corporation Consulting Limited (2)
LU Zhiqiang (3) Domestic Shares Interest in controlled 400,000,000 36.88% 16.97% corporation
China Oceanwide Holdings Domestic Shares Beneficial owner 400,000,000 36.88% 16.97% Group Co., Ltd (3)
Oceanwide Group Domestic Shares Interest in controlled 400,000,000 36.88% 16.97% Co., Ltd (3) corporation
Tohigh Holdings Domestic Shares Interest in controlled 400,000,000 36.88% 16.97% Co., Ltd. (3) corporation
Beijing Lian Heng H Shares-Long Beneficial owner 114,287,500 8.98% 4.85% Yong Xin Investment Position Center Limited Partnership
Beijing Lian Heng H Shares-Long Interest in controlled 114,287,500 8.98% 4.85% Yong Kang Position corporation Management Consulting Limited (4)
LIU Chuanzhi (5) H Shares-Long Beneficial owner 73,600,000 5.78% 3.12% Position Restricted Shares- Long Position Share Options- Long Position
– 47 – Appendix GENERAL INFORMATION
Notes:
(1) As at the Latest Practicable Date the Company issued 1,271,853,990 H Shares and 1,084,376,910 Domestic Shares and the total number of Shares in issue were 2,356,230,900 Shares.
(2) Lian Chi Zhi Tong is the sole general partner of Lian Chi Zhi Yuan and has de facto control over it. Accordingly, Lian Chi Zhi Tong is deemed to be interested in the 480,000,000 H Shares held by Lian Chi Zhi Yuan.
(3) Oceanwide Group and Tohigh are corporations controlled by Mr. LU Zhiqiang. Tohigh holds the entire equity interest in Oceanwide Group which in turn holds 98% equity interest in China Oceanwide. Accordingly, Mr. LU Zhiqiang is deemed to be interested in the 400,000,000 Domestic Shares held by China Oceanwide.
(4) Lian Heng Yong Kang is the sole general partner of Lian Heng Yong Xin and has de facto control over it. Accordingly, Lian Heng Yong Kang is deemed to be interested in the 114,287,500 H Shares held by Lian Heng Yong Xin.
(5) Mr. LIU Chuanzhi owns 68,000,000 H Shares, 1,900,000 restricted Shares and 3,700,000 share options.
As at the Latest Practicable Date, save as disclosed above, there was no other person who held interests and/or short positions in the Shares or underlying Shares of the Company which are required to be recorded in the register to be kept under section 336 of Part XV of the SFO, or was a substantial Shareholder of the Company.
4. NO MATERIAL ADVERSE CHANGES
As at the Latest Practicable Date, the Directors have confirmed that they were not aware of any material adverse change in the financial or trading position of the Group since December 31, 2019, being the date to which the latest published audited accounts of the Group have been made up.
5. DIRECTORS’ INTEREST IN ASSETS, CONTRACTS OR ARRANGEMENTS
As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting which is significant in relation to the business of the Group, and none of the Directors had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to the Group, or are proposed to be acquired or disposed of by or leased to the Group since December 31, 2019, being the date to which the latest published audited accounts of the Group have been made up.
6. SERVICE CONTRACTS
As at the Latest Practicable Date, none of the Directors has entered into any service contract with the Group (excluding contracts which have expired or are determinable by the Company within one year without payment of compensation (other than statutory compensation)).
– 48 – Appendix GENERAL INFORMATION
7. DIRECTORS’ COMPETING BUSINESS
As at the Latest Practicable Date, none of the Directors nor his associates (as defined in the Listing Rules) was interested in any business apart from the business of the Group, which competes or is likely to compete, either directly or indirectly, with that of the Group.
8. EXPERT AND CONSENT
The following is the qualification of the expert whose opinion or advice have been included in this circular:
Name Qualification
Karl Thomson Financial a corporation licensed to conduct type 6 (advising on Advisory Limited corporate finance) regulated activities under the SFO
(i) As at the Latest Practicable Date, Karl Thomson Financial had no shareholding in any member of the Group or any right to nominate any person(s) to subscribe for any securities in any member of the Group (whether or not legally enforceable).
(ii) As at the Latest Practicable Date, Karl Thomson Financial had no direct or indirect interest in any assets which have been acquired or disposed of by or leased to the Group, or are proposed to be acquired or disposed of by or leased to the Group since December 31, 2019, being the date to which the latest published audited accounts of the Group have been made up.
(iii) As at the Latest Practicable Date, Karl Thomson Financial had given and had not withdrawn its written consent to the issue of this circular with the inclusion of its letter and all reference to its name in the form and context in which they appear in this circular.
9. GENERAL
(a) The registered office of the Company is at Room 1701, 17/F, Block 1, Court No. 2, Ke Xue Yuan South Road, Haidian District, Beijing, PRC.
(b) The principal place of business of the Company in Hong Kong is at 27/F, One Exchange Square, Central, Hong Kong.
(c) The H Share registrar of the Company is Link Market Services at Suite 1601,16/F., Central Tower, 28 Queen’s Road Central, Hong Kong.
– 49 – Appendix GENERAL INFORMATION
(d) The joint company secretaries of the Company are Mr. WANG Wei and Ms. YEUNG Yee Har. Ms. YEUNG is a fellow member of the Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries.
(e) Should there be any discrepancies between the Chinese and English versions of this circular, the English version shall prevail.
10. DOCUMENT AVAILABLE FOR INSPECTION
A copy of the Continuing Guarantee Support Framework Agreement is available for inspection during normal business hours at the Company’s principal place of business in Hong Kong at 27/F., One Exchange Square, Central, Hong Kong from the date of this circular up to and including the date of EGM.
– 50 – NOTICE OF 2020 SECOND EXTRAORDINARY GENERAL MEETING
聯想控股股份有限公司 Legend Holdings Corporation
(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 03396)
NOTICE OF 2020 SECOND EXTRAORDINARY GENERAL MEETING
Notice is hereby given that the 2020 second extraordinary general meeting (the “EGM”) of Legend Holdings Corporation (the “Company”) will be held at B-17, Raycom Info Tech Park, No. 2 Ke Xue Yuan South Road, Haidian District, Beijing, the People’s Republic of China, at 2:15 p.m. or immediately following the conclusion of the Domestic Share Class Meeting on Friday, June 12, 2020 to consider and, if thought fit, pass (with or without amendments or supplements) of the following ordinary resolution (unless the context requires otherwise, the capitalized terms and expressions used in this notice shall have the same meanings ascribed to them in the circular of the Company dated May 13, 2020):
ORDINARY RESOLUTION
1. To consider and approve the Continuing Guarantee Support Framework Agreement dated April 3, 2020 entered into between the Company and Levima Advanced Materials (the “Agreement”) (a copy of which is marked “A” and produced to the meeting and signed by the chairman of the EGM for identification purpose), and the continuing connected transactions contemplated under the Agreement and the cap of the Guarantees (as defined in the circular of the Company dated May 13, 2020) for the period from the date of approval of the Agreement to June 30, 2021 in the aggregate amount of RMB3,800 million and to authorise the Directors to take any actions and enter into any documents as necessary to give effect to the continuing connected transactions contemplated under the Agreement.
By the order of the Board Legend Holdings Corporation NING Min Chairman
May 13, 2020
– 51 – NOTICE OF 2020 SECOND EXTRAORDINARY GENERAL MEETING
Notes:
1. Shareholders are reminded: In the interest of health and safety of all shareholders and in order to prevent and control the spread of COVID-19 (the “Epidemic”), the Company reminds all shareholders that physical attendance in person at the EGM is not necessary for the purpose of exercising voting rights. Shareholders may appoint the chairman of the meeting as their proxy to vote on the relevant resolutions at the EGM instead of attending the EGM in person, by completing and returning the proxy form. If you have any questions about the resolutions to be considered at the EGM, you may send the questions to the Company’s investor relations email address [email protected] and the Company will answer the questions on a timely basis.
2. Shareholders are reminded: Shareholders attending the EGM shall pay attention to and comply with the relevant regulations and requirements regarding health declaration, quarantine and observation during the Epidemic prevention and control period in Beijing. The Company will strictly comply with the requirements regarding the Epidemic prevention and control stipulated by government departments, and will take relevant prevention and control measures. According to current regulations, precautionary measures against the Epidemic include but not limited to:
• compulsory body temperature checks at the main entrance of the office where the EGM will be held. Any person who has a fever, i.e. with a body temperature shown on the office’s thermometer above 37 degrees Celsius, would not be allowed to access to the venue. Any denied entry to the venue shall also mean that the person would not be allowed to attend the EGM
• mandatory use of surgical face masks during the attendance at the EGM
• shareholders attending the EGM shall provide the “Infection Prevention and Control Itinerary Query” (疫情防控行程查詢) issued by an operator. Shareholders of other provinces and cities should hold a negative nucleic acid test certificate issued within 7 days, and the national health passcode (全 國健康通行碼) or Beijing Healthbao Certification (北京健康實認証) that does not show an abnormal status
• the Company shall have the absolute discretion to refuse anyone who does not comply with the above precautionary measures, is subject to quarantine, has any flu-like symptoms or has close contact with any person under quarantine accesses to the venue of the EGM and attends the EGM
• appropriate distance and space will be maintained and as such, the Company may limit the number of attendees at the EGM as appropriate to avoid over-crowding
• the Company will not distribute corporate gifts or provide refreshments
The Company will closely monitor the development of Epidemic and may make relevant adjustments and arrangements for the EGM to the extent as permitted by applicable laws and regulations and will issue further announcement(s) for such adjustments or re-arrangements, if any, as appropriate.
3. Please refer to the circular of the Company dated May 13, 2020 for the details of this notice. The aforesaid circular has been published on the website of the Company.
4. In order to determine the Shareholders entitled to attend and vote at the EGM, the register of members of H Shares will be closed from Monday, June 8, 2020 to Friday, June 12, 2020 (both days inclusive), during which time no transfer of the Shares will be registered. Accordingly, unregistered H Shareholders of the Company shall lodge relevant share transfer documents with the Company’s H Share registrar, Link Market Services not later than 4:30 p.m. on Friday, June 5, 2020.
– 52 – NOTICE OF 2020 SECOND EXTRAORDINARY GENERAL MEETING
5. A Shareholder entitled to attend and vote at the EGM may appoint one or more proxies (whether he/she is a Shareholder) to attend and vote at the EGM on his or her behalf. The Company has the rights to request a Shareholder or a proxy who attends the EGM on behalf of a Shareholder to produce proof of identity.
6. The form of proxy dispatched on May 13, 2020 (the “Form of Proxy”) shall be signed by the appointer or his/her attorney duly authorized in writing or, in the case of a corporation, must be either executed under its common seal or under the hand of its director(s) or attorney duly authorized. If one or more proxies be appointed, please specify the number of Shares and its class each proxy represents.
7. To be valid, the Form of Proxy must be lodged with the Company’s H Share registrar Link Market Services (for H Shareholders) or the Company (for Domestic Shareholders) not less than 24 hours prior to the holding of the EGM. If the Form of Proxy is signed by another person under a power of attorney or other authorization documents given by the appointer, such power of attorney or other authorization documents shall be notarized. The notarized power of attorney or other authorization documents shall, together with the Form of Proxy, be deposited at the specified place at the time set out therein.
8. The address of the Company’s H share registrar Link Market Services is Suite 1601, 16/F., Central Tower, 28 Queen’s Road Central, Hong Kong. The address of the Company is B-17, Raycom Info Tech Park, No. 2 Ke Xue Yuan South Road, Haidian District, Beijing 100190, the PRC.
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