Luzhou Xinglu Water

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Luzhou Xinglu Water (Group) Co., Ltd.* 瀘州市興瀘水務（集團）股份有限公司 (a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock code: 2281)

BUSINESS UPDATE ENTERING INTO THE PPP PROJECT AGREEMENT IN RESPECT OF LESHAN CITY SHIZHONG DISTRICT WASTEWATER TREATMENT FACILITIES AND WASTEWATER COLLECTION PIPELINE NETWORKS CONSTRUCTION PROJECT

The Board is pleased to announce that on 26 November 2018 (after trading hours), Leshan City Shizhong District Housing and Construction Bureau* (樂山市市中區住房和建設局) and the Company entered into the PPP Project Agreement in respect of the PPP Project in Shizhong District, Leshan City, Sichuan Province, the PRC.

This announcement is made by the Company to keep the shareholders and potential investors of the Company informed of the latest business development of the Group.

INTRODUCTION

The PPP Project will be carried out through the public-private-partnership (commonly known as “PPP”) model, which is an emerging cooperation model, supported by national policies, for the public and private sectors to work together under the leadership of the relevant PRC local government. While the PPP model typically involves the use of private sector capital in public sector works, there is no fixed cooperation model, as the extent and nature of the private sector’s involvements are driven by the requirements of the local government concerned.

– 1 – THE PPP PROJECT AGREEMENT

Date:

26 November 2018 (after trading hours)

Parties:

(1) Leshan City Shizhong District Housing and Construction Bureau* (樂山市市中區住房和建設局); and

(2) Luzhou Xinglu Water (Group) Co., Ltd.* (瀘州市興瀘水務（集團）股份有限公司).

Principal Terms

Pursuant to the PPP Project Agreement, during the concession period, the Company will be responsible for, among other things, the investment and financing, construction and operation and maintenance in respect of the wastewater treatment facilities and wastewater pipeline networks of the PPP Project, and will be entitled to receive the wastewater treatment service fees and pipeline networks operation and maintenance fees from Leshan City Shizhong District Housing and Construction Bureau* (樂山市市中區住房和建設局) semiannually at a reasonable profit margin of 6.97% according to the PPP Project Agreement.

The concession period shall be 13 years for the Project under Construction (as defined below) commencing from the Business Operation Date and 10–13 years, varying for different wastewater treatment plants, for the Completed Project (as defined below) commencing from the Transfer Date. After the expiration of the concession period, the Company shall transfer the PPP Project to Leshan City Shizhong District Housing and Construction Bureau* (樂山市市中區住房和建設局) or its designated entity at nil consideration.

Pursuant to the PPP Project Agreement, the Company and Leshan City Investment and Construction, as the government’s funding representative, shall establish the Project Company in Shizhong District, Leshan City within 20 business days commencing on the effective date of the PPP Project Agreement. The Company and Leshan City Investment and Construction shall pay up the registered capital of the Project Company, which amounts to approximately RMB38.40 million, within 10 business days after the execution of the PPP Project Agreement. The Project Company shall enter into a supplemental agreement with Leshan City Shizhong District Housing and Construction Bureau* (樂山市市中區住房和建設局) within five business days after its establishment to succeed all obligations and responsibilities of the Company under the PPP Project Agreement.

– 2 – INFORMATION ABOUT THE PPP PROJECT

The PPP Project comprises of (i) the construction and operation of Leshan City Shizhong District city wastewater treatment plant and the supporting pipeline networks project (“Project under Construction”), which covers the wastewater treatment plants and their supporting pipeline networks in 20 towns, with the daily wastewater treatment capacity of 3,800 tonnes; and (ii) the entrusted operation of stock assets (“Completed Project”), which covers the wastewater treatment plants and their supporting pipeline networks in 17 towns and market towns, with the daily wastewater treatment capacity of 7,613 tonnes. The estimated total investment for the PPP Project will be approximately RMB192.02 million which, excluding the registered capital of the Project Company, will be financed by the Project Company mainly by way of debt financing.

It is expected that the PPP Project will be carried out by using the project model of build-operate-transfer (as for the Project under Construction) and operations & maintenance (as for the Completed Project).

INFORMATION ABOUT LESHAN CITY SHIZHONG DISTRICT HOUSING AND CONSTRUCTION BUREAU* (樂山市市中區住房和建設局) AND THE GROUP

Leshan City Shizhong District Housing and Construction Bureau* (樂山市市中區住房和建設局) is a local government authority in the PRC and is authorized by the People’s Government of Leshan City Shizhong District to implement the PPP Project.

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, Leshan City Shizhong District Housing and Construction Bureau*(樂山市市中區住房和建設局) is a third party independent of the Company and its connected person(s) (as defined under the Listing Rules).

The Group is mainly engaged in the provision of tap water supply and related installation and maintenance services and wastewater treatment and related infrastructure construction services.

REASONS FOR AND BENEFITS OF ENTERING INTO THE PPP PROJECT AGREEMENT

As the PPP Project will cover Shizhong District, Leshan City, entering into the PPP Project Agreement will help the Group expand its business market to areas outside Luzhou City. According to the urban planning of Leshan City, the population growth rate of Shizhong District, where the PPP Project mainly covers, will improve largely, resulting in the rapid increase of wastewater volume in this area. Therefore, entering into the PPP Project Agreement will enlarge the Group’s business scale, bringing profits to the Company and its shareholders and realizing the continuous and stable growth of the Company’s cash flow, which is consistent with the Company’s development strategy.

– 3 – Accordingly, the Directors consider that the terms of the PPP Project Agreement and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms and are in the interest of the Company and its shareholders as a whole.

DEFINITIONS

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

“Board” the board of Directors of the Company

“Business Operation Date” the date when the commercial operation of the PPP Project starts, which shall be the day when the project passes the trial operation as for Project under Construction and shall be the next day immediately after the Transfer Date as for Completed Project

“Company” Luzhou Xinglu Water (Group) Co., Ltd.* (瀘州市興瀘水務（集團）股份有限公司), a joint stock company with limited liability incorporated in the PRC, whose H Shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited

“Director(s)” the director(s) of the Company

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“Leshan City Investment Leshan City Shizhong District City Investment and and Construction” Construction Co., Ltd* (樂山市市中區城市投資建設有限公司), a limited liability company established in the PRC on 29 November 2016, the government’s funding representative of the PPP Project and a third party independent of the Company and its connected person(s) (as defined under the Listing Rules)

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange, as amended, supplemented or otherwise modified from time to time

“PPP Project” the wastewater treatment facilities and wastewater collection pipeline networks construction project* (污水處理設施及污水收集管網建設項目) in Shizhong District, Leshan City, Sichuan Province, the PRC

– 4 – “PPP Project Agreement” the PPP project agreement entered into between Leshan City Shizhong District Housing and Construction Bureau* (樂山市市中區住房和建設局) and the Company on 26 November 2018 in respect of the PPP Project

“Project Company” a project company to be established by the Company and Leshan City Investment and Construction within 20 business days commencing on the effective date of the PPP Project Agreement, of which the Company and Leshan City Investment and Construction shall respectively hold as to 95% and 5% equity interest

“PRC” the People’s Republic of China, for the purposes of this announcement, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

“RMB” Renminbi, the lawful currency of the PRC

“Transfer Date” the date when Luzhou City Shizhong District Housing and Construction Bureau* (樂山市市中區住房和建設局) completes its transfer of Completed Project to the Company

By order of the Board Luzhou Xinglu Water (Group) Co., Ltd.* Zhang Qi Chairman

Luzhou, the PRC 26 November 2018

As at the date of this announcement, the Board comprises of (i) three executive Directors, namely Mr. Zhang Qi, Mr. Liao Xingyue and Mr. Wang Junhua; (ii) three non-executive Directors, namely Mr. Chen Bing, Ms. Xu Yan and Mr. Xie Xin; and (iii) three independent non-executive Directors, namely Mr. Gu Ming’an, Mr. Lin Bing and Mr. Cheng Hok Kai, Frederick.

* For identification purposes only

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