IMPORTANT NOTICE
THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE ADDRESSEES OUTSIDE OF THE UNITED STATES. IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the attached offering circular (the ‘‘Offering Circular’’). You are advised to read this disclaimer carefully before accessing, reading or making any other use of the Offering Circular. In accessing the Offering Circular, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from the Issuer or the Guarantors (each as defined in the Offering Circular) as a result of such access. Confirmation of Your Representation: In order to be eligible to view this Offering Circular or invest in the securities, investors must be outside the United States. This Offering Circular is being sent to you at your request and by accepting the e-mail and accessing the Offering Circular, you shall be deemed to represent to the Issuer, the Guarantors (each as defined in the Offering Circular) and CMBC Securities Company Limited, Founder Securities (Hong Kong) Capital Company Limited, BOCI Asia Limited, Barclays Bank PLC, Standard Chartered Bank, CCB International Capital Limited and China Merchants Securities (HK) Co., Ltd. (together, the ‘‘Joint Global Coordinators’’) and Haitong International Securities Company Limited, BOCOM International Securities Limited, CLSA Limited, Guotai Junan Securities (Hong Kong) Limited, China Securities (International) Corporate Finance Company Limited, China International Capital Corporation Hong Kong Securities Limited, ICBC International Securities Limited and China Everbright Bank Co., Ltd., Hong Kong Branch (together with the Joint Global Coordinators, the ‘‘Joint Lead Managers’’) that (1) you and any customers you represent are outside the United States and that the e-mail address that you gave us and to which this e-mail has been delivered is not, located in the United States, its territories or possessions, and (2) you consent to delivery of the Offering Circular and any amendments or supplements thereto by electronic transmission. The Offering Circular has been made available to you in electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of transmission and, consequently, neither the Joint Lead Managers, the Issuer, the Guarantors nor any of their respective affiliates, directors, officers, employees, representatives, agents and each person who controls the Joint Lead Managers, the Issuer, the Guarantors or any of their respective affiliates accepts any liability or responsibility whatsoever in respect of any discrepancies between the document distributed to you in electronic format and the hard copy version available to you upon request from the Joint Lead Managers, the Issuer or the Guarantors. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES REFERRED TO HEREIN AND THE GUARANTEES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THIS OFFERING IS MADE SOLELY IN OFFSHORE TRANSACTIONS PURSUANT TO REGULATION S UNDER THE SECURITIES ACT. You are reminded that you have accessed the Offering Circular on the basis that you are a person into whose possession this Offering Circular may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver this Offering Circular, electronically or otherwise, to any other person. If you have gained access to this transmission contrary to the foregoing restrictions, you are not allowed to purchase any of the securities described in the attached. The Offering Circular is being furnished in connection with an offering in offshore transactions outside the United States in compliance with Regulation S under the Securities Act solely for the purpose of enabling a prospective investor to consider the purchase of the securities described in the Offering Circular. Actions that You May Not Take: If you receive this Offering Circular by e-mail, you should not reply by e-mail to this Offering Circular, and you may not purchase any securities by doing so. Any reply e-mail communications, including those you generate by using the ‘‘Reply’’ function on your e-mail software, will be ignored or rejected. YOU ARE NOT AUTHORISED TO AND YOU MAY NOT FORWARD OR DELIVER THE ATTACHED OFFERING CIRCULAR, ELECTRONICALLY OR OTHERWISE, TO ANY OTHER PERSON OR REPRODUCE SUCH OFFERING CIRCULAR IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE ATTACHED OFFERING CIRCULAR IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESS TO THIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, YOU ARE NOT AUTHORISED AND WILL NOT BE ABLE TO PURCHASE ANY OF THE SECURITIES DESCRIBED THEREIN. You are responsible for protecting against viruses and other destructive items. If you receive this Offering Circular by e-mail, your use of this e-mail is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature. STRICTLY CONFIDENTIAL
DAWN VICTOR LIMITED 旭勝有限公司 (incorporated with limited liability in the British Virgin Islands and a wholly-owned subsidiary of Founder Information (Hong Kong) Limited) U.S.$350,000,000 8.45 per cent. Guaranteed Bonds due 2020 unconditionally and irrevocably guaranteed by Founder Information (Hong Kong) Limited 香港方正資訊有限公司 (incorporated in Hong Kong Special Administrative Region) Peking University Resources Group Co., Ltd. （北大資源集團有限公司） (incorporated in the People’s Republic of China)
Issue Price of the Bonds: 100.00 per cent. The 8.45 per cent. guaranteed bonds due 2020 in the aggregate principal amount of U.S.$350,000,000 (the ‘‘Bonds’’) will be issued by Dawn Victor Limited 旭勝有限公司 (the ‘‘Issuer’’) and will be unconditionally and irrevocably guaranteed by each of Founder Information (Hong Kong) Limited (the ‘‘HK Guarantor’’ or ‘‘Founder Information’’) and Peking University Resources Group Co., Ltd (the ‘‘PRC Guarantor’’, together with the HK Guarantor, the ‘‘Guarantors’’, and each, a ‘‘Guarantor’’). The PRC Guarantor’s guarantee obligations in respect of the Bonds and the Trust Deed (as defined below) (the ‘‘PRC Guarantee’’) are contained in a deed of guarantee (the ‘‘Deed of Guarantee’’) dated on or about 17 July 2019 (the ‘‘Issue Date’’) entered into by the PRC Guarantor and The Bank of New York Mellon, London Branch as trustee of the Bonds (the ‘‘Trustee’’). The HK Guarantor’s guarantee obligations in respect of the Bonds and the Trust Deed (the ‘‘HK Guarantee’’, and together with the PRC Guarantee, the ‘‘Guarantees’’) are contained in a trust deed (the ‘‘Trust Deed’’) dated on or about 17 July 2019 entered into by the Issuer, the Guarantors and the Trustee. The PRC Guarantor undertakes to file or cause to be filed with the State Administration of Foreign Exchange or its local branch (‘‘SAFE’’) the Deed of Guarantee within 15 PRC Business Days (as defined in the terms and conditions of the Bonds (the ‘‘Terms and Conditions of the Bonds’’)) after execution of the Deed of Guarantee in accordance with the Provisions on the Foreign Exchange Administration Rules on Cross-Border Guarantees（《跨境擔保外匯管理規定》）promulgated by SAFE on 12 May 2014 which came into effect on 1 June 2014 (the ‘‘Cross-Border Security Registration’’). The PRC Guarantor intends to complete the Cross-Border Security Registration with SAFE as soon as practicable and in any event before the Registration Deadline (being the day falling 180 calendar days after the Issue Date). Interest on the Bonds is payable in arrear on 17 January 2020 and 14 July 2020 (each, an ‘‘Interest Payment Date’’). The Bonds will be direct, unsubordinated, unconditional and (subject to Condition 4(a) of the Terms and Conditions of the Bonds) unsecured obligations of the Issuer, at all times ranking pari passu without any preference among themselves and, save for such exceptions as may be provided by applicable legislation and subject to Condition 4(a) of the Terms and Conditions of the Bonds, shall at all times rank at least equally with all other present and future unsecured and unsubordinated obligations of the Issuer. The obligations of each of the HK Guarantor and the PRC Guarantor under the Guarantees shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4(a) of the Terms and Conditions of the Bonds, at all times rank at least equally with all its other present and future unsecured and unsubordinated obligations. Payments on the Bonds or under the Guarantees will be made free and clear of, and without withholding or deduction for or on account of, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the British Virgin Islands, Hong Kong and the PRC (as defined in the Terms and Conditions of the Bonds) or, in each case, any political subdivision or authority therein or thereof having power to tax, to the extent described in ‘‘Terms and Conditions of the Bonds – Taxation’’. Unless previously purchased and cancelled, the Bonds mature on 14 July 2020 at their principal amount. The Bonds are subject to redemption, in whole but not in part, at their principal amount, together with accrued interest to but excluding the date fixed for redemption, at the option of the Issuer at any time in the event of certain changes affecting taxes of the British Virgin Islands, Hong Kong or the PRC. The Bonds also contain a provision for redemption at the option of the Bondholders at any time following the occurrence of a Relevant Event (as defined in the Terms and Conditions of the Bonds) at 101 per cent. (in the case of a redemption for a Change of Control) or 100 per cent. (in the case of a redemption for a No Registration Event) of their principal amount, together with interest accrued to but excluding the date for redemption. See ‘‘Terms and Conditions of the Bonds – Redemption and Purchase’’. Investing in the Bonds involves certain risks. See ‘‘Risk Factors’’ beginning on page 13. The Bonds and the Guarantees have not been and will not be registered under the United States Securities Act of 1933, as amended (the ‘‘Securities Act’’), and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Bonds and the Guarantees are being offered and sold only outside the United States in offshore transactions in compliance with Regulation S under the Securities Act (‘‘Regulation S’’). For a description of these and certain further restrictions on offers and sales of the Bonds and the distribution of this Offering Circular, see ‘‘Subscription and Sale’’ beginning on page 120. The specified denomination of the Bonds shall be U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof. Application has been made to The Stock Exchange of Hong Kong Limited (the ‘‘HKSE’’) for the listing of the Bonds by way of debt issues to professional investors (as defined in Chapter 37 of the Rules Governing the Listing of Securities on the HKSE and in the Securities and Futures Ordinance (Cap. 571) of Hong Kong) (‘‘Professional Investors’’) only. This document is for distribution to Professional Investors only. Investors should not purchase the Bonds in the primary or secondary markets unless they are Professional Investors and understand the risks involved.The Bonds are only suitable for Professional Investors. HKSE has not reviewed the contents of this Offering Circular, other than to ensure that the prescribed form disclaimer and responsibility statements, and a statement limiting distribution of this Offering Circular to Professional Investors only have been reproduced in this Offering Circular. Listing of the Bonds on HKSE is not to be taken as an indication of the commercial merits or credit quality of the Bonds, the Issuer, the Guarantors or quality of disclosure in this Offering Circular. Hong Kong Exchanges and Clearing Limited and the HKSE take no responsibility for the contents of this Offering Circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Offering Circular. This Offering Circular includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the Issuer and the Guarantors. The Issuer and the Guarantors accept full responsibility for the accuracy of the information contained in this Offering Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading. The Bonds have not been rated. The Bonds will be represented initially by beneficial interests in a global certificate (the ‘‘Global Certificate’’) in registered form which will be registered in the name of a nominee of, and shall be deposited on or about the Issue Date with, a common depositary for Euroclear Bank SA/NV (‘‘Euroclear’’) and Clearstream Banking S.A. (‘‘Clearstream’’). Beneficial interests in the Global Certificate will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream. Except as described herein, certificates for Bonds will not be issued in exchange for interests in the Global Certificate. Joint Global Coordinators
CMBC Capital Founder Securities (Hong Kong) BOC International Barclays Capital Company Limited
Standard Chartered Bank CCB International China Merchants Securities (HK)
Joint Lead Managers and Joint Bookrunners
CMBC Capital Founder Securities (Hong Kong) BOC International Barclays Capital Company Limited
Standard Chartered Bank CCB International China Merchants Securities (HK)
Haitong International BOCOM International CLSA Guotai Junan International
China Securities International China International Capital ICBC International China Everbright Bank Corporation Hong Kong Branch
Offering Circular dated 11 July 2019 CONTENTS
Page
IMPORTANTNOTICE ...... ii
CERTAIN DEFINITIONS, CONVENTIONS AND CURRENCY PRESENTATION ...... v
FORWARD-LOOKING STATEMENTS ...... vii
GLOSSARY ...... viii
SUMMARY ...... 1
THEISSUE ...... 3
SUMMARYFINANCIALINFORMATIONOFTHEGROUP ...... 6
SUMMARY FINANCIAL INFORMATION OF FOUNDER INFORMATION ...... 10
RISKFACTORS ...... 13
CAPITALISATIONANDINDEBTEDNESS ...... 52
USEOFPROCEEDS ...... 54
TERMSANDCONDITIONSOFTHEBONDS ...... 55
SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM ...... 74
DESCRIPTIONOFTHEISSUER ...... 76
DESCRIPTIONOFFOUNDERINFORMATION ...... 78
DESCRIPTIONOFTHEGROUP ...... 83
DIRECTORS AND SENIOR MANAGEMENT OF THE GROUP ...... 110
EXCHANGE RATES ...... 113
TAXATION ...... 114
SUMMARYOFSIGNIFICANTDIFFERENCESBETWEENPRCGAAPANDIFRS ...... 118
SUBSCRIPTIONANDSALE ...... 120
GENERALINFORMATION ...... 124
INDEX TO FINANCIAL STATEMENTS ...... F-1
i IMPORTANT NOTICE
Each of the Issuer and the Guarantors, having made all reasonable enquiries, confirms that (i) this Offering Circular contains all information with respect to the Issuer, the Guarantors and their respective subsidiaries (the PRC Guarantor and its subsidiaries, collectively, the ‘‘Group’’), the Bonds and the Guarantees, which is material in the context of the issue and offering of the Bonds; (ii) the statements contained in it relating to the Issuer, the Guarantors and the Group are in every material respect true and accurate and not misleading; (iii) the opinions and intentions expressed in this Offering Circular with regard to the Issuer, the Guarantors and the Group are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions; (iv) there are no other facts in relation to the Issuer, the Guarantors, the Group, the Bonds or the Guarantees, the omission of which would, in the context of the issue and offering of the Bonds and the Guarantees, make any statement in this Offering Circular misleading in any material respect; and (v) all reasonable enquiries have been made by the Issuer and the Guarantors to ascertain such facts and to verify the accuracy of all such information and statements. In addition, each of the Issuer and the Guarantors accepts full responsibility for the accuracy of the information contained in this Offering Circular.
This Offering Circular has been prepared by the Issuer and the Guarantors solely for use in connection with the proposed offering of the Bonds described in this Offering Circular. The distribution of this Offering Circular and the offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Issuer, the Guarantors and CMBC Securities Company Limited, Founder Securities (Hong Kong) Capital Company Limited, BOCI Asia Limited, Barclays Bank PLC, Standard Chartered Bank, CCB International Capital Limited, China Merchants Securities (HK) Co., Ltd., Haitong International Securities Company Limited, BOCOM International Securities Limited, CLSA Limited, Guotai Junan Securities (Hong Kong) Limited, China Securities (International) Corporate Finance Company Limited, China International Capital Corporation Hong Kong Securities Limited, ICBC International Securities Limited and China Everbright Bank Co., Ltd., Hong Kong Branch (together, the ‘‘Joint Lead Managers’’) to inform themselves about and to observe any such restrictions. No action is being taken to permit a public offering of the Bonds or the distribution of this Offering Circular in any jurisdiction where action would be required for such purposes. There are restrictions on the offer and sale of the Bonds, and the circulation of documents relating thereto, in certain jurisdictions including the United States, the United Kingdom, the PRC, the British Virgin Islands, Hong Kong, Japan and Singapore, to persons connected therewith. For a description of certain further restrictions on offers, sales and resales of the Bonds and distribution of this Offering Circular, see ‘‘Subscription and Sale’’.
No person has been or is authorised to give any information or to make any representation concerning the Issuer, the Guarantors, the Group, the Bonds or the Guarantees other than as contained herein and, if given or made, any such other information or representation should not be relied upon as having been authorised by the Issuer, the Guarantors, the Joint Lead Managers, the Trustee or the Agents (as defined in the Terms and Conditions of the Bonds). Neither the delivery of this Offering Circular nor any offering, sale or delivery made in connection with the issue of the Bonds shall, under any circumstances, constitute a representation that there has been no change or development reasonably likely to involve a change in the affairs of the Issuer, the Guarantors, the Group or any of them since the date hereof or create any implication that the information contained herein is correct at any date subsequent to the date hereof. This Offering Circular does not constitute an offer of, or an invitation by or on behalf of the Issuer, the Guarantors, the Joint Lead Managers, the Trustee or the Agents or any of their respective directors, officers, employees, advisers, agents, representatives or affiliates to subscribe for or purchase any of the Bonds and may not be used for the purpose of an offer to, or a solicitation by, anyone in any jurisdiction or in any circumstances in which such offer or solicitation is not authorised or is unlawful.
ii The Issuer has submitted this Offering Circular confidentially to a limited number of institutional investors so that they can consider a purchase of the Bonds. The Issuer has not authorised its use for any other purpose. This Offering Circular may not be copied or reproduced in whole or in part. It may be distributed only to and its contents may be disclosed only to the prospective investors to whom it is provided. By accepting delivery of this Offering Circular, each investor agrees to these restrictions.
No representation or warranty, express or implied, is made or given by the Joint Lead Managers, the Trustee or the Agents or any of their respective directors, officers, employees, advisers, agents, representatives or affiliates as to the accuracy, completeness or sufficiency of the information contained in this Offering Circular, and nothing contained in this Offering Circular is, or shall be relied upon as, a promise, representation or warranty by the Joint Lead Managers, the Trustee or the Agents or any of their respective directors, officers, employees, advisers, agents, representatives or affiliates. None of the Joint Lead Managers, the Trustee and the Agents or any of their respective directors, officers, employees, advisers, agents, representatives or affiliates has independently verified any of the information contained in this Offering Circular and can give any assurance that this information is accurate, truthful or complete. This Offering Circular is not intended to provide the basis of any credit or other evaluation nor should it be considered as a recommendation by any of the Issuer, the Guarantors, the Joint Lead Managers, the Trustee or the Agents or any of their respective directors, officers, employees, advisers, agents, representatives or affiliates that any recipient of this Offering Circular should purchase the Bonds. Each potential purchaser of the Bonds should determine for itself the relevance of the information contained in this Offering Circular and its purchase of the Bonds should be based upon such investigations with its own tax, legal and business advisers as it deems necessary.
Singapore SFA Product Classification: In connection with Section 309B of the Securities and Futures Act (Chapter 289) of Singapore (the ‘‘SFA’’) and the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore (the ‘‘CMP Regulations 2018’’), the Issuer has determined, and hereby notifies all relevant persons (as defined in Section 309A(1) of the SFA), that the Bonds are ‘prescribed capital markets products’ (as defined in the CMP Regulations 2018).
IN CONNECTION WITH THE ISSUE OF THE BONDS, BOCI ASIA LIMITED, AS THE STABILISING MANAGER (THE ‘‘STABILISING MANAGER’’) (OR PERSONS ACTING ON ITS BEHALF) MAY, SUBJECT TO ALL APPLICABLE LAWS AND DIRECTIVES, OVER ALLOT BONDS OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE BONDS AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISING MANAGER (OR ANY PERSON ACTING ON BEHALF OF THE STABILISING MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE BONDS IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE BONDS AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE BONDS. ANY STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE STABILISING MANAGER (OR ANY PERSON ACTING ON BEHALF OF THE STABILISING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.
In making an investment decision, investors must rely on their own examination of the Issuer, the Guarantors, the Group and the terms of the offering, including the merits and risks involved. See ‘‘Risk Factors’’ for a discussion of certain factors to be considered in connection with an investment in the Bonds.
Each person receiving this Offering Circular acknowledges that such person has not relied on the Joint Lead Managers, the Trustee or the Agents or any of their respective directors, officers, employees, advisers, agents, representatives or affiliates in connection with its investigation of the accuracy of such
iii information or its investment decision. To the fullest extent permitted by law, none of the Joint Lead Managers, the Trustee or the Agents or any of their respective directors, officers, employees, advisers, agents, representatives or affiliates accept any responsibility whatsoever for the contents of this Offering Circular or for any other statement, made or purported to be made by the Joint Lead Managers, the Trustee or the Agents or on its or their behalf in connection with the Issuer, the Guarantors, the Group or the issue and offering of the Bonds. Each of the Joint Lead Managers, the Trustee and the Agents and each of their respective directors, officers, employees, advisers, agents, representatives and affiliates accordingly disclaims all and any liability whether arising in tort or contract or otherwise which it might otherwise have in respect of this Offering Circular or any such statement.
Listing of the Bonds on the HKSE is not to be taken as an indication of the merits of the Issuer, the Guarantors, the Group or the Bonds. In making an investment decision, investors must rely on their own examination of the Issuer, the Guarantors and the Group and the terms of the offering of the Bonds, including the merits and risks involved. See ‘‘Risk Factors’’ for a discussion of certain factors to be considered in connection with an investment in the Bonds.
The Issuer, the Guarantors, the Group, the Joint Lead Managers, the Trustee and the Agents and their respective directors, officers, employees, advisers, agents, representatives and affiliates are not making any representation to any purchaser of the Bonds regarding the legality of any investment in the Bonds by such purchaser under any legal investment or similar laws or regulations. The contents of this Offering Circular should not be construed as providing legal, business, accounting or investment advice. Each person receiving this Offering Circular acknowledges that such person has not relied on the Joint Lead Managers, the Trustee, the Agents or any of their respective directors, officers, employees, advisers, agents, representatives or affiliates in connection with its investigation of the accuracy of such information or its investment decision.
The contents of this Offering Circular have not been reviewed by any regulatory authority in any jurisdiction. Investors are advised to exercise caution in relation to the offer. If investors are in any doubt about any of the contents of this Offering Circular, investors should obtain independent professional advice.
iv CERTAIN DEFINITIONS, CONVENTIONS AND CURRENCY PRESENTATION
Unless otherwise indicated, all references in this Offering Circular to ‘‘China’’ or the ‘‘PRC’’ are to the People’s Republic of China and, for the purpose of this Offering Circular only, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan, and all references to ‘‘Hong Kong’’ are to the Hong Kong Special Administrative Region of the PRC.
Unless otherwise specified or the context requires, references herein to ‘‘Renminbi’’, ‘‘RMB’’ or ‘‘CNY’’ are to the lawful currency of the PRC, references herein to ‘‘Hong Kong dollars’’, ‘‘HK dollars’’, ‘‘HK$’’ are to the lawful currency of Hong Kong and references herein to ‘‘U.S. dollars’’, ‘‘U.S.$’’ or ‘‘USD’’ are to the lawful currency of the United States of America.
Unless indicated otherwise, the translation of Renminbi amounts into U.S. dollar amounts has been made at the rate of RMB6.8755 to U.S.$1.00, the exchange rate set forth in the H.10 weekly statistical release of the Board of Governors of the Federal Reserve System of the United States on 31 December 2018.
In this Offering Circular, where information has been presented in thousands or millions of units, amounts may have been rounded. Accordingly, totals of columns or rows of numbers in tables may not be equal to the apparent total of the individual items and the actual numbers may differ from those contained herein due to rounding. References to information in billions of units are to the equivalent of a thousand million units.
Market data and certain industry forecasts and statistics in this Offering Circular have been obtained from both public and private sources, including market research, publicly available information and industry publications. Although the Issuer and the Guarantors believe this information to be reliable, it has not been independently verified by the Issuer, the Guarantors, the Joint Lead Managers, the Trustee, the Agents or any of their respective directors, officers, employees, advisers, agents, representatives and affiliates, and none of the Issuer, the Guarantors, the Joint Lead Managers, the Trustee, the Agents or any of their respective directors, officers, employees, advisers, agents, representatives or affiliates make any representation as to the accuracy or completeness of that information. Such information may not be consistent with other information compiled within or outside the PRC. In addition, third-party information providers may have obtained information from market participants and such information may not have been independently verified. This Offering Circular summarises certain documents and other information, and investors should refer to them for a more complete understanding of what is discussed in those documents.
The English names of the PRC nationals, entities, departments, facilities, laws, regulations, certificates, titles and the like are translations of their Chinese names and are included for identification purposes only.
PRESENTATION OF FINANCIAL INFORMATION
The audited consolidated financial information of the PRC Guarantor as at and for the years ended 31 December 2016, 2017 and 2018 have been extracted from the PRC Guarantor’s audited consolidated financial statements as at and for the years ended 31 December 2017 and 2018, which are prepared in accordance with generally accepted accounting principles in the PRC (the ‘‘PRC GAAP’’) and have been audited by Asia Pacific (Group) Certified Public Accountants, the independent auditors of the PRC Guarantor.
The PRC Guarantor’s audited consolidated financial statements as at and for the years ended 31 December 2017 and 2018 (the ‘‘Chinese Financial Statements’’) have only been prepared in Chinese. An English translation of the Chinese Financial Statements (the ‘‘Financial Statements Translation’’) has been prepared and included in this Offering Circular for reference only. Should there be any inconsistency between the Chinese Financial Statements and the Financial Statements Translation, the Chinese Financial Statements shall prevail. The Financial Statements Translation does not itself
v constitute audited financial statements, and is qualified in its entirety by, and is subject to the more detailed information and the financial information set out or referred to in, the Chinese Financial Statements.
None of the Joint Lead Managers, the Trustee or the Agents or any of their respective directors, officers, employees, advisers, agents, representatives and affiliates have independently verified or checked the accuracy of the Financial Statements Translation and can give no assurance that the information contained in the Financial Statements Translation is accurate, truthful or complete.
The audited consolidated financial information of the HK Guarantor as at and for the years ended 31 December 2016, 2017 and 2018 have been extracted from the HK Guarantor’s audited consolidated financial statements as at and for the years ended 31 December 2017 and 2018, which are prepared in accordance with the Hong Kong Financial Reporting Standards (‘‘HKFRS’’). The HK Guarantor’s audited consolidated financial statements as at and for the years ended 31 December 2017 and 2018 have been audited by Cheng & Cheng Limited, the independent auditors of the HK Guarantor.
vi FORWARD-LOOKING STATEMENTS
This Offering Circular contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include statements relating to:
• the business and operating strategies and future business development of the Group;
• the general economic, market and business conditions in China and elsewhere;
• the Group’s ability to enter into new markets and expand its operations;
• the Group’s expectations with respect to its ability to acquire and maintain regulatory qualifications required to operate its business;
• the Group’s sources of funding and estimated capital expenditure;
• the Group’s financial condition and performance;
• changes in currency exchange rates, interest rates, taxes and duties, equity prices and other market rates including those pertaining to the PRC and industry and markets in which the Group operates;
• macroeconomic and regulatory policies of the PRC government;
• natural disasters, industrial action, terrorist attacks and other events beyond the Group’s control;
• changes in the competition landscape in the industries in which the Group operates; and
• other factors, including those discussed in ‘‘Risk Factors’’.
In some cases, the investors can identify forward-looking statements by such terminology as ‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘could’’, ‘‘would’’, ‘‘expect’’, ‘‘intend’’, ‘‘plan’’, ‘‘anticipate’’, ‘‘going forward’’, ‘‘ought to’’, ‘‘seek’’, ‘‘project’’, ‘‘forecast’’, ‘‘believe’’, ‘‘estimate’’, ‘‘predict’’, ‘‘potential’’ or ‘‘continue’’ or the negative of these terms or other comparable terminology. Such statements reflect the current views of the Issuer, the Guarantors or the Group with respect to future events, operations, results, liquidity and capital resources and are not a guarantee of future performance, some of which may not materialise or may change. Although the Issuer, the Guarantors and the Group believe that the expectations reflected in these forward-looking statements are reasonable, there is no assurance that those expectations will prove to be correct, and the investors are cautioned not to place undue reliance on such statements. The Issuer and the Guarantors undertake no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Offering Circular might not occur and the Issuer’s and the Guarantors’ actual results could differ materially from those anticipated in these forward-looking statements. All forward-looking statements contained in this Offering Circular are qualified by reference to the cautionary statements set forth in this section.
These forward-looking statements speak only at the date of this Offering Circular. The Issuer and the Guarantors expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based.
vii GLOSSARY
In this Offering Circular, unless the context indicates otherwise, the following terms have the respective meanings set forth below:
‘‘Director(s)’’ ...... director(s)ofthePRCGuarantor
‘‘EIT Law’’ ...... EnterpriseIncomeTaxLawofthePRC
‘‘Founder Group’’ ..... PekingUniversityFounderGroupCompanyLimited
‘‘GFA’’ ...... GrossFloorArea
‘‘HKFRS’’ ...... theHongKongFinancialReportingStandards
‘‘HKSE’’ ...... TheStockExchangeofHongKongLimited
‘‘Hong Kong’’ or Hong Kong Special Administrative Region of the PRC ‘‘HKSAR’’ ......
‘‘IFRS’’ ...... InternationalFinancialReportingStandards,whichincludestandards, amendments and interpretations promulgated by the International Accounting Standards Board (IASB) and the International Accounting Standards (IAS) and interpretation issued by the International Accounting Standards Committee (IASC)
‘‘independent third party(ies) not connected with the Group and its connected persons (as party(ies)’’ ...... definedintheListingRules)
‘‘IT’’ ...... Informationtechnology
‘‘Listing Rules’’ ...... TheRulesGoverningtheListingofSecurities on The Stock Exchange of Hong Kong Limited
‘‘Macau’’ ...... MacauSpecialAdministrativeRegionofthePRC
‘‘MLR’’ ...... MinistryofLandandResourcesofthePRC
‘‘MOFCOM’’ ...... MinistryofCommerceofthePRC
‘‘MOHURD’’ ...... MinistryofHousingandUrban-RuralDevelopmentofthePRC
‘‘NDRC’’ ...... NationalDevelopmentandReformCommissionofthePRC
‘‘PBOC’’ ...... People’s Bank of China, the central bank of the PRC
‘‘PKU Asset Peking University Asset Management Company Limited Management’’ ......
‘‘PKU Resources Peking University Resources Group Holding Co., Ltd. Holding’’ ......
‘‘SAFE’’ ...... StateAdministrationofForeignExchangeofthePRC
‘‘SARS’’ ...... Severeacuterespiratorysyndrome
viii ‘‘sq.m’’ ...... Squaremetre
‘‘State Council’’ ...... StateCouncilofthePRC
‘‘U.S.’’ or ‘‘United States’’ the United States of America, its territories, its possessions and all areas subject to its jurisdiction
‘‘U.S. Securities Act’’ . . . the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder
ix SUMMARY
The summary below is only intended to provide a limited overview of information described in more detail elsewhere in this Offering Circular. As it is a summary, it does not contain all of the information that may be important to investors and terms defined elsewhere in this Offering Circular shall have the same meanings when used in this summary. Prospective investors should therefore read this Offering Circular in its entirety, including the section titled ‘‘Risk Factors’’,beforemakinganinvestment decision.
Overview The Group is a school-run enterprise of Peking University and is a subsidiary of the large state-owned Peking University Founder Group Company Limited (‘‘Founder Group’’). The Group has 25 direct subsidiaries with more than 5,000 employees. Established in Beijing in 1992, the Group has developed into a comprehensive company specialising in the development and operation of industrial parks, real estate development and operation as well as science and innovation industry supporting services. Relying on the support from Peking University and integrating the advanced industrial resources of Founder Group, the Group is committed to supply distinguished products and services and create intelligent, healthy and plentiful life for its customers.
In the light of changes in policy direction and industry landscape in recent years, the Group pursued the growth strategy of ‘‘One Body Two Wings’’ and implemented Strategic Upgrade 2.0., by which, the Group repositioned as a ‘‘technology and innovation services provider’’. The dual-driver strategy of ‘‘quality + resources; innovation + capital’’ expedited the development of the Group with a focus on the three core businesses, namely, industry (industry operation), city (city development) and innovation (innovative business). It also facilitated the Group’s construction of the integrated industry, city, research and innovation development platform.
The Group is managed by experienced professionals, including a senior management team of 95 professional managers. The Group has received numerous awards for its strong brand recognition and high-quality property developments.
As at 31 December 2018, Peking University Asset Management Company Limited (‘‘PKU Asset Management’’) held approximately 40.00 per cent. equity interest in the Group, while Founder Group and Leade Technology Development Co., Ltd. each held approximately 30.00 per cent. equity interest in the Group. In November 2018, PKU Asset Management entrusted its shareholder right of the Guarantor to Founder Group and the Guarantor became a consolidated subsidiary of Founder Group. As at 31 December 2018, PKU Asset Management held approximately 70.00 per cent. equity interest in Founder Group. PKU Asset Management is wholly owned by Peking University and is responsible for managing the operation of Peking University’s assets. It is mainly engaged in high-tech business incubation, technical information consulting, asset management and capital operation.
The Group’s operating income totalled RMB15,958.6 million, RMB20,307.1 million and RMB31,246.5 million, respectively for the years ended 31 December 2016, 2017 and 2018, respectively, and its net profit totalled approximately RMB213.1 million, RMB1,852.3 million and RMB2,737.7 million respectively, during the same years. The Group has derived substantially all of its revenue from property development, i.e. its city development segment.
Competitive Strengths The Group believes that it has the following competitive strengths:
• High-quality onshore issuer with the scarce state-owned background
• Rare advantage of being a school-run enterprise, supporting strategic reform
1 • Unique business model to support the development of the three cores businesses
• Vigorous promotion of its light-asset model to improve ROE levels
• Land cost advantage with high operational efficiency
• Reasonable layout with continuous real estate sales and profit growth
• Robust liquidity and diversified financing channels
• Experienced management team, market-oriented operating model
Strategies The Group is committed to building a first-class production, research and research platform with industry, education and research as its core, and is driven by quality and resources, innovation and capital, and focus on industrial operation, urban support and venture capital business as the three growth lines. The Group seeks to implement the following strategies:
• Continue to pursue the growth strategy of ‘‘One Body Two Wings’’ and implement Strategic Upgrade 2.0.
• Continue to enhance its leading position
• Build land bank in a selective manner together with prudent expansion
• Maintain prudent financial management Explore new markets and business
Founder Information Founder Information was incorporated in Hong Kong on 15 May 2002 as a limited liability company (Company Number: 798158). As at the date of this Offering Circular, the registered share capital of Founder Information is HK$143,942,000. Founder Information’s registered office is at Unit 1408, 14/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan, New Territories, Hong Kong. None of Founder Information’s equity securities is listed or dealt with on any stock exchange.
As at 31 December 2018, Founder Information’s issued share capital was 46.36 per cent. directly owned by Founder Group, 51.00 per cent. indirectly owned by PKU Resources Holding and 2.64 per cent. directly owned by PKU Founder Commodities Group Co., Ltd. Founder Information’s principal business is investment holding. Founder Information derives its revenue from its subsidiaries that are engaged in the industries of property development and investment and distribution of information products in the PRC. Founder Information conducts most of its business operations through its key subsidiary, Peking University Resources (Holdings) Company Limited (HKSE stock code: 00618).
2 THE ISSUE
The following contains summary information about the Bonds. Some of the terms described below are subject to important limitations and exceptions. Words and expressions defined in ‘‘Terms and Conditions of the Bonds’’ and ‘‘Summary of Provisions Relating to the Bonds in Global Form’’ shall have the same meanings in this summary. For a comprehensive description of the terms of the Bonds, see the section entitled ‘‘Terms and Conditions of the Bonds’’ of this Offering Circular.
Issuer ...... DawnVictorLimited旭勝有限公司.
Guarantors ...... FounderInformation(HongKong)Limited(the ‘‘HK Guarantor’’ or ‘‘Founder Information’’) and Peking University Resources Group Co., Ltd. (the ‘‘PRC Guarantor’’, together with the HK Guarantor, the ‘‘Guarantors’’ and each, a ‘‘Guarantor’’)
Guarantee ...... EachGuarantorwillunconditionally and irrevocably guarantee the due payment of the principal, premium (if any) and interest in respect of the Bonds and all other sums expressed to be payable by the Issuer under the Bonds and the Trust Deed, as further described in Condition 3(b) of the Terms and Conditions of the Bonds. Each of the HK Guarantor’sandPRC Guarantor’s obligations in respect of the Bonds and the Trust Deed are contained in the Trust Deed and the Deed of Guarantee, respectively (and any supplement thereto).
Issue ...... U.S.$350,000,000 in aggregate principal amount of 8.45 per cent. Guaranteed Bonds due 2020.
Issue Price...... 100.00percent.
Form and The Bonds will be issued in registered form in the specified denomination Denomination ...... of U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof.
Interest ...... TheBondswillbearinterestontheiroutstandingprincipalamountfrom and including 17 July 2019 at the rate of 8.45 per cent. per annum, payable in arrear on 17 January 2020 and 14 July 2020.
Issue Date ...... 17July2019.
Maturity Date ...... 14July2020.
Status of the Bonds . . . . The Bonds will constitute direct, unsubordinated, unconditional and, subject to Condition 4(a) of the Terms and Conditions of the Bonds, unsecured obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves, as further described in Condition 3(a) of the Terms and Conditions of the Bonds.
Status of the Guarantees The obligations of each of the HK Guarantor and the PRC Guarantor under the Guarantees shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4(a) of the Terms and Conditions of the Bonds, at all times rank at least equally with all its other present and future unsecured and unsubordinated obligations.
Negative Pledge ...... TheBondswillcontainanegativepledgeprovision,asfurtherdescribed in Condition 4(a) of the Terms and Conditions of the Bonds.
3 Events of Default ...... TheBondswillcontaincertaineventsofdefaultprovisionsasfurther described in Condition 9 of the Terms and Conditions of the Bonds.
Taxation ...... Allpaymentsofprincipal,premium(ifany)andinterestbyoronbehalf of the Issuer or any of the Guarantors in respect of the Bonds or under the Guarantees shall be made free and clear of, and without withholding or deduction for or on account of, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within a Relevant Jurisdiction (as defined in Condition 6(b) of the Terms and Conditions of the Bonds) or, in each case, any political subdivision or authority therein or thereof having power to tax, unless such withholding or deduction is required by law, as further described in Condition 8 of the Terms and Conditions of the Bonds. In such event, the Issuer or, as the case may be, the relevant Guarantor shall, subject to the limited exceptions specified in the Terms and Conditions of the Bonds, pay such additional amounts as will result in receipt by the Bondholders of such amounts as would have been received by them had no such withholding or deduction been required.
Final Redemption...... Unlesspreviouslyredeemedorpurchasedandcancelled,theBondswill be redeemed at their principal amount on the Maturity Date.
Redemption for The Bonds may be redeemed at the option of the Issuer in whole, but not Tax Reasons ...... in part, at their principal amount, together with accrued interest accrued to but excluding the date fixed for redemption, at any time in the event of certain changes affecting taxes of a Relevant Jurisdiction, as further described in Condition 6(b) of the Terms and Conditions of the Bonds.
Redemption for At any time following the occurrence of a Relevant Event, the holder of Relevant Event ...... any Bond will have the right, at such holder’s option, to require the Issuer to redeem all, but not some only, of such holder’s Bonds, at 101 per cent. (in the case of a redemption for a Change of Control) or 100 per cent. (in the case of a redemption for a No Registration Event) of their principal amount, together with interest accrued to but excluding the date for redemption, as further described in Condition 6(c) of the Terms and Conditions of the Bonds.
Clearing Systems ...... TheBondswillberepresentedinitially by beneficial interests in the Global Certificate, which will be registered in the name of a nominee of, and deposited on the Issue Date with, a common depositary for Euroclear and Clearstream. Beneficial interests in the Global Certificate will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream. Except as described in the Global Certificate, certificates for the Bonds will not be issued in exchange for beneficial interests in the Global Certificate.
Governing Law ...... Englishlaw.
Trustee ...... TheBankofNewYorkMellon,LondonBranch.
Principal Paying Agent. . The Bank of New York Mellon, London Branch.
Registrar and The Bank of New York Mellon SA/NV, Luxembourg Branch. Transfer Agent ......
4 Listing ...... ApplicationhasbeenmadetotheHKSEforthelistingof,andpermission to deal in the Bonds by way of debt issues to Professional Investors only.
Rating...... TheBondshavenotbeenrated.
Further Issues ...... The Issuer may from time to time, without the consent of the Bondholders, create and issue further securities either having the same terms and conditions as the Bonds in all respects (or in all respects except for the issue date and the first payment of interest on them and the timing for the Cross-Border Security Registration) and so such further issue shall be consolidated and form a single series with the outstanding Bonds or upon such terms as the Issuer may determine at the time of their issue, as further described in Condition 15 of the Terms and Conditions of the Bonds.
Use of Proceeds ...... Seethesectionentitled ‘‘Use of Proceeds’’.
ISIN ...... XS2027351936.
Common Code ...... 202735193.
Legal Entity Identifier . . 549300Q0PBSE07EM4C73
5 SUMMARY FINANCIAL INFORMATION OF THE GROUP
The summary consolidated financial information of the Group as at and for the years ended 31 December 2016, 2017 and 2018, has been derived from the consolidated financial statements of the Group as at and for the year ended 31 December 2017 and 2018, respectively, which are included elsewhere in this Offering Circular, and were audited by Asia Pacific (Group) Certified Public Accountants, the independent auditors of the PRC Guarantor.
The audited consolidated financial statements of the Group as at and for the years ended 31 December 2017 and 2018 have only been prepared in Chinese, which are not included in this Offering Circular. English translations of such audited consolidated financial statements of the Group as at and for the years ended 31 December 2017 and 2018 have been prepared and included in this Offering Circular for reference only. Should there be any inconsistency between the Chinese Financial Statements and the Financial Statements Translation, the Chinese Financial Statements shall prevail. The Financial Statements Translation does not itself constitute audited financial statements, and is qualified in its entirety by, and is subject to the more detailed information and the financial information set out or referred to in, the Chinese Financial Statements. Copies of the consolidated financial statements of the Group as at and for the years ended 31 December 2017 and 2018 are available for inspection at the Group’s registered office. See ‘‘General Information’’.
None of the Joint Lead Managers, the Trustee or the Agents, or any of their respective directors, officers, employees, agents, advisers, representatives or affiliates has independently verified or checked the accuracy of the Financial Statements Translation, and can give no assurance that the information contained in the Financial Statements Translation is accurate, truthful or complete.
Each of the consolidated financial statements of the Group as at and for the years ended 31 December 2017 and 2018 were prepared and presented in accordance with PRC GAAP. The Group has not prepared its consolidated financial statements in accordance with IFRS.
The information set out below should be read in conjunction with, and is qualified in its entirety by reference to the consolidated financial statements of the Group as at and for the years ended 31 December 2017 and 2018, including the notes thereto, included elsewhere in this Offering Circular. Historical results of the Group are not necessarily indicative of results that may be achieved for any future period.
6 Consolidated Balance Sheet of the Group As at 31 December 2016 2017 2018 (RMB) (Audited) Current assets: Monetarycapital...... 10,592,172,733.86 9,274,219,657.43 7,160,260,080.88 Financialassetsatfairvaluethroughcurrentprofitorloss...... 429,610.01 1,174,118.14 22,415,070.74 Derivativefinancialassets...... ––– Billreceivablesandaccountreceivables...... 1,206,809,049.58 1,951,773,081.88 4,145,051,545.85 Including:Billreceivables...... 95,770,575.23 153,698,450.28 105,597,058.67 Accountreceivables...... 1,111,038,474.35 1,798,074,631.60 4,039,454,487.18 Advancespaid...... 1,504,090,544.68 1,686,997,245.91 926,683,017.06 Otherreceivables...... 7,958,490,428.96 7,132,864,928.75 6,801,794,878.32 Including:Otherreceivables...... 7,958,490,428.96 7,132,864,928.75 6,796,638,211.65 Interestreceivables...... ––5,156,666.67 Dividendreceivables...... ––– Inventories...... 50,996,111,047.29 55,129,376,071.00 54,136,042,150.24 Including:Rawmaterials...... 3,089,055.41 6,042,419.11 8,880,860.09 Inventory(finishedproducts)...... 321,726,115.31 389,456,318.11 468,135,306.37 Assetsheldforsale...... ––– Non-currentassetsduewithinoneyear...... ––– Othercurrentassets...... 17,650,492.24 1,410,131,098.84 1,869,507,345.36 Total current assets ...... 72,275,753,906.62 76,586,536,201.95 75,061,754,088.45 Non-current assets: Available-for-salefinancialassets...... 28,000,000.00 23,000,000.00 7,197,416,126.28 Held-to-maturityinvestments...... ––– Long-termreceivables...... ––– Long-termequityinvestments...... 1,514,323,619.82 1,935,562,930.82 1,867,099,475.05 Investmentproperties...... 13,757,946,632.82 17,849,916,541.16 18,458,641,960.34 Fixedassetsatoriginalcost...... 948,073,249.84 522,448,767.16 537,396,361.46 Less:Accumulateddepreciation...... 449,514,589.31 322,210,480.12 376,492,872.74 Netvalueoffixedassets...... 498,558,660.53 200,238,287.04 160,903,488.72 Less:Provisionforimpairmentoffixedassets...... ––– Netvalueoffixedassets...... 498,558,660.53 200,238,287.04 160,903,488.72 Constructioninprogress...... 12,445,509.12 11,841,866.17 11,737,792.52 Including:Constructioninprogress...... 12,107,038.84 11,545,029.53 11,445,068.23 Projectmaterials...... 338,470.28 296,836.64 292,724.29 Liquidationoffixedassets...... (21,963.47) –– Productivebiologicalassets...... ––– Oilandgasassets...... ––– Intangibleassets...... 104,235,109.38 19,526,446.34 25,722,357.96 Including:Landuserights...... 69,797,670.92 –– Developmentexpenditure...... ––– Goodwill...... 282,070,534.11 282,070,534.11 282,070,534.11 Long-termdeferredexpenses...... 86,682,069.82 47,297,643.53 59,666,997.79 Deferredincometaxassets...... 84,637,754.95 160,951,339.20 562,846,986.91 Othernon-currentassets...... 11,801,123.89 – 1,456,766.52 Total non-current assets ...... 16,380,679,050.97 20,530,405,588.37 28,627,562,486.20 Total assets ...... 88,656,432,957.59 97,116,941,790.32 103,689,316,574.65
7 As at 31 December 2016 2017 2018 (RMB) (Audited) Current liabilities: Short-termborrowings...... 13,181,780,827.56 13,259,207,638.83 8,137,084,955.65 Financialliabilitiesatfairvaluethroughcurrentprofitorloss...... – 811,994.19 – Derivativefinancialliabilities...... ––– Billpayablesandaccountpayables...... 5,683,872,252.86 5,434,856,523.02 5,186,856,932.36 Including:Billpayables...... 335,691,984.00 234,514,028.86 202,818,553.59 Accountpayables...... 5,348,180,268.86 5,200,342,494.16 4,984,038,378.77 Advancesreceived...... 12,955,864,937.91 19,236,528,997.85 21,359,401,210.94 Accruedemployeebenefits...... 109,066,790.07 113,463,932.99 137,766,898.31 Including:Wagespayables...... 104,335,133.65 110,055,518.89 129,180,231.79 Including:Welfarepayables...... 2,965,126.54 1,646,794.78 1,433,138.84 Taxandexpensepayables...... 384,242,242.24 1,048,605,600.97 2,084,243,592.00 Including:Taxpayables...... 380,957,820.65 1,043,934,205.49 2,080,961,627.76 Otherpayables...... 4,500,498,357.06 4,874,771,015.37 14,737,798,829.77 Including:Otherpayables...... 4,473,747,804.98 4,874,771,015.37 14,712,304,042.91 Interestpayables...... 26,750,552.08 – 25,494,786.86 Dividendpayables...... ––– Liabilitiesheldforsale...... ––– Non-currentliabilitiesduewithinoneyear...... – 4,480,611,390.28 4,229,000,000.00 Othercurrentliabilities...... 16,598,813.05 39,433,424.40 46,057,403.93 Total current liabilities ...... 36,831,924,220.75 48,488,290,517.90 55,918,209,822.96 Non-current liabilities: Long-termborrowings...... 31,489,113,000.00 32,957,000,000.00 23,656,000,000.00 Bondspayables...... 6,847,991,071.43 5,514,788,732.39 Including:Premium...... ––– Perpetual...... ––– Long-termpayables...... 33,671,488.72 20,030,000.00 11,220,520.59 Including:Long-termpayables...... ––11,190,520.59 Long-termaccruedemployeebenefits...... ––– Specialpurposespayables...... 33,671,488.72 20,030,000.00 30,000.00 Estimatedliabilities...... ––117,329,077.41 Deferredincome...... – 52,200,000.00 74,609,308.30 Deferredincometaxliabilities...... 1,056,555,499.08 1,822,102,654.52 2,043,488,881.13 Othernon-currentliabilities...... 34,895,690.06 4,767,624.17 – Total non-current liabilities ...... 39,462,226,749.29 34,856,100,278.69 31,417,436,519.82 Total liabilities ...... 76,294,150,970.04 83,344,390,796.59 87,335,646,342.78 Owners’ equity (or shareholders’ equity): Paid-upcapital(orsharecapital)...... 200,000,000.00 200,000,000.00 200,000,000.00 Including:State-ownedcapital...... ––– Collectively-ownedcapital...... ––– Capitalownedbylegalpersons...... 200,000,000.00 200,000,000.00 200,000,000.00 Including:Capitalattributabletostate-ownedlegalpersons...... 140,000,000.00 140,000,000.00 140,000,000.00 Capitalattributabletocollectivelegalpersons...... ––– Capitalattributabletoindividuals...... ––– Capitalattributabletoforeigninvestors...... ––– Otherequityinstruments...... 4,800,000,000.00 3,800,000,000.00 3,800,000,000.00 Including:Premium...... ––– Perpetual...... 4,800,000,000.00 3,800,000,000.00 3,800,000,000.00 Capitalreserve...... 2,347,231,884.33 2,347,231,884.33 2,347,231,884.33 Less:Treasurystocks...... ––– Othercomprehensiveincome...... (39,580,073.32) 214,281,953.96 185,061,563.77 Including: Differences arising from the translation of statementsdenominatedinforeigncurrencies...... (39,580,073.32) 46,640,301.25 (5,933,425.75) Surplusreserve...... 19,770,425.47 19,770,425.47 19,770,425.47 Generalriskreserve...... ––– Undistributedprofit...... 2,221,042,464.08 3,459,037,628.29 4,113,779,876.06 Total equity attributable to owners of the parent ...... 9,548,464,700.56 10,040,321,892.05 10,665,843,749.63 Minorityinterests...... 2,813,817,286.99 3,732,229,101.68 5,687,826,482.24 Total owners’ equity (or shareholders’ equity) ...... 12,362,281,987.55 13,772,550,993.73 16,353,670,231.87 Total liabilities and owners’ equity (or shareholders’ equity)...... 88,656,432,957.59 97,116,941,790.32 103,689,316,574.65
8 Consolidated Income Statement of the Group Year ended 31 December 2016 2017 2018 (RMB) (Audited) I. Total operating income ...... 15,958,619,589.54 20,307,051,393.99 31,246,539,606.46 Including:Operatingincome...... 15,958,619,589.54 20,307,051,393.99 31,246,539,606.46 Including:Incomefromprincipalbusiness...... 15,426,629,622.67 20,142,276,054.05 31,081,736,394.24 Incomefromotherbusinesses...... 531,989,966.87 164,775,339.94 164,803,212.22 II. Total operating costs ...... 16,278,094,141.34 19,510,797,295.78 27,663,085,853.42 Including:Operatingcosts...... 13,208,246,690.17 16,946,909,969.43 23,808,161,123.23 Including:Costsfromprincipalbusiness...... 13,115,191,148.83 16,872,178,422.87 23,739,856,841.32 Costsfromotherbusinesses...... 93,055,541.34 74,731,546.56 68,304,281.91 Businesstaxandsurcharges...... 921,195,081.11 754,313,349.88 1,001,194,417.66 Salesexpenses...... 534,768,107.92 574,937,536.09 640,930,141.31 Generalandadministrativeexpenses...... 760,215,741.08 476,198,820.93 661,948,379.11 Including:Entertainmentexpenses...... 14,733,427.99 11,372,048.17 – Researchanddevelopmentexpenses...... ––– Financialexpenses...... 547,749,347.06 529,729,544.11 558,649,203.27 Including:Interestexpenses...... 579,552,859.66 578,886,052.00 588,573,500.09 Interestincome(showninpositivefigures)...... 74,535,552.36 86,143,190.47 72,745,799.44 Impairmentlossesonassets...... 305,919,174.00 228,708,075.34 992,202,588.84 Otherincome...... 15,528,920.44 24,114,582.08 9,409,457.30 Incomefrominvestment...... 466,604,363.59 65,010,718.70 29,790,704.87 Including: Income from investment in associates and jointventures...... ––– Gainsonchangesinfairvalue...... 340,443,481.13 1,888,970,602.86 670,785,554.09 Gainsondisposalofassets...... –––2,723,325.83 III. Operating profit ...... 503,102,213.36 2,774,350,001.85 4,290,716,143.47 Add:Non-operatingincome...... 5,216,716.56 23,906,818.28 13,990,037.54 Including: Government grants (subsidy not related to dailyoperatingactivity)...... ––– Gainsondebtrestructuring...... ––– Less:Non-operatingexpenses...... 16,037,504.69 36,629,582.29 205,929,030.61 Including:Lossfromdebtrestructuring...... ––– IV. Gross profit ...... 492,281,425.22 2,761,627,237.84 4,098,777,150.40 Less:Incometaxexpenses...... 279,132,472.14 909,341,445.61 1,361,087,547.59 V. Net profit...... 213,148,953.08 1,852,285,792.23 2,737,689,602.81 VI. Net other comprehensive income after tax...... (139,213,406.64) 557,983,213.95 (156,570,364.67) VII. Total comprehensive income...... 73,935,546.44 2,410,269,006.18 2,581,119,238.14
9 SUMMARY FINANCIAL INFORMATION OF FOUNDER INFORMATION
The summary consolidated financial information of Founder Information as at and for the years ended 31 December 2016, 2017 and 2018 has been derived from the consolidated financial statements of Founder Information as at and for the year ended 31 December 2017 and 2018, respectively, which are included elsewhere in this Offering Circular, and were audited by Cheng & Cheng Limited, the independent auditors of the HK Guarantor.
In the audited consolidated financial statements of Founder Information as at and for the year ended 31 December 2018, the comparative figures as at 31 December 2017 were re-classified to conform with the presentation of year 2018.
In the audited consolidated financial statements of Founder Information as at and for the year ended 31 December 2017, the comparative figures as at and for the year ended 31 December 2017 were restated from HK$ to RMB due to the change of presentation currency in year 2017.
Each of the consolidated financial statements of Founder Information as at and for the years ended 31 December 2017 and 2018 were prepared and presented in accordance with HKFRS. Founder Information has not prepared its consolidated financial statements in accordance with IFRS.
The information set out below should be read in conjunction with, and is qualified in its entirety by reference to the consolidated financial statements of Founder Information as at and for the years ended 31 December 2017 and 2018, including the notes thereto, included elsewhere in this Offering Circular. Historical results of Founder Information are not necessarily indicative of results that may be achieved for any future period.
Consolidated Balance Sheet of Founder Information As at 31 December 2016 2017 2018 (RMB’ 000) (Audited) (Restated) (Restated) Non-Current assets Property,plantandequipment...... 110,620 109,707 91,593 Investmentproperties...... 2,593,138 2,538,403 2,574,506 Prepaidlandleasepayments...... 11,802 11,262 10,870 Otherintangibleassets...... 1,112 1,076 7,849 Goodwill...... 160,499 160,499 160,499 Deferredexpenditures...... 12,402 – 16,287 Interestsinassociates...... 10,386 7,093 6,648 Deferredtaxassets...... 5,744 5,874 238,707 Otherreceivables...... – 16,399 50,000 2,905,703 2,850,313 3,156,959 Current assets Properties under development ...... 34,614,330 31,399,661 23,908,013 Propertiesheldforsale...... 4,021,977 6,242,372 8,678,919 Inventories...... 362,941 525,268 532,749 Tradeandbillsreceivables...... 928,966 1,242,939 1,200,563 Prepayments, deposits and other receivables ...... 1,316,471 2,023,062 2,207,767 Deferredexpenditures...... 26,321 12,286 2,442 Amounts due from related companies ...... 2,089,718 361,103 1,512,638 Taxrecoverable...... 498,429 645,908 487,085 Restricted cash and pledged deposits ...... 1,927,612 2,499,902 1,619,426 Cashatbankandonhand...... 3,758,517 4,352,070 3,980,812 Othercurrentassets...... ––314,450 49,545,282 49,304,571 44,444,864
10 As at 31 December 2016 2017 2018 (RMB’ 000) (Audited) (Restated) (Restated) Current liabilities Tradeandbillspayables...... 4,287,204 3,872,420 4,504,386 Otherpayablesandaccruals...... 13,189,154 18,000,312 17,274,117 Amounts due to related companies...... 1,730,096 2,252,386 901,628 Bankandotherloans...... 11,375,121 19,569,125 10,723,502 Bondspayable...... 2,000,000 4,480,611 – Taxpayable...... 409,381 694,362 1,396,009 Provision...... ––116,308 32,990,956 48,869,216 34,915,950 Netcurrentassets...... 16,554,326 435,355 9,528,914 Total assets less current liabilities ...... 19,460,029 3,285,668 12,685,873 Capital and reserves Sharecapital...... 145,397 145,397 145,397 Reserves...... (876,877) (520,752) (314,971) (731,480) (375,355) (169,574) Non-controlling interests...... 961,052 1,157,390 1,582,507 Totalequity...... 229,572 782,035 1,412,933 Non-current liabilities Bankandotherloans...... 14,048,895 2,123,071 5,391,990 Bondspayable...... 4,746,071 – 5,514,789 Derivativefinancialinstruments...... ––11,191 Deferred tax liabilities ...... 435,491 380,562 354,970 19,230,457 2,503,633 11,272,940 19,460,029 3,285,668 12,685,873
11 Consolidated Income Statement of Founder Information Year ended 31 December 2016 2017 2018 (RMB’ 000) (Restated) (Audited) Revenue ...... 13,365,711 17,691,680 26,722,122 Costofsales...... (12,438,985) (15,669,681) (22,970,627) Gross profit...... 926,726 2,021,999 3,751,495 Otherincomeandgains...... 80,103 141,369 192,649 Fair value (losses)/gains on investment properties, net ...... 30,818 (104,222) 23,264 Sellinganddistributioncosts...... (422,905) (459,250) (454,894) Administrativeexpenses...... (321,716) (372,098) (547,165) Otheroperating(expenses)/income...... 7,988 (40,908) (238,281) Shareofresultsofjointventures...... (4,355) (2,649) (3,522) Financecosts...... (609,457) (140,377) (459,727) Profit/(loss) before taxation...... (312,798) 1,043,864 2,263,819 Incometax...... (493,389) (751,733) (1,420,747) Profit/(loss) for the year ...... (806,187) 292,131 843,072 Other comprehensive income/(loss) for the year (after tax and reclassification adjustments) Items that may be reclassified subsequently to profit or loss: – Exchange gains and losses on translation of financial statements of non-Mainland China entities’ investments...... (126,693) 179,011 (84,768) – Fair value loss on hedging instruments in cash flow hedge ...... ––(11,191) Net other comprehensive (loss)/income that may be reclassified profit or loss in subsequent periods ...... (126,693) 179,011 (95,959) Items that will not be reclassified subsequently to profit or loss: – Exchange gains and losses on translation of the Company ...... (70,099) 81,321 (116,215) Other comprehensive income/(loss) ...... (196,792) 260,332 (212,174) Total comprehensive income/(loss) for the year ...... (1,002,979) 552,463 630,898 Profit/(loss) for the year attributable to: Equity shareholders of the company ...... (536,993) 72,775 407,913 Non-controlling interests ...... (269,194) 219,356 435,159 (806,187) 292,131 843,072 Total comprehensive income/(loss) for the year attributable to: Equity shareholders of the company ...... (695,901) 295,280 205,781 Non-controlling interests ...... (307,078) 257,183 425,117 (1,002,979) 552,463 630,898
12 RISK FACTORS
Prior to making any investment decision, prospective investors should consider carefully all of the information in this Offering Circular, including but not limited to the risks and uncertainties described below. The following factors are contingencies which may or may not occur and none of the Issuer and the Guarantors is in a position to express a view on the likelihood of any of such contingencies occurring. Any of the risks or uncertainties described below, as well as additional risks or uncertainties, including those which are not currently known to the Issuer or any of the Guarantors or which the Issuer or the Guarantors currently deems to be immaterial, may affect the Issuer’s, the Guarantors’ or the Group’s business, financial condition or results of operations or the ability to fulfil their respective obligations under the Bonds or the Guarantees.
GENERAL RISKS RELATING TO THE GROUP AND ITS BUSINESSES
The Group’s business is sensitive to global and PRC economic conditions. A severe or prolonged downturn in the global economy could materially and adversely affect the Group’s revenues and results of operations Continued concerns about the systemic impact of potential long-term and wide-spread recessions, energy costs, geopolitical issues, unstable credit markets and financial conditions, volatile oil prices and the global housing and mortgage markets have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward. The United Kingdom held a referendum on 23 June 2016 in which a majority of voters voted to exit the European Union (‘‘Brexit’’). Brexit as well as the recent trade tensions between the United States and the PRC could adversely affect worldwide economic and market conditions and could contribute to instability in global financial and foreign exchange markets.
Economic conditions in China are sensitive to global economic conditions, and it is impossible to predict how the Chinese economy will develop in the future. Any slowdown in China’s economic development might lead to tighter credit markets, increased market volatility, sudden drops in business and consumer confidence and dramatic changes in business and consumer behaviors. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel purchases of homes, and the Group’s homebuyers may also defer, reduce or cancel purchases of the Group’s units. The Group has experienced some volatilities in demand from time to time in the recent years due to the strict mortgage policy and other measures taken by the PRC government to slow down the rapid increase in housing prices. The Group remains optimistic about the Chinese economy, but to the extent any fluctuations in the Chinese economy significantly affect homebuyers’ demand for the Group’s units or change their spending habits, the Group’s results of operations may be materially and adversely affected.
The PRC economy also faces challenges in the short to medium term. Continued turbulence in the international markets and prolonged declines in consumer spending, including home purchases, as well as any slowdown of economic growth in China, may adversely affect the Group’s liquidity and financial condition.
The business of the Group is subject to extensive governmental regulations and macro-economic control measures implemented by the PRC government from time to time, particularly in the real estate sector As with other PRC property developers, the Group must comply with various requirements mandated by PRC laws and regulations, including the policies and procedures established by local authorities designated to implement such laws and regulations. In particular, the PRC government exerts considerable direct and indirect influence on the development of the PRC property sector by imposing industry policies and other economic measures, such as control over the supply of land for property development, property financing, taxation, foreign exchange and foreign investment. Through these policies and measures, the PRC government may restrict or reduce the land available for property
13 development, raise the benchmark interest rates of commercial banks, place additional limitations on the ability of commercial banks to make loans to property developers and property purchasers, impose additional taxes, such as property tax, impose levies on property sales and restrict foreign investment in the PRC property sector.
Since the beginning of 2010, the PRC government has announced a series of measures designed to stabilise the growth of the PRC economy and to stabilise the growth of specific sectors, including the property market to a more sustainable level. There has also been a series of regulations and policies to slow down the property market and curb the rally in property prices, as well as to dampen property speculation.
• On 17 April 2010, the State Council issued the Notice on Resolutely Curbing the Rapid Rising of the House Price in Certain Cities (Guofa (2010) No. 10), which stipulated that the down payment for the first property bought per family (including the borrower, his/her spouse and minors) with mortgage loans that is larger than 90 sq.m. shall not be less than 30 per cent. of the purchase price, the down payment for the second property bought per family with mortgage loans shall not be less than 50 per cent. of the purchase price and the loan interest rate shall not be lower than 110 per cent. of the benchmark lending rate published by the People’s Bank of China (the ‘‘PBOC’’). In certain areas where commodity residential properties are in short supply and prices rise too quickly, the banks may suspend mortgage loans for the third or further properties bought by mortgage applicants or to non-residents who cannot provide any proof of their payment for local tax or social insurance for more than one year. Furthermore, local governments may implement home-purchasing limitations through provisional measures on a case-by-case basis.
• On 19 May 2010, the State Administration of Taxation (the ‘‘SAT’’) issued the Circular on Settlement of Land Appreciation Tax to clarify and strengthen the settlement of the land appreciation tax. Furthermore, on 25 May 2010, the SAT issued the Notice on Strengthening the Collection of Land Appreciation Tax, which requires that the minimum prepayment rate under the Provisional Regulations of the People’s Republic of China on Land Appreciation Tax (‘‘LAT’’) shall be 2 per cent. for provinces in the eastern region, 1.5 per cent. for provinces in the central and northeastern regions, and 1 per cent. for provinces in the western region. If the LAT is calculated based on the authorised taxation method, the minimum taxation rate shall be 5 per cent. in principle.
• On 22 November 2010, The Ministry of Commerce (the ‘‘MOFCOM’’) promulgated the Notice on Strengthening Administration of the Approval and Registration of Foreign Investment in the Real Estate Industry, which provides that, among other things, when a real estate enterprise is established in China with overseas capital, it is prohibited from purchasing and/or selling real estate properties completed or under construction for speculative purposes. The local MOFCOM authorities are forbidden from issuing approvals to investment companies to engage in real estate development and management.
• The State Council also approved, on a trial basis, the launch of a new real estate tax scheme in selected cities. The detailed measures will be formulated by the governments of the pilot provinces, autonomous regions or municipalities directly under the central government. On 27 January 2011, the governments of Shanghai and Chongqing issued their respective measures for implementing pilot real estate tax schemes, which became effective on 28 January 2011. These two governments may issue additional measures to tighten the levy of real estate tax. Under the Circular of the Opinion regarding the Important Work to Deepen the Economic System Reform in 2013 promulgated by the State Council on 18 May 2013, the scope of the pilot real estate tax schemes was required to be expanded. More local governments were expected to follow Shanghai and Chongqing in imposing real estate taxes on commodity properties.
14 • On 12 July 2011, the State Council announced the PRC government’s intention to impose austerity measures on second- and third-tier cities. The State Council ordered the Ministry of Housing and Urban-Rural Development (the ‘‘MOHURD’’) to compile a list of the specific second-and third- tier cities that will be targeted by the austerity measures.
• The PBOC increased its benchmark lending rates two times in 2010 and three times in 2011. However, the PBOC decreased its benchmark lending rates two times in 2012, once in 2014 and five times in 2015. On 24 October 2015, the PBOC further raised the benchmark one-year deposit and lending rates to 1.5 per cent. and 4.35 per cent., respectively.
• The PBOC has adjusted the reserve requirement ratio for commercial banks six times in 2010, seven times in 2011 and twice in 2012. From January 2014 to October 2018, PBOC further adjusted the reserve requirement ratio eight times. In 2019, PBOC further adjusted the reserve requirement ratio.
• On 25 March 2015, the MLR and the MOHURD issued the Notice on Optimising the Housing and Land Supply Structure in 2015 and Promoting Stable and Sound Development of Real Estate Market, pursuant to which if the real estate enterprises have conducted serious illegal or irregular activities in the land development and transaction, the competent authorities of land and resources have the power to restrict or forbid the real estate enterprises from participating in new land bidding activities.
• On 14 April 2016, the MLR issued the Notice on Further Improving New Urbanisation Construction Land Service, which urges improvement of policy for the supply of housing land. The Notice stipulated that the reduction of unsold home inventory and the acceleration of citizenisation of migrant workers shall be comprehensively considered. In those cities under great pressure of unsold home inventory, the land supply for commercial housing would be restricted or terminated.
• The MLR and the MOHURD issued the Circular on Tightening the Management and Control over Intermediate Residential Properties and Land Supply on 1 April 2017 urging for reasonable arrangement to be made by local governments for the supply of land for residential property development purposes be made by local governments, including reasonable increase of land supply in cities under great pressure of housing prices. Local authorities are required to adjust the scale, structure and time sequence of housing land supply according to land inventory cycle and to build a land purchase money inspection system to ensure that the real estate developers use their own legal funds to purchase land. If any source of funding does not meet the requirements, the real estate developer shall be disqualified from land bidding and be prohibited from participating in land bidding, auction and listing for a period of time.
Since September 2016, several large cities including Beijing, Shanghai and Guangzhou issued tightened policies in respect of real property transaction, such as further increasing the minimum down payment for residential properties and broadening the definition of ‘‘second property’’ (purchaser with previous property mortgage loan record will be deemed as purchasing the second property), and restricting individuals from purchasing properties for commercial use.
The PRC government has implemented a number of measures that affected the Group’s potential customers’ ability to procure bank mortgages.
• On 26 May 2010, the MOHURD, PBOC, and China Banking Regulatory Commission (the ‘‘CBRC’’) , which merged with China Insurance Regulatory Commission in April 2018 and formed China Banking and Insurance Regulatory Commission) jointly issued the Notice on Regulating the Standards for Identifying the Second Set of Housing in Commercial Individual Housing Loans, under which a stricter standard was adopted to assess whether a home purchase qualifies as a second home purchase with respect to the issuing of mortgage loans. The new
15 standard is based on property ownership, not mortgage history, and the unit for the number of the homes is determined on a family, rather than individual basis. Home buyers are required to provide a registration record from the local housing registration system when applying for a mortgage loan. If it is impossible to check the purchasing record, loan applicants are required to submit a certification listing the number of homes owned by the applicant’s family. In order to counter speculative activities, banks are required to examine both the number of homes owned by the applicant’s family and the applicant’s previous mortgage and purchasing records. Banks are required to treat a loan applicant as a second-home buyer so long as the applicant has an existing mortgage loan, or his family has a home ownership record in the housing registration system, or the bank is able to ascertain that the applicant’s family owns a property based on due diligence.
• On 29 September 2010, the PBOC and the CBRC jointly issued the Notice on Issues Concerning Improving Differentiated Housing Loan Policies, which raised the minimum down payment to 30 per cent. for all first home purchases with mortgage loans, and provides that for any family that uses loans to buy a second home, the down payment ratio should not be lower than 50 per cent. and the loan interest rate should not be lower than 110 per cent. of the benchmark loan interest rate, and all commercial banks should discontinue issuing housing loans to home buyers whose family members already own two or more housing properties and to non-local residents who cannot provide evidence showing that they have paid local taxes or made social insurance contributions for more than one year.
• In November 2010, the Ministry of Finance, the MOHURD, the CBRC and the PBOC jointly issued the Circular on Issues Concerning Policies on Regulation of Personal Housing Provident Fund Loan, which provides that where a personal housing provident fund loan is used to buy the first ordinary self-use home and the floor area of the home is no more than 90 sq.m., the down payment should not be less than 20 per cent. of the purchase price; where the floor area of the home is more than 90 sq.m., the down payment should not be less than 30 per cent. of the purchase price. Pursuant to the Circular, only the housing provident fund-paying families whose floor area per capita is less than the local average are permitted access to personal housing provident fund loans which are used to buy a second home, and the loan may only be used to buy an ordinary self-use home so as to improve dwelling conditions. Where personal housing provident fund loans are used to buy a second home, the down payment should not be less than 50 per cent. of the purchase price, and the interest rate for such loans should not be less than 110 per cent. of the interest rate of the personal housing provident fund loan for the purchase of a first home. The Circular also prohibits the granting of personal housing provident fund loans for the purchase of a third or additional home to housing provident fund-paying families.
• On 26 January 2011, the General Office of the State Council issued the Notice Concerning Further Strengthening the Macroeconomic Control of the Real Property Market, which, among other things, raised the minimum down payment for second home purchases from 50 per cent. to 60 per cent. of the purchase price, and set the minimum lending interest rate at 110 per cent. of the benchmark rate. The Notice is aimed at encouraging the construction or renovation of 10 million government-subsidised residential units nationwide. Furthermore, many cities, such as Guangzhou, Tianjin, Beijing, Shanghai, Suzhou, Qingdao, Jinan, Chengdu and Guiyang, have promulgated measures to restrict the number of homes one family is allowed to newly purchase in order to implement the aforesaid Notice. In order to implement the central government’s requirement, other cities in China where the Group’s property projects are located may also issue similar restrictive measures in the near future which could have a material and adverse effect on the Group’s business prospects, results of operations and financial condition.
• On 8 March 2011, the General Office of CBRC issued the Notice on Promoting Housing Financial Services and Strengthening Risk Management, which provides that for individual housing loans, financial institutions should strictly implement the requirement that, with respect to families
16 purchasing a second residential property through a loan, the down payment may not be less than 60 per cent. of the purchase price, and the loan interest rate may not be less than 110 per cent. the benchmark rate.
• On 26 February 2013, the General Office of the State Council issued the Notice on Continuing to Effectively Regulate the Real Estate Market stabilise prices in the real estate market, to restrict purchases of homes for investment purchases and to strictly enforce the policies of the differentiated housing credit extension. Tax authorities are required to closely cooperate with departments of housing and urban-rural development to levy individual income tax, which is payable on the sales of owner-occupied houses at 20 per cent. of the transfer income if the original value of the house sold can be verified through historical information such as tax collection and administration, house registration. The supply of ordinary commercial housing and land for housing construction are required to be increased, and the planning and construction of affordable housing projects are required to be accelerated. In addition, market regulation and expectation management are required to be strengthened. From 2013 onward, all regions are required to (a) raise the pre-sale threshold for commercial housing; (b) reinforce the management of commercial housing pre-sale licensing regarding project investment, project image and progress, more accurately determining the delivery deadline to guide real estate developers to rationally determine house prices; and (c) steadily push forward reform of the commercial housing pre-sale system.
• Subsequently, on 7 April 2013, Beijing promulgated new rules regarding housing fund loans, which increased the minimum down payment to 70 per cent. of the purchase price for a household purchasing a second residential household property with housing fund loans.
• In addition, under existing regulations, mortgagee banks may not lend to any individual borrower if the monthly repayment of the anticipated mortgage loan would exceed 50 per cent. of the individual borrower’s monthly income or if the total debt service of the individual borrower would exceed 55 per cent. of such individual’s monthly income. In 2013, PRC banks tightened the conditions on which mortgage loans are extended to homebuyers and these conditions continued in 2014. Therefore, mortgage loans for homebuyers have been subject to longer processing periods or even denied by the banks.
• On 29 September 2014, PBOC and CBRC issued the Circular of PBOC and CBRC on Further Improving Financial Services for Housing, among other incentive policies, which specifies that the minimum down payment is 30 per cent. of the purchase price for purchasers of a first residential property for their households, and the minimum loan interest rate is 70 per cent. of the benchmark rate, to be decided by banking financial institutions in light of risk conditions. For purchasers of a second residential property for their households who have paid off the loan that financed their first house and reapply for a loan to finance an ordinary commodity house for the purpose of improving their living conditions, the loan policies for a first house will apply.
• In light of the weakening in the property market in China, on 30 March 2015, the PBOC, MHURD and CBRC jointly issued the Circular on Issues concerning Individual Residential Mortgage Policies in an effort to stimulate the market. The circular reduces the minimum down payment ratios from 30 per cent. to 20 per cent. for first home buyers who use the housing provident fund for their purchase and from 60 per cent. to 40 per cent. for second home buyers with outstanding mortgages who apply for another mortgage. In addition, the circular provides that home buyers who use the housing provident fund for their home purchase are only required to pay a minimum down payment of 30 per cent. for their purchase of a second house if all loans are settled on their first home. However, on 27 August 2015, MOHURD, Ministry of Finance (the ‘‘MOF’’)and PBOC jointly issued the Circular on Adjusting the Minimum Down Payment for the Purchase of Houses by Individuals on the Housing Provident Fund Loans. The circular provides that home
17 buyers who use the housing provident fund for their home purchase are only required to pay a minimum down payment of 20 per cent. for their purchase of a second house if all loans are settled on their first home.
• On 1 February 2016, the PBOC and CBRC jointly issued the Notice on the Adjustment of Individual Housing Loans Policies which provides that in cities where restrictions on purchase of residential property are not being implemented, the minimum down payment ratio for a personal housing commercial loan obtained by a household for purchasing its first ordinary residential property is, in principle, 25 per cent. of the property price, which can be adjusted down by 5 per cent. by local authorities. For existing residential property household owners who have not fully repaid previous loan and are obtaining further personal housing commercial loan to purchase an additional ordinary residential property for the purpose of improving living conditions, the minimum down payment ratio shall be not less than 30 per cent., which is lower than the previous requirement of not less than 40 per cent.
Furthermore, various other PRC regulations restrict the Group’s ability to raise capital through external financing and other methods, including, without limitation, the following:
• the Group cannot borrow from a PRC bank for a particular project if it does not have the land use rights certificate for that project;
• the Group cannot pre-sell uncompleted residential units in a project prior to achieving certain development milestones specified in related regulations;
• the Group cannot borrow from a PRC bank for a particular project unless it funds at least 35 per cent. of the total investment amount of that project from the Group’s own capital;
• property developers are strictly restricted from using the proceeds from a loan obtained from a local bank to fund property developments outside the region where that bank is located; and
• PRC banks are prohibited from accepting properties that have been vacant for more than three years as collateral for loans.
On 13 February 2017, the Asset Management Association of China issued the Administrative Rules for the Filing of Private Equity and Asset Management Plans by Securities and Futures Institutions No. 4 – Investment in Real Estate Developers and Projects by Private Equity and Asset Management Plans (‘‘Rule 4’’). Rule 4 provides that the Asset Management Association of China will temporarily suspend accepting any private equity and asset management plan which makes a direct or indirect investment in any ordinary residential property project located in specified cities where the property prices are considered to have risen too fast, including Beijing, Shanghai, Guangzhou, Shenzhen and Xiamen. In addition, a private equity and asset management plan shall not be used to finance any real estate developer, whether in the form of bank entrusted loans, trust plans or transfers of beneficial interests in assets, for the purpose of acquiring land use rights or supplementing working capital, or be used to directly or indirectly facilitate any illegal margin loans for down payments.
On 4 August 2017, the NDRC, MOFCOM, PBOC and the Ministry of Foreign Affairs jointly issued the ‘‘Guiding Opinions on Further Orienting and Regulating Outbound Investment’’ (the ‘‘Guiding Opinion’’), which classifies outbound investment into three groups: encouraged, restricted, and prohibited. The Guiding Opinion provides that the government will support enterprises to actively engage in outbound investment projects which promote the ‘‘One Belt, One Road’’ strategy; deepen cooperation in international production capacity; promote the transfer of quality domestic production capacity, equipment, and applicable technologies overseas; enhance the PRC’s technology R&D, production, and manufacturing capacity; help resolve the country’s energy shortage problems; and promote industrial upgrade.
18 Under the Guiding Opinion, the Group subject to restrictions include:
• Outbound projects in sensitive countries and regions that have no diplomatic relations with the PRC; are currently at war with it; or have restrictions imposed in bilateral or multilateral agreements or conventions with the PRC;
• Real estate, hotel, cinema, entertainment, and sports clubs;
• A stock investment fund or investment platform that does not invest in any real business overseas;
• Adopting technology standards that fall short of the required standards in the host country to manufacture production equipment; and
• Failure to comply with the environmental protection, energy consumption or safety standards of the host country.
Also, further measures will be taken to improve guidance on different types of outbound investments, including:
• Further raising government service levels to support outbound investment – such as in taxation, foreign exchange, insurance, customs, and information areas;
• Providing guidance and timely alerts to domestic enterprises on their intended investment in the restricted areas overseas; and
• Imposing substantial control and regulation to prevent outbound investments in prohibited areas.
MOFCOM issued the new version of the Administration of Overseas Investment on 6 September 2014, effective from 6 October 2014 (the ‘‘New Overseas Investment Rules’’). Under the New Overseas Investment Rules, a domestic enterprise intending to carry out any overseas investment shall report to the competent department of commerce for verification or filing and shall, with regard to an enterprise so verified or filed, issue thereto an Enterprise Overseas Investment Certificate.
Other than those overseas investments subject to MOFCOM verification as described above, all other overseas investments are subject to a filing requirement. The investing enterprise shall fill and complete the filing form through the Overseas Investment Management System, an online system maintained by MOFCOM and print out a copy of such filing form for stamping with the company chop, and then submit such stamped filing form together with a copy of its business licence, for filing at MOFCOM (for a Central Enterprise) or the provincial department of commerce (for a local enterprise) respectively.
Many of the property industry policies implemented by the PRC government are new and are expected to be amended and revised over time. Other political, economic and social factors may also lead to further adjustments and changes of such policies. There can be no assurance that the PRC or local government will not adopt additional or more stringent industry policies, regulations and measures in the future. It is impossible to ascertain the extent of the impact of these measures or to accurately estimate the Group’s sales volume and turnover had the measures been introduced. If the Group fails to adjust its operations to new policies, regulations and measures that may come into effect from time to time with respect to the real property industry, or if such policy changes disrupt its business, reduce its sales or average selling prices, or cause it to incur additional costs, its business prospects, results of operations and financial condition may be materially and adversely affected.
19 The PRC property market is cyclical, and the Group’s property development activities are susceptible to significant fluctuations The PRC property market is, and is expected to continue to be, cyclical. The rapid expansion of the property market in certain major cities in the PRC, including Guangzhou, Beijing and Shanghai, in the early 1990s culminated in an oversupply in the mid-1990s and a corresponding fall in property prices and rents in the second half of that decade. In addition, there was also a fall in property prices and rental yields during the economic downturn in 2008. Since the late 1990s, the number and price of residential property development projects have increased in major cities as a result of an increase in demand driven by domestic economic growth. In particular, prices of residential properties in major PRC cities such as Shanghai and Beijing have experienced rapid and significant growth. However, there can be no assurance that oversupply and falling property prices will not recur in the PRC property market. Any recurrence of such problems could adversely affect the Group’s business and financial condition.
The Group’s results of operations are subject to seasonality and may fluctuate from quarter-to-quarter. The number of properties that the Group could develop or complete during any particular period is subject to a number of factors including but not limited to construction schedule, permit approvals and lengthy development periods before revenue and profit from developments are recognised (such as projects that are developed in multiple phases over the course of several years). Therefore, the cyclical property market in the PRC affects the timing for both the Group’s acquisition of sites and the Group’s sale of completed development properties. This cyclicality, combined with the lead time required for the completion of projects and the sale of properties, means that the results of operations of the Group relating to property development activities may be susceptible to significant fluctuations from year to year.
To the extent that supply in the overall property market significantly exceeds demand, the Group may be subject to significant market downturns and disruptions. Alternatively, if a serious downturn in regional or global market conditions should occur, this may materially and adversely affect and disrupt the property market in the PRC. If any of these events were to occur, the financial condition and results of operations of the Group would be materially and adversely affected.
PRC government regulations and policies may impair the Group’s ability to obtain a sufficient number of sites or retain sites suitable for property developments The Group derives the majority of its revenue from the sale of properties it developed in China. This revenue stream is dependent on the Group’s ability to complete and sell its property developments. To grow or maintain its business in the future, the Group will be required to replenish its land reserve with suitable sites for developments. The Group’s ability to identify and acquire a sufficient number of suitable sites is subject to a number of factors that are beyond its control.
The PRC government controls substantially all of the country’s land supply, and regulates the means by which property developers, including the Group, obtain land sites for property developments. As a result, the PRC government’s land supply policies affect the Group’s ability to acquire land use rights for sites that the Group identifies and the costs of land acquisition. Although these regulations do not prevent privately held land use rights from being traded in the secondary market, the PRC government’s policy to grant state-owned land use rights through a bidding system has caused an increase in the acquisition cost of land reserves in the PRC. If the Group fails to acquire sufficient land reserves in a timely manner and at acceptable prices, or at all, its business prospects, financial condition and results of operations may be materially and adversely affected.
In recent years, the PRC government has introduced various measures attempting to moderate investment in and control the growth of the property market in China and promote the development of affordable housing. For example:
20 • one of these initiatives requires local governments, when approving new residential projects after 1 June 2006, to ensure that at least 70 per cent. of their annual land supply (in terms of estimated GFA) consists of units that are smaller than 90 sq.m.
• in an announcement made on 30 May 2006, The Ministry of Land and Resources of the People’s Republic of China (the ‘‘MLR’’) stated that land supply priority shall be given to ordinary commodity houses at middle to low prices and of medium to small sizes (including affordable housing).
• pursuant to the Notice on Further Strengthening the Administration and Control of Real Estate Land and Construction jointly issued by the MLR and the MOHURD in September 2010, the development and construction of large low-density residential properties should be strictly restricted, and the plot ratio for residential land is required to be more than 1.0.
• pursuant to the ‘‘Catalogue of Restricted Use of Land (2012 Version)’’ issued by the MLR on 23 May 2012, the area of a parcel of land granted for commodity housing development may not exceed seven hectares in small cities (towns), 14 hectares in medium size cities or 20 hectares in large cities and the plot ratio should not be less than one.
Although the Group believes that these measures are generally targeted at the luxury property market and speculative purchases of land and properties, there is no assurance that the PRC government will not introduce other measures in the future that would adversely affect the Group’s ability to obtain land for development.
The fiscal and other measures adopted by the PRC government from time to time may limit the Group’s flexibility and ability to use bank loans to finance the Group’s property developments and therefore may require us to maintain a relatively high level of internally-sourced cash. In 2007, the Ministry of Land and Resources issued the revised Provisions on the Assignment of State-owned Construction Land Use Right through Bid Invitation, Auction and Quotation, which provide that property developers must fully pay the land premium for the entire parcel under the land grant contract before they can receive the land use rights certificate and commence development on the land. This regulation became effective on 1 November 2007. As a result, property developers are not allowed to bid for a large piece of land, make partial payment, and then apply for a land use rights certificate for the corresponding portion of land in order to commence development, which had been the practice in many Chinese cities. In order to develop and sell property in the PRC, property developers are required to obtain the land use rights certificates from relevant PRC government authorities.
The Group currently acquires its development sites primarily by bidding for government land. Under current regulations, land use rights acquired from government authorities for commercial and residential development purposes must be purchased through a public tender, auction or listing-for-sale. Competition in these bidding processes has resulted in higher land use rights costs for the Group over the past few years. In addition, the Group may not successfully obtain desired development sites due to the increasingly intense competition in the bidding processes. The Group has acquired and may still need in the future to acquire land use rights through acquisition, which could increase its costs. Moreover, the supply of potential development sites in any given city will diminish over time, and the Group may find it increasingly difficult to identify and acquire attractive development sites at commercially reasonable costs in the future.
In addition, the PRC central and local governments have implemented various measures to regulate the means by which property developers obtain land use rights for property development. The PRC government also controls land supply through zoning, land usage regulations and other means.
21 All of these measures further intensify the competition for land in China among property developers. These policy initiatives and other measures adopted by the PRC government from time to time may limit the Group’s ability to acquire suitable land for its development or increase land acquisition costs significantly, which may have a material adverse effect on its business, financial condition and results of operations.
Increasing competition and consolidation in the PRC property market may adversely affect the Group’s profitability The Group’s property development operations face competition from both international and local property developers with respect to factors such as location, facilities and supporting infrastructure, services and pricing. In recent years, a large number of property developers have begun to undertake property development and investment projects in the PRC. These include overseas property developers (including a number of leading Hong Kong property developers) and local property developers in the PRC. The existing and potential competitors of the Group include major domestic state-owned and private property developers in the PRC, and, to a lesser extent, property developers from Hong Kong and elsewhere in Asia. The Group’s competitors may have greater financial and other capital resources, marketing and other capabilities and/or brand recognition than the Group. In addition, as a result of consolidation in the PRC property market, the Group’s competitors have expanded their operations and have been able to capitalise upon the extensive local knowledge, business relationships and longer operational track records of their newly acquired local subsidiaries. The combination of multiple operations through mergers and acquisitions has also enabled some of the Group’s competitors to enjoy greater economies of scale, further enhancing their competitiveness.
Intensified competition between property developers may result in increased costs for land acquisition and construction, oversupply of properties and a slowdown in the approval process for new property developments by the relevant government authorities, all of which may adversely affect the Group’s business. There can be no assurance that the Group will be able to compete successfully in the future against its existing or potential competitors or that increased competition with respect to its activities may not have a material adverse effect on its financial condition and results of operations.
In addition, the property markets in the PRC are rapidly changing. If the Group cannot respond to changes in market conditions or changes in customer preferences more swiftly or more effectively than its competitors, its business, financial condition and results of operations could be materially and adversely affected.
The results of operations of the Group may be materially and adversely affected if it fails to obtain or renew requisite governmental approvals for the Group or its property developments on a timely basis, or at all A PRC property developer must hold a valid qualification certificate to develop property. In addition, at various stages of project development, a PRC property developer must also obtain or renew various licenses, certificates, permits and approvals from the relevant PRC administrative authorities, including land use right certificates, planning permits, construction permits, pre-sale permits and certificates or confirmation of completion.
According to the Provisions on Administration of Qualifications of Real Estate Developers issued by the MOHURD, a newly established property developer must first apply for a provisional qualification certificate with a one-year validity, which can be renewed annually for not more than two consecutive years. If, however, the newly established property developer fails to commence a property development project within the one-year period following the issue of the provisional qualification certificate, it will not be allowed to extend the term of its provisional qualification certificate. Developers with longer operating histories must submit their qualification certificates to relevant construction administration authorities for review annually. Government regulations require developers to fulfil all statutory requirements before they may obtain or renew their qualification certificates.
22 The Group conducts its property developments through project companies. These project companies must hold valid qualification certificates to conduct their businesses. There can be no assurance that the Group’s project companies will continue to be able to obtain or renew the necessary qualification certificates in a timely manner, or at all. If any of the Group’s project companies do not obtain or renew the necessary qualification certificates in a timely manner, or at all, the Group’s prospects, business, results of operations and financial condition may be materially and adversely affected.
In addition to the above, there can be no assurance that the Group will not encounter significant problems in satisfying the conditions to, or delays in, the issuance of other necessary licenses, certificates, permits or approvals. There may also be delays on the part of the administrative bodies in reviewing and processing the Group’s applications and granting licenses, certificates, permits or approvals. If the Group fails to obtain the necessary governmental licenses, certificates, permits or approvals for any of its major property projects, or a delay occurs in the government’s examination and review process, its development schedule and its sales could be substantially delayed, resulting in a material and adverse effect on the Group’s business, results of operations and financial condition.
The land use rights in respect of the Group’s land reserves will not be formally vested in the Group until it has received the relevant formal land use right certificates and failure to obtain or comply with land use rights could lead to confiscation of its land by the PRC government Under current PRC land grant policies, the relevant authorities generally will not issue formal land use right certificates until the developer (i) has paid the land premium in full; and (ii) is in compliance with other land grant conditions. The land use rights in respect of the projects and the land that the Group may acquire in the future will not be formally vested in it until it has received the corresponding formal land use right certificates.
If a developer fails to develop the project according to the terms of the land grant contract, the relevant government authorities may issue a warning to, or impose a penalty on, the developer or confiscate the land use rights. Any violation of the land grant contract may also restrict a developer’s ability to participate, or prevent it from participating, in future land bidding. Specifically, if a developer fails to commence development for more than one year from the commencement date stipulated in the land grant contract, the relevant PRC land bureau may serve a warning notice on such developer and impose an idle land fee of up to 20 per cent. of the land premium. If a developer fails to commence the development for more than two years from the commencement date stipulated in the land grant contract, the land use rights are subject to forfeiture to the PRC government unless the delay in development is caused by government actions or force majeure. On 29 September 2010, the PBOC and the CBRC jointly issued the Notice on Relevant Issues Regarding the Improvement of Differential Mortgage Loan Policies, which required commercial banks to cease to grant loans for new development projects and renewal of loans to property developers that have records of violation of laws and regulations as a result of, among other things, rendering the land idle, changing the use and nature of land, delaying the construction commencement and completion and refusing to sell the properties. On 1 June 2012, the MLR promulgated the Measures for the Disposal of Idle Land which stipulates that the PRC government will confiscate land use rights and impose an idle land fee of up to 20 per cent. of the land premium if a developer fails to obtain the construction permit and commence development for more than two years from the commencement date stipulated in the land grant contract.
There can be no assurance that there will not be delays in the authorities’ issuance of the land use right certificates or the construction permits in respect of the Group’s projects. There can also be no assurance that there will not be delays in commencing development as stipulated in the land grant contract. Any failure or delay in obtaining land use right certificates or in commencing property development as stipulated in the land grant contract could lead to the imposition of an idle land fee on the Group, confiscation of the relevant land use rights or cause delays in the completion of the associated property developments. Any such incident related to the Group’s failure to obtain the formal land use right certificate or the confiscation of its land will materially and adversely affect its ability to borrow money or to deliver its properties to its customers and may have a material adverse effect on its operations.
23 Also, if the land use rights are confiscated, the Group will not be able to continue its property development on the confiscated land or recover the costs incurred for the initial acquisition of the confiscated land or recover development costs incurred up to the date of confiscation.
The property development business is capital intensive. Measures intended to cool the PRC property market could impair the Group’s ability to finance the acquisition and development of its properties The Group finances its property developments primarily through a combination of pre-sales and sales proceeds, borrowings and equity contributions from shareholders. The Group’s ability to maintain adequate working capital and external financing for land acquisitions or property developments on commercially acceptable terms depends on a number of factors that are beyond the Group’s control. The PRC government has in recent years taken a number of policy initiatives in the financial sector to further tighten lending requirements in general and for property developers in particular, which, among other things, include:
• adjusting the reserve requirement ratio for commercial banks six times in 2010, seven times in 2011 and twice in 2012. From January 2014 to October 2018, PBOC further adjusted the reserve requirement ratio eight times. Such increases may negatively impact the amount of funds available for lending to business, including the Group, by commercial banks in China.
• forbidding PRC commercial banks from granting loans to property developers for funding the payments of land premium.
• forbidding PRC commercial banks from granting loans to a property developer if, (i) for supportive residential development projects or common residential development projects, the property developer’s available internal funds are less than 20 per cent. of the total estimated capital required, or (ii) for other development projects, the property developer’s available internal funds are less than 30 per cent. of the total estimated capital required.
• restricting the grant or extension of revolving credit facilities to property developers that hold a large amount of idle land and vacant commodity properties.
• prohibiting commercial banks from taking commodity properties that have been vacant for more than three years as security for mortgage loans.
• prohibiting property developers from financing property developments with loans obtained from banks in regions outside the location of the relevant property developments, subject to certain exceptions.
• restricting PRC commercial banks from financing the development of luxury residential properties.
• prohibiting commercial banks from granting loans to property projects that have not obtained land use rights certificates, construction land planning permits, construction works planning permits and construction works commencement permits.
• requiring that commercial bank loans to property developers be classified as real estate development loans and not as general working capital loans.
• restricting pre-sale proceeds to be used only for funding property development costs of the relevant projects to which they relate.
• prohibiting the pre-sale of uncompleted units in a project prior to achieving certain development milestones.
24 • in November 2009, the PRC government raised the minimum down-payment requirement for land purchases to 50 per cent. of the land premium and required land premium to be fully paid within one year after the signing of a land grant contract, subject to limited exceptions.
• in March 2010, the Ministry of Land and Resources stipulated that the minimum down payment of land premium of 50 per cent. should be paid within one month after the signing of a land grant contract and that the rest of the land premium should be fully paid within one year after the signing of a land grant contract.
• on 29 September 2010, the PBOC and CBRC promulgated the Notice on Relevant Issues Regarding the Improvement of Differential Mortgage Loan Policies, which provides that all property companies with records of having idle land, changing the land use purpose and nature, delaying the project commencement or completion time and hoarding properties or other acts of non-compliance with applicable laws or regulations are restricted from obtaining bank loans or credit facilities for new projects.
The PBOC increased its benchmark lending rates two times in 2010 and three times in 2011. However, the PBOC decreased its benchmark lending rates two times in 2012, once in 2014 and five times in 2015, and the benchmark lending rate for loans with a term of over five years was decreased to 4.90 per cent. on 24 October 2015. According to media reports, since October 2011, several PRC commercial banks have tightened their loan policies for real estate by raising their lending rates. Any further increases in the PBOC’s benchmark interest rates would likely slow economic activity in the PRC, which could, in turn, materially increase the costs of the business operation and also reduce demand for the services and products of the Group, leading to a material adverse effect on the Group’s business.
The fiscal and other measures adopted by the PRC government from time to time may limit the flexibility and ability of the Group to use bank loans to finance its property developments and therefore may require the Group to maintain a relatively high level of internally-sourced cash. In November 2009, the PRC government raising the minimum down-payment requirement for land purchases to 50 per cent. of the land premium and requiring land premium to be fully paid within one year after the signing of a land grant contract, subject to limited exceptions. In March 2010, the PRC government further tightened this requirement by setting the minimum price for land granted to be equal to at least 70 per cent. of the benchmark price for land in the surrounding locality and the bidding deposit to be equal to at least 20 per cent of the applicable minimum land grant price. Additionally, a land grant contract is required to be entered into within ten working days after the land grant deal is closed and the down payment of 50 per cent of the land premium (including any deposits previously paid) is required to be paid within one month of signing the land grant contract, with the remaining amount to be paid in full within one year of the date of the land grant contract in accordance with provisions of such land grant contract. These new requirements increase the Group’s need for cash to facilitate land acquisitions and construction.
The implementation of such regulations will require property developers to maintain a higher level of working capital. There can be no assurance the Group’s cash flow position, financial condition or business plans will not be materially and adversely affected as a result of the implementation of this requirement.
The Group faces a number of operational risks associated with the development of properties. The Group’s properties may not be completed according to planned schedules or be completed at all and may not generate the levels of expected revenue or contemplated investment returns There are a number of financing, operating and other risks associated with property developments. The projects the Group undertakes typically require substantial capital expenditures during construction and usually take many months, and sometimes years, to generate proceeds in cash. The time required and the costs involved in completing construction can be affected by many factors, including:
• changes in market conditions including the credit market;
25 • delays in obtaining necessary licences, permits or approvals from government agencies or authorities;
• changes in government rules and regulations and the related practices and policies;
• increases in the prices of raw materials;
• shortages of materials, equipment, contractors and skilled labour;
• unforeseen engineering, design, environmental or geographic problems;
• labour disputes and strikes;
• construction accidents; and
• natural disasters or adverse weather conditions and other unforeseen problems or circumstances.
There can be no assurance that the Group will not experience any delays in delivery of its construction projects in the future. Construction delays may result in significant losses of revenue and increase in costs. Under pre-sale contracts, the Group is liable to the purchasers for default payments if the Group fails to deliver the completed properties in accordance with the delivery schedule in these contracts, and in the case of a prolonged delay, the purchasers will be entitled to terminate the pre-sale contracts and require a refund of the purchase prices in addition to the default payments. In addition, the failure to complete construction according to its specifications may result in liabilities and lower financial returns. There can be no assurance that the Group’s existing or future projects will be completed on time, or at all, and generate satisfactory returns.
The Group’s construction operations are exposed to occupational hazards, which could cause it to incur substantial costs, damage to reputation and loss of future business Construction sites are potentially dangerous workplaces and the Group’s construction projects routinely place its employees and others in close proximity to heavy duty construction machinery and equipment, moving motor vehicles, highly regulated and volatile materials, and chemical processes. Over the years, the Group has implemented and enforced a complete set of safety policies and standardised construction methods and technologies and consistently purchased accident and casualty insurance for its construction workers. Despite the foregoing, the Group is still subject to risks surrounding these activities, such as equipment failure, industrial accidents, geological catastrophes, fire and explosions. These hazards can cause personal injury or fatalities, as well as damage to or destruction of property and equipment. The Group has not experienced material safety accidents in the construction business. There can be no assurance, however, that material workplace accidents will not occur in the future despite its safety policies and measures. Even if such accidents were not caused by its fault or negligence, such accidents may still cause the Group to incur substantial costs and damage to its reputation. Workplace accidents, whether due to the Group’s fault or not, would do damage to its reputation and cause it to lose future business, which may further materially and adversely affect its business and results of operations.
Sales and pre-sales of the Group will be affected if mortgage financing for the Group’s purchasers becomes more costly or otherwise less attractive or available A majority of purchasers of the Group’s residential properties rely on mortgages to fund their purchases. An increase in interest rates may significantly increase the cost of mortgage financing, thus reducing the attractiveness of mortgages as a source of financing for property purchases and adversely affecting the affordability of residential properties. In line with macroeconomic policies and policies intended to regulate and cool the property market in the PRC, the PRC government has taken a number of measures that regulate the availability, terms and pricing of mortgage financing for property purchasers. There can be no assurance that the PRC government and commercial banks will not further increase down payment requirements, impose other conditions or otherwise change the regulatory framework in a manner that
26 would make mortgage financing unavailable or unattractive to potential property purchasers. Such regulatory changes could materially and adversely affect the Group’s business, financial condition and results of operations.
The Group has provided mortgage guarantees to secure obligations of purchasers of its properties for repayment. A default by a significant number of purchasers would materially and adversely affect its financial condition A majority of purchasers of the Group’s residential properties rely on mortgages to fund their purchases. The Group arranges for various banks to provide mortgage services to the purchasers of its properties. In certain cases, domestic banks may require the Group to provide guarantees for these mortgages. The majority of these guarantees are short-term guarantees in connection with pre-sales which are released upon the earlier of the issuance of the individual property ownership certificate to the owner of the property or the certificate of other rights of property to the mortgage bank by the relevant housing authority. In line with industry practice, the Group does not conduct independent credit checks on its customers but relies instead on the credit checks conducted by the mortgage banks. Under the terms of the guarantees, if, during the term of the guarantee, a borrower defaults, the Group will be responsible for the payment of such loan and will be able to take possession of and re-sell such mortgaged property.
In addition, if there are changes in laws, regulations, policies and practices, it may become more difficult for property purchasers to obtain mortgages from banks. Such difficulties in financing could result in a substantially lower rate of sales and pre-sales of the Group’s properties, which could materially and adversely affect the Group’s cash flow, sales revenues, financial condition and results of operations.
The Group faces contractual and legal risks relating to the pre-sale of properties, including the risk that property developments may not be completed and the risk that changes in laws and regulations in relation to the pre-sales of properties may materially and adversely affect its business, cash flow, financial condition and results of operations The Group faces contractual risks relating to the pre-sales of properties. For example, if the Group fails to meet the completion time as stated in the pre-sale contracts, purchasers of pre-sold units have the right to claim damages under the pre-sale contracts. If the Group still fails to deliver the properties to the purchasers within the grace period stipulated in the pre-sale contracts, the purchasers have the right of termination. There can be no assurance that the Group will not experience delays in the completion and delivery of its projects, nor that the GFA for a delivered unit will not deviate from the GFA set out in the relevant contract. Any termination of the purchase contract as a result of the Group’s late delivery of properties will have a material and adverse effect on its business, financial condition and results of operations.
Proceeds from the pre-sales of the Group’s properties are an important source of funds for the Group’s property developments and have an impact on its liquidity position. On 5 August 2005, the PBOC recommended in a report entitled ‘‘2004 Real Estate Financing Report’’ that the practice of pre-selling uncompleted properties be discontinued, on the ground that it creates significant market risks and generates transactional irregularities. On 24 July 2007, an economic research group under the NDRC proposed to change the existing system for sale of forward delivery housing into one for sale of completed housing. Such recommendation has not been adopted by any PRC governmental authority and has no legal effect. In April 2010, the MOHURD issued the Notice on Further Strengthening the Supervision of Real Estate Market and Improving the Pre-Sale System of Commodity Housing. The notice urged local governments to enact regulations on the sale of completed residential properties in light of local conditions and encouraged property developers to sell residential properties when they are completed. According to a notice issued by the General Office of the State Council on 26 February 2013, the local government can refuse to issue the pre-sale certificate to a property project if: (1) its pre- sale price is unreasonably high and the project developer refuses to accept the direction of relevant
27 government authority; or (2) it is not subject to the pre-sale revenue supervision. There can be no assurance that the PRC governmental authorities will not ban or impose material limitations on the practice of pre-selling uncompleted properties in the future.
Future implementation of any restrictions on the Group’s ability to pre-sell its properties, including any requirements to increase the amount of up-front expenditure the Group must incur prior to obtaining the pre-sale permit, would extend the time required for recovery of its capital outlay and would force it to seek alternative means to finance the various stages of its property developments. This, in turn, could have a material and adverse effect on the business, cash flow, financial condition and results of operations of the Group.
The PRC tax authorities may increase the LAT prepayment rate, settle the full amount of LAT or challenge the basis on which the Group calculates its LAT obligations Under PRC tax laws and regulations, the Group’s properties developed for sale are subject to LAT, which is collectible by the local tax authorities. All income from the sale or transfer of state-owned land use rights, buildings and their ancillary facilities in the PRC is subject to LAT at progressive rates ranging from 30 per cent. to 60 per cent. on the appreciation of land value, which is calculated based on the proceeds from the sale of properties less deductible expenditures as provided in the relevant tax laws. Certain exemptions may be available for the sale of ordinary residential properties if the appreciation of land value does not exceed 20 per cent. of the total deductible items as provided in the relevant tax laws. However, sales of commercial properties are not eligible for this exemption. Real estate developers are required to prepay LAT monthly at rates set by local tax authorities after commencement of pre-sales or sales. In May 2010, the SAT issued the Notice on Strengthening the Collection of Land Appreciation Tax that requires that the minimum LAT prepayment rate must be no less than 2 per cent. for provinces in eastern China, 1.5 per cent. for provinces in central and northeastern China and 1 per cent. for provinces in western China. If the LAT is calculated based on the authorised taxation method, the minimum taxation rate shall be 5 per cent. in principle. There can be no assurance that the local tax authorities will not further increase LAT prepayment rates in the future. In the event that the prepayment rates applicable to the Group increase, its cash flow and financial position will be adversely affected.
The SAT’s Notice on the Administration of the Settlement of Land Appreciation Tax of Property Development Enterprises requires real estate developers to settle the final LAT payable in respect of their development projects that meet certain criteria, such as 85 per cent. of a development project having been pre-sold or sold. Local provincial tax authorities are entitled to formulate detailed implementation rules in accordance with this notice in consideration of local conditions. The Group cannot predict when the PRC tax authorities will require it to settle the full amount of LAT applicable to the Group. If the implementation rules promulgated in the cities in which the Group’sprojectsare located require the Group to settle all unpaid LAT or if any or all of its LAT provisions are collected by the PRC tax authorities, its business, financial condition, results of operations and prospects could be materially and adversely affected.
On 25 April 2016, the MOFCOM and SAT jointly promulgated the Notice on Issues Relating to Tax Computation Bases for Deed Tax, Real Estate Tax, Land Appreciation Tax and Individual Income Tax following implementation of the pilot scheme of levying VAT in place of business tax, effective on 1 May 2016, which provides that (1) income derived by taxpayer of LAT for transfer of real estate shall be income excluding valued added tax (‘‘VAT’’); (2) VAT input tax pertaining to deductible items of LAT stipulated in the Provisional Regulations of the PRC on Land Appreciation Tax, which is allowed to be deducted from the output tax, shall be excluded from the deductible items, and where it is not allowed to be deducted from the output tax, it may be included in the deductible items. On 10 November 2016, the SAT issued the Announcement on Several Provisions concerning the Levy and Administration of Land Appreciation Tax after the Collection of Value-added Tax in Lieu of Business Tax to further clarify certain computing methods of LAT.
28 In addition, there can be no assurance that the tax authorities will agree with the Group’s estimation or the basis on which the Group calculates its LAT obligations. In the event that the tax authorities assess that the Group has to pay LAT in excess of the provisions that the Group has made for the LAT and the Group is unable to successfully challenge such assessments, the Group’s net profits after tax may be adversely affected. There can be no assurance that the LAT obligations assessed and provided for by the Group in respect of the properties that it develops will be sufficient to cover the LAT obligations which the local tax authorities ultimately impose on it.
The actual development of some of the Group’s property developments may differ from the approved development plan, and the total GFA of some of the Group’s property developments may be different from the original authorised area When the PRC government grants the land use rights for a parcel of land, it will specify in the land grant contract the permitted use of the land and the total GFA that the developer may develop on this land. However, the actual plan adopted for a property development project may differ from the approved development plan, and the actual GFA constructed may be different to the total GFA authorised in the land grant contract or construction permit due to factors such as subsequent planning and design adjustments. The adjusted planning and design of a property development project and the actual GFA may be subject to approval when the relevant authorities inspect the properties after completion. The developer may be required to pay additional land premium and/or administrative fines or take corrective actions in respect of the adjusted land use and excess GFA before a Construction of Properties and Municipal Infrastructure Completed Construction Works Certified Report can be issued to the property development. The methodology for calculating the additional land premium is generally the same as the original land grant contract. There can be no assurance that the government will not take any administrative actions preventing the Group from continuing the development of its projects or selling and delivering its projects to purchasers or imposing fines or other penalties on it if it diverts from the original approved development plans in any of the projects or the total GFA of any of the projects exceeding the original GFA granted in the relevant land grant contract in the future. Moreover, there can be no assurance that the Group would have sufficient funding to pay any additional land premium or administrative fines or to pay for any corrective action that may be required by the government in a timely manner, or at all. Any of these circumstances may materially and adversely affect the reputation, business, results of operations and financial condition of the Group.
Land clearance procedures may delay the Group’s property development process The Group purchases land use rights from both the PRC government and private entities. If the Group obtains the land use rights from the PRC government, any land clearance costs are usually included in the land use rights premium. The compensation payable by government authorities cannot be lower than the market value of similar properties at the time of an expropriation. If the compensation paid by government authorities were to increase significantly due to increases in the property market prices, land premiums payable by the Group may be subject to substantial increases, which could adversely affect the business and financial condition of the Group.
Furthermore, any delay or difficulty in the land clearance may consequently cause a delay in the transfer of the land use rights to the Group. There can be no assurance that the Group will be able to complete the land clearance procedures on time or at all, which could materially and adversely affect the Group’s business, results of operations and financial condition.
The Group relies on third-party contractors to provide it with various services The Group engages third-party contractors to provide various services in connection with its property development, including construction, piling and foundation, building and property fitting-out work, interior decoration, installation of air-conditioning units and elevators, gardening and landscaping work. There can be no assurance of the availability of qualified independent contractors in the market at the time of the Group’s intended outsourcing, nor can there be any assurance that the services rendered by the Group’s independent contractors will always be satisfactory or meet the Group’s quality
29 requirements. While the Group endeavours to monitor the quality of its independent contractors’ work, there can be no assurance that such issues will not arise in the future or that its business, financial condition, results of operations and reputation will not be materially and adversely affected as a result. As a developer, the Group may be liable for administrative penalties if its contractors fail to comply with construction laws and regulations. The Group is also exposed to the risk that a contractor may charge more than the price originally tendered to complete a project and the Group may have to bear such additional amounts in order to provide them with sufficient incentives to complete its projects. Furthermore, there is a risk that major contractors may experience financial or other difficulties which may affect their ability to carry out construction works, thus delaying the completion of the Group’s development projects or resulting in additional costs for the Group. All of these factors could materially and adversely affect the business, reputation, financial condition and results of operations of the Group.
The Group’s business and property sales may be affected if it fails to obtain records of acceptance examination for its completed projects According to the Regulations on Administration of Development of Urban Real Estate enacted by the State Council and effective on 20 July 1998, as last amended on 24 March 2019, the Regulation on the Quality Management of Construction Projects enacted and enforced by the State Council on 30 January 2000, the Administrative Measures for Reporting Details Regarding Acceptance Examination Upon Completion of Buildings and Municipal Infrastructure enacted by the Ministry of Construction on 7 April 2000 and amended on 19 October 2009 and the Provisions on Acceptance Examination Upon Completion of Buildings and Municipal Infrastructure enacted by the Ministry of Construction and effective on 12 December 2013, after completion of work for a project, a real estate developer shall apply to the government property development authority at or above the county level for a record of acceptance examination upon project completion. For a housing estate or other building complex project, an acceptance examination is required to be conducted upon completion of the whole project, and where such a project is developed in phases, separate acceptance examinations may be carried out for each completed phase. A property developer will not be allowed to deliver its development property to the purchasers without the relevant record of acceptance examination.
There can be no assurance that the Group will be able to obtain records of acceptance examination for its completed projects in a timely manner, or at all. In such event, the business, property sales and financial condition of the Group may be materially and adversely affected.
The Group may be liable to its customers for damages if it fails to deliver individual property ownership certificates in a timely manner Under PRC law, property developers are required to deliver to purchasers the relevant individual property ownership certificates within a time frame set out in the relevant sale agreement. Property developers, including the Group, generally elect to specify a deadline for the delivery of the individual property ownership certificates in the sale agreements to allow sufficient time for the application and approval processes.
Under current regulations, the Group is required to submit the requisite governmental approvals in connection with its property developments, including land use rights documents and planning and construction permits, to the local bureau of land resources and housing administration for the relevant properties and apply for the general property ownership certificate in respect of these properties. The Group is then required to submit, within a stipulated period after delivery of the properties, the relevant property sale agreements, identification documents of the purchasers, proof of payment of deed tax, together with the general property ownership certificate, for the bureau’s review and the issuance of the individual property ownership certificates in respect of the properties purchased by the purchasers. Delays by the various administrative authorities in reviewing the application and granting approval and certain other factors may affect timely delivery of the general and individual property ownership certificates. Therefore, the Group may not be able to deliver individual property ownership certificates to purchasers on time as a result of delays in the administrative approval processes or for any other
30 reason beyond its control, which may result in it having to pay default payments and, in the case of a prolonged delay, the purchaser terminating the sale agreement. If the Group becomes liable to a significant number of purchasers for late delivery of the individual property ownership certificates, its business, financial condition and results of operations may be materially and adversely affected.
No material claim has been brought against the Group by any purchasers for late application of the individual property ownership certificates on behalf of its customers as at the date of this Offering Circular. However, there can be no assurance that the Group will not become liable to purchasers in the future for the late application of the individual property ownership certificates on behalf of its customers due to its own fault or for any other reasons beyond its control.
The Group is subject to risks relating to accidents or other hazards which may not be covered by insurance The Group maintains insurance coverage for risks in most of its businesses, including damage to property and assets, employee insurance and third-party liability, where insurance is available on what it considers to be reasonable commercial terms. The level of coverage and types of insurance obtained by the management of each business differ depending on the characteristics of each business and the regulations of the jurisdictions in which it operates. The insurance coverage maintained by the Group may not fully indemnify it for all potential losses, damages or liabilities relating to property or business operations, particularly those arising from or as a result of war, civil unrest, terrorism, pollution, fraud, professional negligence and acts of God. If the Group suffers any losses, damage or liabilities in the course of its operations arising from events for which it does not have any or adequate insurance cover, it may not have sufficient funds to cover any such losses, damage or liabilities or to replace any property that has been destroyed.
There may not be any insurance coverage available for certain accidents or liabilities incurred in the course of hazardous operations. In addition, the Group’s insurers may become impaired and become unable to meet claims. The occurrence of any of the above events and the resulting payment the Group makes to cover any losses, damage or liabilities may have a material adverse effect on its reputation, business, results of operations and financial position. Further, notwithstanding the Group’s insurance coverage, any damage to the Group’s buildings, facilities, equipment, or other properties as a result of occurrences such as fires, floods, water damage, explosions, power losses, typhoons and other natural disasters may have a material adverse effect on the Group’s business, financial condition and results of operations.
Furthermore, while reasonable care is taken by the Group and its employees in the selection and supervision of its independent contractors, accidents and other incidents, such as theft, may occur from time to time. Such accidents or incidents may expose the Group to liability or other claims by its customers and other third parties. Although the Group believes that it has adequate insurance arrangements to cover such eventualities, it is possible that certain accidents or incidents are not covered by these arrangements, which could adversely affect the business, financial condition and results of operations of the Group. It is also possible that litigants may seek to hold the Group responsible for the actions of its independent contractors.
The profit margin and operating results of the Group may be adversely affected by inflation and increases in the cost of construction materials or construction contractors’ labour costs The Group’s cost of sales includes the cost of its construction materials. The Group usually enters into supply contracts with its construction materials suppliers. However, some of these contracts only provide the Group with limited certainty and stability of its supply as they only provide for a short contractual period, typically one year. The Group may need to negotiate the purchase price and sign new supply contracts with construction materials suppliers on an annual basis. The price of the Group’s construction materials may fluctuate according to the prevailing market price. Furthermore, the Group sources a
31 portion of key construction materials and equipment, such as elevators and air conditioners, from its suppliers and may be subject to the price volatility of such construction materials. Therefore, any material increase in the cost of construction materials may lead to future increases in construction costs.
In addition, as the result of economic growth and the boom in the property industry in the PRC, wages for construction workers have experienced increases in recent years. Under the terms of most of the Group’s construction contracts, the construction contractors are responsible for the wages of construction workers and bear the risk of fluctuations in wages during the term of the relevant contract. The contractors are also liable if they do not purchase work injury insurance for their workers as required. However, the Group is exposed to the price volatility of labour to the extent that it periodically enters into new or renew existing construction contracts at different terms during the life of a project, which may span several years, or if it chooses to hire the construction workers directly.
Until recently, inflation rates within the PRC had been on a sharp uptrend. The PRC government has taken numerous monetary tightening measures, including raising interest rates and reserve requirement ratios, and curbing bank lending, to slow down economic growth and control price rises. Increasing inflationary rates are due to many factors beyond the Group’s control, such as rising food prices, rising production and labour costs, rising borrowing costs, PRC and foreign governmental policy and regulations, and movements in exchange rates and interest rates. It is impossible to accurately predict future inflationary trends. If inflation rates rise beyond the Group’s expectations, the costs of construction materials or construction contractors’ labour costs may become significantly higher than originally anticipated, and the Group may be unable to pass on such higher costs to its customers in amounts that are sufficient to cover the increasing cost of construction materials or construction contractors’ labour costs. As a result, further inflationary pressures within the PRC may have a material adverse effect on the Group’s business, financial condition and results of operations. The profit margin and operating results of the Group have not been materially and adversely affected by inflation or increases in the cost of construction materials in the past. There can be no assurance that the profit margin and operating results of the Group will not be adversely affected by inflation or increases in the cost of construction materials in the future.
Potential liability for environmental problems could result in substantial costs and delay in the development of the Group’s projects The Group is subject to a variety of laws and regulations concerning environmental protection. The local environmental laws and regulations applicable to any development site vary greatly according to the site’s location and environmental condition, the present and former uses of the site and the nature of the adjoining properties. Compliance with environmental laws and conditions may result in delays in development schedules, may cause the Group to incur substantial compliance and other costs and may prohibit or severely restrict project development activity in environmentally sensitive regions or areas.
The PRC environmental regulations provide that each project developed by a property developer is required to undergo an environmental assessment. Unless otherwise provided by the relevant laws, a property developer is required to submit an environmental impact report, an environmental impact analysis table or an environmental impact registration form to the relevant government authorities for approval before commencement of construction. If the Group fails to comply with these requirements, the local environmental authority may order it to suspend construction of the project until the development environmental impact assessment report is submitted to and approved by the local environmental authority. The local environmental authority may also impose on the Group a fine of not less than 1 per cent. but not more than 5 per cent. of the total investment amount of the construction project if the Group commences construction prior to obtaining such approval from the local environmental authority. There can be no assurance that the Group will be able to complete environmental assessment procedures for its future projects and that the relevant environmental authorities will not order it to suspend construction of these projects or will not impose a fine on it. In the event that there is a suspension of construction or imposition of a fine, this may adversely affect the business and financial condition of the Group.
32 In addition, PRC regulations require environmental protection facilities included in a property development to pass the inspection by the environmental authorities in order to obtain completion approval before commencing operations. The residential and commercial property projects of the Group have environmental protection facilities that are subject to this requirement. If the Group fails to comply with this requirement, the local environmental authorities may order it to suspend construction or prohibit the use of the facilities, which may disrupt its operations and adversely affect its business. Environmental authorities may also impose a fine of up to RMB1,000,000 on the Group in respect of a project which is required to have environmental protection facilities but fails to do so. The Group is currently applying for the completion approval of environmental protection facilities for some projects. There can be no assurance that the Group can obtain such approvals in a timely manner or at all. In the event that such completion approvals cannot be obtained or if a fine is imposed on the Group, its business and financial condition may be materially and adversely affected.
Although the environmental investigations conducted by local environmental authorities to date have not revealed any environmental liability that the Group believes would have a material adverse effect on its business, financial condition or results of operations, it is possible that these investigations did not reveal all environmental liabilities and that there are material environmental liabilities of which the Group is unaware. There can be no assurance that (i) a future environmental investigation will not reveal any material environmental liability; (ii) the PRC government will not change the existing laws and regulations or impose additional or stricter laws or regulations, the compliance with which may cause the Group to incur significant capital expenditure; and (iii) the Group would be able to comply with any such laws and regulations.
The Group’s profitability and results of operations may be affected by the profitability of its commercial properties and its ability to continue to attract and maintain quality tenants The Group is subject to risks incidental to the ownership and operation of its commercial properties, including volatility in market rental rates and occupancy levels, competition for tenants, costs resulting from ongoing maintenance and repair and inability to collect rent from tenants or renew leases with tenants due to bankruptcy, insolvency, financial difficulties or other reasons.
In addition, the Group may not be able to renew leases with its tenants on favourable terms, or increase rental rates to a level of the then prevailing market rate, or at all, upon the expiry of the existing terms or enter into new leases at rental rates as expected. The Group’s commercial properties compete for tenants with other property developers on factors including location, quality, maintenance, property management, rental rates, services provided and other lease terms. The Group cannot assure that its existing or prospective tenants in its commercial, residential, industrial or other commercial properties will not choose to relocate to other properties. Any future increase in the supply of properties which compete with the Group’s would also increase the competition for tenants and, as a result, the Group may have to reduce rental rates or incur additional costs to make its properties more attractive. Also, the Group may not be able to lease its properties to a desirable mix of tenants to achieve its business objectives or for rental rates that are consistent with the Group’s projections. If the Group is not able to retain existing tenants, attract new tenants to replace those that leave or lease its vacant properties, the occupancy rates may decline and its commercial properties may become less attractive and competitive.
This, in turn, may have a material and adverse effect on the Group’s business, financial condition and results of operations. Moreover, if there is a significant downturn in the property leasing markets generally or in the cities where the Group has commercial properties, the Group may not be able to maintain its current levels of property management and leasing income. The Group’s inability to secure suitable tenants or otherwise to enhance the profitability of its commercial properties or to maintain its current levels of rental income may have a material and adverse effect on its business, financial condition and results of operations.
33 The illiquidity of commercial properties or fluctuations in property value could limit the Group’s ability to respond to adverse changes in the performance of its commercial properties The Group holds, and plans to continue to hold, a portion of the properties it have developed as commercial properties. Because property commercials in general are relatively illiquid, the Group’s ability to promptly sell one or more commercial properties in response to changing economic, financial and commercial conditions is limited. The property market is affected by various factors, such as general economic conditions, availability of financing, interest rates and general supply and demand, many of which are beyond the Group’s control. The Group cannot assure that it will be able to sell any commercial properties on satisfactory terms, or that any price or other terms offered by a prospective purchaser would be acceptable. The Group also cannot predict the length of time needed to find a purchaser and to complete the sale of a property. In addition, if the Group sells a commercial property during the term of that property’s management agreement or tenancy agreement, it may have to pay termination fees. Furthermore, the Group cannot assure that it will achieve fair value gains on its commercial properties.
The Group’s technology parks may not always be in line with government policies and meet demands from the Group’sclients The Group’ market position for technology park development depends on the Group’s ability to proactively conduct market research and gain foresight to understand the potential of and demand for strategic emerging and innovative industries in the PRC. The PRC government may, from time to time, adopt new policies and economic measures to guide and further regulate the technology park development sector in the PRC. There can be no assurance that there will not be any unfavourable change in national and local government policies which could adversely affect customers’ demand for technology parks and reduce the level of construction activities and capital investments relating to technology park developments. In addition, any material downturn in the national or local economy may result in a decrease in demand from the Group’s customers for the Group’s technology parks. There can be no assurance that local economy in the cities where the Group operates its technology parks will continue to grow or will not experience a downturn, which could result in reduced demand from customers of industries resident in the Group’s technology parks.
The Group may be unable to attract new tenants or retain existing key tenants for its technology parks The Group’s technology parks compete for tenants with other office and retail properties in surrounding areas on the basis of a wide range of factors, including location, age, construction quality, maintenance and design. The Group also competes for tenants on the basis of rent levels and other lease terms. The Group seeks to maintain the quality and attractiveness of its technology parks by securing long-term partnerships with domestic and international tenants across a wide spectrum of industries.
There can be no assurance that existing and prospective tenants will not choose to vacate their properties for those of the Group’s competitors. Also, rental income from its properties may be subject to market fluctuations. As a result, the Group may lose existing and prospective tenants to its competitors and have difficulty in renewing leases or entering into new leases. An increase in the number of competing properties, particularly in close proximity to the Group’s technology parks, could increase competition for tenants, reduce the relative attractiveness of its technology parks and force the Group to reduce rent or incur additional costs in order to make its technology parks more attractive. In addition, any change or development in technology itself may require certain of the Group’s existing, future or potential tenants to incur additional operational costs, which may in turn reduce their ability or willingness to lease properties in the Group’s science and technology parks. If the Group fails to attract well-known tenants or maintain its existing tenants, the overall attractiveness and competitiveness of the Group’s science and technology parks may be adversely affected. This, in turn, could have a material adverse effect on its business, reputation, results of operations and financial position.
34 Demand for information technology products and services is difficult to predict Adverse economic conditions could cause telecommunications carriers to postpone investments or initiate other cost-cutting initiatives to improve their financial position. This could result in significantly reduced expenditures for network infrastructure and services, in which case the Group’s operating results in its information technology business would suffer.
The Group believes that it has the flexibility to accommodate fluctuations in demand in a cost-effective manner. However, a significant and unexpected decrease in demand for its information technology products and services may materially and adversely affect its financial condition and results of operations.
Spending trends in the global telecommunications industry were negatively impacted by the global macroeconomic environment in 2009 and early 2010, and there has only been moderate improvement in the global economy since 2011. Most of the Group’s customers in its information technology business are financially stable and have networks with good utilisation. However, some operators, particularly those in markets with weak currencies, may incur borrowing difficulties and experience lower user traffic than expected, which may affect their investment plans.
The potential adverse effects of an economic downturn include:
• reduced demand for products and services, resulting in increased price competition or deferrals of purchases, with lower revenue not being sufficient to fully compensate its reduced costs;
• risks of excess and obsolete inventories and excess manufacturing capacity;
• risks of financial difficulties or failures among the Group’s suppliers in its information technology business;
• increased demand for customer finance, difficulties in collection of accounts receivable and increased risk of counterparty failures;
• risk of impairment losses related to the Group’s intangible assets in its information technology business as a result of lower than forecasted sales of certain products; and
• increased difficulties in forecasting sales and financial results as well as increased volatility in the Group’s reported results in its information technology business.
The Group’s information technology business operates in a competitive industry The Group competes in the information technology market, which is characterised by globalisation, rapid changes, converging technologies, and a migration to networking and communications solutions. These market factors represent both an opportunity and a competitive threat to the Group’s information technology business. The Group competes with numerous vendors in each product category. The overall number of its competitors providing niche product solutions may increase. Also, the identities and composition of competitors may change as it enters into new markets or businesses. As the Group continues to expand globally, it may experience new competition in different geographic regions.
The principal competitive factors in the markets in which the Group presently competes and may compete in the future include technology leadership, market share and business scale, long-term relationships with and deep knowledge of its customers, participation and influence in setting industry standards, end-to-end solution capabilities that meet telecommunications carriers’ comprehensive technical, financial and other requirements, breadth and depth of products and services, product performance and quality, price, the ability to lead through critical technological cycles with new
35 products, including products with technical and price-performance advantages, effective end-to-end cost management, including research and development, production, service delivery, procurement, functional and operational support, and brand name.
The Group’s intellectual property rights may be infringed or challenged by third parties The Group’s products include increasingly complex technologies on which the Group’s information technology business depends, some of which have been developed by the Group and some by third parties. The amount of such proprietary technologies and the number of parties claiming intellectual property rights continue to increase, even within individual products. Although the Group has a large number of patents, there can be no assurance that they will not be challenged, invalidated or circumvented, or that any rights granted in relation to the patents will in fact provide competitive advantages to the Group.
Failure by the Group to develop and introduce new products in a timely manner may impair its competitiveness in the market The markets for the Group’s products and services in its information technology business are characterised by rapidly changing technology, evolving industry standards, new product and solutions introductions, and evolving methods of building and operating networks. The Group needs to identify and understand the key market trends and user segments in order to address consumers’ expanding needs and to bring new, innovative and competitive products and services to the market in a timely manner. In the process, the Group will need to identify and invest in different technologies. It also needs to develop competitive products and bring its products to market in a timely manner with compelling marketing messages in order to succeed in retaining and engaging its current, and attracting new, customers and consumers.
The rapid development of new technologies and the rapidly changing customer market remain a challenge to the Group’s information technology business. Any failure to bring new products and solutions to market in a timely manner could result in a loss of market share or opportunity to capitalise on emerging markets, and could reflect poorly on the Group’s corporate image and may have a material adverse impact on the branding, reputation, business and operating results of the Group’s information technology business.
Success of the Group’s research and development investments in its information technology business is uncertain The Group makes large investments in technology in order to respond to rapid technological and market changes. It allocates significant amounts of capital expenditure and resources to research and development for new technology, products and solutions. In order for the Group’s information technology business to be successful, those technologies, products and solutions must be accepted by relevant standardisation bodies and by the industry as a whole. If the Group invests in the development of technologies, products and solutions that do not function as expected, are not adopted by the industry, are not ready in time or are not successful in the marketplace, the Group’s operating results may suffer.
The telecommunications industry is subject to extensive government regulation which is still evolving Telecommunications is an industry subject to specific regulation in most jurisdictions. Regulatory changes affect both the Group’scustomers’ and its own operations. In certain countries where the Group’s information technology business operates, the authorities have broad discretion and authority to regulate all aspects of the telecommunications and information technology industries, including arranging the setting of network equipment specifications and standards, approving equipment for access to telecommunications networks, supervising the tender process for telecommunications infrastructure projects and formulating policies and regulations related to the telecommunications industry. In addition, the telecommunications regulatory framework in certain countries is still in the process of being developed. Changes in regulatory requirements, tariffs and other trade barriers, price or
36 exchange controls or other governmental policies in the countries where the Group’s information technology business operates could also limit its operations and make the repatriation of profits difficult. Although the Group seeks to comply with all such regulations in the jurisdictions where it operates, even unintentional violations could have a material adverse effect on its business, operational results and brand.
The Group is dependent on key management The Group depends to a large degree on the services provided by the Directors and its senior management, the particulars of whom are set out under the section ‘‘Directors, Supervisors and Senior Management of The Group’’ of this Offering Circular. The demand for such experienced staff may increase in the future as the property market in the PRC develops. There can be no assurance that the Group will be able to secure or retain the services of adequate qualified and experienced staff, or do so at reasonable cost and assimilate them into its business. If any key management team member leaves and the Group fails to find suitable substitutes, the business of the Group may be materially and adversely affected.
The Group and certain of its subsidiaries have substantial indebtedness as well as contingent liabilities and may incur additional indebtedness and contingent liabilities in the future The Group and certain of its subsidiaries now have, and will continue to have a substantial amount of indebtedness and incur contingent liabilities. The PRC Guarantor has pledged some of its equity interests in certain subsidiaries as credit support for some of the Group’s financing. Such indebtedness, contingent liabilities and pledge could have important consequences, including the following:
• adversely affecting the relevant corporate credit rating;
• limiting the Guarantor’s ability to satisfy its obligations under the Bonds, the Guarantees and its debts;
• increasing the Group’s vulnerability to adverse general economic and industry conditions;
• requiring the Group and the relevant subsidiary to dedicate a substantial portion of its cash flow from operations to servicing and repaying its indebtedness, thereby reducing the availability of its cash flow to fund working capital, marketing activities, capital expenditures and other general corporate purposes;
• limiting the Group’s flexibility in planning for, or reacting to, changes in its businesses and the industries in which it operates;
• placing the Group at a competitive disadvantage compared to its competitors that have less debt;
• limiting, among other things, its ability to borrow additional funds;
• losing equity interests in certain subsidiaries if relevant creditors entitled to enforce share pledge as credit support; and
• increasing the cost of additional financing.
In the future, the Group and certain of its subsidiaries may from time to time incur additional indebtedness and contingent liabilities. The relevant subsidiary continually reviews its current and expected future funding requirements and evaluates and engages in discussions with financial institutions and other market participants, from time to time, on proposals regarding different sources of funding. The Bonds do not restrict the Group or any of its subsidiaries from incurring additional debt and contingent liabilities. If the Group or any of its subsidiaries incur additional debt, the risks that the
37 Group faces as a result of its current substantial indebtedness and leverage could intensify. In particular, any negative change in one or more of the relevant credit ratings could, notwithstanding that it is not a rating of the Bonds, adversely impact the market price and the liquidity of the Bonds.
In addition, certain financing arrangements entered into by the Group or any of its subsidiaries from time to time may impose operating and financial restrictions on the Group’s ability or, as the case may be, the ability of the relevant subsidiary to incur additional indebtedness unless it is able to satisfy certain financial ratios, or require the Group or, as the case may be, the relevant subsidiary, to create security or grant guarantees or not to change its business and corporate structure without the lender’s prior approval. There is no assurance that such ratios can be met and the existing security may restrict the Group or the relevant subsidiary to dispose of its assets. Such restrictions may also negatively affect the Group’s ability to react to changes in market conditions, take advantage of business opportunities the Group believes to be desirable, obtain future financing, fund needed capital expenditures, or withstand a continuing downturn in its businesses.
Furthermore, if the Group or the relevant subsidiary is unable to comply with the restrictions and covenants in its current or future debt and other agreements, there could be a default under the terms of such agreements. In the event of a default under such agreements, the holders of the debt could terminate their commitments to lend to the Group or the relevant subsidiaries, accelerate the debt and declare all amounts borrowed due and payable or terminate the agreements, as the case may be. Some of the financing arrangements entered into by the Group or its subsidiaries contain cross-acceleration or cross-default provisions. As a result, a default under one debt agreement may cause the acceleration of debt or result in a default under other debt agreements. If any of these events occur, there is no assurance that the Group’s assets and cash flow would be sufficient to repay in full all of such indebtedness, or that the Group would be able to find alternative financing sources. Even if the Group could obtain alternative financing sources, there is no assurance that it would be on terms that are favourable or acceptable to the Group.
Any of the aforementioned factors could materially and adversely affect the Guarantor’s ability to satisfy its obligations under the Bonds and the Guarantees.
The Group and its shareholders and affiliates may be involved from time to time in disputes, administrative, legal, regulatory and other proceedingsarisingoutoforinconnectionwiththeir operations or may be subject to fines and sanctions in relation to non-compliance with certain laws and regulations and may face significant liabilities as a result The Group and its shareholders and affiliates may be involved in disputes with various parties. For example, as most of the Group’s projects consist of multiple phases, purchasers of its properties in earlier phases may file legal actions against the Group if its subsequent planning and development of the projects are perceived to be inconsistent with its representations and warranties made to such purchasers. The Group may also be involved in disputes with various parties arising out of or in connection with its property management business, including personal injury claims. The PRC Guarantor is currently the subject of loan disputes initiated by Tibet Zhaorong Investment Co., Ltd.（西藏昭融投資有限公 司）(‘‘Tibet Zhaorong’’). For further details on these disputes and certain administrative proceedings against members of the Group, see ‘‘Description of the Group – Compliance and Legal Proceedings’’. These disputes may lead to legal or other proceedings, which may in turn result in substantial costs and diversion of resources and management’s attention and may have a material adverse effect on the Group’s reputation and its ability to market and sell its properties.
In addition, the Group’s shareholders may from time to time also be subject to lawsuits and arbitration claims in the ordinary course of their respective businesses and were or may be in the future subject to shareholders’ disputes. For example, on 19 February 2019, Founder Group, the shareholder of the Guarantors, was issued two writs by Beijing Zhaorun Investments Management Ltd. (‘‘Zhaorun’’). On 14 June 2019, PKU Asset Management, which holds 70 per cent. of the share capital of Founder Group, and Founder Group filed lawsuits against, among others, Zhaorun, Wei Xin, a former chairman of
38 Founder Group, Li You, a former director and chief executive officer of Founder Group and Yu Li, a former chief financial officer of Founder Group. For further details of such shareholders’ disputes, please refer to the section headed ‘‘Description of the Group – Compliance and Legal Proceedings’’ in this Offering Circular.
The Group and its shareholders and affiliates take an active approach in defending claims, investigations and disputes, yet, such investigations, litigations and disputes may have or will cause serious damage to the reputation of the Group and/or its shareholders and affiliates and/or divert management team’s attention, which may further affect the Group’s business, results of operations and financial condition. There is no assurance that the Group or its shareholders or affiliates could successfully defend such claims, investigations and disputes, and there is no assurance that such incidents (including those related or consequential thereto) will not occur in the future. Meanwhile, adverse publicity about these types of concerns relating to the Group’s brand, whether or not legitimate, may decrease the customers’ or the general public’s confidence in the Group’s brand, and may even result in losses which the Group may not be able to recover. Actions brought against the Group or any of its shareholders or affiliates may result in settlements, injunctions, fines, penalties, stock delisting or other results adverse to it that could harm the Group’s reputation. Even if the Group or any such shareholder or affiliate is successful in defending itself against these actions, the costs of such defence may be significant. In market downturns, the number of legal claims and amount of damages sought in litigation and regulatory proceedings may increase. A significant judgement or regulatory action against the Group or any of its shareholders or affiliates, a disruption in its business arising from adverse adjudications in proceedings against its directors, officers or employees, or disruption in the corporate governance of the Group, would have a material adverse effect on the liquidity, business, financial condition, results of operations and prospects of the Group. The Group believes that it has taken prudent measures within its control to minimise any potential litigation and regulatory investigations proceedings. However, the risk management and internal control policies and procedures may not be effective to manage all of the Group’srisks.
Deterioration of the Group’s brand image and Peking University’s reputation could adversely affect the Group’sbusiness The Group has obtained numerous awards in recognition of its design, landscape and environmental design, product innovation and sales of its property projects. The Group places great emphasis on managing and maintaining its brand image which represents the quality of its property projects. However, brand value is based largely on consumer perceptions with a variety of subjective qualities and can be damaged even by isolated business incidents that degrade consumer trust. Consumer demand for the Group’s products and its brand value could diminish significantly if the Group fails to preserve the quality of its products or fails to deliver a consistently positive consumer experience in each of its commercial complexes, or if the Group is perceived to act in an unethical or socially irresponsible manner. In addition, the Group and its affiliates are involved in administrative and legal proceedings and may continue to do so from time to time which may damage the Group’s brand image. Any deterioration of the Group’s brand image could materially and adversely affect its business, financial condition, results of operations and prospects.
The Group may not effectively implement enhanced risk management and internal control policies and procedures to manage its financial and operational risks Financial and operational risks are inherent in the Group’s businesses. Although systems and procedures are in place to identify and report the liquidity, foreign exchange, interest rate, credit, management and operational risks arising from the activities of its existing and proposed businesses, there can be no assurance that these systems and procedures will prevent a loss that could negatively affect the Group’s financial condition and results of operation. In addition, many of the Group’s current systems have a significant manual component. There are additional risks inherent in any manual risk management system, including human error. The reliability of the systems and the information generated from them
39 depends on, inter alia, the configuration and design of the systems, the built-in system control features and the internal control measures surrounding them. Any failure of internal controls could have a material adverse effect on the Group’s businesses, results of operations and financial condition.
The Group may not successfully manage its growth The Group has been rapidly expanding its operations in recent years. As it continues to grow, the Group must continue to improve its managerial, technical and operational knowledge and allocation of resources, and to implement an effective management information system. In addition, the Group plans to strengthen its management control of its subsidiaries and associated companies. In order to fund its on-going operations and its future growth, the Group needs to have sufficient internal sources of liquidity or access to additional financing from external sources. Further, the Group will be required to manage relationships with a greater number of customers, suppliers, contractors, service providers, lenders and other third parties. The Group will need to further strengthen its internal control and compliance functions to ensure that it will be able to comply with its legal and contractual obligations and minimise its operational and compliance risks. There can be no assurance that the Group will not experience issues such as capital constraints, construction delays, operational difficulties at new operational locations or difficulties in expanding existing business and operations and training an increasing number of personnel to manage and operate the expanded business. There can be no assurance that the Group will be able to successfully manage its growth or that its expansion plans will not adversely affect its existing operations and thereby have a material adverse effect on its business, financial condition, results of operations and future prospects.
The Group may not be successful in expanding into new cities that it targets or in exploring new markets When opportunities arise, the Group expects to continue to expand its operations throughout the PRC. These new markets may differ from the Group’s existing markets in terms of the level of economic development, topography, culture, regulatory practices, the Group’s familiarity with contractors and business practices and customs, customer tastes, behaviour and preferences. In addition, when the Group enters into new markets, it will likely compete with developers, who may have an established local presence, be more familiar with local regulatory and business practices and have stronger relationships with local contractors, all of which may give them a competitive advantage over the Group. There can be no assurance that it will be able to enter into or operate in new markets successfully. The Group’s expansion and the need to integrate operations arising from its expansions particularly into other fast- growing cities in the PRC, may place a significant strain on the Group’s managerial, operational and financial resources and further contribute to an increase in its financing requirements.
If the Group’s joint venture partners act contrary to its interests, the Group’s business may be materially and adversely affected Some of the Group’s investments are in equity joint venture companies formed to develop, own and/or manage property in the PRC. Although the Group has control over the day-to-day operations of most of its joint ventures and has the ability to make business decisions that are in the ordinary course of its business, the passing of certain important shareholders’ or board resolutions of some of these joint ventures requires the unanimous resolution of all the shareholders or directors (as applicable) of the joint ventures. The request for a unanimous resolution allows the joint venture partners to block actions that the Group believes to be in the Group’s or joint ventures’ best interest. In addition, although the Group has not experienced any significant problems with respect to its joint venture partners to date, should significant problems occur in the future they could have a material adverse effect on its business and the prospects of the Group. Furthermore, the Group and its joint venture partners may have different views and if the Group’s joint venture partners act contrary to the Group’s interests or if the Group’s joint venture partners have serious disputes with the Group, this may materially and adversely affect the business and financial condition of the Group.
40 The Group may not be able to detect and prevent fraud, corruption or other misconduct committed by its employees or third parties The Group is exposed to risks of fraud, corruption or other misconduct committed by its employees, agents, customers or other third parties that could subject it to financial losses and sanctions imposed by governmental authorities as well as seriously harm its reputation. In addition, the Group’s employees, agents, customers or other third parties may be subject to investigations by PRC authorities, the occurrence or the outcome of which may be difficult to predict. The Group’s management information systems and internal control procedures are designed to monitor the Group’s operations and overall compliance, and the Group, from time to time, examines its internal control and corporate governance policies and procedures in order to strengthen their ability to detect and prevent similar and other misconduct. Nevertheless, the Group may be unable to identify non-compliance and/or suspicious transactions in a timely manner or at all. Further, it is not always possible to detect and prevent fraud, corruption and other misconduct.
Historical consolidated financial information of the Group may not be indicative of its current or future results of operations The historical financial information of the Group included in this Offering Circular is not indicative of its future financial results. Investors should note that the Group’s financial information is not intended to represent or predict the results of operations of any future periods. The Group’s future results of operations may change materially if its future growth does not follow the historical trends for various reasons, including changes of the Group’s business operation and direction as well as factors beyond its control, such as changes in economic environment, rules and regulations in the PRC and the domestic and international competitive landscape of the industries in which the Group operates its business.
There may be less publicly available information about the Group than is available for companies in certain other jurisdictions There may be less publicly available information about unlisted companies than is regularly made available by public companies. In addition, the financial information of the Group in this Offering Circular has been prepared in accordance with PRC GAAP which differs in certain respects from generally accepted accounting principles in other jurisdictions, or other GAAPs, which might be material to the financial information contained in this Offering Circular. The Group has not prepared a reconciliation of its consolidated financial statements and related footnotes between PRC GAAP and other GAAPs. In making an investment decision, investors must rely upon their own examination of the Group, the terms of the offering and its financial information. Investors should consult their own professional advisers for an understanding of the differences between PRC GAAP and other GAAPs and how those differences might affect the financial information contained in this Offering Circular.
RISKS RELATING TO THE PRC
Substantially all of the Group’s assets are located in the PRC and substantially all of the Group’s revenue is sourced from the PRC. Accordingly, the Group’s results of operations, financial position and prospects are subject, to a significant degree, to economic, political and legal developments in the PRC.
PRC economic, political and social conditions, as well as government policies, could affect the Group’sbusiness The economy of the PRC differs from the economies of most developed countries in many respects, including, but not limited to:
• political structure;
• level of government involvement;
• level of development;
41 • growth rate;
• foreign exchange;
• control of foreign exchange; and
• allocation of resources.
While the PRC economy has grown significantly in the past 30 years, growth has been uneven, both geographically and among the various sectors of the economy. The PRC government at both the national and regional level have implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also negatively affect the Group’s operations. For example, the Group’s financial condition and results of operations may be adversely affected by the PRC government’s control over capital investments or any changes in tax regulations or foreign exchange controls that are applicable to the Group. The PRC economy has been transitioning from a planned economy to a market-oriented economy. For the past three decades, the PRC government has implemented economic reform measures emphasising utilisation of market forces in the development of the PRC economy. Although the Group believes these reforms will have a positive effect on the Group’s overall and long-term development, it cannot predict whether changes in the PRC’s political, economic and social conditions, laws, regulations and policies will have any adverse effect on the Group’s current or future business, results of operations or financial condition.
Uncertainty with respect to the PRC legal system could affect the Group As substantially all of the Group’s businesses are conducted, and substantially all of the Group’s assets are located, in the PRC, the Group’s operations are governed principally by PRC laws and regulations. The PRC legal system is based on written statutes while prior court decisions can only be cited as reference. Since 1979, the PRC government has promulgated laws and regulations in relation to economic matters such as foreign investment, corporate organisation and governance, commerce, taxation, foreign exchange and trade, with a view to developing a comprehensive system of commercial law. However, China has not developed a fully integrated legal system and recently enacted laws and regulations that may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based, in part, on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, the Group may not be aware of the Group’s violation of these policies and rules until sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management’s attention.
Circular 2044 as the Circular 2044 only applies to offshore offerings of debt by PRC enterprises with a tenor of one year or above. However, as the Circular 2044 is a relatively new regulation, uncertainties remain regarding its interpretation, implementation and enforcement by the NDRC The NDRC issued the Circular on Promoting the Reform of the Administrative System on the Issuance by Enterprises of Foreign Debt Filings and Registrations (Fa Gai Wai Zi [2015] No. 2044)（《國家發展改 革委關於推進企業發行外債備案登記制管理改革的通知》（發改外資[2015]2044號）,the‘‘Circular 2044’’) on 14 September 2015, which came into effect on the same day. The Circular 2044 is a recent regulation and its interpretation may involve significant uncertainty, which may adversely affect the enforceability and/or effective performance of the Bonds. According to Circular 2044, if a PRC enterprise or an offshore enterprise controlled by a PRC enterprise wishes to issue bonds outside of the PRC with a maturity of more than one year, the enterprise must, prior to issuing such bonds, make filing with the NDRC so as to obtain a registration certificate from the NDRC in respect of the issuance. Such enterprise must also notify certain details of the bonds to the NDRC within 10 business days of the completion of the bond issuance.
42 The issuance of the Bonds has not been registered with the NDRC pursuant to the Circular 2044 as the Circular 2044 only applies to offshore offerings of debt by PRC enterprises with a tenor of one year or above. However, as the Circular 2044 is a relatively new regulation, uncertainties remain regarding its interpretation, implementation and enforcement by the NDRC and, in particular, there is a risk that the NDRC could in the future amend the rules relating to the Circular 2044 or the interpretation thereof (including with retroactive effect), such that debt instruments similar to the Bonds will be subject to the registration and other requirements under the Circular 2044. In the event that the Bonds are required to be registered with the NDRC and the Group is unable to complete such registration within the prescribed timeframe, the Group may need to refinance the Bonds.
It may be difficult to enforce any judgments obtained from non-PRC courts against the Group or its directors and senior management who reside in the PRC Substantially all of the Group’s assets are located within the PRC. In addition, most of the Group’s directors and senior management reside within China, and assets of the directors and senior management may also be located within China. As a result, it may not be possible to effect service of process outside China upon most of the Group’s directors and senior management, including for matters arising under applicable securities law. A judgment of a court of another jurisdiction may be reciprocally recognised or enforced if the jurisdiction has a treaty with China or if judgments of the PRC courts have been recognised before in that jurisdiction, subject to the satisfaction of other requirements. However, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with many countries, including Japan, the United States and the United Kingdom. Therefore, it may be difficult for investors to enforce any judgments obtained from non-PRC courts against the Group, the PRC Guarantor, any of their respective directors or senior management in the PRC.
The promulgation of the EIT Law may adversely impact the Group’s results of operations Pursuant to the EIT Law and its implementation rules, the enterprise income tax for both domestic and foreign-invested enterprises was unified at 25 per cent., effective from 1 January 2008. There was a transitional period for enterprises that received preferential tax treatment granted by the relevant tax authorities before the EIT Law became effective. Enterprises that were entitled to exemptions from or reductions in the standard income tax rate for a fixed term before the implementation of the EIT Law may continue to enjoy such treatment until such fixed term expires. For enterprises that did not previously enjoy any exemptions or reductions on account of not making a profit in the year before the new EIT Law was implemented, the preferential tax treatment applied immediately from 1 January 2008. According to the Circular on Issues Concerning Tax Policies for In‑depth Implementation of Western Development Strategies（《財政部、海關總署、國家稅務總局關於深入實施西部大開發戰略有關稅收政 策問題的通知（》財稅[2011]第58號））, from 1 January 2011 to 31 December 2020, enterprise income tax may be levied at a reduced tax rate of 15 per cent. on enterprises in encouraged industries that are established in the western region. Accordingly, once the EIT Law becomes fully effective with respect to all of the Group’s subsidiaries, they will no longer be entitled to preferential tax rates and tax exemptions, which is likely to result in an increase in the tax expenses of the Group and may have a material adverse effect on the Group’s profitability.
Pursuant to the EIT Law and its implementation rules, a 10 per cent. withholding income tax (subject to any reduction or exemption that the foreign investors may enjoy due to the tax treaties between their jurisdictions of incorporation and the PRC) is levied on distribution of profits earned by the foreign- invested enterprises on or after 1 January 2008 by foreign-invested enterprises to their foreign enterprise investors, unless the foreign enterprise investors are deemed to be PRC tax resident enterprises and the dividend payments from the foreign-invested enterprises are deemed to be ‘‘Qualified Dividend Payments’’. For Hong Kong companies holding shares of PRC Subsidiaries, subject to a tax treaty between China and Hong Kong, the above withholding income tax will be reduced to 5 per cent. if that Hong Kong company directly holds at least 25 per cent. of the shares of the PRC company paying the dividends.
43 Pursuant to the EIT Law and its implementation rules, PRC tax resident enterprises include enterprises that are either set up under PRC laws within the territory of the PRC or set up under the laws of a foreign country or region but nevertheless have ‘‘actual management organs’’ within the PRC; ‘‘actual management organs’’ means the institutions which materially and comprehensively manage and control the enterprises’ business, personnel, finance and assets; Qualified Dividend Payments include investment income received by a PRC tax resident enterprise from its direct investment in other PRC tax resident enterprises, excluding investment income from publicly listed stock issued by PRC tax resident enterprises and traded on stock exchanges where the holding period for such stock is less than 12 months.
On 22 April 2009, the PRC State Administration of Taxation issued a notice regarding the determination of the PRC tax resident enterprise status of those enterprises incorporated overseas with controlling shareholders being PRC enterprises, and provided implementation guidance on withholding income tax for non-resident enterprise shareholders. On 27 July 2011, the PRC State Administration of Taxation formulated Administrative Measures for Income Tax of Chinese-Controlled Resident Enterprises Registered Abroad (For Trial Implementation)（《境外注冊中資控股居民企業所得稅管理辦法（試行）》） and strengthened the administration of the collection of income tax of Chinese-controlled resident enterprises incorporated overseas.
There can be no assurance that no further tax reforms will be introduced by the PRC government that could further increase the Group’s potential tax liability in the PRC.
The PRC government’s pilot plan to replace business tax with value-added tax (‘‘VAT’’)may subject the Group to more taxes, which could adversely affect the Group’s business, results of operations and prospects Pursuant to the PRC Provisional Regulations on Business Tax（《中華人民共和國營業稅暫行條例》）, taxpayers providing taxable services falling under the category of service industry in China are required to pay a business tax. In November 2011, the MOF and the State Administration of Taxation (the ‘‘SAT’’) promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax（《營業 稅改徵增值稅試點方案》）. Pursuant to this pilot plan and relevant subsequent notices, from 1 January 2012, VAT gradually replaced business tax in the transport and post industry, telecom industry and some of the modern service industries in China. Under the pilot plan, a VAT rate of 6 per cent. applies to certain modern service industries. On 23 March 2016, the Ministry of Finance and SAT promulgated the Circular on Comprehensively Promoting the Pilot Programme of the Collection of Value-Added Tax to Replace Business Tax（《關於全面推開營業稅改徵增值稅試點的通知》）(‘‘Circular 36’’). Pursuant to Circular 36, starting from 1 May 2016, the VAT pilot programme will cover construction industry, real estate industry, finance industry and life service industry on a nation-wide basis. Although the VAT pilot programme is mainly intended to reduce double taxation under the business tax system, the Group may be subject to more taxes under the VAT pilot programme in connection with the Group’s operations and activities in China, which could adversely affect the Group’s business, results of operations and prospects.
RISKS RELATING TO THE BONDS AND THE GUARANTEES
The Bonds and the Guarantees are unsecured obligations The Bonds and the Guarantees are unsecured obligations of the Issuer and the Guarantors, respectively. The repayment of the Bonds and payment under the Guarantees may be adversely affected if:
• the Issuer or any of the Guarantors enter into bankruptcy, liquidation, reorganisation or other winding-up proceedings;
• there is a default in payment under the Issuer’s or any of the Guarantor’s future secured indebtedness or other unsecured indebtedness; or
44 • there is an acceleration of any of the Issuer’s or any of the Guarantor’s indebtedness.
If any of these events were to occur, the Issuer’sortheGuarantors’ assets may not be sufficient to pay amounts due on the Bonds.
The PRC government has no obligations under the Bonds or the Guarantees The PRC government is not an obligor and shall under no circumstances have any obligation arising out of or in connection with the Bonds or the Guarantees in lieu of the Issuer or any Guarantor. This position has been reinforced by the Circular of the Ministry of Finance on Issues relevant to the Regulation on the Financing Activities Conducted by Financial Institutions for Local Governments and State-owned Enterprises（財政部關於規範金融企業對地方政府和國有企業投融資行為有關問題的通 知，財金[2018]23號）(the ‘‘MOF Circular’’’) promulgated on 28 March 2018 and which took effect on the same day, and the Circular of the National Development and Reform Commission and the Ministry of Finance on Improvement of Market Regulatory Regime and Strict Prevention of Foreign Debt Risks and Local Government Indebtedness Risks（國家發展改革委財、政部關於完善市場約束機制嚴格防範 外債風險和地方債務風險的通知（）發改外資[2018]706號）(the ‘‘Notice 706’’) promulgated on 11 May 2018 and which took effect on the same day. The PRC government controls the PRC Guarantor through PKU Asset Management and Founder Group. Each of PKU Asset Management and Founder Group only has limited liability in the form of its equity contribution in the PRC Guarantor. As such, the PRC government does not have any payment obligations under the Bonds or any Guarantee. The Bonds are solely to be repaid by the Issuer (and the Guarantees by the Guarantors), each as an obligor under the relevant transaction documents and as an independent legal person.
If the Issuer or the Guarantors are unable to comply with the restrictions and covenants in their respective debt agreements (if any), or the Bonds, there could be a default under the terms of these agreements, or the Bonds, which could cause repayment of the Issuer’soranyoftheGuarantor’s debt to be accelerated If the Issuer or any of the Guarantors is unable to comply with the restrictions and covenants in the Bonds, or current or future debt obligations and other agreements (if any), there could be a default under the terms of these agreements. In the event of a default under these agreements, the holders of the debt could terminate their commitments to lend to the Issuer or the relevant Guarantor, accelerate repayment of the debt, declare all amounts borrowed due and payable or terminate the agreements, as the case may be. Furthermore, the debt agreements of the Issuer and the Guarantors contain cross-acceleration or cross-default provisions. As a result, the default by the Issuer or any of the Guarantors under one debt agreement may cause the acceleration of repayment of debt, including the Bonds, or result in a default under its other debt agreements, including the Bonds. If any of these events occur, there can be no assurance that the Group’s assets and cash flows would be sufficient to repay in full all of the Issuer’sor the Guarantors’ indebtedness, or that it would be able to find alternative financing. Even if the Issuer or the Guarantors could obtain alternative financing, there can be no assurance that it would be on terms that are favourable or acceptable to the Issuer or the Guarantors.
Claims by Bondholders under the Guarantees are structurally subordinated to all existing and future indebtedness and other liabilities of each of the Guarantor’s subsidiaries and affiliates The Bonds and the Guarantees will be structurally subordinated to any debt and other liabilities and commitments, including trade payables and lease obligations, of the Issuer’s and the relevant Guarantor’s existing and future subsidiaries, other than the Issuer or (in the case of the PRC Guarantor) the HK Guarantor, whether or not secured. The Bonds will not be guaranteed by any of the Issuer’sorany Guarantor’s subsidiaries (other than, in the case of the PRC Guarantor, the HK Guarantor), and the Issuer and the Guarantor may not have direct access to the assets of such subsidiaries unless these assets are transferred by dividend or otherwise to the Issuer or the Guarantors. The ability of such subsidiaries to pay dividends or otherwise transfer assets to the Issuer and the Guarantors is subject to various restrictions under applicable law. Each of the Issuer’s and the Guarantors’ subsidiaries is a separate legal entity that has no obligation to pay any amounts due under the Bonds or Guarantees or make any funds
45 available therefor whether by dividends, loans or other payments. The Issuer’s and the Guarantors’ right to receive assets of any of the Issuer’s and the relevant Guarantor’s subsidiaries, respectively, upon that subsidiary’s liquidation or reorganisation will be effectively subordinated to the claim of that subsidiary’s creditors (except to the extent that the Issuer or the relevant Guarantor is a creditor of that subsidiary). Consequently, the Bonds and the Guarantees will be effectively subordinated to all liabilities, including trade payables and lease obligations, of any of the Issuer’s and the Guarantors’ subsidiaries, other than the Issuer or (in the case of the PRC Guarantor) the HK Guarantor), and any subsidiaries that any Guarantor may in the future acquire or establish.
TheBondsandtheGuaranteesaretheIssuer’s and the Guarantors’ unsecured obligations, respectively. As a result, claims of secured lenders, whether senior or junior, with respect to assets securing their loans will be prior with respect to those assets. In the event of the Issuer’soranyGuarantor’s bankruptcy, insolvency, liquidation, reorganisation, dissolution or other winding up, or upon any acceleration of the Bonds, these assets will be available to pay obligations on the Bonds only after all other debt secured by these assets has been repaid in full. Any remaining assets will be available to the holders of the Bonds rateably with all of the Issuer’s or the relevant Guarantor’s other unsecured creditors, including trade creditors. If there are not sufficient assets remaining to pay all such creditors, then all or a portion of the Bonds then outstanding would remain unpaid.
Additional procedures may be required to be taken to bring English law governed matters or disputes to the Hong Kong courts and the Bondholders would need to be subject to the exclusive jurisdiction of the Hong Kong courts. There is also no assurance that the PRC courts will recognise and enforce judgments of the Hong Kong courts in respect of English law governed matters or disputes The Terms and Conditions of the Bonds and the transaction documents are governed by English law, whereas parties to these documents have submitted to the exclusive jurisdiction of the Hong Kong courts. In order to hear English law governed matters or disputes, Hong Kong courts may require certain additional procedures to be taken. Under the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to Choice of Court Agreements between Parties Concerned（《關 於內地與香港特別行政區法院相互認可和執行當事人協議管轄的民商事案件判決的安排》(the ‘‘Arrangement’’)）, judgments of Hong Kong courts are likely to be recognised and enforced by the PRC courts where the contracting parties to the transactions pertaining to such judgments have agreed to submit to the exclusive jurisdiction of Hong Kong courts.
However, recognition and enforcement of a Hong Kong court judgment could be refused if the PRC courts consider that the enforcement of such judgment is contrary to the Arrangement. While it is expected that the PRC courts will recognise and enforce a judgment given by Hong Kong courts governed by English law, there can be no assurance that the PRC courts will do so for all such judgments as there is no established practice in this area. Compared to other similar debt securities issuances in the international capital markets where the relevant holders of the debt securities would not typically be required to submit to an exclusive jurisdiction, the Bondholders will be deemed to have submitted to the exclusive jurisdiction of the Hong Kong courts, and thus the Bondholders’ ability to initiate a claim outside of Hong Kong will be limited.
The Issuer has limited assets and will need to rely on cash flow from the Guarantors and other subsidiaries of the Guarantors (particularly onshore operating subsidiaries of the Guarantors) to service their respective obligations under the Bonds The Issuer is a wholly-owned subsidiary of the HK Guarantor and has limited operations of its own and will be dependent upon payments from the Guarantors and their subsidiaries to meet its obligations under the Bonds.
46 The Issuer has no business operations other than issuing the Bonds and engaging in related transactions. The proceeds from the issuance of the Bonds will be used by the Issuer for refinancing of the Group’s existing borrowings, and for general corporate purposes. See ‘‘Use of proceeds’’. Bondholders’ recourse to the Issuer is limited as the Issuer has only limited assets. The Issuer’s ability to make payments on the Bonds is dependent directly on payments (in the form of capital injections, intercompany loans or otherwise) to the Issuer by the Guarantors and certain of the Guarantors’ subsidiaries, which will depend on a number of factors, some of which may be beyond the control of the Guarantors and/or the Issuer. If the Guarantors or any of the Guarantors’ subsidiaries is unable to make timely payments to the Issuer, the Issuer will not have any other source of funds to meet its payment obligations under the Bonds.
The liquidity and price of the Bonds following this offering may be volatile The price and trading volume of the Bonds may be highly volatile. Factors such as variations in the revenues, earnings and cash flows of the Group and proposals of new investments, strategic alliances and/or acquisitions, interest rates and fluctuations in prices for comparable companies could cause the price of the Bonds to change. Any such developments may result in large and sudden changes in the volume and price at which the Bonds will trade. There can be no assurance that these developments will not occur in the future.
Developments in other markets may adversely affect the market price of the Bonds The market price of the Bonds may be adversely affected by declines in the international financial markets and world economic conditions. The market for the Bonds is, to varying degrees, influenced by economic and market conditions in other markets, especially those in Asia. Although economic conditions are different in each country, investors’ reactions to developments in one country can affect the securities markets and the securities of issuers in other countries, including China. Since the subprime mortgage crisis in 2008, the international financial markets have experienced significant volatility. Recently, the international financial markets have also experienced significant volatility caused by global financial and economic happenings, including the European debt crisis, the United Kingdom formally notifying the European Council of its desire to withdraw from the European Union following the referendum in the United Kingdom on 23 June 2016 and the fears of an escalating trade war between the United States and the PRC. If similar developments occur in the international financial markets in the future, the market price of the Bonds could be adversely affected.
The Bonds may not be a suitable investment for all investors The Bonds are complex financial instruments and may be purchased as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in the Bonds unless it has the expertise (either alone or with the help of a financial advisor) to evaluate how the Bonds will perform under changing conditions, the resulting effects on the value of such Bonds and the impact this investment will have on the potential investor’s overall investment portfolio.
Each potential investor in the Bonds must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
• have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risks of investing in the Bonds and the information contained or incorporated by reference in this Offering Circular or any applicable supplement;
• have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Bonds and the impact such investment will have on its overall investment portfolio;
• have sufficient financial resources and liquidity to bear all of the risks of an investment in the Bonds;
47 • understand thoroughly the terms of the Bonds and be familiar with the behaviour of any relevant indices and financial markets; and
• be able to evaluate (either alone or with the help of a financial advisor) possible scenarios for economic environment, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
A trading market for the Bonds may not develop The Bonds are a new issue of securities for which there is currently no trading market. There can be no assurance as to the liquidity of the Bonds or that an active trading market will develop. If such a market were to develop, the Bonds could trade at prices that may be higher or lower than the initial issue price depending on many factors, including prevailing interest rates, the Group’s operations and the market for similar securities. The Joint Lead Managers are not obligated to make a market in the Bonds and any such market making, if commenced, may be discontinued at any time at the sole discretion of the Joint Lead Managers.
There is uncertainty relating to the enforceability of the Guarantee to be given by the PRC Guarantor if the PRC Guarantor fails to complete the SAFE registration in connection with the Deed of Guarantee within the time period prescribed by SAFE On 12 May 2014, the SAFE promulgated the Notice concerning the Foreign Exchange Administration Rules on Cross Border Security and the relating implementation guidelines (collectively the ‘‘SAFE Regulations’’) which stipulates that any guarantee provided by PRC-incorporated entities in favour of offshore creditors in connection with debt financing granted to offshore debtors is required to be registered with the SAFE. Under the SAFE Regulations, the PRC Guarantor is required to register the Deed of Guarantee with the SAFE as a procedural matter within 15 business days after the date of execution of the Deed of Guarantee. In the event that the PRC Guarantor is required to perform its payment obligations under the Deed of Guarantee, the PRC Guarantor must submit the registration documents issued by the SAFE to banks, which upon reviewing such registration documents will process its remittance request directly.
Pursuant to the SAFE Regulations, the registration or record-filing of a cross border guarantee contract by the SAFE, and other administrative matters and requirements specified therein, will not constitute prerequisites for the cross-border guarantee contract to enter into effect. However, failure to complete the registration as required may result in a fine up to 30 per cent. of the amount gained by such unlawful act under the Regulation of the People’s Republic of China on Foreign Exchange Administration issued by SAFE on 5 August 2008. In addition, where the PRC Guarantor fails to complete the registration with the SAFE, the PRC Guarantor must, before performing the obligations under the Deed of Guarantee, complete a remedial registration. Only by submitting the registration documents or remedial registration documents will the PRC Guarantor be able to remit funds outside PRC in order to perform its payment obligations under the Deed of Guarantee. In addition, if the guarantee liability is a repayment obligation for an issuer under the offshore note issuance, the equity interests of such issuer must be directly or indirectly held by an onshore entity and the proceeds of the note issuance must be used for an offshore project in which the onshore entity has an equity interest and the issuer and such offshore project must have been duly approved by, registered and filed with the relevant authorities in charge of outbound investment. On 26 January 2017, the SAFE promulgated the ‘‘Notice of the State Administration of Foreign Exchange on Further Promoting the Reform of Foreign Exchange Administration and Improving the Examination of Authenticity and Compliance(Hui Fa [2017] No. 3)’’（國家外匯管理局關於進一步推進外匯管理改革完善真實合規性審核的通知）（匯 發[2017]3號）(the ‘‘Notice 3’’), pursuant to the Notice 3, the funds borrowed offshore by an offshore debtor owing to an offshore creditor with a security/guarantee provided by an onshore security provider （內保外貸）are permitted to be directly or indirectly repatriated to or used onshore by means of loans and equity investments. However, according to the Policy Questions and Answers (second batch) of the Notice of the State Administration of Foreign Exchange on Further Promoting the Reform of Foreign
48 Exchange Administration and Improving the Examination of Authenticity and Compliance（國家外匯管 理局關於進一步推進外匯管理改革完善真實合規性審核的通知（ 匯發[2017]3號）政策問答（ 第二 期））(the ‘‘Questions and Answers’’) promulgated by the SAFE on 27 April 2017, the use of proceeds raised by overseas bonds issuance shall still comply with the provisions of the SAFE Regulations, which means such proceeds shall be used for the relevant expenditures within the normal scope of business of the Issuer including overseas investment projects in which the domestic PRC Guarantor has equity interests and the relevant overseas issuer or projects have been approved, registered, recorded or confirmed by the domestic and overseas investment authorities. To sum up, according to the SAFE Regulations, the Notice 3 and the Questions and Answers mentioned above, the proceeds from any such offshore bonds issuance must be applied towards the offshore project(s), where an onshore entity holds an equity interest, and in respect of which the related approval, registration, record, or confirmation have been obtained from or made with the competent authorities subject to PRC laws, unless otherwise permitted by SAFE.
There is no assurance that the PRC Guarantor will be able to complete the registration of the Deed of Guarantee with SAFE within the prescribed timeframe or at all. Under the Terms and Conditions of the Bonds, holders of the Bonds may require the Issuer to redeem their Bonds in the event that the Deed of Guarantee is not registered within a specified timeframe. Holders of the Bonds who do not exercise such redemption option should note that before requisite registrations and/or approvals of the Guarantee to be given by the PRC Guarantor are completed, it is uncertain whether the Guarantee to be given by the PRC Guarantor can be enforced in practice. There may be hurdles at the time of remittance of funds (if any cross-border payment is to be made by the PRC Guarantor under the Deed of Guarantee) as domestic banks may require evidence of SAFE registration in connection with the Deed of Guarantee in order to effect such remittance.
The SAFE Regulations are recent regulations and may be subject to a degree of executive and policy discretion and interpretation by the SAFE.
Changes in interest rates may have an adverse effect on the price of the Bonds The Bondholders may suffer unforeseen losses due to fluctuations in interest rates. Generally, a rise in interest rates may cause a fall in the prices of the Bonds, resulting in a capital loss for the Bondholders. However, the Bondholders may reinvest the interest payments at higher prevailing interest rates. Conversely, when interest rates fall, the prices of the Bonds may rise. The Bondholders may enjoy a capital gain but interest payments received may be reinvested at lower prevailing interest rates.
Furthermore, the PRC government has gradually liberalised the regulation of interest rates in recent years. Further liberation may increase interest rate volatility. The Bonds will carry a fixed interest rate. Consequently, the trading price of the Bonds will vary with the fluctuations in the Renminbi interest rates. If Bondholders try to sell their Bonds before their maturity, they may receive an offer that is less than they have invested.
The Issuer or the Guarantors may be unable to redeem the Bonds On certain dates, including but not limited to the occurrence of a Relevant Event and at maturity of the Bonds, the Issuer may, and at maturity, will be required to, redeem all of the Bonds. If such an event were to occur, the Issuer may not have sufficient cash in hand and may not be able to arrange financing to redeem the Bonds in time, or on acceptable terms, or at all. There can also be no assurance that the Guarantors would have sufficient liquidity at such time to make the required redemption of the Bonds. The ability to redeem the Bonds in such event may also be limited by the terms of other debt instruments. Failure to redeem the Bonds by the Issuer or the Guarantors, in such circumstances, would constitute an Event of Default under the Bonds, which may also constitute a default under the terms of other indebtedness of the Guarantors or their respective Subsidiaries.
49 The insolvency laws of the British Virgin Islands, Hong Kong and the PRC and other local insolvency laws may differ from those of another jurisdiction with which the Bondholders are familiar As the Issuer, the HK Guarantor and the PRC Guarantor are incorporated under the laws of the British Virgin Islands, Hong Kong and the PRC respectively, any insolvency proceeding relating to the Issuer, the HK Guarantor or the PRC Guarantor would likely involve British Virgin Islands, Hong Kong or PRC insolvency laws, the procedural and substantive provisions of which may differ from comparable provisions of the local insolvency laws of jurisdictions with which the Bondholders are familiar.
Investment in the Bonds is subject to exchange rate risks Investment in the Bonds is subject to exchange rate risks. The value of the U.S. dollar against the Renminbi and other foreign currencies fluctuates and is affected by changes in the United States and international political and economic conditions and by many other factors. All payments of interest, premium (if any) and principal with respect to the Bonds will be made in U.S. dollars. As a result, the value of those U.S. dollar payments may vary with the prevailing exchange rates in the marketplace. If the value of the U.S. dollar depreciates against the Renminbi or other foreign currencies, the value of a Bondholder’s investment in Renminbi or other applicable foreign currency terms will decline.
The Bonds will be represented by a Global Certificate and holders of a beneficial interest in the Global Certificate must rely on the procedures of the Clearing Systems The Bonds will be represented by beneficial interests in a Global Certificate. The Global Certificate will be deposited with a common depositary for Euroclear and Clearstream. Except in the circumstances described in the Global Certificate, investors will not be entitled to receive individual certificates. The relevant clearing system will maintain records of the beneficial interests in the Global Certificate.
While the Bonds are represented by a Global Certificate, investors will be able to trade their beneficial interests only through the relevant clearing systems. While the Bonds are represented by a Global Certificate, the Issuer will discharge its payment obligations under theBondsbymakingpaymentstothe relevant clearing system for distribution to their account holders.
A holder of a beneficial interest in the Global Certificate must rely on the procedures of the relevant clearing system to receive payments under the Bonds. The Issuer does not have any responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Certificate.
Holders of beneficial interests in the Global Certificate will not have a direct right to vote in respect of the Bonds. Instead, such holders will be permitted to act only to the extent that they are enabled by the relevant clearing system to appoint appropriate proxies.
The Issuer will follow the applicable corporate disclosure standards for debt securities listed on the HKSE, which standards may be different from those applicable to companies in certain other countries The Issuer will be subject to reporting obligations in respect of the Bonds to be listed on the HKSE. The disclosure standards imposed by the HKSE may be different than those imposed by securities exchanges in other countries or regions. As a result, the level of information that is available may not correspond to the level to which the Bondholders are accustomed.
The Trustee may request Bondholders to provide an indemnity and/or security and/or prefunding to its satisfaction In certain circumstances, (including without limitation giving of notice to the Issuer and the Guarantors pursuant to Condition 9 of the Terms and Conditions of the Bonds and taking enforcement steps and/or action as contemplated in Condition 13 of the Terms and Conditions of the Bonds), the Trustee may, at
50 its discretion, request Bondholders to provide an indemnity and/or security and/or prefunding to its satisfaction before it takes actions on behalf of Bondholders. The Trustee shall not be obliged to take any such actions if not first indemnified and/or secured and/or prefunded to its satisfaction. Negotiating and agreeing to an indemnity and/or security and/or prefunding can be a lengthy process and may impact on when such actions can be taken. The Trustee may not be able to take actions, notwithstanding the provision of an indemnity or security or prefunding to it, in breach of the terms of the Trust Deed (as defined in the Terms and Conditions of the Bonds), the Deed of Guarantee and/or the Terms and Conditions of the Bonds and in such circumstances, or where there is uncertainty or dispute as to the applicable laws or regulations, to the extent permitted by the agreements and the applicable laws and regulations, it will be for the Bondholders to take such actions directly.
Modifications and waivers may be made in respect of the Terms and Conditions of the Bonds, the Trust Deed, the Agency Agreement and the Deed of Guarantee by the Trustee or less than all of the Bondholders The Terms and Conditions of the Bonds contain provisions for calling meetings of Bondholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Bondholders including those Bondholders who did not attend and vote at the relevant meeting and those Bondholders who voted in a manner contrary to the majority.
The Terms and Conditions of the Bonds also provide that the Trustee may, without the consent of the Bondholders, agree to any modification of the Trust Deed, the Terms and Conditions of the Bonds, the Deed of Guarantee and/or the Agency Agreement which in the opinion of the Trustee will not be materially prejudicial to the interests of the Bondholders and to any modification of the Trust Deed, the Terms and Conditions of the Bonds, the Deed of Guarantee and/or the Agency Agreement which in the opinion of the Trustee is of a formal, minor or technical nature or is to correct a manifest error or to comply with any mandatory provision of applicable law. In addition, the Trustee may, without the consent of the Bondholders, authorise or waive any proposed breach or breach of the Bonds, the Trust Deed, the Terms and Conditions of the Bonds, the Deed of Guarantee or the Agency Agreement if, in the opinion of the Trustee, the interests of the Bondholders will not be materially prejudiced thereby.
The Issuer may issue additional Bonds in the future The Issuer may, from time to time, and without prior consultation of the Bondholders create and issue further Bonds (see ‘‘Terms and Conditions of the Bonds – Further Issues’’) or otherwise raise additional capital through such means and in such manner as it may consider necessary. There can be no assurance that such future issuance or capital raising activity will not adversely affect the market price of the Bonds.
51 CAPITALISATION AND INDEBTEDNESS
Capitalisation and Indebtedness of the Group The following table sets forth the Group’s consolidated capitalisation and indebtedness as at 31 December 2018 on an actual basis and on an adjusted basis after giving effect to the issuance of the Bonds. The following table should be read in conjunction with the Group’s audited consolidated financial statements as at and for the year ended 31 December 2018 and related notes, the English translation of which is included in this Offering Circular elsewhere.
As at 31 December 2018 Actual As adjusted (RMB in (U.S.$ in (RMB in (U.S.$ in millions) millions) millions) millions) Short-term debt: Short-term borrowings ...... 8,137.1 1,183.5 8,137.1 1,183.5 Non-current liabilities due within 1 year ...... 4,229.0 615.1 4,229.0 615.1 Bondstobeissued...... ––2,406.4 350 Total Short-term debt ...... 12,366.1 1,798.6 14,772.5 2,148.6 Long-term debt: Long-termborrowings...... 23,656.0 3,440.6 23,656.0 3,440.6 Bondspayables...... 5,514.8 802.1 5,514.8 802.1 Total long-term debt ...... 29,170.8 4,242.7 29,170.8 4,242.7 Owners’ equity: Paid-upcapital(orsharecapital)...... 200.0 29.1 200.0 29.1 Otherequityinstruments...... 3,800.0 552.7 3,800.0 552.7 Capitalreserve...... 2,347.2 341.4 2,347.2 341.4 Othercomprehensiveincome...... 185.1 26.9 185.1 26.9 Surplusreserve...... 19.8 2.9 19.8 2.9 Undistributed profit ...... 4,113.8 598.3 4,113.8 598.3 Minority interests ...... 5,687.8 827.3 5,687.8 827.3 Total Owners’ equity(1)...... 16,353.7 2,378.5 16,353.7 2,378.5 Total capitalisation(2) ...... 45,524.5 6,621.3 45,524.5 6,621.3
(1) Total owners’ equity includes total equity attributable to equity shareholders of the Group and minority interests.
(2) Total capitalisation equals total long-term debt and total owners’ equity.
There has been no material change in the consolidated capitalisation and indebtedness of the Group since 31 December 2018.
Capitalisation and Indebtedness of Founder Information The following table sets forth Founder Information’s consolidated capitalisation and indebtedness as at 31 December 2018 on an actual basis and on an adjusted basis after giving effect to the issuance of the Bonds.
52 The following table should be read in conjunction with Founder Information’s audited consolidated financial statements as at and for the year ended 31 December 2018 and related notes, which are included in this Offering Circular elsewhere.
As at 31 December 2018 Actual As adjusted (RMB in (U.S.$ in (RMB in (U.S.$ in millions) millions) millions) millions) Short-term debt: Bankandotherloans...... 10,723.5 1,559.7 10,723.5 1,559.7 Bondstobeissued...... ––2,406.4 350 Total Short-term debt ...... 10,723.5 1,559.7 13,129.9 1,909.7 Long-term debt: Bankandotherloans...... 5,392.0 784.2 5,392.0 784.2 Bondspayable...... 5,514.8 802.1 5,514.8 802.1 Total long-term debt ...... 10,906.8 1,586.3 10,906.8 1,586.3 Equity: Sharecapital...... 145.4 21.1 145.4 21.1 Reserves...... (315.0) (45.8) (315.0) (45.8) Non-controlling interests ...... 1,582.5 230.2 1,582.5 230.2 Total equity(1) ...... 1,412.9 205.5 1,412.9 205.5 Total capitalisation(2) ...... 12,319.7 1,791.8 12,319.7 1,791.8
(1) Total equity includes total equity attributable to equity shareholders of the company and non-controlling interests.
(2) Total capitalisation equals total long-term debt and total equity.
There has been no material change in the consolidated capitalisation and indebtedness of Founder Information since 31 December 2018.
53 USE OF PROCEEDS
The gross proceeds from this offering will be U.S.$350 million. The Issuer intends to use the net proceeds of this offering, after deducting commissions and other expenses payable in connection with this offering, for refinancing of the Group’s existing borrowings, and for general corporate purposes.
54 TERMS AND CONDITIONS OF THE BONDS
The following, subject to modification and other than the words in italics is the text of the terms and conditions of the Bonds which will appear on the reverse of each of the definitive certificates evidencing the Bonds:
The issue of U.S.$350,000,000 8.45 per cent. guaranteed bonds due 2020 (the ‘‘Bonds’’,whichterm shall include, unless the context requires otherwise, any additional Bonds issued in accordance with Condition 15 and consolidated and forming a single series therewith) was authorised by a resolution of the sole director of Dawn Victor Limited（旭勝有限公司）(the ‘‘Issuer’’) passed on or about 11 July 2019. The Bonds are guaranteed by Founder Information (Hong Kong) Limited (the ‘‘HK Guarantor’’) and Peking University Resources Group Co., Ltd.（北大資源集團有限公司）(the ‘‘PRC Guarantor’’, and together with the HK Guarantor, the ‘‘Guarantors’’, and each, a ‘‘Guarantor’’). The giving of the respective Guarantees (as defined in Condition 3(b)) was authorised by a resolution of the board of directors of the HK Guarantor on or about 11 July 2019 and by a resolution of the board of directors of the PRC Guarantor on 14 June 2019, respectively. The Bonds are constituted by a Trust Deed (as amended and/or supplemented from time to time, the ‘‘Trust Deed’’) dated on or about 17 July 2019 (the ‘‘Issue Date’’) between the Issuer, the Guarantors and The Bank of New York Mellon, London Branch (the ‘‘Trustee’’ which expression shall, where the context so permits, include all persons for the time being the trustee or trustees under the Trust Deed) as trustee for the holders of the Bonds. These terms and conditions (these ‘‘Conditions’’) include summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes the form of the Bonds. An agency agreement dated on or about 17 July 2019 (as amended and/or supplemented from time to time, the ‘‘Agency Agreement’’)has been entered into in relation to the Bonds between the Issuer, the Guarantors, the Trustee, The Bank of New York Mellon, London Branch as principal paying agent, The Bank of New York Mellon SA/NV, Luxembourg Branch as registrar and as transfer agent and the other paying agents and transfer agents named in it. The principal paying agent, the registrar, the transfer agent and the other paying agents and transfer agents for the time being are referred to below respectively as the ‘‘Principal Paying Agent’’, the ‘‘Registrar’’,the‘‘Transfer Agent’’,the‘‘Paying Agents’’ and the ‘‘Transfer Agents’’)and together as the ‘‘Agents’’. References to the ‘‘Paying Agents’’ include the Principal Paying Agent. Copies of (i) the Trust Deed, (ii) the Agency Agreement and (iii) the deed of guarantee dated on or about 17 July 2019 (as amended and/or supplemented from time to time, the ‘‘Deed of Guarantee’’) entered into by the PRC Guarantor and the Trustee, being executed in favour of the Trustee, are available for inspection at all reasonable times during usual business hours (being between 9:00 a.m. and 3:00 p.m.) at the specified office of the Principal Paying Agent following written request and proof of holding and identity satisfactory to the Principal Paying Agent. The Bondholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Deed of Guarantee and are deemed to have notice of those provisions applicable to them of the Agency Agreement.
All capitalised terms that are not defined in these Conditions will have the meanings given to them in the Trust Deed.
1 FORM, SPECIFIED DENOMINATION AND TITLE
The Bonds are issued in the specified denomination of U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof.
The Bonds are represented by registered certificates (‘‘Certificates’’) and, save as provided in Condition 2(a), each Certificate shall represent the entire holding of Bonds by the same holder.
Title to the Bonds shall pass by registration in the register that the Issuer shall procure to be kept by the Registrar in accordance with the provisions of the Agency Agreement (the ‘‘Register’’). Except as ordered by a court of competent jurisdiction or as required by law, the holder (as defined below) of any Bond shall be deemed to be and may be treated as its absolute owner for all
55 purposes whether or not it is overdue and regardless of any notice of ownership, trust or an interest in it, any writing on the Certificate representing it or the theft or loss of such Certificate and no person shall be liable for so treating the holder.
In these Conditions, ‘‘Bondholder’’ and (in relation to a Bond) ‘‘holder’’ means the person in whosenameaBondisregistered.
Upon issue, the Bonds will be represented by a global certificate (the ‘‘Global Certificate’’) registered in the name of a nominee of, and deposited with, a common depositary for Euroclear Bank SA/NV (‘‘Euroclear’’) and Clearstream Banking S.A. (‘‘Clearstream’’). The Conditions are modified by certain provisions contained in the Global Certificate. See ‘‘Summary of Provisions Relating to the Bonds in Global Form’’.
Except in the limited circumstances described in the Global Certificate, owners of interests in Bonds represented by the Global Certificate will not be entitled to receive definitive Certificates in respect of their individual holdings of Bonds. The Bonds are not issuable in bearer form.
2 TRANSFERS OF BONDS
(a) Transfer: A holding of Bonds may, subject to Condition 2(d) and relevant provisions of the Agency Agreement, be transferred in whole or in part upon the surrender (at the specified office of the Registrar or any Transfer Agent) of the Certificate(s) representing such Bonds to be transferred, together with the form of transfer endorsed on such Certificate(s) (or another form of transfer substantially in the same form and containing the same representations and certifications (if any), unless otherwise agreed by the Issuer), duly completed and executed and any other evidence as the Registrar or such Transfer Agent may require. In the case of a transfer of part only of a holding of Bonds represented by one Certificate, a new Certificate shall be issued to the transferee in respect of the part transferred and a further new Certificate in respect of the balance of the holding not transferred shall be issued to the transferor. In the case of a transfer of Bonds to a person who is already a holder of Bonds, a new Certificate representing the enlarged holding shall only be issued against surrender of the Certificate representing the existing holding. All transfers of Bonds and entries on the Register will be made in accordance with the detailed regulations concerning transfers of Bonds scheduled to the Agency Agreement. The regulations may be changed by the Issuer, with the prior written approval of the Registrar and the Trustee, or by the Registrar, with the prior written approval of the Trustee. A copy of the current regulations will be made available by the Registrar to any Bondholder following written request and proof of holding and identity satisfactory to the Registrar.
Transfer of interests in the Bonds evidenced by the Global Certificate will be effected in accordance with the rules of the relevant clearing systems.
(b) Delivery of New Certificates: Each new Certificate to be issued pursuant to Condition 2(a) shall be available for delivery within seven business days of receipt of a duly completed form of transfer and surrender of the existing Certificate(s). Delivery of the new Certificate(s) shall be made at the specified office of any Transfer Agent or of the Registrar (as the case may be) to whom delivery or surrender of such form of transfer and Certificate shall have been made or, at the option of the holder making such delivery or surrender as aforesaid and as specified in the relevant form of transfer or otherwise in writing, be mailed by uninsured post at the risk of the holder entitled to the new Certificate to such address as may be so specified, unless such holder requests otherwise and pays in advance to the relevant Transfer Agent or the Registrar (as the case may be) the costs of such other method of delivery and/or such insurance as it may specify. In this Condition 2(b), ‘‘business day’’ means a day, other than a Saturday or Sunday or public holiday, on which banks are open for business in the place of the specified office of the relevant Transfer Agent or the Registrar (as the case may be).
56 (c) Transfer Free of Charge: Certificates, on transfer or redemption, shall be issued and registered without charge by or on behalf of the Issuer, the Registrar or any Transfer Agent, but upon payment by the relevant Bondholder of any tax, duty or other governmental charges that may be imposed in relation to it (or the giving of such indemnity and/or security and/or prefunding as the Registrar or the relevant Transfer Agent may require).
(d) Closed Periods: No Bondholder may require the transfer of a Bond to be registered (i) during the period of 15 days ending on (and including) the due date for redemption of that Bond, (ii) after a Put Exercise Notice has been deposited in respect of such Bonds, (iii) after any such Bond has been called for redemption, or (iv) during the period of seven days ending on (and including) any Record Date (as defined in Condition 7(a)(ii)).
3 STATUS AND GUARANTEE
(a) Status: The Bonds constitute direct, unsubordinated, unconditional and (subject to Condition 4(a)) unsecured obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Bonds shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4(a), at all times rank at least equally with all the Issuer’s other present and future unsecured and unsubordinated obligations.
(b) Guarantees: Each Guarantor has unconditionally and irrevocably guaranteed the due payment of the principal, premium (if any) and interest in respect of the Bonds and all other sums expressed to be payable by the Issuer under the Bonds and the Trust Deed. Each of the HK Guarantor’s and PRC Guarantor’s obligations in respect of the Bonds and the Trust Deed (together, the ‘‘Guarantees’’) are contained in the Trust Deed (in the case of the HK Guarantor) and in the Deed of Guarantee (in the case of the PRC Guarantor) (and, in each case, any supplement thereto). The respective obligations of each of the HK Guarantor and the PRC Guarantor under the Guarantees shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4(a), at all times rank at least equally with all its other present and future unsecured and unsubordinated obligations.
4 COVENANTS
(a) Negative Pledge: So long as any Bond remains outstanding (as defined in the Trust Deed), neither the Issuer nor any Guarantor shall, and each of the Issuer and the Guarantors shall procure that none of their respective Subsidiaries (other than a Listed Subsidiary and any Subsidiary of such Listed Subsidiary) will, create or permit to subsist any mortgage, charge, lien, pledge or other security interest upon the whole or any part of its present or future undertaking, assets or revenues to secure (i) any Relevant Indebtedness outside the PRC or (ii) any guarantee or indemnity in respect of any Relevant Indebtedness outside the PRC without (A) at the same time or prior thereto securing the Bonds or guaranteeing or indemnifying the Bondholders equally and rateably therewith or (B) providing such other security for the Bonds as the Trustee may in its absolute discretion consider to be not materially less beneficial to the Bondholders or as may be approved by an Extraordinary Resolution (as defined in the Trust Deed) of Bondholders.
(b) Undertakings relating to the Deed of Guarantee:
(i) The PRC Guarantor undertakes to file or cause to be filed with the State Administration of Foreign Exchange or its local branch (‘‘SAFE’’), the Deed of Guarantee within 15 PRC Business Days after execution of the Deed of Guarantee in accordance with the Provisions on the Foreign Exchange Administration of Cross-Border Guarantees（跨境 擔保外匯管理規定）promulgatedbySAFEon12May2014whichcameintoeffecton
57 1 June 2014 (the ‘‘Cross-Border Security Registration’’) and to use its reasonable endeavours to complete the Cross-Border Security Registration and obtain a registration certificate from SAFE on or before the Registration Deadline.
(ii) The PRC Guarantor shall (A) use its reasonable endeavours to provide the Trustee on or before the Registration Deadline with (I) a certificate in English substantially in the form set out in the Trust Deed signed by an Authorised Signatory of the PRC Guarantor confirming the completion of the Cross-Border Security Registration; and (II) a copy of the registration certificate from SAFE (or any other document evidencing the completion of registration issued by SAFE) setting out the particulars of registration, certified in English as a true and complete copy of the original by an Authorised Signatory of the PRC Guarantor (the documents referred to in (I) and (II) together, the ‘‘Registration Documents’’; and (B) procure that within five PRC Business Days after the Registration Documents are delivered to the Trustee, the Issuer gives notice to the Bondholders (in accordance with Condition 16) confirming the completion of the Cross- Border Security Registration. The Trustee shall have no obligation or duty to monitor or ensure the filing or registration of the Deed of Guarantee with SAFE on or before the Registration Deadline or to verify the accuracy, validity and/or genuineness of any certificate, confirmation or other document in relation to or in connection with the Cross-Border Security Registration and Registration Documents or the accuracy or completeness of the translation into English of any such certificate, confirmation or other document or to give notice to the Bondholders confirming the completion of the Cross-Border Security Registration, and the Trustee shall not be liable to Bondholders or any other person for not doing so.
(c) Information Rights: Each of the Guarantors has undertaken in the Trust Deed that for so long as any Bond remains outstanding, the Issuer and the Guarantors will furnish the Trustee with (i) a copy of the HK Guarantor Audited Financial Reports and the PRC Guarantor Audited Financial Reports within 150 days of the end of each Relevant Period; (ii) a Compliance Certificate of each of the Issuer and the Guarantors (on which the Trustee may rely conclusively as to such compliance) within 14 days of a written request of the Trustee and also at the same time as the copy of the HK Guarantor Audited Financial Reports or the PRC Guarantor Audited Financial Reports, as the case may be, is provided in accordance with this Condition 4(c) and (iii) a copy of the HK Guarantor Unaudited Financial Reports and the PRC Guarantor Unaudited Financial Reports within 90 days of the end of each Relevant Period.
(d) Disposals by the HK Guarantor: The HK Guarantor shall not directly or indirectly sell, convey, transfer, lease or otherwise dispose any Capital Stock held by it (a ‘‘Disposal’’) except:
(i) where the Disposal meets the following conditions:
(A) no Event of Default (as defined in Condition 9) or Potential Event of Default (as defined in the Trust Deed) shall have occurred at the time of or immediately after giving effect to such Disposal;
(B) the HK Guarantor has furnished the Trustee with a certificate in English signed by any Authorised Signatory of the HK Guarantor, certifying that the board of directors of the HK Guarantor has determined in good faith that the Disposal is on an arm’s-length basis and is in the best interest of the HK Guarantor; and
(C) none of the proceeds from the Disposal may be paid as dividend or lent other than to a wholly-owned subsidiary of the HK Guarantor; or
58 (ii) where such Disposal is made pursuant to a voluntary or solvent winding-up of a Subsidiary for the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or consolidation whereby the undertaking and assets of such Subsidiary are transferred or otherwise continue to be vested in the Issuer, the HK Guarantor or in any of their respective Subsidiaries.
(e) Issuer Activities: The Issuer shall not, and the Guarantors will procure that the Issuer will not, carry on any business activity whatsoever other than in connection with the issue of bonds, notes and other securities and any other activities incidental thereto (such activities in connection with the issue of bonds, notes and other securities shall, for the avoidance of doubt, include the on-lending of the proceeds of the issue of such bonds, notes and other securities to the Guarantors or as either of them may direct).
(f) Definitions: In these Conditions:
‘‘Capital Stock’’ means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all classes of partnership interests in a partnership, any and all membership interests in a limited liability company, any and all other equivalent ownership interests and any and all warrants, rights or options to purchase any of the foregoing;
‘‘Compliance Certificate’’ means a certificate in English of each of the Issuer, the HK Guarantor and the PRC Guarantor (as the case may be) signed by any one of the respective Authorised Signatories of the Issuer or the relevant Guarantor (as the case may be) that, having made all reasonable enquiries, to the best of the knowledge, information and belief of the Issuer or the relevant Guarantor (as the case may be) as at a date (the ‘‘Certification Date’’) not more than five days before the date of the certificate:
(i) no Event of Default (as defined in Condition 9) or Potential Event of Default had occurred since the Certification Date of the last such certificate or (if none) the date of the Trust Deed or, if such an event had occurred, giving details of it; and
(ii) each of the Issuer and the Guarantors (as the case may be) has complied with all its obligations under the Trust Deed and the Bonds;
‘‘HK Guarantor Audited Financial Reports’’ means the annual audited consolidated statement of profit or loss and other comprehensive income, statement of financial position and statement of cash flows of the HK Guarantor together with any statements, reports (including any directors’ and auditors’ reports) and notes attached to or intended to be read with any of them, all in English;
‘‘HK Guarantor Unaudited Financial Reports’’ means the semi-annual (or any other interim reporting period required by applicable law or regulations) unaudited consolidated statement of profit or loss and other comprehensive income, statement of financial position and statement of cash flows of the HK Guarantor together with, if any, statements, reports (including any directors’ and auditors’ review reports) and notes attached to or intended to be read with any of them;
‘‘Hong Kong’’ means the Hong Kong Special Administrative Region of the People’s Republic of China;
‘‘Listed Subsidiary’’ means any Subsidiary, the shares of which at the relevant time listed on The Stock Exchange of Hong Kong Limited or any other recognised stock exchange;
59 ‘‘Potential Event of Default’’ means an event or circumstance which could with the giving of notice, lapse of time, issue of a certificate and/or fulfilment of any other requirement provided for in Condition 9 become an Event of Default;
‘‘PRC’’ means the People’s Republic of China which, for the purposes of these Conditions, shall not include Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan;
‘‘PRC Business Day’’ means a day on which commercial banks are open for business in the PRC;
‘‘PRC Guarantor Audited Financial Reports’’ means the annual audited combined balance sheet, statement of income and statement of cash flows of the PRC Guarantor together with any statements, reports (including any directors’ and auditors’ reports) and notes attached to or intended to be read with any of them, all in English;
‘‘PRC Guarantor Unaudited Financial Reports’’ means the semi-annual (or any other interim reporting period required by applicable law or regulations) unaudited combined balance sheet, statement of income and statement of cash flows of the PRC Guarantor together with, if any, statements, reports (including any directors’ and auditors’ review reports) and notes attached to or intended to be read with any of them;
‘‘Registration Deadline’’ means the day falling 180 calendar days after the Issue Date;
‘‘Relevant Indebtedness’’ means any present or future indebtedness which is in the form of or represented by any bond, note, debenture, debenture stock, loan stock, or other securities which is, or is capable of being, listed, quoted or traded on any stock exchange or in any securities market (including, without limitation, any over-the-counter market) (which for the avoidance of doubt does not include bilateral loans, syndicated loans or club deal loans);
‘‘Relevant Period’’ means, in relation to each of the HK Guarantor Audited Financial Reports and PRC Guarantor Audited Financial Reports, each period of twelve months ending on the last day of their respective financial year (being 31 December of that financial year) and, in relation to each of the HK Guarantor Unaudited Financial Reports and the PRC Guarantor Unaudited Financial Reports, each period of six months ending on the last day of their respective first half financial year (being 30 June of that financial year); and
a ‘‘Subsidiary’’ of any person means (i) any company or other business entity of which that person owns or controls (either directly or through one or more other Subsidiaries) more than 50 per cent. of the issued share capital or other ownership interest having ordinary voting power to elect directors, managers or trustees of such company or other business entity, or (ii) any company or other business entity which at any time has its accounts consolidated with those of that person or which, under the law, regulations or generally accepted accounting principles of the jurisdiction of incorporation of such person from time to time, should have its accounts consolidated with those of that person.
5INTEREST
The Bonds bear interest on their outstanding principal amount from and including 17 July 2019 at the rate of 8.45 per cent. per annum, payable in arrear on 17 January 2020 and 14 July 2020 (each an ‘‘Interest Payment Date’’).
Each Bond will cease to bear interest from the due date for redemption unless, upon surrender of the Certificate representing such Bond, payment of principal or premium (if any) is improperly withheld or refused. In such event it shall continue to bear interest at such rate (both before and
60 after judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Bond up to that day are received by or on behalf of the relevant Bondholder, and (b) the day falling seven days after the Trustee or the Principal Paying Agent has notified Bondholders of receipt of all sums due in respect of all the Bonds up to that seventh day (except to the extent that there is failure in the subsequent payment to the relevant holders under these Conditions).
In these Conditions, the period beginning on and including the Issue Date and ending on but excluding the first Interest Payment Date and the period beginning on and including the first Interest Payment Date and ending on but excluding 14 July 2020 are both called an ‘‘Interest Period’’.
Interest in respect of any Bond shall be calculated per U.S.$1,000 in principal amount of the Bonds (the ‘‘Calculation Amount’’). The amount of interest payable on 17 January 2020 shall be U.S.$42.25 in respect of each Calculation Amount and the amount of interest payable on 14 July 2020 shall be U.S.$41.55 in respect of each Calculation Amount. If interest is required to be calculated for a period of less than a complete Interest Period, the amount of interest payable per Calculation Amount shall be equal to the product of the rate of interest specified above, the Calculation Amount and the day-count fraction determined on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed, rounding the resulting figure to the nearest cent (half a cent bring rounded upwards).
6 REDEMPTION AND PURCHASE
(a) Final Redemption: Unless previously purchased and cancelled, the Bonds will be redeemed at their principal amount on the Interest Payment Date falling on 14 July 2020 (the ‘‘Maturity Date’’). The Bonds may not be redeemed at the option of the Issuer other than in accordance with this Condition 6.
(b) Redemption for Tax Reasons: The Bonds may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days’ notice to the Bondholders (which notice shall be irrevocable), at their principal amount, (together with interest accrued to but excluding the date fixed for redemption), if the Issuer (or, if either of the Guarantees was called, the relevant Guarantor) satisfies the Trustee immediately prior to the giving of such notice that (i) it has or will become obliged to pay Additional Tax Amounts as provided or referred to in Condition 8 as a result of any change in, or amendment to, the laws or regulations of the British Virgin Islands, Hong Kong or the PRC (each, a ‘‘Relevant Jurisdiction’’) or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after 11 July 2019, and (ii) such obligation cannot be avoided by the Issuer (or the relevant Guarantor, as the case may be) taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer (or the relevant Guarantor, as the case may be) would be obliged to pay such Additional Tax Amounts were a payment in respect of the Bonds then due. Prior to the giving of any notice of redemption pursuant to this Condition 6(b), the Issuer (or the relevant Guarantor, as the case may be) shall deliver to the Trustee a certificate in English signed by an Authorised Signatory of the Issuer (or of the relevant Guarantor, as the case may be) stating that the obligation referred to in (i) above of this Condition 6(b) cannot be avoided by the Issuer (or the relevant Guarantor, as the case may be) taking reasonable measures available to it, and the Trustee shall be entitled to accept such certificate as sufficient evidence of the satisfaction of the conditions precedent set out in (i) and (ii) above of this Condition 6(b) without further enquiry and without liability to any Bondholder, in which event the same shall be conclusive and binding on the Bondholders.
61 (c) Redemption for Relevant Event: At any time following the occurrence of a Relevant Event, the holder of any Bond will have the right, at such holder’s option, to require the Issuer to redeem all but not some only of that holder’s Bonds on the Put Settlement Date (as defined below) at 101 per cent. (in the case of a redemption for a Change of Control) or 100 per cent. (in the case of a redemption for a No Registration Event) of their principal amount, together with interest accrued to but excluding such Put Settlement Date. To exercise such right, the holder of the relevant Bond must deposit at the specified office of any Paying Agent a duly completed and signed notice of redemption, in the form for the time being current, obtainable from the specified office of any Paying Agent (a ‘‘Put Exercise Notice’’), together with the Certificates evidencing the Bonds to be redeemed, by not later than 30 days following the occurrence of a Relevant Event or, if later, 30 days following the date upon which notice thereof is given to Bondholders by the Issuer in accordance with Condition 16.
The ‘‘PutSettlementDate’’ shall be the 14th day (in the case of a redemption for a Change of Control) or the fifth PRC Business Day (in the case of a redemption for a No Registration Event) after the expiry of such period of 30 days as referred to in the preceding paragraph of this Condition 6(c). A Put Exercise Notice, once delivered, shall be irrevocable and the Issuer shall redeem the Bonds, the subject of the Put Exercise Notices delivered as aforesaid, on the Put Settlement Date.
A Put Exercise Notice, once delivered, shall be irrevocable and the Issuer shall redeem the Bonds subject to the Put Exercise Notices delivered as aforesaid on the Put Settlement Date.
The Issuer shall give notice to Bondholders in accordance with Condition 16 and to the Trustee and the Principal Paying Agent in writing by not later than 14 days (in the case of a redemption for a Change of Control) or five PRC Business Days (in the case of a redemption for a No Registration Event) following the first day on which it becomes aware of the occurrence of a Relevant Event, which notice shall specify the procedure for exercise by holders of their rights to require redemption of the Bonds pursuant to this Condition 6(c).
The Trustee and the Agents shall not be required to monitor or take any steps to ascertain whether a Relevant Event or any event which could lead to the occurrence of a Relevant Event has occurred and none of them shall be responsible or liable to Bondholders, the Issuer, the Guarantors or any other person for any loss arising from any failure to do so.
In this Condition 6(c):
a ‘‘Change of Control’’ occurs when:
(i) Peking University ceases to directly or indirectly Control the PRC Guarantor;
(ii) the PRC Guarantor and its Subsidiaries together cease to directly or indirectly own and hold not less than 51 per cent. of the outstanding shares of the HK Guarantor;
(iii) the HK Guarantor ceases to directly or indirectly own and hold not less than 30 per cent. of the outstanding shares of Peking University Resources (Holdings) Company Limited (the ‘‘HK Listco’’) or ceases to directly or indirectly remain the single largest shareholder of the HK Listco or ceases to have the ability to appoint and/or remove all or majority of the members of the board of directors of the HK Listco or the financial statements of the HK Listco ceases to be consolidated with the financial statements of the HK Guarantor under Hong Kong Financial Reporting Standards; or
(iv) the Issuer ceases to be a directly or indirectly wholly-owned Subsidiary of the HK Guarantor;
62 ‘‘Control’’ means, with respect to a person, either (i) or (ii) is satisfied:
(i) the direct or indirect ownership, acquisition or control of more than 50 per cent. of the voting rights of the issued share capital of a person; or
(ii) the ability to appoint and/or remove all or the majority of the members of a person’s board of directors or other governing body, whether obtained directly or indirectly, and whether obtained by ownership of share capital, the possession of voting rights, contract or otherwise,
and the terms ‘‘controlling’’ and ‘‘controlled’’ have meanings correlative to the foregoing;
a ‘‘No Registration Event’’ occurs when the Registration Condition has not been satisfied in full on or before the Registration Deadline;
‘‘Registration Condition’’ means the receipt by the Trustee of the Registration Documents; and
‘‘Relevant Event’’ means a Change of Control or a No Registration Event.
References to ‘‘principal’’ in these Conditions shall, unless the context otherwise requires, include the premium referred to in this Condition 6(c).
(d) Notice of Redemption: All Bonds in respect of which any notice of redemption is given under this Condition 6 shall be redeemed on the date specified in such notice in accordance with this Condition 6. If there is more than one notice of redemption given in respect of any Bond (which shall include any notice given by the Issuer pursuant to Condition 6(b) and any Put Exercise Notice given by a Bondholder pursuant to Condition 6(c)), the notice given first in time shall prevail and in the event of two notices being given on the same date, the first to be given shall prevail.
(e) Purchase: The Issuer, the Guarantors and their respective Subsidiaries may at any time purchase Bonds in the open market or otherwise at any price. The Bonds so purchased, while held by or on behalf of the Issuer, either Guarantor or any such Subsidiary, shall not entitle the holder to vote at any meetings of the Bondholders and shall not be deemed to be outstanding for the purposes of, among other things, calculating quorums at meetings of the Bondholders or for the purposes of Conditions 9, 12(a) and 13.
(f) Cancellation: All Certificates representing Bonds purchased by or on behalf of the Issuer, either Guarantor or their respective Subsidiaries shall be surrendered for cancellation to the Registrar and, upon surrender thereof, all such Bonds shall be cancelled forthwith. Any Certificates so surrendered for cancellation may not be reissued or resold and the obligations of the Issuer and the Guarantors in respect of any such Bonds shall be discharged.
7 PAYMENTS
(a) Method of Payment:
(i) Payments of principal and premium (if any) shall be made (subject to surrender of the relevant Certificates at the specified office of any Transfer Agent or of the Registrar if no further payment falls to be made in respect of the Bonds represented by such Certificates) in the manner provided in Condition 7(a)(ii) below.
63 (ii) Interest on each Bond shall be paid to the person shown on the Register at the close of business on the fifth Payment Business Day before the due date for payment thereof (the ‘‘Record Date’’). Payments of interest on each Bond shall be made in U.S. dollars by transfer to the registered account of the holder of such Bond.
(iii) For the purposes of this Condition 7, a Bondholder’s ‘‘registered account’’ means the U.S. dollar account maintained by or on behalf of it, details of which appear on the Register at the close of business on the fifth Payment Business Day before the due date for payment.
(iv) If the amount of principal being paid upon surrender of the relevant Certificate is less than the outstanding principal amount of such Certificate, the Registrar will annotate the Register with the amount of principal so paid and will (if so requested in writing by the Issuer or a Bondholder) issue a new Certificate with a principal amount equal to the remaining unpaid outstanding principal amount. If the amount of premium (if any) or interest being paid is less than the amount then due, the Registrar will annotate the Register with the amount of premium (if any) or interest so paid.
Notwithstanding the foregoing, so long as the Global Certificate is held on behalf of Euroclear Bank SA/NV, Clearstream Banking S.A. or an Alternative Clearing System (as defined in the form of the Global Certificate), each payment in respect of the Global Certificate will be made to the person shown as the holder in the Register at the close of business of the relevant clearing system on the Clearing System Business Day before the due date for such payments, where ‘‘Clearing System Business Day’’ means a weekday (Monday to Friday, inclusive) except 1 January and 25 December.
(b) Payments subject to Fiscal Laws: All payments are subject in all cases to (i) any applicable fiscal or other laws, regulations and directives in the place of payment but without prejudice to the provisions of Condition 8 and (ii) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986, as amended (the ‘‘Code’’) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreement thereunder, any official interpretations thereof, or (without prejudice to provisions of Condition 8 any law implementing an intergovernmental approach thereto). No commission or expenses shall be charged to the Bondholders in respect of such payments.
(c) Payment Initiation: Where payment is to be made by transfer to a registered account, payment instructions (for value on the due date or, if that is not a Payment Business Day, for value the first following day which is a Payment Business Day) will be initiated on the due date for payment (or, if that date is not a Payment Business Day, on the first following day which is a Payment Business Day), or, in the case of payments of principal and premium (if any) where the relevant Certificate has not been surrendered at the specified office of any Transfer Agent or of the Registrar, on a day on which the Principal Paying Agent is open for business and on which the relevant Certificate is surrendered.
(d) AppointmentofAgents: The Principal Paying Agent, the Registrar and the Transfer Agent initially appointed by the Issuer and the Guarantors and their respective specified offices are listed below. The Principal Paying Agent, the Registrar and the Transfer Agent act solely as agents of the Issuer and the Guarantors (or where a notice given by the Trustee pursuant to an Event of Default or a Potential Event of Default has not been withdrawn, the Trustee) and do not assume any obligation or relationship of agency or trust for or with any Bondholder. The Issuer and the Guarantors reserve the right at any time with the prior written approval of the Trustee to vary or terminate the appointment of the Principal Paying Agent, the Registrar, any Transfer Agent or any of the other Agents and to appoint additional or other Agents,
64 provided that the Issuer and the Guarantors shall at all times maintain (i) a Principal Paying Agent, (ii) a Registrar, (iii) a Transfer Agent and (iv) such other agents as may be required by any other stock exchange on which the Bonds may be listed. Notice of any such termination or appointment or any change of any specified office of an Agent shall promptly be given by the Issuer to the Bondholders in accordance with Condition 16.
(e) Delay in payment: Bondholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due on a Bond if the due date is not a Payment Business Day or if the Bondholder is late in surrendering or cannot surrender its Certificate (if required to do so).
(f) Payment Business Days: In this Condition 7, ‘‘Payment Business Day’’ means a day (other than a Saturday, Sunday or public holiday) on which banks and foreign exchange markets are open for business and settlement of U.S. dollar payments in New York City, Hong Kong and London and (if surrender of the relevant Certificate is required) the relevant place of presentation.
8 TAXATION
All payments of principal, premium (if any) and interest by or on behalf of the Issuer or any of the Guarantors in respect of the Bonds or under the Guarantees shall be made free and clear of, and without withholding or deduction for or on account of, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within a Relevant Jurisdiction (as defined in Condition 6(b)) or, in each case, any political subdivision or authority therein or thereof having power to tax, unless such withholding or deductionisrequiredbylaw.
Where such withholding or deduction is made by the Issuer or, as the case may be, the relevant Guarantor by or within the PRC at the rate of up to and including 10 per cent. (the ‘‘Applicable Rate’’) the Issuer or, as the case may be, the relevant Guarantor will increase the amounts paid by it to the extent required, so that the net amount received by Bondholders equals the amounts which would otherwise have been receivable by them had no such withholding or deduction been required.
If the Issuer or, as the case may be, the relevant Guarantor is required to make a deduction or withholding in respect of PRC tax in excess of the Applicable Rate, or any Hong Kong or British Virgin Islands deduction or withholding is required, in such event that the Issuer or, as the case may be, the relevant Guarantor shall pay such additional amounts (‘‘Additional Tax Amounts’’) as will result in receipt by the Bondholders of such amounts as would have been received by them had no such withholding or deduction been required, except that no Additional Tax Amounts shall be payable in respect of any Bond:
(a) Other connection: to a holder (or to a third party on behalf of a holder) who is liable to such taxes, duties, assessments or governmental charges in respect of such Bond by reason of his having some connection with the British Virgin Islands, Hong Kong or the PRC other than the mere holding of the Bond; or
(b) Surrender more than 30 days after the Relevant Date: in respect of which the Certificate representing it is presented for payment more than 30 days after the Relevant Date except to the extent that the holder of it would have been entitled to such Additional Tax Amounts on surrendering the Certificate representing such Bond for payment on the last day of such period of 30 days.
65 ‘‘Relevant Date’’ in respect of any Bond means the date on which payment in respect of it first becomes due or (if any amount of the money payable is improperly withheld or refused) the date on which payment in full of the amount outstanding is made or (if earlier) the date seven days after that on which notice is duly given to the Bondholders that, upon further surrender of the Certificate representing such Bond being made in accordance with these Conditions, such payment will be made, provided that payment is in fact made upon such surrender.
Neither the Trustee nor any Agent shall be responsible for paying any tax, duty, charges, withholding or other payment referred to in this Condition 8 or for determining whether such amounts are payable or the amount thereof, and none of them shall be responsible or liable for any failure by the Issuer, the Guarantors, any Bondholder or any third party to pay such tax, duty, charges, withholding or other payment in any jurisdiction or to provide any notice or information to the Trustee or any Agent that would permit, enable or facilitate the payment of any principal, premium (if any), interest or other amount under or in respect of the Bonds without deduction or withholding for or on account of any tax, duty, charge, withholding or other payment imposed by or in any jurisdiction.
9 EVENTS OF DEFAULT
If any of the following events (each an ‘‘EventofDefault’’) occurs, the Trustee at its discretion may, and if so requested in writing by holders of at least 25 per cent. of the aggregate principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution shall, provided in any such case that the Trustee shall first have been indemnified and/or secured and/or prefunded to its satisfaction, give written notice to the Issuer and the Guarantors declaring that the Bonds are, and they shall immediately become, due and payable at their principal amount together (if applicable) with accrued interest:
(a) Non-Payment: there is a failure to pay the principal of or any premium on any of the Bonds when due or there is a failure to pay interest on any of the Bonds when due and such failure continues for a period for seven days; or
(b) Breach of Other Obligations: the Issuer or either of the Guarantors does not perform or comply with any one or more of its other obligations in the Bonds, the Deed of Guarantee, the Trust Deed (other than those referred to in Condition 9(a) or those the breach of which would give rise to a redemption right pursuant to Condition 6(c)), which default is in the opinion of the Trustee incapable of remedy or, if in the opinion of the Trustee capable of remedy, is not remedied within 30 days after notice of such default shall have been given to the Issuer or the relevant Guarantor, as the case may be, by the Trustee; or
(c) Cross-Default: (i) any other present or future indebtedness of the Issuer, either of the Guarantors or any of their respective Subsidiaries for or in respect of moneys borrowed or raised becomes (or becomes capable of being declared) due and payable prior to its stated maturity by reason of any actual default, event of default or the like (howsoever described), or (ii) any such indebtedness is not paid when due or, as the case may be, within any originally applicable grace period, or (iii) the Issuer, either of the Guarantors or any of their respective Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee for, or indemnity in respect of, any moneys borrowed or raised provided that the aggregate amount of the relevant indebtedness, guarantees and indemnities in respect of which one or more of the events mentioned above in this Condition 9(c) have occurred equals or exceeds U.S.$25,000,000 or its equivalent (on the basis of the middle spot rate for the relevant currency against the US dollarasquotedbyanyleadingbankonthedayon which this Condition 9(c) operates); or
66 (d) Enforcement Proceedings: one or more final judgment(s) or order(s) for the payment of any amount is rendered against the Issuer, any Guarantor or any Guarantor’sPrincipal Subsidiaries in respect of the whole or a material part of their respective undertakings, assets or revenue, and continues unsatisfied and unstayed for a period of 30 days after the date(s) thereof or, if later, the date therein specified for payment; or
(e) Security Enforced: any mortgage, charge, pledge, lien or other encumbrance, present or future, created or assumed by the Issuer, either of the Guarantors or any Principal Subsidiary over all or a material part of the assets of the Issuer, either of the Guarantors or the relevant Principal Subsidiary, as the case may be, becomes enforceable and any step is taken to enforce it (including the taking of possession or the appointment of a receiver, manager or other similar person) and is not discharged within 30 days; or
(f) Insolvency: the Issuer, either of the Guarantors or any Principal Subsidiary is (or is expected to by law or a court to be) insolvent or bankrupt or unable to pay its debts, stops, suspends or threatens to stop or suspend payment of all or a material part of its debts, proposes or makes any agreement for the deferral, rescheduling or other readjustment of all of its debts, proposes or makes a general assignment or an arrangement or composition with or for the benefit of the relevant creditors in respect of all or a material part of debts or a moratorium is agreed or declared in respect of or affecting all or a material part of the debts of the Issuer, either of the Guarantors or any Principal Subsidiary, as the case may be; or
(g) Winding-up: an administrator is appointed, an order is made or an effective resolution passed for the winding-up or dissolution or administration of the Issuer, either of the Guarantors or any Principal Subsidiary, or the Issuer, either of the Guarantors or any Principal Subsidiary ceases or threatens to cease to carry on all or substantially all of its business or operations, except for (i) the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or consolidation (A) on terms approved by an Extraordinary Resolution, or (B) whereby the undertaking and assets of a Principal Subsidiary are transferred to or otherwise continue to be vested in either of the Guarantors or any of their respective Subsidiaries; or (ii) a disposal of a Principal Subsidiary of either of the Guarantors on an arm’s length basis where the assets (whether in cash or otherwise) resulting from such disposal is vested in the Issuer, either of the Guarantors or any of their respective Subsidiaries; or (iii) a solvent winding-up or dissolution of any Principal Subsidiary (excluding the HK Guarantor and the Issuer); or
(h) Authorisation and Consents: any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, licence, order, recording or registration) at any time required to be taken, fulfilled or done in order (i) to enable the Issuer and the Guarantors lawfully to enter into, exercise their respective rights and perform and comply with their respective obligations under theBonds,theTrustDeed and the Deed of Guarantee, (ii) to ensure that those obligations are legally binding and enforceable and (iii) to make the Bonds, the Trust Deed and the Deed of Guarantee admissible in evidence in the courts of Hong Kong is not taken, fulfilled or done; or
(i) Illegality: it is or will become unlawful for the Issuer or either of the Guarantors to perform or comply with any one or more of their respective obligations under any of the Bonds, the Trust Deed or the Deed of Guarantee; or
(j) Unenforceability of Guarantees: except as permitted under the Trust Deed or the Deed of Guarantee, any part of the Guarantees is unenforceable or invalid or shall for any reason cease to be in full force and effect or is claimed to be unenforceable, invalid or not in full force and effect by the Issuer or either of the Guarantors; or
67 (k) Analogous Events: any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in Conditions 9(d) to 9(g) (both inclusive).
In this Condition 9, ‘‘Principal Subsidiary’’ means any Subsidiary of the Issuer or either of the Guarantors:
(a) whose total revenue or (in the case of a Subsidiary which itself has Subsidiaries) consolidated total revenue, as shown by its latest audited income statement are at least 5 per cent. of the consolidated total revenue as shown by the latest audited consolidated income statement of the PRC Guarantor including, for the avoidance of doubt, the PRC Guarantor and its consolidated Subsidiaries’ share of profits of Subsidiaries not consolidated and of jointly controlled entities and after adjustments for minority interests; or
(b) whose gross profits or (in the case of a Subsidiary which itself has Subsidiaries) consolidated gross profit, as shown by its latest audited income statement are at least 5 per cent. of the consolidated gross profit as shown by the latest audited consolidated income statement of the PRC Guarantor and its Subsidiaries including, for the avoidance of doubt, the PRC Guarantor and its consolidated Subsidiaries’ share of profits of Subsidiaries not consolidated and of jointly controlled entities and after adjustments for minority interests; or
(c) whose gross assets or (in the case of a Subsidiary which itself has Subsidiaries) consolidated gross assets, as shown by its latest audited balance sheet are at least 5 per cent. of the amount which equals the amount included in the consolidated gross assets of the PRC Guarantor and its Subsidiaries as shown by the latest audited consolidated balance sheet of the PRC Guarantor and its Subsidiaries as being represented by the investment of the PRC Guarantor in each Subsidiary whose accounts are not consolidated with the consolidated audited accounts of the PRC Guarantor and after adjustment for minority interests; or
(d) to which is transferred the whole or substantially the whole of the assets of a Subsidiary which immediately prior to such transfer was a Principal Subsidiary, provided that the Principal Subsidiary which so transfers its assets shall forthwith upon such transfer cease to be a Principal Subsidiary and the Subsidiary to which the assets are so transferred shall cease to be a Principal Subsidiary at the date on which the first audited accounts (consolidated, if appropriate) of the PRC Guarantor prepared as of a date later than such transfer are issued unless such Subsidiary would continue to be a Principal Subsidiary on the basis of such accounts by virtue of the provisions of paragraphs (a), (b) or (c) above of this definition,
provided that, in relation to paragraphs (a), (b) and (c) above of this definition:
(i) in the case of a corporation or other business entity becoming a Subsidiary after the end of the financial period to which the latest consolidated audited accounts of the PRC Guarantor relate, the reference to the then latest consolidated audited accounts of the PRC Guarantor for the purposes of the calculation above shall, until consolidated audited accounts of the PRC Guarantor for the financial period in which the relevant corporation or other business entity becomes a Subsidiary are available be deemed to be a reference to the then latest consolidated audited accounts of the PRC Guarantor adjusted to consolidate the latest audited accounts (consolidated in the case of a Subsidiary which itself has Subsidiaries) of such Subsidiary in such accounts;
68 (ii) if at any relevant time in relation to the PRC Guarantor or any Subsidiary which itself has Subsidiaries no consolidated accounts are prepared and audited, revenue, gross profit or gross assets of the PRC Guarantor and/or any such Subsidiary shall be determined on the basis of pro forma consolidated accounts prepared for this purpose by the PRC Guarantor;
(iii) if at any relevant time in relation to any Subsidiary, no accounts are audited, its revenue, gross profit or gross assets (consolidated, if appropriate) shall be determined on the basis of pro forma accounts (consolidated, if appropriate) of the relevant Subsidiary prepared for this purpose by the PRC Guarantor; and
(iv) if the accounts of any Subsidiary (not being a Subsidiary referred to in proviso (i) above) are not consolidated with those of the PRC Guarantor, then the determination of whether or not such subsidiary is a Principal Subsidiary shall be basedonaproformaconsolidationofitsaccounts (consolidated, if appropriate) with the consolidated accounts (determined on the basis of the foregoing) of the PRC Guarantor.
10 PRESCRIPTION
Claims against the Issuer and the Guarantors for payment in respect of the Bonds shall be prescribed and become void unless made within 10 years (in the case of principal or premium) or five years (in the case of interest) from the appropriate Relevant Date in respect of them.
11 REPLACEMENT OF CERTIFICATES
If any Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced, subject to applicable laws, regulations or other relevant regulatory authority regulations, at the specified office of the Registrar or any Transfer Agent, in each case on payment by the claimant of the fees and costs incurred in connection therewith and on such terms as to evidence, security, indemnity and otherwise as the Registrar or the relevant Transfer Agent may require. Mutilated or defaced Certificates must be surrendered before replacements will be issued.
12 MEETINGS OF BONDHOLDERS, MODIFICATION AND WAIVER
(a) Meetings of Bondholders: The Trust Deed contains provisions for convening meetings of Bondholders to consider matters affecting their interests, including without limitation the sanctioning by Extraordinary Resolution of a modification of any of these Conditions or any provisions of the Trust Deed, the Agency Agreement or the Deed of Guarantee. Such a meeting may be convened by the Issuer, either Guarantor or the Trustee and shall be convened by the Trustee if requested in writing to do so by Bondholders holding not less than 10 per cent. in aggregate principal amount of the Bonds for the time being outstanding and subject to the Trustee being indemnified and/or secured and/or pre-funded to its satisfaction against all costs and expenses. The quorum for any meeting convened to consider an Extraordinary Resolution will be two or more persons holding or representing more than 50 per cent. in aggregate principal amount of the Bonds for the time being outstanding, or at any adjourned meeting two or more persons, being Bondholders or agents of Bondholders, holding or representing whatever principal amount of the Bonds, unless the business of such meeting includes consideration of proposals, inter alia, (i) to modify the maturity of the Bonds or the dates on which interest is payable in respect of the Bonds, (ii) to reduce or cancel the principal amount of, any premium payable in respect of, or interest on, the Bonds, (iii) to change the currency of payment of the Bonds, (iv) to modify the provisions concerning the quorum required at any meeting of Bondholders or the majority required to pass an Extraordinary Resolution, or (v) to cancel or amend either or both of the Guarantees other than in accordance with Condition 12(b), in which case the necessary quorum will be
69 one or more persons holding or representing not less than 66 2/3 per cent., or at any adjourned meeting not less than 33 1/3 per cent., in aggregate principal amount of the Bonds for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on Bondholders (whether or not they were present at the meeting at which such resolution was passed and whether or not they voted on the Extraordinary Resolution).
The Trust Deed provides that a resolution in writing signed by or on behalf of the holders of not less than 75 per cent. in aggregate principal amount of the Bonds for the time being outstanding (a ‘‘Written Resolution’’) and consent given by way of electronic consents through the relevant clearing system(s) (in a form satisfactory to the Trustee) by or on behalf of the Bondholders of not less than 75 per cent. in aggregate principal amount of the Bonds for the time being outstanding (an ‘‘Electronic Consent’’) shall in each case for all purposes be as valid and effective as an Extraordinary Resolution. A Written Resolution may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Bondholders. A Written Resolution and/or an Electronic Consent will be binding on all Bondholders whether or not they participated in such Written Resolution and/or Electronic Consent, as the case may be.
(b) Modification of Agreements and Deeds: The Trustee may (but shall not be obliged to) agree, without the consent of the Bondholders, to (i) any modification of any of these Conditions or any of the provisions of the Trust Deed, the Agency Agreement or the Deed of Guarantee that is in its opinion of a formal, minor or technical nature or is made to correct a manifest error or is to comply with any mandatory provision of applicable law, and (ii) any other modification (except for Reserved Matters as defined in the Trust Deed), and any waiver or authorisation of any breach or proposed breach, of any of these Conditions or any of the provisions of the Trust Deed, the Agency Agreement or the Deed of Guarantee that is in the opinion of the Trustee not materially prejudicial to the interests of the Bondholders. Any such modification, authorisation or waiver shall be binding on the Bondholders and, unless the Trustee otherwise agrees, such modification, authorisation or waiver shall be notified by the Issuer to the Bondholders as soon as practicable thereafter in accordance with Condition 16.
(c) Entitlement of the Trustee: In connection with the exercise of its functions, rights, powers and discretions (including but not limited to those referred to in this Condition 12) the Trustee shall have regard to the interests of the Bondholders as a class and shall not have regard to the consequences of such exercise for individual Bondholders, and the Trustee shall not be entitled to require on behalf of any Bondholders, nor shall any Bondholder be entitled to claim, from the Issuer, the Guarantors or the Trustee any indemnification or payment in respect of any tax consequence of any such exercise upon individual Bondholders.
13 ENFORCEMENT
At any time after the Bonds become due and payable, the Trustee may, at its discretion and without further notice, take such steps and/or actions and/or institute such proceedings against the Issuer and/or the Guarantors as it may think fit to enforce the terms of the Trust Deed, the Agency Agreement, the Deed of Guarantee and the Bonds, but it need not take any such steps and/or actions and/or institute any such proceedings unless (a) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Bondholders holding at least 25 per cent. in aggregate principal amount of the Bonds then outstanding, and (b) it shall first have been indemnified and/or secured and/or pre-funded to its satisfaction. No Bondholder may proceed directly against the Issuer and/or the Guarantors unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing.
70 The Trustee may refrain from taking any action in any jurisdiction if the taking of such action in that jurisdiction would, in its opinion (based upon such legal advice (if any) in the relevant jurisdiction as the Trustee in its discretion may obtain), be contrary to any law of that jurisdiction. Furthermore, the Trustee may also refrain from taking any such steps, action and/or proceedings if in the opinion of the Trustee the same would otherwise render it liable to any person in that jurisdiction or if, in its opinion (based upon such legal advice (if any) in the relevant jurisdiction as the Trustee in its discretion may obtain), it would not have the power to do the relevant thing in that jurisdiction by virtue of any applicable law in that jurisdiction or if it is determined by any court or other competent authority in that jurisdiction that it does not have such power.
14 INDEMNIFICATION OF THE TRUSTEE
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility and liability, including among other things provisions relieving it from taking steps, actions and/or proceedings to enforce payment unless first indemnified and/or secured and/or pre- funded to its satisfaction. The Trustee is entitled to enter into business transactions with the Issuer and/or the Guarantors and/or any entity related (directly or indirectly) to the Issuer and/or the Guarantors without accounting for any profit.
None of the Trustee or any of the Agents shall be responsible for the performance by the Issuer, the Guarantors and any other person appointed by the Issuer and/or the Guarantors in relation to the Bonds of the duties and obligations on their part expressed in respect of the same and, unless it has express written notice from the Issuer or any of the Guarantors to the contrary, the Trustee and each Agent shall be entitled to assume that the same are being duly performed. None of the Trustee or any Agent shall be liable to any Bondholder or any other person for any action taken by the Trustee or any Agent in accordance with the instructions of the Bondholders. The Trustee shall be entitled to rely on any direction, request or resolution of Bondholders given by holders of the requisite principal amount of Bonds outstanding or passed at a meeting of Bondholders convened and held in accordance with the Trust Deed. Whenever the Trustee is required or entitled by the terms of the Trust Deed, the Deed of Guarantee or these Conditions to exercise any discretion or power, take any action, make any decision or give any direction, the Trustee is entitled, prior to its exercising any such discretion or power, taking any such action, making any such decision, or giving any such direction, to seek directions from the Bondholders by way of an Extraordinary Resolution, and the Trustee shall not be responsible or liable for any loss or liability incurred by any person as a result of any delay in it exercising such discretion or power, taking such action, making such decision, or giving such direction where the Trustee is seeking such directions or in the event that no such directions are received. The Trustee shall not be under any obligation to ascertain whether any Event of Default or Potential Event of Default has occurred or to monitor compliance with the provisions of the Trust Deed, the Agency Agreement, the Deed of Guarantee or these Conditions and shall not be liable to any person for any loss arising from any breach or any such event or from not so monitoring.
The Trustee may rely without liability to the Issuer, the Guarantors, the Bondholders or any other person on any report, confirmation or certificate from or any advice or opinion of any legal advisers, accountants, financial advisers, financial institution or any other expert, whether or not addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto entered into by the Trustee or any other person or in any other manner) by reference to a monetary cap, methodology or otherwise. The Trustee may accept and shall be entitled to rely on any such report, confirmation, certificate, advice or opinion and, in such event, such report, confirmation, certificate, advice or opinion shall be binding on the Issuer, the Guarantors and the Bondholders.
71 15 FURTHER ISSUES
The Issuer may from time to time without the consent of the Bondholders create and issue further securities either having the same terms and conditions as the Bonds in all respects (or in all respects except for the issue date and the first payment of interest on them and the timing for the Cross-Border Security Registration) and so that such further issue shall be consolidated and form a single series with the outstanding Bonds or upon such terms as the Issuer may determine at the time of their issue. References in these Conditions to the Bonds include (unless the context requires otherwise) any such other securities issued pursuant to this Condition 15 and consolidated and forming a single series with the Bonds. Any further securities consolidated and forming a single series with the outstanding Bonds constituted by the Trust Deed or any deed supplemental to it shall be constituted by a deed supplemental to the Trust Deed.
16 NOTICES
Notices to the holders of Bonds shall be mailedtothemattheirrespectiveaddressesinthe Register and deemed to have been given on the fourth weekday (being a day other than a Saturday or a Sunday) after the date of mailing The Issuer shall also ensure that notices are duly published in a manner that complies with the rules and regulations of any stock exchange or other relevant authority on which the Bonds are for the time being listed. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once, on the first date on which publication is made.
Until such time as any definitive certificates are issued and so long as the Global Certificate is held in its entirety on behalf of Euroclear and Clearstream, any notice to the Bondholders shall be validly given by the delivery of the relevant notice to Euroclear and Clearstream for communication by the relevant clearing system to entitled accountholders in substitution for notification as required by the Conditions and such notice shall be deemed to have been given on the date of delivery to such clearing system.
17 CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
No person shall have any right to enforce any term or condition of the Bonds under the Contracts (Rights of Third Parties) Act 1999 except and to the extent (if any) that the Bonds expressly provide for such Act to apply to any of their terms and without prejudice to the rights of the Bondholders as referred to in Condition 13.
18 GOVERNING LAW AND JURISDICTION
(a) Governing Law: The Trust Deed, the Agency Agreement, the Deed of Guarantee and the Bonds, and any non-contractual obligations arising out of or in connection with them are governed by, and shall be construed in accordance with, the laws of England.
(b) Jurisdiction: The courts of Hong Kong are to have exclusive jurisdiction to settle any disputes that may arise out of or in connection with the Bonds, the Deed of Guarantee, the Agency Agreement and the Trust Deed and accordingly any legal action or proceedings arising out of or in connection with any Bonds, the Deed of Guarantee, the Agency Agreement or the Trust Deed (‘‘Proceedings’’) may be brought in the courts of Hong Kong. Pursuant to the Trust Deed, each of the Issuer and the Guarantors has irrevocably submitted to the jurisdiction of the courts of Hong Kong.
(c) Agent for Service of Process: Each of the Issuer and the PRC Guarantor has irrevocably agreed to receive service of process at the HK Guarantor’s principal place of business at Unit 1408, 14/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan, New Territories, Hong Kong in any Proceedings in Hong Kong.
72 (d) Waiver of Immunity: Each of the Issuer and the Guarantors hereby waives any right to claim sovereign or other immunity from jurisdiction or execution and any similar defence, and irrevocably consents to the giving of any relief or the issue of any process, including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment made or given in connection with any Proceedings.
73 SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM
The Global Certificate contains provisions which apply to the Bonds while they are in global form, some of which modify the effect of the Terms and Conditions of the Bonds set out in this Offering Circular. The following is a summary of certain of those provisions.
Terms defined in the terms and conditions of the Bonds (the ‘‘Terms and Conditions of the Bonds’’) set out in this Offering Circular have such meanings when used in the paragraphs below.
The Bonds will be represented by registered certificates (‘‘Certificates’’) and, save as provided in Condition 2(a) of the Terms and Conditions of the Bonds, each Certificate shall represent the entire holding of Bonds by the same holder.
Upon issue, the Bonds will be represented by a Global Certificate which will be registered in the name of a nominee of, and deposited with, a common depositary on behalf of Euroclear and Clearstream.
Under the Global Certificate, the Issuer, for value received, will promise to pay such principal, interest and premium (if any) on the Bonds to the Bondholder on such date or dates as the same may become payable in accordance with the Terms and Conditions of the Bonds.
Owners of interests in the Bonds in respect of which the Global Certificate is issued will be entitled to have title to the Bonds registered in their names and to receive individual definitive Certificates if either Euroclear or Clearstream or any other clearing system (an ‘‘Alternative Clearing System’’)isclosedfor business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so.
The individual definitive Certificates will be issued in an aggregate principal amount equal to the principal amount of the Global Certificate. Such exchange will be effected in accordance with the provisions of the Agency Agreement and the regulations concerning the transfer and registration of the Bonds scheduled thereto and, in particular, shall be effected without charge to any Bondholder or the Trustee, but against such indemnity and/or security as the Registrar or the other relevant Agent may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such exchange.
The Issuer will cause sufficient individual definitive Certificates to be executed and delivered to the Registrar for completion, authentication and despatch to the relevant Bondholders. A person with an interest in the Bonds in respect of which the Global Certificate is issued must provide the Registrar not less than 30 days’ notice at its specified office of such holder’s intention to effect such exchange and a written order containing instructions and such other information as the Issuer and the Registrar may require to complete, execute and deliver such individual definitive Certificates.
In addition, the Global Certificate will contain provisions which modify the Terms and Conditions of the Bonds as they apply to the Bonds evidenced by the Global Certificate. The following is a summary of certain of those provisions:
Notices So long as the Bonds are represented by the Global Certificate and the Global Certificate is held on behalf of Euroclear or Clearstream or any Alternative Clearing System (as defined in the Global Certificate), notices to Bondholders may be given by delivery of the relevant notice to Euroclear or Clearstream or the Alternative Clearing System, for communication by it to entitled accountholders in substitution for notification as required by the Terms and Conditions of the Bonds.
74 Meetings For the purposes of any meeting of Bondholders, the holder of the Bonds represented by the Global Certificate shall (unless the Global Certificate represents only one Bond) be treated as two persons for the purposes of any quorum requirements of a meeting of Bondholders and as being entitled to one vote in respect of each U.S.$1,000 in principal amount of the Bonds.
Bondholder’sRedemption The Bondholder’s redemption option in Condition 6(c) of the Terms and Conditions of the Bonds may be exercised by the holder of the Global Certificate giving notice to any Paying Agent of the principal amount of Bonds in respect of which the option is exercised within the time limits specified in the Terms and Conditions of the Bonds.
Issuer’sRedemption The option of the Issuer provided for in Condition 6(b) of the Terms and Conditions of the Bonds shall be exercised by the Issuer giving notice to the Bondholders within the time limits set out in and containing the information required by the Terms and Conditions of the Bonds.
Transfers Transfers of interests in the Bonds represented by the Global Certificate will be effected through the records of Euroclear or Clearstream or any Alternative Clearing System and their respective participants in accordance with the rules and operating procedures of Euroclear or Clearstream or any Alternative Clearing System and their respective participants.
Cancellation Cancellation of any Bond represented by the Global Certificate which is required by the Terms and Conditions of the Bonds to be cancelled will be effected by reduction in the principal amount of the Bonds in the register of Bondholders and the Global Certificate on its presentation to or to the order of the Principal Paying Agent for annotation (for information only).
Trustee’sPowers In considering the interests of Bondholders while a Global Certificate is registered in the name of a nominee for a clearing system, the Trustee may, to the extent it considers it appropriate to do so in the circumstances, but without being obligated to do so, (a) have regard to any information as may have been made available to it by or on behalf of the relevant clearing system or its operator as to the identity of its accountholders (either individually or by way of category) with entitlements in respect of the Bonds and (b) consider such interests on the basis that such accountholders were the holders of the Bonds in respect of which that Global Certificate is issued.
The Global Certificate shall not become valid for any purpose until authenticated by or on behalf of the Registrar.
75 DESCRIPTION OF THE ISSUER
Overview The Issuer was incorporated as a BVI business company with limited liability on 12 November 2014 under the laws of the British Virgin Islands. The registered office of the Issuer is at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, British Virgin Islands. As at the date of this Offering Circular, the Issuer is authorised to issue a maximum of 50,000 ordinary shares with a par value of U.S.$1.00 per share and the Issuer has one share in issue.
Corporate Structure The following chart sets out the relationship between the PRC Guarantor and the Issuer as at the date of this Offering Circular:
Ministry of Education of Ministry of Finance of the PRC the PRC
100.00% (1)
Peking University Leade Technology 100.00% Development Co., Ltd. Peking University Asset Management Company Limited 40.00% 70.00% 30.00%
Peking University Founder Group Company Limited
94.17% 30.00% Founder Industry Holdings Co., PRC Guarantor Ltd.
51.00% 49.00%
Peking University Resources 46.36% Gro u p Ho ld in g Co ., Lt d .
100.00% 100.00%
Peking University Resources PKU Founder Commodities Group Urban Development Group Co., Ltd. Company
2.64% 51.00% HK Guarantor
100.00%
Issuer
(1) As at 31 December 2018, Peking University was controlled by the Ministry of Education of the PRC.
76 Business Activities The Issuer is a wholly-owned subsidiary of Founder Information. As at the date of this Offering Circular, the Issuer has not engaged, since its incorporation, in any material activities other than entering into arrangements for the 5.50 per cent. Guaranteed Bonds due 2018 in the aggregate principal amount of U.S.$685,000,000 issued in 2015, which have been fully redeemed, and the proposed issue of the Bonds and on-lending of the proceeds thereof to Founder Information. As at the date of this Offering Circular, the Issuer has no subsidiaries nor employees except for the sole director.
Director The sole director of the Issuer at the date of this Offering Circular is Ren Yingru.
Financial Statements Under the British Virgin Islands law, the Issuer is not required to publish interim or annual financial statements. The Issuer is, however, required to keep proper books of account, records and underlying transactions of the Issuer as are necessary to give a true and fair view of the state of the Issuer’saffairs and to explain its transactions and will enable the financial position of the Issuer to be determined with reasonable accuracy. As at the date of this Offering Circular, the Issuer has not prepared nor published any financial statements and does not propose to do so. The Issuer has no outstanding borrowings nor contingent liabilities other than those in connection with the proposed issue of the Bonds.
77 DESCRIPTION OF FOUNDER INFORMATION
Overview Founder Information was incorporated in Hong Kong on 15 May 2002 as a limited liability company (Company Number: 798158). As at the date of this Offering Circular, the registered share capital of Founder Information is HK$143,942,000. Founder Information’s registered office is at Unit 1408, 14/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan, New Territories, Hong Kong. None of Founder Information’s equity securities is listed or dealt with on any stock exchange.
As at 31 December 2018, Founder Information’s issued share capital was 46.36 per cent. directly owned by Founder Group, 51.00 per cent. indirectly owned by PKU Resources Holding and 2.64 per cent. directly owned by PKU Founder Commodities Group Co., Ltd.
Founder Information’s principal business is investment holding. Founder Information derives its revenue from its subsidiaries that are engaged in the industries of property development and investment and distribution of information products in the PRC. Founder Information conducts most of its business operations through its key subsidiary, Peking University Resources (Holdings) Company Limited (HKSE stock code: 00618) (‘‘HK Listco’’).
Corporate Structure of the HK Guarantor Group The following chart sets forth the corporate structure of Founder Information and its subsidiaries (the ‘‘HK Guarantor Group’’) as at the date of this Offering Circular (except otherwise indicated).
FOUNDER INFORMATION (HONG KONG) LIMITED (the HK Guarantor) (Hong Kong)
100% 100% 100% 60.01% 100% Peking University Dawn Victor Limited Kunzhi Limited Starry Realm Limited Resources (Holdings) Flying Victory Limited (the Issuer) Company Limited (BVI) (BVI) (BVI) (BVI) (the HK Listco) (Bermuda) 70%
Heng Chang Holdings Limited (BVI) 100% Founder CES Technology (Hong Kong) Limited 100% 100% (Hong Kong) Fast Rich Technology Fine Noble Global Limited Limited (BVI) (Hong Kong)
70% 100% 100% 100% 100%
Fountain Luck Holdings Zhuo Fan Holdings Limited Glorious Garden Limited Hero Pavilion Limited Allset Global Limited Limited (BVI) (BVI) (BVI) (BVI) (BVI)
100% 100% 100% 100% Hong Kong Resources Hong Kong Resources Hong Kong Resources Hong Kong Resources Rui Cheng Properties Rui Cheng Development Rui Cheng Rui Cheng Investment Limited Limited Real Estate Limited Limited (Hong Kong) (Hong Kong) (Hong Kong) (Hong Kong)
100% 100% 100% Hong Kong Resources Chongqing Yingrui Rui Cheng Construction Triumph Horizon Limited Properties Limited Limited (BVI) (PRC) (Hong Kong) 100%
Well Bright Holdings Limited (Hong Kong)
60%
Beijing Xingguang Xinaote Culture Media Co., Ltd. (PRC)
78 Competitive strengths Founder Information believes the HK Listco and its subsidiaries (the ‘‘HK Listco Group’’)hasthe following competitive strengths:
Forward-looking strategic layout with rapid growth of contract sales HK Listco has implemented a forward-looking strategy. As at 31 December 2018, operation area of the HKListcoGroupcovered16citiesofChinaandtheareaoftheHKListcoGroup’spropertiesheldfor sales, properties under development and areas pending construction were approximately 0.78 million sq.m., 3.92 million sq.m. and 2.62 million sq.m., respectively, totaling 7.32 million sq.m.. In 2018, it started construction of three projects with 24 projects under construction in aggregate and a total of 25 projects on sale. The HK Listco Group intends to further focus on business development in the quasi- first and major second-tier cities where it has operations, and increase land reserves and project experience in an increasingly open and flexible manner.
HK Listco has experienced rapid growth in contract sales in the recent years. For the years ended 31 December 2016, 2017 and 2018, the total contract sales amount was RMB11.37 billion, RMB16.13 billion and RMB16.82 billion, respectively. The cumulative contracted sales area reached approximately 1.148 million sq.m., 1.491 million sq.m. and 1.648 million sq.m., respectively. for the same period, and the average selling price per square metre was RMB9,906.0, RMB10,817.0 and RMB10,206.3, respectively.
The HK Listco paid the dividend of 1.75 cents in Hong Kong dollars per share for 2018, which is the first time to pay dividend for the past decade.
Value created through well-established brand name and outstanding quality The controlling shareholder of the HK Listco Group is Peking University which is one of the most prominent universities in China focusing on education, research and production, enabling it to benefit from Peking University’s profound cultural heritage and personnel, intelligence and knowledge. The Group, as the controlling shareholder of HK Listco, was awarded multiple awards in various industries, in particular, in the real estate segment. See ‘‘Description of the Group – Awards’’ for more details.
Founder Information as one of the shareholders of HK Listco is a large stated-owned enterprise with abundant financial, IT, medical and educational resources. HK Listco is able to integrate its resources and resources of Peking University and Founder Information in medical, finance, education, technology, and other industries and to allocate these resources to communities to drive regional value growth. HK Listco makes tax contribution to the government and creates employment opportunities while improving the quality of life of local residents.
The HK Listco Group places strong focus on product quality and aspires to be the ‘‘defender of quality’’. Through strengthening products and services, its CL Program（叢林計劃）became more well- established in terms of the product system and launched three main product series, which are ‘‘City+ Yiye（宜業）’’, ‘‘City+ Yiju（宜居）’’ and ‘‘City+ Yixiang（宜享）’’. In particular, ‘‘City+ Yiye（宜業）’’ comprises technology innovation parks and characteristic industrial cities, ‘‘City+ Yiju（宜居）’’ features harmonious communities and glamorous business areas, and ‘‘City+ Yixiang（宜享）’’ covers lifelong education, sincere services and precise product positioning that catered to the need of market segmentation. In recognition of the HK Listco Group’s devotion to quality improvement, five of its projects won the Kinpan Award（金盤獎）, with both Guiyang Dream City and Wuhan Lianhu Jincheng winning the ‘‘Best Integrated Property’’（最佳綜合樓盤）award.
79 Light-assets model with expanding revenue sources The HK Listco Group adopts development model of ‘‘seeking the proper balance between asset-light and asset-heavy’’. The HK Listco Group adopted a more stringent approach in sourcing projects and further increased the proportion of light-assets projects in collaboration with financial institutions. Leveraging the new model of asset-light and asset-heavy development, the HK Listco Group became more flexible in utilising development funds and was able to diversify revenue sources. It could also lower the debt- to-assets ratio and improve the return-of-equity (ROE) through innovation in business model and mechanism. According to Leju Finance, the HK Listco ranked 7th in terms of the ROE of Top 50 PRC listed property developers in 2018.
In addition, the HK Listco Group continued the exploration of industry and city integration by joining hands with Inspur Group and various institutions and governments in Huichuan District of Zunyi, Guizhou, Doilungdêqên District of Lhasa, Yichun of Jiangxi and Tianzhu Town of Shunyi, Beijing. The in-depth and extensive cooperation in the technology industry, healthcare services, big data, cultural and creative industries has facilitated innovative business development.
Ongoing management enhancement and optimisation of operational system The HK Listco Group takes the three-pronged approach for efficient, refined and precise management, so as to strengthen the internal management system continuously. Firstly, it emphasises on both quality and speed in ramping up operations and set Zhuzhou Aviation Town as the benchmark for operational efficiency. Secondly, it links product planning with design, research and development for a wide range of projects in different regions to significantly boost product competitiveness. Thirdly, it launched targeted initiatives to optimise the procurement process and achieved outstanding progress in cost reduction and efficiency enhancement. It further improved the talent assessment and development system and stepped up the short, medium and long-term incentive mechanism to motivate employees so as to attract and nurture talents required for its business operation.
Business Operations Founder Information’s principal business is investment holding. Founder Information derives its revenue from its subsidiaries that are engaged in the industries of property development and investment and distribution of information products in the PRC.
Distribution of Information Products HK Listco’s distribution business is mainly focused on the distribution of information products such as servers, printers, switches, networking products, storage devices, workstations, optical screen products, video conference host, conference controller, codec, UPS power supply and notebook computer of a number of internationally famed and branded information product manufacturers such as HP, H3C, CommScope, Brocade, Microsoft, Corning, Avaya and DELL.
Property Development and Investment Business HK Listco also engages in property development and investment business. HK Listco consistently and closely monitors the price fluctuation of properties in the major cities in China and actively exploits opportunities to invest in the Chinese real estate market to continuously enhance the profitability and operating performance of its property development and investment business.
80 As at 31 December 2018, HK Listco held the following projects under development:
Site Area Planned Equity Project Name Project Location Form (sq.m) GFA (sq.m) Share PKU Resources • Yuefu...... Tianjin Residential/Commercial 235,635 278,365 70% PKU Resources • Yuecheng...... Tianjin CityComplex 69,084 476,000 60% Integrating Residential/ Commercial/ Boya Financial Plaza ...... Xining, Qinghai Office/Apartment 72,977 417,670 – PKU Resources • Wei Ming Mansion ...... Kaifeng, Henan Commercial/Office 124,460 332,080 100% PKU Resources • Jiujinyihe...... Kunshan,Jiangsu Commercial/Residential 378,369 736,634 51% PKU Resources • Yihetianyue ...... Kunshan, Jiangsu Residential/Commercial 62,901 157,253 100% PKU Resources • Wei Ming Mansion ...... Hangzhou, Zhejiang Residential/Commercial 63,551 196,860 100% PKU Resources • Shanshuinianhua ...... Wuhan, Hubei Commercial/Office 123,949 275,717 70% Founder International Financial Centre...... Wuhan, Hubei Residential 19,712 138,000 100% PKU Resources • Lianhu Jincheng ...... Ezhou, Hubei Commercial/Office 560,000 820,000 90% PKU Resources • Time...... Changsha,Hunan Residential 39,631 134,700 70% PKU Resources • Ideal Home ...... Changsha, Hunan Commercial/Office 69,337 184,301 70% PKU Resources • Emerald Park ...... Zhuzhou, Hunan Residential/Commercial 153,594 549,956 82% Chang Jiang International Cultural Plaza ...... Yichang, Hubei Residential/Commercial/ 38,784 174,176 – Office building space PKU Resources • Yannan International ...... Chengdu, Sichuan Residential/Commercial 127,029 542,910 70% PKU Resources • Xishanyue...... Chengdu,Sichuan Residential 52,034 129,993 70% PKU Resources • Park 1898 ...... Chengdu, Sichuan Residential 51,961 229,175 70% PKU Resources • Yihe Emerald Mansion ...... Chengdu, Sichuan Residential/Commercial 58,474 219,039 80% PKU Resources • YiheYajun...... Chengdu,Sichuan Residential 69,496 208,487 70% Xinchuan Project ...... Chengdu, Sichuan Residential/Commercial 23,191 104,360 70% PKU Resources • Jiangshan Mingmen ...... Chongqing Residential/Commercial 448,535 1,161,547 100% PKU Resources • Yannan...... Chongqing Residential 144,063 699,932 70% PKU Resources • Boya...... Chongqing Residential/Commercial 143,648 495,115 70% PKU Resources • Yuelai ...... Chongqing Residential/Commercial 183,457 423,486 70% PKU Resources • Zijing Mansion ...... Chongqing Residential/Commercial 103,260 154,889 100% KunmingBotaiCity...... Kunming,Yunnan Residential/Commercial/ 55,500 430,445 85% Office PKU Resources • Boya Binjiang ...... Foshan, Guangdong Residential/Commercial 199,287 953,597 51% Gongguan1898...... Dongguan, Residential/Commercial 9,571 30,685 100% Guangdong Park1898...... Dongguan, Residential/Commercial 61,711 188,586 100% Guangdong PKU Resources • Dream City ...... Guiyang, Guizhou Commercial residential 247,426 996,162 70% DuyunProject...... Guiyang,Guizhou Residential/Commercial 230,208 364,872 – QuanhuProject...... GuiyangGuizhou Residential/Commercial 67,394 108,665 10% InternationalBuildingofWuhan...... Wuhan,Hubei Commercial/Office – 26,963 – building space
Financial Information The audited consolidated financial statements of Founder Information contained in this Offering Circular are prepared in accordance with HKFRS. Founder Information’s audited consolidated financial statements as at and for the years ended 31 December 2017 and 2018, which are included elsewhere in this Offering Circular, have been audited by Cheng & Cheng Limited.
For the year ended 31 December 2018, Founder Information recorded a consolidated profit of RMB843.1 million, as compared to a loss of RMB806.2 million and a profit of RMB292.1 million for the years ended 31 December 2016 and 2017, respectively. The tables below set forth Founder Information’s selected audited consolidated financial information as at the dates or for the years indicated:
81 Consolidated income statement Year ended 31 December 2016 2017 2018 (RMB’ 000) (Audited) Revenue...... 13,365,711 17,691,680 26,722,122 Grossprofit...... 926,726 2,021,999 3,751,495 Profit/(loss) for the year ...... (806,187) 292,131 843,072
Consolidated statement of financial position As at 31 December 2016 2017 2018 (RMB’ 000) (Audited) Totalassets...... 52,450,985 52,154,884 47,601,823 Total liabilities ...... 52,221,413 51,372,849 46,188,890 Totalequity...... 229,572 782,035 1,412,933
Directors As at the date of this Offering Circular, the directors of Founder Information are:
• Su Hua
• Fang Laitan; and
• Tang Fang.
None of the directors holds any shares, or options to acquire any shares, of Founder Information.
82 DESCRIPTION OF THE GROUP
Overview The Group is a school-run enterprise of Peking University and is a subsidiary of the large state-owned Founder Group. The Group has 25 direct subsidiaries with more than 5,000 employees. Established in Beijing in 1992, the Group has developed into a comprehensive company specialising in the development and operation of industrial parks, real estate development and operation as well as science and innovation industry supporting services. Relying on the support from Peking University and integrating the advanced industrial resources of Founder Group, the Group is committed to supply distinguished products and services and create intelligent, healthy and plentiful life for its customers.
In the light of changes in policy direction and industry landscape in recent years, the Group pursued the growth strategy of ‘‘One Body Two Wings’’ and implemented Strategic Upgrade 2.0., by which, the Group repositioned as a ‘‘technology and innovation services provider’’. The dual-driver strategy of ‘‘quality + resources; innovation + capital’’ expedited the development of the Group with a focus on the three core businesses, namely, industry (industry operation), city (city development) and innovation (innovative business). It also facilitated the Group’s construction of the integrated industry, city, research and innovation development platform.
The Group is managed by experienced professionals, including a senior management team of 95 professional managers. The Group has received numerous awards for its strong brand recognition and high quality property developments.
As at 31 December 2018, PKU Asset Management held approximately 40.00 per cent. equity interest in the Group, while Founder Group and Leade Technology Development Co., Ltd. each held approximately 30.00 per cent. equity interest in the Group. In November 2018, PKU Asset Management entrusted its shareholder right of the Guarantor to Founder Group and the Guarantor became a consolidated subsidiary of Founder Group. As at 31 December 2018, PKU Asset Management held approximately 70.00 per cent. equity interest in Founder Group. PKU Asset Management is wholly owned by Peking University and is responsible for managing the operation of Peking University’sassets.Itismainly engaged in high-tech business incubation, technical information consulting, asset management and capital operation.
The Group’s operating income totalled RMB15,958.6 million, RMB20,307.1 million and RMB31,246.5 million, respectively for the years ended 31 December 2016, 2017 and 2018, respectively, and its net profit totalled approximately RMB213.1 million, RMB1,852.3 million and RMB2,737.7 million respectively, during the same years. The Group has derived substantially all of its revenue from property development, i.e. its city development segment. The following table sets forth a breakdown of the Group’s operations in terms of revenue of its business activities for the years indicated:
Year ended 31 December 2016 2017 2018 (RMB in (RMB in (RMB in millions) % millions) % millions) % Revenue industryandinnovation...... 5,140.4 32.21 7,719.0 38.01 7,831.1 25.06 city development ...... 10,818.2 67.79 12,588.0 61.99 23,415.5 74.94 Total revenue...... 15,958.6 100.00 20,307.1 100.00 31,246.5 100.00
Competitive Strengths The Group believes that it has the following competitive strengths.
83 High-quality onshore issuer with the scarce state-owned background Peking University is the controlling shareholder of the Group. Peking University is wholly-owned by the Ministry of Finance of the PRC and controlled and supervised by the Ministry of Education of the PRC. It shoulders the responsibility of industrialisation of national scientific research achievements.
The Group has benefited and expects to continue to benefit significantly from its affiliation with Peking University. It is able to leverage its strong relationship with Peking University and capitalise on Peking University’s resources and strong research and development capabilities to improve its own manufacturing, research and development capabilities. The Group’s production, study and research are integrated with Peking University’s industry, academics and research resources, which contributes to the Group’s leading market position and excellent brand image in the real estate industry. The Group ranked 63rd among the top 500 Chinese real estate development companies in 2019 and was one of the top 100 real estate companies in China in 2019.
PKU Asset Management’s business segments have diversified into a variety of industries such as financial industry, information technology, medical and pharmaceutical, real estate and commodity trading. The Group expects to benefit from being able to leverage PKU Asset Management’sexpansive resources which span diversified industries and the business enhancements which result from the sharing of clients to strengthen the Group’s business capabilities. The supports from Peking University and PKU Asset Management also give the Group a background of being a state-owned enterprise which is scarce for onshore real estate companies as issuers in the offshore bond market.
Rare advantage of being a school-run enterprise, supporting strategic reform Peking University, founded in 1898, initially named Imperial University of Peking, is the first national comprehensive university of China, and also the highest educational authority of China at that time. After the 1911 revolution, she was renamed the present name in 1912. In recent years, Peking University has entered a new historical stage of development and has achieved remarkable achievements in discipline construction, talent training, teaching staff construction, teaching and scientific research and other areas, laying a solid foundation to build itself into one of the world-class universities.
The Group has a distinctive position as a school-run enterprise. Unlike other school-run enterprises, such as Tsinghua University Science Park, Tuspark Holding Limited, which is a Chinese high-tech company which builds business parks, the Group is the only large-scale property developer with residential real estate, commercial real estate and industrial parks as its main businesses. It has developed into a key subsidiary of PKU Asset Management. As at 31 December 2018, the Group’stotal asset contributed to approximately 25.1 per cent. of PKU Asset Management’s consolidated total asset. For the year ended 31 December 2018, gross profit of the Group contributed to approximately 43.7 per cent. of PKU Asset Management’s consolidated gross profit.
As a school-run enterprise, the Group received multifaceted support from Peking University and its affiliates, including talents recruitment and training, researches and development sharing, industries integration and synergies as well as strategic cooperation.
The Group is fully integrated with the resources of production, education and research of Peking University, and has carried out in-depth cooperation in basic discipline research, scientific and technological achievements transformation, applied technology research and development, innovation and entrepreneurship cultivation, and high-tech industrialisation development, including talent cultivation, research and development platform, industrial synergy and strategic cooperation. For example, Peking University Science and Technology Park, through which the Group conducts its conducts science and technology park development and operation business benefits from the resources of production, education and research of Peking University. In 2012, Peking University Science and Technology Park was recognized as a national-level technology business incubator, and a cooperative system for production, education and research was basically established. In 2015, the ‘‘Chuangqi Future’’ brand innovation and entrepreneurship incubation service system was basically established. In
84 2016, Peking University Science and Technology Park launched new path to the development of national-level university science and technology parks with the guidance of technological innovation and dual innovation.
The Group can rely on Peking University Strategic Research Institute for strategic research and Peking University Guanghua School of Management for talent support. Varies departments or institutions of Peking University such as its medical department, school of advanced agricultural sciences, school of electronics engineering and computer science and college of engineering are national leading academies and can provide comprehensive production-education-research support to the Group. In addition, PKU Asset Management has provided liquidity support for some of the Group’s financing. Peking University’s global alumni resources can also facilitate provide new possibilities and strong driving power for the Group’s diversified businesses.
Unique business model to support the development of the three cores businesses In recent years, the PRC government deepened its economic restructuring, shifted old driving forces of development into new ones and made a notable progress in deleveraging. In the real estate sector, the central government took a firm stand on tight control policy, prevent irrational demand and focus on the adjustment of medium to long term supply and tightened the financing channels on both supply and demand sides, further increasing the difficulties in and comprehensive cost of financing. Under the backdrop of tight policies, the transaction volume of new housing experienced decrease in the first- and second-tier cities of China and in the third-tier cities, though both transaction volume and average price of new housing recorded historical highs. The market was also challenged by the tightened policy of shanty town renovation and land supply adjustment.
In the light of changes in policy direction and industry landscape, the Group pursued the growth strategy of ‘‘One Body Two Wings’’ and implemented Strategic Upgrade 2.0. By which, the Group repositioned as a ‘‘technology and innovation services provider’’. The dual-driver strategy of ‘‘quality + resources; innovation + capital’’ expedited the development of the Group with a focus on the three core businesses, namely industry (industry operation), city (city development) and innovation (innovative business). It also facilitated the construction of the integrated industry, city, research and innovation development platform.
The Group’s Strategic Upgrade 2.0 is in line with the national strategies in the PRC which promote industrial development, urban development and innovation. The Group is focused on the development of strategic emerging industries, healthcare industries and educational resources with inclusive trends. It follows the ‘‘Belt and Road Initiative’’ by mapping its city development businesses in five megalopolises, namely Beijing-Tianjin-Hebei, Yangtze River Delta, Pearl River Delta, the middle reaches of the Yangtze River and the Chengdu-Chongqing city cluster. The Group further targets the development of widespread entrepreneurship and innovation, through angel investment, National Equities Exchange and Quotations and STAR Market to strengthen financial support.
Relying on Peking University’s resources and strong research and development capabilities and focusing on technology and big healthcare and education, the Group are determined to establish and operate green, intelligent, healthy and interactive technology complexes, healthcare complexes and education complexes with IT as support, integrating multiple roles or functions ranging from project investment and construction, incubation of scientific research project to investment in innovative industries so as to promote residences’ life experience upgrade, industrial upgrade, city upgrade and region upgrade.
The Group intends to act as a ‘‘resource connector’’ to realise values by promoting cooperation upon the connection and interaction of research project, space resource, fund and customer. The Group, relies on its state-owned background acquires land with cost advantages which facilitates its vision of city upgrade. As a constructor of the production, education and research platform, the Group provides all- around solutions to help the researchers to transform their research and development products into marketable ones, narrow the distance and duration from lab to market, helping the integration and
85 improvement of industries, development of investment opportunities, value realisation and creation of employment opportunities. For example, the Group promotes vertical integration and horizontal alignment and inter-sector cooperation, such as the entering into a cooperation agreement with the Inspur Group and various other companies engaged in scientific and technology research and development to collaborate in many sectors and in a deep and comprehensive manner, enabling the transformation of technology into marketable products and driving business development as well as innovation. Eventually, the Group aims to build communities with the integrated features of smart living, health and education so as to create brand premium and attract customers.
Vigorous promotion of its light-asset model to improve ROE levels In line with Strategic Upgrade 2.0, the Group has transformed into a light asset operation model and adopts a prudent and sound investment strategy. In this connection, the Group conducted a prudent valuation on project acquisition, integrated the development of production, city and innovation and further increased the proportion of light-asset projects. Such new model of property development allows the Group to be flexible in utilising development capitals, enhancing the Group’s core competitiveness.
Through model and mechanism innovation, the Group applied the strong development and construction capability, improved service system and extensive operating experience to the entire course of project development and expanded revenue stream from brand output and entrusted construction service so as to improve ROE and decrease debt-to-assets ratio. For the years ended 31 December 2016, 2017 and 2018, the Group’s ROE was 1.72 per cent. 13.45 per cent. and 16.74 per cent., respectively. As at 31 December 2016, 2017 and 2018, the Group’s debt-to-assets ratio was 86.06 per cent., 85.82 per cent. and 84.23 per cent., respectively. According to Leju Finance, the HK Listco ranked 7th in terms of the ROE of Top 50 PRC listed property developers in 2018.
The Group’s development of light asset business is in line with the national strategic plan, and the brand output is carried out with light asset operation mode to create an independent brand of light asset operation mode. The Group achieves profitability through profit sharing, brand management fees and technical support fees. The Group’s project revenues are stable, optimizing asset and liability conditions and cash flow, and improving the quality of business operations and ROE. The Group is committed to the transition from ‘‘To B’’ model, i.e. the heavy-asset operation model of real estate development and properties investment with intense capital expenditure to ‘‘To B + To C’’ model, i.e. the light-asset operation model of resource integration and input together with design and construction services as well as brand name provision. In 2018, 52 per cent. of construction area of the new projects of the Group were entrusted development and construction projects, whilst 22 per cent. of construction area of the new projects of the Group were projects where the Group only has minority interest.
Land cost advantage with high operational efficiency The Group relies on its unique resource advantages to obtain land at low cost and improve overall gross profit. The Group has land supply at low costs for properties for sale, investment properties and industrial operations, maximising the Group’s cost advantages. The Group’s resource advantages come from the support of Peking University, Founder Group and local governments, the cooperation and development of featured industry projects and the scientific and efficient internal management. The chart below shows the group’s profit model.
86 Acquisition of Land at Acquisition of Low Cost through its Land with Unique Resources Integrated Industry
Development Funding
Sustainable capitalization and high valuation Sale Part of its Properties through long-term stable Profit Contribution to Achieve High Turn- operation of investment over of Cash Flow properties
Investment Properties + Cash Flow Industrial Properties for Operations and Sale Venture Capital Brand Premium Services
To B + To C Business To C Business
Reasonable layout with continuous real estate sales and profit growth As one of the leading property developers in China, the Group provides a wide range of quality residential and commercial property products to fulfil the diverse needs of its different customer groups. It has launched products such as Science and Technology Park, featured production city, shopping center, commercial complex, long-term rental apartment and hotel residence as well as providing early childhood education centers, vocational education and property management services. The Group ranked the 63rd in its real estate industry in 2018 according to China Real Estate Association and 17th among state-owned enterprises in the real estate industry. Under the strategy of developing strong business presence in cities, the Group’s market share in the cities where the Group operates further expanded and increased.
As at 31 December 2018, the Group completed five major regional layouts, namely in Central China, Southwest China, Yangtze River Delta, Bohai Rim, and Guangdong-Hong Kong-Macau Greater Bay Area. The Group has been involved in more than 20 core cities and more than 50 development projects with a total developed area of over 20 million sq.m. The nationwide layout and cross-regional management have protected the Group from concentrated, region-specific risks and provided the Group with a nationwide platform for development. For the years ended 31 December 2016, 2017 and 2018, the Group’s contract sales amounted to RMB19.11 billion, RMB26.73 billion and RMB38.34 billion, respectively. In the same years, the Group’s contract sales area amounted to 1.924 million sq.m., 2.093 million sq.m. and 3.532 million sq.m., respectively. As at 31 December 2018, the Group had a land bank of 9.14 million sq.m. for 48 projects under development or to be developed, with a total building area of 17.83 million sq.m.
Robust liquidity and diversified financing channels The Group believes that it has a strong cash flows to support its business operations. Its net cashflow from operation activities amounted to RMB1.4 billion, RMB3.1 billion and RMB11.6 billion in 2016, 2017 and 2018, respectively. The Group’s net assets amounted to RMB12.3 billion, RMB13.8 billion and RMB16.4 billion in the same years, respectively. On 1 March 2019, the Group officially obtained the AA+ credit rating of China Chengxin International Credit Rating Co., Ltd., with a stable outlook.
87 In addition, the Group has adopted a prudent approach in financial management and benefited from access to diversified funding sources, including equity financing and debt financing through its strategic relationships with major commercial banks and from capital markets as well as alternative financing with trusts. In addition to equity financing through the HK Listco, the Group’s three major financing channels are banks, trusts and debt securities. The Group primarily conducts financing through trusts and as at 31 December 2018, the amount financed through bank borrowing, trust, debt securities and in other manners were RMB8.13 billion, RMB21.02 billion, RMB5.52 billion and RMB6.87 billion, respectively, contributing 19.6 per cent., 50.6 per cent., 13.3 per cent. and 16.6 per cent. of the total borrowing.
As at 31 December 2018, the Group’s interest-bearing borrowing in China amounted to approximately RMB41.5 billion and its interest-bearing-borrowing-to-asset ratio as 40 per cent., which is lower than many well-known listed real estate companies. The Group has also established itself as a frequent issuer in the offshore capital market. Its subsidiary Kunzhi Limited issued 5.875 per cent. guaranteed bonds due 2017 in the aggregate principal amount of RMB2,000,000,000 in 2014 as well as floating rate guaranteed bonds due 2021 in the aggregate principal amount of U.S.$310,000,000 and 6.25 per cent. guaranteed bonds due 2020 in the aggregate principal amount of U.S.$490,000,000 in 2018. Through the Issuer, the Group issued the 5.50 per cent. Guaranteed Bonds due 2018 in the aggregate principal amount of U.S.$685,000,000 issued in 2015.
Experienced management team, market-oriented operating model The management of the Group has rich industry experience. It helps the Group to grasp market trends, effectively manage assets and manage risks. Nearly half of the members of the Board of Directors are employed at Peking University, from Peking University to the Group which facilities timely support and resource management. The members of the Group’s board of Directors have an international investment vision and are experts in science, law, finance, and internal control.
The senior management team has in-depth experience in key areas relating to the Group’s business, such as accounting and finance, property management, construction and investment management. The strength and execution capability of its management team is evidenced by the numerous awards that the senior management members have received. For example, the Group’s CEO, Mr. Zeng Gang, won the ‘‘2018 China Innovation Outstanding Person’’ and ‘‘2018 China Innovation Person of the Year’’ in the 2018 Boao Real Estate Forum.
According to Top 80 ranking of the administrative fee rate of China’s listed real estate companies in 2018（2018年中國上市規模房企管理費用率Top 80排行榜）, HK Listo ranked 6th. The administrative fee rate (calculated as general and administrative expenses divided by total operating income) of the Group amounted to 4.76 per cent., 2.34 per cent. and 2.12 per cent., respectively, in 2016, 2017 and 2018. The administrative fee rate of HK Listco amounted to 2.18 per cent., 2.23 per cent. and 2.13 per cent., respectively, during the same period. Such rate is far less than the industry average.
Strategies The Group is committed to building a first-class production, research and research platform with industry, education and research as its core, and is driven by quality and resources, innovation and capital, and focus on industrial operation, urban support and venture capital business as the three growth lines. The Group seeks to implement the following strategies:
88 Continue to pursue the growth strategy of ‘‘OneBodyTwoWings’’ and implement Strategic Upgrade 2.0. The Group intends to continue to upgrade the Strategy 2.0 while implementing the development strategy of ‘‘One Body Two Wings’’ by initiating a new development strategy of ‘‘One Body, Two Wings and Three Cores’’. Centring on the Strategy 2.0 and fueled by the core strategies such as light-asset model, high-quality product, proper inventory, strong industry and deepened regional development, the Group endeavours to make a new breakthrough in the current market environment.
The chart below shows the Group’s proposed Strategic Upgrade 2.0 blueprint.
Technology and Innovation Services Provider
Integrated Platform Integrated Production-learning-research Platform
Two Wings Driving force Quality + Resources Innovation + Capital
Three cores businesses Industry (Industry City (City Development) Innovation (Innovative with growth potential Operation) Business)
Innovation and Science+ Entrepreneurship Park (ˊ∂ Elegant Residence with Health + ) Complex Products Humanitarian Feature Խ Education + (Glamorous Business Makerspace (۵∂ˬ旛 IT+ Incubator Industrial fund
To further implement Strategic Upgrade 2.0., the Group intends to continue to shift from the development of residential and commercial properties to the operation of industrial parks. The Group plans to participate in the livelihood projects and technology parks by integrating and employing high quality resources available from Peking University and Founder Group.
As regards the upgrade of the existing industries in technology parks, the Group will devote efforts to developing, operating and managing scientific innovation parks on basis of the Peking University Science and Technology Park. Adhering to the principle of ‘‘leading by the industries’’, the Group will provide integrated solutions on regional economic development and will build platforms for scientific innovations in a systematic way. The Group will continue to achieve full collaboration of production, education and research resources together with Peking University and will carry out in-depth study of basic sciences, transformation of technological results, development of application technologies, facilitation of innovations and business start-ups as well as industrialized development of high technologies.
In planning the development of livelihood projects and technology parks, the Group intends to draw upon the abundant cultural resources, top-class human capital and knowledge advantages owned by Peking University and combine the various high-quality industrial resources of Founder Group in the medical, financial, technical and education fields. By doing so, the Group hopes to help boosting value growth of the region, increase tax revenue of the government, enable employment growth and improve the living quality of the local people. The Group plans to engage in the building of technology parks
89 and the development of support facilities. It aims at developing a series of technologically smart towns, new communities with cultural and tourist elements, as well as new residential neighbourhoods with integrated city and industrial functions of a science and technology park, which will likely become new points of profit growth.
In respect of asset-light operations, the Group will progressively transform itself into a service provider in the technological innovation industry which primarily operates with an asset-light approach. It will integrate and export high-quality resources, build a professional operation team, develop an all- dimensional system of operations and enhance an essential ecological basis for the Group’sbusinesses. It will seek to gain revenues for its brand names, management and sales premiums by integrating resources, exporting brand names and developing operation teams.
Continue to enhance its leading position The Group’s strategic focus is to develop high-quality projects in second-tier and third-tier cities which it believes have strong growth potential as well as first-tier cities with mature markets. The Group believes that its brand and its product lines are appealing to potential customers in those cities. The Group will concentrate on the development of medium and high-end residential properties where it can leverage its experience and competitive advantages. The Group also intends to leverage its product quality, operational efficiency, brand image, leadership position, operational efficiency, experience and local knowledge to increase its share in the markets where it has presence and to expand into new markets. In addition, the Group will continue to adopt a flexible property development process and focus on standardised product-lines, which will help shorten the project development cycle and increase capital turnover.
Build land bank in a selective manner together with prudent expansion The Group intends to acquire land in a disciplined and selective manner by balancing intake and output of land from its land bank and its uses and sources of cash. The Group seeks to secure its future opportunities for growth and maintain its profitability by pursuing opportunities to acquire high-quality land at a low cost and by strictly following its land selection process in a prudent manner. The Group seeks to lower the cost of acquisition of land by leveraging its well-established market leader position and brand name, its close relationship with state-owned enterprises in China and by obtaining land through a variety of approaches, such as bidding and tendering, and co-development with and subsequent acquisition of project companies in the secondary market. The Group will explore redevelopment opportunities of old towns in urban areas and maintain the geographic diversification in terms of its land bank, which will further reduce concentration and regulatory risk.
Maintain prudent financial management The Group will continue to closely monitor its capital and cash position and carefully manage its land costs, construction costs, operating expenses and fixed charge coverage. The Group intends to maintain sufficient liquidity and a reasonable gearing ratio and to monitor debt and equity fund-raising options to take advantage of market opportunities. The Group intends to make full use of its fund-raising capabilities to enhance its financial strength by tapping new funding channels and platforms for the most efficient sources of capital, including international and domestic capital and credit markets. The Group will also continue to improve its internal financial management processes and corporate governance standards, adhere strictly to principles of prudent financial management and in particular focus on ensuring that its expenditures are in line with its cash inflows. This will allow the Group to expand its business at a steady and prudent pace.
Explore new markets and business The medium-term goal of the Group is to become a diversified property developer with a leading position in residential and commercial property development supplemented by an investment property portfolio and real estate fund management capabilities. While continuing to focus on medium to high- end residential developments as its core business, the Group will expand its residential and commercial
90 property development and investment property business in a selective manner in order to mitigate the volatilities in the residential property market. The Group actively explored new sources of growth in profit and build a strategic platform for long-term progression.
With further development of economic globalisation, the tide of urbanisation will sweep across emerging economies, and will greatly boost the demand of the society for residential properties, commercial properties and real estate financing. The extension and integration of the industrial chain of the real estate industry will become an important trend in the structural transformation of the real estate industry in the future. The Group is committed to building itself as an internationalised real estate conglomerate with the most distinctive competitive edge. The Group intends to improve operating efficiency of its residential and commercial property development business to provide solid market base and professional operation for diversification of businesses.
Corporate History and Structure Corporate milestones The Group has 27 years of experience in providing products and services in the fields of property development and IT business. The Group’s development went through three stages, namely the beginning stage (from 1992 to 2005), fundamental development stage (2006 to 2015) and the transformational development stage (since 2016). The table below sets forth certain key milestones of the development of the Group.
1992...... TheGroup’s predecessor, Peking University Real Estate Development Department was established.
1996...... TheGroupchangeditsnametoPekingUniversityResourcesGroup.
2006...... PekingUniversityentrustedtheGrouptoFounderGroupformanagement.
2008...... TheGrouprestructuredfora comprehensiveintegrationofitscompany and land resources.
2010...... The Group has established a ‘‘resource-integrated city operator’’ positioning.
The Group completed the phased upgrade and officially entered the basic development period from the initial stage.
2011...... TheGroupandCentralPartySchoolNewspapersandPeriodicalssigneda strategic cooperation agreement.
2013...... TheGroupenteredintotheStrategicCooperationAgreementwithPeking University Library and other institutions.
2014...... TheGroupenteredintotheStrategicCooperationAgreementwithPeking University International Hospital.
2015...... TheGroupobtainedtheLevelOnequalificationforpropertymanagement.
2016...... BaotouPekingUniversityScienceandTechnologyParksuccessfully approved the national-level creative space and became a national technology business incubator.
91 The Group determined the development direction of the ‘‘Quality + Resources’’ Strategy 1.0 and was included in the list of Top 100 real estate companies by CRIC Center for the first time.
2018...... TheGroupimplementedStrategicUpgrade2.0,bywhich,theGroup repositioned as a ‘‘technology and innovation services provider’’, aiming to establish an integrated platform for production, education and research.
2019...... TheGroupwasfirstawardedtheAA+ratingofthedomesticentity of China Chengxin Credit Rating Group.
Corporate Structure The following chart sets forth the corporate structure of principal subsidiaries of the Group in China as at 13 December 2018:
Peking University
100%
Peking University Asset Management 70% Peking University Founder Group Company Leade Technology Development Co., Ltd. Company Limited Limited
30% 40% 30%
the Group
60.01%
70% 100% 100% 98.48% 100% 100% 42% P P P B P B P ( Hunan Peking University Hunan PekingResourcesUniversity Company PekingFoshan ResourcesUniversity Dongguan Peking University Resources Company PekingResourcesKunshan University Company Jiangxi Peking University Resources Company Boya Co., Ltd. Management Co., Ltd. Co., Ltd. RegionPekingResourcesUniversity Corporation Northern Chengdu PekingUniversity Resources Company Chongqing Peking University Resources Company Resources University Company Guiyang Peking Wuhan Peking University Resources Company Tianjin Peking University Resources Company Yunnan Peking University Resources Company Shandong Peking University Resources Company Qingdao PekingUniversity Resources Company Resources University Company Hangzhou Peking Yichang Peking University Resources Company Kaifeng Peking University Resources Company B e e e e e e e k k k k k e i i j j i i i i i i i i j n n n n n n n i n g g g g g g g I
g n
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* 1. The above corporate structure is a general structure presentation of the Group’s business, including seven companies engaged in industry and innovation business, one Hong Kong listed company and 17 companies engaged in city development business.
2. Some middle-level platform companies have been omitted for simplification purposes.
92 Awards The table below sets forth certain most recent awards the Group received for its strong brand recognition in several industries.
Year Award/Recognition Organization/Media 2019...... 63rdinChina’s 2019 Top 500 Real Estate Developers（2019中國房地產開 ChinaRealEstateAssociation 發企業500強）
2019 Best 10 Innovation Ability of China Real Estate Developers（2019中 ChinaRealEstateAssociation 國房地產開發企業創新能力10強）
2019 Best 10 Development Potential of China Real Estate Developers by China Real Estate Association （2019中國房地產開發企業發展潛力10強）
Top 30 Corporations of the Industrial New Town in Comprehensive Development Research Centre of Strength（2019中國產業新城運營商綜合實力30強） the State Council, Tsinghua University Real Estate Research Centre and China Index Academy
2019 China Excellent Corporations of the Characteristic Industrial New Development Research Centre of Town – integrated production, education and research（2019中國特色地產 the State Council, Tsinghua 運營優秀企業－產學研一體化） University Real Estate Research Centre and China Index Academy
2019 China Leading Property Management Companies in terms of Development Research Centre of Characteristic Service（2019中國特色物業服務領先企業） the State Council, Tsinghua University Real Estate Research Centre and China Index Academy
14th in 2019 China Corporations of the Industrial New Town in CRIC Center Comprehensive Strength (2019中國產城發展運營商）
2018 ...... 2018 Top 10 Brand Chinese Real Estate Companies (State-owned)（2018中 Development Research Centre of 國房地產公司（國有）品牌價值10強） the State Council, Tsinghua University Real Estate Research Centre and China Index Academy
2018 Top 100 Chinese Real Estate Developers by Sale Performance（2018 CRIC Center 克而瑞研究中國房地產企業銷售100強）
2018 Best Brand of China Real Estate Projects（2018中國房地產優秀品牌 ChinaRealEstateAssociation 項目）for Chengdu Zijingfu（成都紫境府）
2018 Top10 Brand Value of China’s Real Estate Boutique Project (2018年 Development Research Centre of 中國房地產精品項目品牌價值Top 10) for Peking University Resources • the State Council, Tsinghua Yihe Series（北大資源頤和系） University Real Estate Research Centre and China Index Academy
2018 Leading Brand of Healthy Real Estate Developers（健康地產領軍品 www.ihome.org.cn 牌）
2018 Best ICT Integrated Service Provider Award（2018最佳ICT綜合服務 China Information Association 提供商獎）
2017 ...... 2017 Best 100 of China Real Estate Developers Brand Value（2017年中國 ChinaRealEstateAssociation 房地產開發企業品牌價值百強）
2017 China’s 100 Best Real Estate Enterprises（2017中國房地產卓越100 www.guandian.cn 榜）
Asian Commercial Space Design Gold Award（亞洲商業空間設計金獎）for www.REARDatChina.com Peking University Resources • Botai City（北大資源·博泰城）
2016...... GreenAsianHabitatExample（綠色亞洲人居環境範例）for Project PKU Asian Habitat Society Resources • Park 1898（北大資源公園1898）
Business Overview The Group is a school-run enterprise of Peking University and is affiliated to the large state-owned Founder Group. The Group has 25 direct subsidiaries with more than 5,000 employees. Established in Beijing in 1992, the Group had developed into a comprehensive company specialising in the development and operation of industrial parks, real estate development and operation as well as science
93 and innovation industry supporting services. Relying on the support from Peking University and integrating the advanced industrial resources of Founder Group, the Group is committed to supply distinguished products and services and create intelligent, healthy and plentiful life for its customers.
In 2009, Peking University entrusted the Group to Founder Group for management with the Group’s finance and business operated independently. Founder Group serves as the reporting body for the Group’s major events to the PKU Asset Management, and Founder Group could provide financing for the Group through various channels. The Group is a very important affiliate of Peking University and Founder Group with significant contribution. As at 31 December 2018, the Group’s total asset contributed to approximately 25.1 per cent. of PKU Asset Management’s consolidated total asset. For the year ended 31 December 2018, gross profit of the Group contributed to approximately 43.7 per cent. of PKU Asset Management’s consolidated gross profit.
In the light of changes in policy direction and industry landscape in recent years, the Group pursued the growth strategy of ‘‘One Body Two Wings’’ and implemented Strategic Upgrade 2.0. By which, the Group repositioned as a ‘‘technology and innovation services provider’’. The dual-driver strategy of ‘‘quality + resources; innovation + capital’’ expedited the development of the Group with a focus on the three core businesses, namely, industry (industry operation), city (city development) and innovation (innovative business). It also facilitated the construction of the integrated industry, city, research and innovation development platform.
Industry (Industry Operation) Relying on Peking University’s resources and strong research and development capabilities and focusing on technology and big healthcare and education, the Group are determined to establish and operate green, intelligent, healthy and interactive technology complexes, healthcare complexes and education complexes with IT as support. Such industry operation can further integrate multiple roles or functions ranging from project investment and construction, incubation of scientific research project to investment in innovative industries to achieve development of the three core businesses under Strategic Upgrade 2.0.
• Science +
In terms of ‘‘science +’’, the Group currently conducts science and technology park development and operation business through Peking University Science and Technology Park.
In 1992, Peking University founded Peking University Science and Technology Park as a platform for the transformation of scientific achievements in early Chinese universities. In 2002, Peking University Science and Technology Park was awarded the qualification of ‘‘National University Science Park’’ by the Ministry of Science and Technology and the Ministry of Education. In 2008, the marketization operation of Peking University Science and Technology Park was advanced, and the Group was entrusted with its management.
The Group relies on comprehensive IT support to develop the science and technology complex. The Group is committed to building standardised science and technology parks with intelligent background to build wholesome networks. Through its shareholding in science and technology parks, the Group collects rental fees and property management fees. It also exports the brand resources of Peking University Science and Technology Park for operating service fees. As at 31 December 2018, the Group has participated in the operation of 11 science and technology parks with a total area of 0.3 million sq.m, namely, Peking University Science and Technology Park Headquarters（北大科技園本部）,Peking University Science and Technology Park Southern District（北大科技園南區）, Beijing Shangdi Peking University Science and Technology Park（北京上地北大科技園）, Tianjin (Wuqing) Peking University Science and Technology Park（天津（武清）北大科技園）, Tianjin (Baoyu) Peking University Science and Technology Park（天津（寶坻）北大科技園）, Jinhua Peking University Science and Technology Park（金 華北大科技園）, Jiangxi Peking University Science and Technology Park（江西北大科技園）,Xi’an
94 Peking University Science and Technology Park（西安北大科技園）, Shijiazhuang Peking University Science and Technology Park（石家莊北大科技園）, Baotou Peking University Science and Technology Park（包頭北大科技園）and Taizhou Peking University Science and Technology Park（台州北大科技 園）.
The Group continues to leverage the advantages in resources of production, education and research capabilities from Peking University to enhance its operation services, such as introduction of resources such as education, science and technology, medical care and finance for the science and technology park, as well as the activities of basic academics research, scientific and technological achievements transformation, application technology research and development and training seminars and events. For example, the Southern District of Beijing Peking University Science and Technology Park（北京北大科 技園南區）is an innovative incubator, product research and development centre and a model for innovation space. Chengdu Xinfan Smart Home Technology City（成都新繁智能家居科技城）is targeting famous science and technology properties such as Country Garden and Wuhu Science and Technology Town.
• Health+
In terms of ‘‘health+’’, the Group relies on the community health output system to develop medical complexes. The Group is actively developing the community health strategy with the Peking University Medical City（北大醫療城）(PKUMC), which integrates ‘‘medical, health, nutrition, research and incubation’’. PKUMC has a mission of providing healthcare services to full life cycle of all people with the most advanced facilities and services. It is mainly composed of Peking University International Hospital（北京大學國際醫院）, PKU Care Industrial Park（北大醫療產業園）and Peking University Resources Medical Health Technology Valley（北大資源醫康養科技穀）. The Group participated in the construction of Peking University Resources Medical Health Technology Valley. The Group intends for Peking University Resources Medical Health Technology Valley to fully integrate the vast medical and healthcare resources of Peking University International Hospital, PKU Care Industrial Park and PKUMC with respect to production, education and research so as to build Internet of Things for diversified medical research and healthcare.
• Education +
In terms of ‘‘education +’’, the Group relies on the entire chain of educational resources to develop a comprehensive education and education complex. Integrating pre-school education, K12 education, vocational education, and featured researches, the Group takes its advantages in vocational education and provides talent support for industrial operations through projects such as Peking University Founder Technology College（北大方正軟件技術學院）, Jiangsu Yancheng Science Smart Town（江蘇鹽城北大 資源科教城）and Beijing Pinggu Science and Education Park（北京平谷科教園）. The latter two projects set benchmarks for the integration of national production and education. Peking University Founder Technology College is a Beijing Model Senior Vocational Colleges（北京市示範性高等職業學校）.
• IT +
The Group conducts its IT products distribution business through HK Listco. HK Listco’sismainly focused on the distribution of information products such as servers, printers, switches, networking products, storage devices, workstations, optical screen products, video conference host, conference controller, codec, UPS power supply and notebook computer of a number of internationally famed and branded information product manufacturers such as HP, H3C, CommScope, Brocade, Microsoft, Corning, Avaya and DELL.
In recent years, the Group and its subsidiaries have continued to expand the range of products they distribute. They are also dedicated to developing a closer relationship with the vendors in order to obtain greater industry knowledge of the market environment and the Group believes that the success of its operations has been mainly attributable to the close relationships developed with both the vendors and customers, such as the second-tier distributors and systems integrators.
95 The Group’s IT business supports the coordinated development of various segments of industrial operations in terms distribution of information products and IT system integration such as smart life, cloud computing, big data, mobile internet and Internet of Things. Such IT system provides a smart living platform and overall solutions to promote the landing and implementation of the Internet of Things in the science and technology park and help build a leading smart Internet of Things science and technology park and promote the development of a big health strategy and integration of production and education.
Innovation (Innovative Business) The innovation business segment is mainly composed of four parts, including Innovation and Entrepreneurship Park（雙創園）, MakerSpace（眾創空間）, incubator for innovation projects and enterprises as well as industrial fund.
• Innovation and Entrepreneurship Park
An Innovation and Entrepreneurship Park integrates culture and educational resources, introduces the Entrepreneur’s Training Camp of Peking University（北創營）incubation system, forms an integrated platform for production, education and research, enhances the cultural attributes of the community, and provides high-quality living space and ‘‘spiritual home’’ for the owners. The Group’s Innovation and Entrepreneurship Park projects include Innovation and Entrepreneurship Park Tianzhu Park（雙創園天竺 園區）, Zi Space CBD Office Park（自空間CBD寫字園）and Tongzhou Song Manor（通州宋莊園）. Innovation and Entrepreneurship Park Tianzhu Park is a national cultural and creative flagship project （中國文創旗艦）and an Innovation and Entrepreneurship Park model base（雙創示範基地）.
• MakerSpace and Incubator
The Group’s services in this segment leverage Peking University’s resources and follow six core values, namely, value enhancement, training and coaching, industry funds, community interaction, customisation by Entrepreneur’s Training Camp of Peking University and industry voice. The Group’s makerspace and incubator projects include Unicorn Space（獨角獸空間）, Resources Cloud Valley（資源雲谷）and Art Appreciation Apace（藝賞空間）and STEM Education Base. Unicorn Space targets high-growth companies with their first significant round of venture capital financing funded. Resources Cloud Valley targets the small and micro enterprises in the cultural and creative, technology and education industries. Art Appreciation Apace and STEM Education Base cater for knowledge community and art exhibitions.
• Market-oriented jointly operated fund
The Group intends to jointly establish a diversified fund with the partners to operate in a market- oriented manner, to explore and cultivate high-quality potential enterprises in various industries such as technology, healthcare, education as well as culture and creation, and to share returns of equity investment. The Group intends to establish Peking University Venture Capital Fund（北大創投基金）and plans to establish Founder Shengsheng Fund（方正和生基金）jointly with Founder Hesheng Investment Co., Ltd. which will target the nutrition, life and education industries.
City (City Development) The Group conducts businesses for its city development segment through property development. Its principal business activities for property development segment include residential and commercial property development and commercial property operation.
Residential and commercial property development The Group focuses on the development of large-scale integrated properties in China. Residential and commercial property development is the main source of revenue and profit for the Group’s property development business. The Group’s project companies mainly obtained secondary property development qualification. It has launched products such as featured production city, shopping centre, commercial complex, long-term rental apartment and hotel residence as well as providing early childhood education centers, vocational education and property management services. In 2018, the aggregate GFA of
96 residential and commercial property that the Group sold amounted to 3.532 million sq.m. The Group ranked 63rd in the PRC real estate industry in 2018 according to China Real Estate Association. Under the strategy of developing strong business presence in cities, the Group’s market share in the cities where the Group operates further expanded and increased.
During the residential and commercial property development, the Group intends introduce the high- quality resources of Peking University and Founder Group in medical, education and technology to enhance the quality and competitiveness of the properties, and thus obtain the cooperation and support of the local government. The Group’s use the land for development and construction at a relatively low cost. The Group’s projects are mainly based on second- and third-tier cities, with by a small number of first- and fourth-tier cities.
The Group develops unique resources, acquires land at low prices, and relies on production, city, and development models to jointly develop and highlight the brand premium with precision quality. The Group has five major regional layouts in Central China, Southwest China, Yangtze River Delta, Bohai Rim, and Guangdong-Hong Kong-Macau Greater Bay Area, and has been involved in more than 20 core cities and more than 50 development projects with a total developed area of over 20 million sq.m.
The map below sets forth the geographical expansion of the Group’s residential and commercial property development business.
The Group focuses on three series of products, namely, Yihe（頤和）,Wuming（未名）and Zijing（紫 境）. The boutique projects are recognized and favored by the market. Price of such products are in general 19 per cent. higher than the prices of the nearby competitors in 2018. The sales rate of the new opening projects is above 90 per cent., and the average annual sales price is 15 per cent. higher than the budget in 2018.
The table below sets forth certain operation data of the Group’s residential and commercial property development business.
Year ended 31 December 2016 2017 2018 Newconstructionarea(in1,000sq.m.)...... 2,208.0 3,043.5 2,022.8 Completedarea(in1,000sq.m.)...... 2,262.0 2,650.5 2,784.7 Contractsalesarea(in1,000sq.m.)...... 1,924.0 2,093.0 3,532.0 Contractsalesamount(RMBinbillions)...... 19.1 26.7 38.3 Averagesalescontractprice(RMB/sq.m.)...... 10,329.4 12,771.1 10,855.0 Settledarea(in1,000sq.m.)...... 1,111.9 1,056.3 1,651.8 Settled amount (RMB in billions) ...... 11.0 12.7 19.7
The majority of the Group’s residential and commercial property development are comprised of high- quality residential properties targeting the middle-market to upper-end customers in the PRC. The Group offers a broad variety of residential products, including, but not limited to, standalone villas, terraces, townhouses, duplexes, high-rise buildings, multi-storeyed buildings and apartments.
97 Land bank As at 20 May 2019, the Group’s consolidated land bank (including agent construction projects) amounted to an aggregate 9.138 million sq.m. of GFA. The Group’s land bank refers to its available and unrecognised GFA for sale or lease, including completed projects, completed but unsold projects, projects under development and projects held for future development (including agent construction projects).
Completed properties The following table sets forth the Group’s selected completed properties that remain partially unsold or unrecognised as at 20 May 2019.
Sold GFA Unsold GFA Total site Total GFA as at 20 as at 20 Name of property Location Intended use area Total GFA for sale May 2019 May 2019 Interest (in sq.m.) Xishayue（溪山樾）...... Chengdu Residential 52,033.6 72,752.3 54,390.6 47,105.3 7,285.2 70% Zhihuiyuan（智匯苑）...... Jiangxi Residential 38,806.2 131,239.6 58,749.3 55,558.8 3,190.5 100% Shiguang（時光）...... Changsha Residential 39,630.8 135,768.2 113,965.0 106,235.2 7,729.8 70% Boya（博雅） ...... Chongqing Residential 69,329.0 517,670.6 487,898.2 403,312.2 84,586.0 70% Shanshui Nianhua（山水年華） ...... Wuhan Residential 137,803.1 234,482.2 235,703.2 216,252.9 19,450.3 70% Fortune Center（財富中心）...... Hangzhou Commercial 20,592.0 86,444.7 86,677.7 43,615.9 43,061.8 90% Yuwan（御灣） ...... Dongguan Residential / 235,559.8 235,559.8 232,143.3 3,416.5 100% Yucheng（御城） ...... Dongguan Residential / 124,340.2 124,340.2 122,320.7 2,019.5 100% Shangpin Yanyuan（尚品燕園）...... Jinan Residential / 281,602.6 281,602.6 240,684.5 40,918.1 70% Shangpin Qinghe（尚品清河）...... Jinan Residential / 305,770.8 305,770.8 296,664.0 9,106.8 100%
• Xishayue（溪山樾）
Xishayue（溪山樾）is located in Chengdu. The project occupies a total site area of 52,033.6 sq.m. with an aggregate total GFA of 72,752.3 sq.m. The project is designed for residential purpose.
• Zhihuiyuan（智匯苑）
Zhihuiyuan（智匯苑）is located in Jiangxi. The project occupies a total site area of 38,806.2 sq.m. with an aggregate total GFA of 131,239.6 sq.m. The project is designed for residential purpose.
• Shiguang（時光）
Shiguang（時光）is located in Changsha. The project occupies a total site area of 39,630.8 sq.m. with an aggregate total GFA of 135,768.2 sq.m. The project is designed for residential purpose.
• Boya（博雅）
Boya（博雅）is located in Chongqing. The project occupies a total site area of 69,329.0 sq.m. with an aggregate total GFA of 517,670.6 sq.m. The project is designed for residential purpose.
• Shanshui Nianhua（山水年華）
Shanshui Nianhua（山水年華）is located in Wuhan. The project occupies a total site area of 137,803.1 sq.m. with an aggregate total GFA of 234,482.2 sq.m. The project is designed for residential purpose.
• Fortune Center（財富中心）
Fortune Center（財富中心）is located in Hangzhou. The project occupies a total site area of 20,592.0 sq.m. with an aggregate total GFA of 86,444.7 sq.m. The project is designed for commercial purpose.
98 • Yuwan（御灣）
Yuwan（御灣）is located in Dongguan. The project occupies an aggregate total GFA of 235,559.8 sq.m. The project is designed for residential purpose.
• Yucheng（御城）
Yucheng（御城）is located in Dongguan. The project occupies an aggregate total GFA of 124,340.2 sq.m. The project is designed for residential purpose.
• Shangpin Yanyuan（尚品燕園）
Shangpin Yanyuan（尚品燕園）is located in Jinan. The project occupies an aggregate total GFA of 281,602.6 sq.m. The project is designed for residential purpose.
• Shangpin Qinghe（尚品清河）
Shangpin Qinghe（尚品清河）is located in Jinan. The project occupies an aggregate total GFA of 305,770.8 sq.m. The project is designed for residential purpose.
Properties under development and properties held for future development The following table sets forth the Group’s selected properties under development and properties held for future development as at 20 May 2019. A number of these projects are still in early stages of development.
Sold GFA as at Undeveloped Remaining Land Total site Total GFA 20 May land bank land bank Equity acquired Project Name Location Intended use area Total GFA for sale 2019 area area Interest time (in sq.m.) Purple House（紫境府）...... Chengdu Residential 150,435.5 351,873.4 286,776.1 110,635.8 47,785.8 223,926.1 100% 2016 Yan Nan International（燕楠國際）...... Chengdu Residential 127,049.1 540,272.8 511,867.5 297,525.9 9,842.5 224,184.1 70% Yonghe County（頤和雅郡）...... Chengdu Residential 69,495.6 286,351.2 271,496.4 184,214.1 – 87,282.3 70% Yihe Tianpu（頤和天璞） ...... Chengdu Residential 68,553.3 274,413.8 257,204.0 191,350.3 – 65,853.8 100% 2016 Purpleland Donglaifu（紫境東來府）...... Chengdu Residential 150,435.5 456,397.9 118,534.7 100,440.6 337,863.4 355,957.6 100% 2017 Park 1898（公園1898）...... Chengdu Residential 51,961.0 218,383.7 170,015.5 153,974.8 – 16,040.7 70% Yihe Tianchen（頤和天宸）...... Chengdu Residential 37,871.1 126,111.0 120,417.2 85,881.9 – 34,535.3 100% 2017 Yihe Emerald House（頤和翡翠府） ...... Chengdu Residential 58,473.9 216,759.1 204,822.0 193,330.0 – 11,492.0 80% Boya City Square（博雅城市廣場）...... Chengdu Commercial 23,191.2 140,825.7 54,990.5 54,990.5 – 0.0 51% 2016 Boya Riverside（博雅濱江）...... Foshan Residential 199,286.5 934,317.1 800,603.5 546,154.9 71,298.0 325,746.6 51% Boya 1898（博雅1898）...... Guangzhou Residential 36,072.0 124,849.5 73,671.7 51,910.0 – 21,761.7 70% Yonghe County（頤和雅郡）...... Yichang Residential 141,218.7 569,810.9 228,180.9 89,039.3 325,674.4 464,816.0 100% Yichang Yangtze International Cultural Square（宜昌長江國際文化廣場）...... Yichang Commercial 38,784.0 240,177.2 198,564.2 0.0 – 198,564.2 0% 2018 Park 1898（公園1898）...... Dongguan Residential 61,710.8 188,403.3 133,324.1 0.0 – 133,324.1 100% 2016 Boya Mansion 1898（博雅公館1898）. . . . . Dongguan Residential 9,570.6 31,275.9 27,713.0 764.3 – 26,948.7 100% 2016 Dream City（夢想城）...... Guiyang Residential 247,425.9 1,066,118.1 894,830.1 627,832.1 0.0 266,998.1 70% Colorful Square（繽紛廣場） ...... Guiyang Commercial 54,785.4 368,582.1 339,050.0 237,469.0 – 101,581.0 100% Purple House（紫境府）...... Guiyang Residential 67,394.7 108,394.3 66,352.0 0.0 0.0 66,352.0 10% 2018 Duyun Project（都勻項目） ...... Duyun Residential 230,208.0 379,875.0 289,074.0 0.0 – 289,074.0 0% 2018 Zunyi Project（遵義項目 ...... Zunyi Residential 378,669.0 734,500.0 734,500.0 0.0 – 734,500.0 0% Yan and Jiangnan（頤和江南）...... Hangzhou Residential 105,594.0 261,556.8 257,091.2 81,269.3 – 175,821.9 100% 2016 Harbour City（海港城） ...... Hangzhou Residential 65,998.1 245,167.6 249,743.8 5,391.3 – 244,352.5 90% Weiming house（未名府）...... Hangzhou Residential 63,551.0 193,884.1 177,734.8 132,967.9 – 44,767.0 100% Weiming 1898（未名1898）...... Kaifeng Residential 108,799.2 307,115.3 251,522.1 0.0 – 251,522.1 100% Weiming（未名央著）...... Kaifeng Residential 81,075.0 226,798.4 183,227.6 0.0 – 183,227.6 100% 2018 Weiming house（未名府）...... Kaifeng Residential 150,770.7 403,005.9 344,117.9 118,769.3 – 225,348.6 100% 2017 Zhuzhou Emerald Park（株洲翡翠公園）. . . . Zhuzhou Residential 168,448.1 540,987.2 392,228.2 294,204.7 120,907.9 218,931.5 82% Weiming 1898（未名1898）...... Zhuzhou Residential 219,656.5 359,717.0 324,295.0 65,043.2 – 259,251.8 30% 2018 Ideal home（理想家園）...... Changsha Residential 75,355.5 189,639.3 167,184.0 140,955.8 – 26,228.2 70% Surabaya project（溧水項目）...... Nanjing Residential 179,204.6 200,786.9 180,101.3 0.0 – 180,101.3 100% 2016 Yihe Yayuan（頤和雅苑）...... Yancheng Residential 138,505.1 336,609.7 328,556.7 0.0 – 328,556.7 60% 2017 Jiu Jinyu and（九錦頤和）...... Kunshan Residential 523,068.0 725,302.1 480,753.7 417,518.9 120,290.3 183,525.2 51% Yihe Tianyue（頤和天樾）...... Kunshan Residential 62,901.1 204,530.2 152,871.2 0.0 0.0 152,871.2 100% 2018 Yuecheng（閱城）...... Tianjin Residential 55,251.3 461,397.1 430,780.9 198,677.7 0.0 232,103.3 60% Yuefu（閱府）...... Tianjin Residential 280,182.0 271,222.8 262,808.7 192,958.5 0.0 69,850.3 70% Lianhu Jincheng (Jinfeng)（蓮湖錦城（金豐））. Ezhou Residential 204,394.6 349,276.0 136,699.5 14,456.1 211,846.5 334,090.0 100% Lianhu Jincheng (Tianhe)（蓮湖錦城（天合））. Ezhou Residential 414,707.0 386,105.2 370,435.9 325,483.1 0.0 44,952.8 90% Zhongbei Road Project（中北路項目）. . . . . Wuhan Residential 19,463.2 204,821.7 189,342.0 0.0 0.0 189,342.0 100% 2016 Boya Financial Plaza（博雅金融廣場）. . . . . Xining Commercial 72,976.0 417,310.6 441,716.9 65,430.5 0.0 376,286.4
99 Sold GFA as at Undeveloped Remaining Land Total site Total GFA 20 May land bank land bank Equity acquired Project Name Location Intended use area Total GFA for sale 2019 area area Interest time (in sq.m.) Botai City（博泰城）...... Kunming Residential 55,500.1 425,530.3 228,767.9 152,653.5 0.0 76,114.4 85% Boao City（博頤城）...... Kunming Residential 74,799.0 828,724.0 771,522.6 194,796.4 – 576,726.3 51% 2017 Laoyuhe（撈魚河）...... Kunming Residential 151,310.4 284,246.9 191,523.8 0.0 – 191,523.8 100% 2017 Boya (East)（博雅（東））...... Chongqing Residential 181,689.9 617,606.1 611,015.1 385,036.7 0.0 225,978.4 100% Yannan（燕南）...... Chongqing Residential 78,767.5 685,483.1 683,057.4 505,198.9 0.0 177,858.5 81% Purple House（紫境府）...... Chongqing Residential 103,259.6 209,336.7 85,878.6 0.0 120,105.3 205,983.9 99% 2018 Yuelai（悅來）...... Chongqing Residential 183,457.0 424,162.5 394,357.5 258,106.8 0.0 136,250.6 70% Jiangshan Mingmen（江山名門） ...... Chongqing Residential 321,368.1 671,572.3 668,235.9 513,275.4 – 154,960.6 70% Jinhua Science and Technology Park Phase II （金華科技園二期）...... Jinhua Residential 16,280.9 42,839.8 22,619.1 0.0 0.0 22,619.1 100% 2017
Property development process Development of the properties of the Group usually consists of seven phases: land acquisition, project planning and preliminary work, design, project construction, value-added services, pre-sales and sales, and after-sales services. The following diagram illustrates the stages of the property development cycle in China:
Land acquisition Project planning Design Project Value-added Pre-sales and sales After-sales services and preliminary construction services • site search and work • survey • management of • mortgage and • • analysis • architectural and tender and interior design existing and registration • market analysis procurement of potential assistance • market analysis, construction • decoration and supplies customers feasibility study, • product design construction • handling of • • project valuation positioning • landscape design construction • mechanical and preparation for complaints (competition and supervision pre-sales • acquisition of electrical • statistical customer • interior design land • completion renovation • sales promotion analysis analysis) inspection • execution of land • custom furniture • followup from • management of • plan design use right grant and accessories signing of sales clients' database contract and contract • property completion of management • delivery of units relevant procedures
The typical development cycle for vacant land in China is approximately three years, whereas the typical development cycle for urban property projects is often longer, particularly for project sites that are not vacant at the time of acquisition.
Site selection and product positioning The Group undergoes a site selection process and conducts an in-depth market analysis in order to understand the trends of the property market and market prices before it acquires a parcel of land. The major site selection criteria that the Group applies include the following:
• development plans of the government for the relevant site;
• accessibility of the site and available infrastructural support;
• consumer demand for properties in that area;
• competition from other developments nearby;
• ancillary facilities, such as parks, hospitals, schools and commercial spaces; and
• profitability and financial ratios.
100 Land acquisition Prior to the introduction by the Chinese government of regulations requiring that land use rights for property development be sold by tender, auction or listing-for-sale, the Group obtained most of its land use rights from state-owned enterprises and other developers.
The Rules Regarding the Grant of State-Owned Land Use Rights by Way of Tender, Auction and Listing-for-sale（招標拍賣掛牌出讓國有土地使用權規定）issued by the MLR (‘‘Circular 11’’)provide that, from 1 July 2002, land use rights for the purposes of commercial use, tourism, entertainment and commodity residential and commercial property development in China may be granted by the government only through public tender, auction or listing-for-sale. When deciding whom to grant land use rights, the relevant authorities will consider not only the tender price, but also the credit history, qualifications and tender proposal of the tenderor. These measures will result in a more transparent land grant process, which will enable developers to compete more effectively.
On 5 June 2003, the PBOC published the Notice on Further Strengthening the Administration of Real Estate Loans（中國人民銀行關於進一步加強房地產信貸業務管理的通知）. This notice prohibits commercial banks from advancing loans to fund the payments of land premiums. As a result, real estate developers may only use their own funds to pay for land premiums.
In September 2007, the MLR further promulgated the Regulations on the Grant of State-owned Construction Land Use Rights through Public Tender, Auction and Invitation for Bidding（招標拍賣掛 牌出讓國有建設用地使用權規定）to amend Circular 11, requiring that land for industrial use, except land for mining, must also be granted by public tender, auction and invitation for bidding. Only after the grantee has paid the land premium in full under the land grant contract can the grantee apply for the land registration and obtain the land use right certificates. Furthermore, land use rights certificates may not be issued in proportion to the land premium paid under the land grant contract.
In November 2009, the MOF, the MLR, the PBOC, the PRC Ministry of Supervision and the PRC National Audit Office jointly promulgated the Notice on Further Enhancing the Revenue and Expenditure Control over Land Grant（關於進一步加強土地出讓收支管理的通知）. This notice raises the minimum down payment for land premium to 50 per cent. and requires the land premium to be fully paid within one year after the signing of a land grant contract, subject to limited exceptions.
The MLR promulgated the Notice on Problems Regarding Strengthening Control and Monitoring of Real Estate Land Supply（關於加強房地產用地供應和監管有關問題的通知）(the ‘‘Notice’’)on8March 2010. According to the Notice, the land provision for affordable housing, redevelopment of slum districts and small/medium residential units for occupier owner should be no less than 70 per cent. of total land supply, and the land supply for large residential units will be strictly controlled and land supply for villa projects will be banned. The Notice also requires that the lowest land grant price should not be less than 70 per cent. of the basic land price of the place where the granted land is located and the real estate developer’s bid deposit should not be less than 20 per cent. of the lowest grant price. The land grant agreement must be executed within ten working days after the land transaction is confirmed. The minimum down payment of the land premium should be 50 per cent. and must be paid within one month after the execution of the land grant agreement. The balance should be paid in accordance with the agreement, but no later than one year. If the land grant agreement is not executed in accordance with the requirement above, the land shall not be handed over and the deposit will not be returned. If no grant premium is paid after the execution of the agreement, the land must be withdrawn.
On 21 September 2010, the MLR and the MOHURD issued the Notice on Further Strengthening the Administration and Control of the Lands for Real Estates and the Construction of Real Estates（國土資 源部、住房和城鄉建設部關於進一步加強房地產用地和建設管理調控的通知 ）to tighten the examination of qualifications of land bidders. It specifies that when the bidders take part in the bidding or auction of the transferred land, the competent authorities of land and resources shall, in addition to requiring proof of identity documents and payment of the bid security, require an undertaking letter
101 stating that the bid security is not from any bank loan, shareholders’ borrowing, on-lending or raised funds and the credit certificate issued by commercial financial institutions. If the bidders are found to have conducted any of the following illegal or irregular activities, the competent authority of land and resources shall forbid the bidders and their controlling shareholders from participating in land bidding activities: (1) committing crimes such as forgery of instruments with an aim to illegally sell the land; (2) conducting illegal activities such as illegal transfers of land use right; (3) where the land is idling for a period of more than one year due to the enterprises’ reasons; or (4) where the development and construction enterprise develops and takes advantage of the land in contravention of the conditions as agreed in the transfer contract. The relevant authorities of land and resources at all levels are required to strictly implement the regulations.
On 8 April 2013, the MLR issued the Notice on Issuance of Technical Code on Valuation for Land Grant Premium of State-owned Construction Land Use Rights (Trial)（《關於發佈＜國有建設用地使用權 出讓地價評估技術規範（試行）＞的通知》）. The notice provides that the competent local land authority must conduct valuation process to determine the basic price of state-owned lands for grant, which shall be determined based on a valuation report on the land in consistent with the technical code issued. The ultimate land premium reached between the land authority and the grantee shall not be less than the basic price of the land determined previously.
On 25 March 2015, the MLR and the MOHURD issued the Notice on Optimising the Housing and Land Supply Structure in 2015 and Promoting Stable and Sound Development of Real Estate Market（《關於優 化2015年住房及用地供應結構促進房地產市場平穩健康發展的通知》）, pursuant to which if the real estate enterprises have conducted serious illegal or irregular activities in the land development and transaction, the competent authorities of land and resources have the power to restrict or forbid the real estate enterprises from participating in new land bidding activities.
On 1 April 2017, the MLR and MOHURD issued the Circular of the Ministry of Housing and Urban- Rural Development and the Ministry of Land and Resources on Tightening the Management and Control over Intermediate Residential Properties and Land Supply（住房城鄉建設部、國土資源部關於加強近期 住房及用地供應管理和調控有關工作的通知）, pursuant to which all the local authorities shall adjust the scale, structure and time sequence of housing land supply according to the commercial housing inventory cycle, and shall stop the supply of land to real estate having a cycle of more than 36 months; reduce the supply of land to those having a cycle of 18-36 months; increase the supply of land to those having a cycle of 6-12 months; and increase and accelerate the supply of land to those having a cycle of less than six months. All the local authorities shall build a land purchase money inspection system to ensure that the real estate developers use their own legal funds to purchase land. If any source of funding does not meet the requirements as a result of review by the department of land and resources and the relevant financial department, the real estate developer shall be disqualified from land bidding and be prohibited from participating in land bidding, auction and listing for a period of time.
In order to control and facilitate the procedure of obtaining land use rights, several local governments have stipulated standard provisions for land grant contracts. Such provisions usually include terms such as use of land, land premium and manner of payment, building restrictions including site coverage, total gross floor area and height limitations, construction of public facilities, submission of building plans and approvals, deadlines for completion of construction, town planning requirements, restrictions against alienation before payment of premium and completion of prescribed development and liabilities for breach of contract. Any change requested by the land user in the specified use of land after the execution of a land grant contract will be subject to approvals from the relevant local land bureau and the relevant urban planning department, and a new land use contract may have to be signed and the land premium may have to be adjusted to reflect the added value of the new use. Registration procedures must then be carried out immediately.
102 Under current regulations, grantees of land use rights are generally allowed to dispose of the land use rights granted to them in the secondary market. Subject to the terms of the land use right grant and relevant registration requirements, the Group may choose to acquire land from such third parties. The availability of privately held land will, however, remain limited and subject to uncertainties.
Financing of property developments The Group benefits from access to diversified funding sources for its property developments, including the capital markets in China, through equity offerings and bond offerings as a publicly listed company, as well as its good relationships with Chinese and overseas commercial banks and real estate trusts.
On 25 May 2009, the State Council issued the Notice on the Adjustment of the Invested Capital Ratio regarding Investment in Fixed Assets（國務院關於調整固定資產投資項目資本金比例的通知）, according to which, for the development of a general commodity housing project, the minimum registered capital shall be no less than 20 per cent. of the total investment of the fixed assets development project, and for other property development projects, the minimum registered capital shall be no less than 30 per cent. of the total investment. Therefore, the Group shall use its own funds to fulfil the requirement of the minimum registered capital and could only get such external funding as bank loans for the financing of the remaining capital needs.
Pursuant to the Notice on Adjusting and Improving the Capital System for Fixed Asset Investment Projects（《關於調整和完善固定資產投資專案資本金制度的通知》）issued by the State Council on 9 September 2015, for real estate development projects, the minimum capital requirement remains unchanged at 20 per cent. for affordable housing and ordinary commodity housing projects, the minimum capital requirement is adjusted from 30 per cent. to 25 per cent. for other real estate projects.
Construction design The Group outsources most of the projection and design of a property development, including planning, architecture and landscaping, to third parties with whom it seeks to develop and maintain long-term cooperative relationships. The Group also has a strong in-house design team which reviews and approves the design proposals offered by third parties.
Marketing and promotion During project evaluation and before commencement of construction, the marketing and sales department usually carries out substantial market research for particular projects, including the identification of property trends, prospects and market potential. By identifying the potential demand for, and strengths and weaknesses of, a project at an early stage, the Group is able to formulate its marketing and promotion strategies at the planning stage of each project and to target its sales efforts at potential classes of purchasers for the project throughout its development.
The marketing and sales department is also responsible for marketing the Group’s newly developed properties. The Group promotes and markets its developed properties through innovative selling channels including various media outlets, such as television, radio, newspapers and magazines, the internet and outdoor billboards. The Group also participates in property exhibitions and other marketing events. Strategically, the Group aims to further develop its marketing tactics and the skills of its sales force.
The Group is committed to introducing attractive products that appeal to the different tastes and demands of its targeted customers.
Development, construction and management The Group has set up functional departments including the legal affairs department, the finance department, the treasury department, the procurement department, the works operation department, the strategy department, the project development department, the R&D department, the costing and contracts
103 department, the marketing and planning department, the industry and innovation department, the administration department, the brand name management department, the client relationship department and the human resources department.
The individual project companies of the Group are responsible for the day-to-day operations and project management of each property project. Each individual project company is responsible for implementing infrastructure and installation of basic utilities, engineering and supervision of day-to-day construction work.
The Group engages independent third party contractors to provide various services, including construction, piling and foundation, building and property fitting-out, interior decoration and installation of facilities, such as air-conditioning units and elevators. According to the specific needs of the individual projects, the Group selects the bidder suitable for the project to participate in the bidding work, and determines the winning bidder according to the bidding principle of the procurement system.
Raw materials procurement The Group procures all the raw materials, semi-finished products, accessories and components that it uses through open tender and bidding procedures. The Group investigates the suppliers during the bidding process and also reviews their quality and services regularly before and after their performance of the supply contracts. The Group uses suppliers which can provide products and services of good quality at low prices. The Group has established a two-layer procurement system through which the Group’s headquarter, regional headquarters and project companies are allowed to employ and select raw materials suppliers.
Product development and innovation In terms of product development and innovation, the Group actively utilizes Internet technology and launched product innovation campaign to guide the innovation research and application promotion with Internet technology and innovation concept so as to strengthen product competitiveness.
Quality management system The Group places a strong emphasis on quality control to ensure that the quality of its products and services complies with relevant regulations and meets market standards. The Group has quality control procedures in place in its different functional departments as well as in each construction supervisory company.
The Group engages construction supervisory companies to supervise the construction of its property developments pursuant to relevant PRC regulations. These construction supervisory companies are qualified entities that specialise in construction supervision. The construction supervisory company engaged for a property development oversees the progress and quality of the construction work from beginning to end. Under the construction supervisory contracts of the Group, construction supervisory companies are empowered to inspect, advise and request rectification of any non-compliance, as well as to order suspension of construction in specific circumstances.
The Group has established internal guidelines and it strictly enforces such guidelines to ensure control over documentation, record-keeping, internal audits, service standards, remedial actions, preventive actions, management control, construction standards, staff quality, recruitment standards, staff training, construction supervision, supervisory inspection, monitoring and surveillance, information exchange and data analysis.
Pre-sales Under current PRC laws and regulations, a property developer must apply to the relevant government authorities for pre-sale permits before commencing pre-sales of properties. Such permits will normally be issued only when, amongst other things, (i) the land premium has been fully paid; (ii) the land use
104 right certificate, the construction land planning permit, the construction work planning permit and the construction project building permit have been obtained; and (iii) the construction works on the commercial properties have been completed up to the stipulated standard.
Under PRC laws, the proceeds from the pre-sales of the properties must be deposited in escrow accounts. Before the completion of the pre-sold properties, the moneys deposited in these escrow accountsmayonlybeusedtopurchaseconstructionmaterial and equipment, make interim construction payments and pay taxes, subject to prior approval from the relevant local authorities.
Payment method and mortgage financing Property purchasers may purchase the Group’s properties by a lump sum payment, payment in instalments or mortgage. The Group typically requires its customers to pay a non-refundable deposit upon entering into provisional purchase contracts.
Most of the Group’s customers purchase its properties through mortgages. In accordance with industry practice in China, the Group provides guarantees to mortgagee banks for its customers in pre-sales. Such a guarantee will be in effect from the date of drawdown of the facilities provided by mortgagee banks to the customers and be released upon the earlier of (i) the relevant property ownership certificates being delivered to the purchaser; and (ii) the full repayment of mortgage by the purchaser. In line with industry practice, the Group does not conduct independent credit checks on its customers but relies on the credit checks conducted by the mortgagee banks.
After-sales services The Group provides its customers with a full range of end-to-end after-sale services. It assists its customers in arranging for and providing information relating to financing, including information on potential mortgagee banks and the mortgage terms they offer. It also assists its customers in various title registration procedures relating to the properties.
The Group maintains a client relationship management system to foster customer relationships. The customer services department carries out customer surveys to seek customer feedback on the design and quality of the Group’s properties and services. The Group also has a dedicated team handling customer complaints and maintenance and repair requests.
Commercial property operation The Group develops and invests in properties for rental income and potential long-term appreciation. The revenue source of the Group’s commercial property operation business is mainly rental income. As at 31 December 2018, the Group’s completed investment properties primarily included shopping centers, office buildings, shops, hotels and office buildings. The projects are mainly distributed in Beijing, Shanghai, Shenzhen, Suzhou, Jinan, Nanchang and Dongguan. The Group is also a leading provider of community and asset management services. The Group has a large property management portfolio covering more than 27 cities across China and more than 80 management projects covering commercial, office, residential, industrial park and other comprehensive property services. The Group has the first- class property management qualification.
As at 31 December 2018, the Group had 17 commercial property operation projects with a total construction area of 736,800 sq. m. and a leasable area of 666,400 sq. m.
The Group controls its commercial property operation projects with an equity interest ranging from 18 per cent. to 100 per cent. shareholding. The occupancy ratio of most projects is above 80 per cent., and the occupancy ratio of seven projects has reached 100 per cent. The table below sets forth selected information of the commercial property under operation of the Group.
105 Total Total construction Total occupation Name of property Location Intended use area leasable area ratio Interest (in 1,000 sq.m.) % South China MALL Shopping Center Dongguan Shopping center 249.7 235.9 90% 100% （華南MALL購物中心） ...... Hangzhou Fortune Center（杭州財富中心）...... Hangzhou Officebuildingplus 42.1 39.4 95% 90% business cell Kunshan Licheng（昆山理城）...... Kunshan Concentratedbusiness 17.0 17.0 91% 51% International Building（國際大廈）...... Shenzhen Commercialoffice 27.0 27.0 100% 100% Jincheng Building（金城大廈）...... Shenzhen Commercialoffice 0.04 0.04 100% 100% Starlight New Auto（星光新奧特）...... Beijing Business, office, apartment, 137.4 113.6 93% 60% studio, warehouse Shangpin Qinghe 6 sets of business cell Jinan Shop 2.0 2.0 93% 98.53% （尚品清河6套底商）...... Shanghai Founder Building（上海方正大廈）...... Shanghai Business 10.0 9.4 66% 100% East Lake Dajun Garden（東湖大郡花園）...... Suzhou Residential 40.2 40.2 95% 100% Guiyang Henglong Phase 17# plot S09 Business Guiyang Business 7.6 7.6 nil 70% (cinema issue 1)（貴陽恒隆一期7#地塊S09棟商業（電 影院一期））...... PKU Universities Science and Technology Park Beijing Office building, hotel 63.0 61.0 100% 42% (including Boya Hotel)（北大科技園（含博雅酒店））. Wangjing Boya International Apartment 8 sets Beijing Apartment 0.9 0.9 100% 42% （望京博雅國際公寓8套）...... Chengfu North Riverside Apartment 1 set Beijing Apartment 0.1 0.1 100% 42% (North Beijing)（成府北河沿公寓1套（北京））..... Venture Building (Nanchang)（創業大廈（南昌））.... Nanchang Officebuilding 19.4 14.1 84% 80% Peking University Resources Zhihuiyuan Business Nanchang Office building 76.8 53.2 60% 100% （北大資源智匯苑商業）...... Founder International Building（方正國際大廈）.... Beijing Office building 43.6 45.0 97% 18% Yongqin（永勤） ...... HongKong Officebuilding / / / 100%
Intellectual Property The Group has registered its trademark of ‘‘PKU Resources’’ in China. It also owns the domain name of ‘‘pkurg.com’’.
Environment To the best of the Group’s knowledge and information, it believes that it is substantially in compliance with all material applicable national or local environmental laws and regulations in the PRC and has obtained, or is in the process of obtaining, all permits, approvals and certifications required under PRC law in relation to its environmental facilities.
Health and Safety The Group regards occupational health and safety as one of its important corporate and social responsibilities. Some of the Group’s business operations involve significant risks and hazards that could result in damage or destruction of property, death and personal injury, business interruption and possible legal liabilities. As at the date of this Offering Circular, all of the Group’s subsidiaries engaging in dangerous production and processing operations in the PRC had obtained and maintained work safety permits issued by relevant local authorities in the PRC. The Group has not had any of its work safety permits terminated or suspended by relevant government departments.
The Group provides safety training to its employees, and requires all employees to follow the safety standards prescribed by its production safety department. It also specifies safety standards for matters such as purchasing new equipment, constructing new facilities or improving existing facilities. Safety measures and regular safety inspection points are established throughout the production process. Production plants are inspected regularly, and each production plant has a designated employee responsible for safety inspection. Serious work-related injuries are very rare.
106 Competition The Group’s businesses operate in highly fragmented and competitive markets, and face increasing competition for capital, labour, location, facilities and supporting infrastructure, services, pricing and raw materials, as well as acquisition opportunities and new business opportunities. Certain of the Group’s competitors in their respective businesses may have longer operating track records, stronger government and customer relationships, and greater parent support and access to financial, technical, infrastructure, marketing and other capabilities, or other resources and/or name recognition than the Group. To maintain and enhance its competitiveness, the Group aims to further strengthen and develop long-term, stable and co-operative business relationships, capitalise upon extensive local knowledge and strategic investment opportunities, focus on improving its product mix and operational efficiencies, develop innovative process technologies, enhance its marketing techniques, further reduce its production costs and, ultimately, become a competitive diversified enterprise with a leading presence in each of its core businesses.
Insurance The Group is covered by insurance which covers losses caused by fire, flood, riot, strike and malicious damage. The Group believes that its properties are covered by adequate insurance provided by reputable independent insurance companies in the relevant jurisdictions, and with commercially reasonable deductibles and limits on coverage which are normal for the type and location of the assets and properties to which they relate.
Employees As at 31 December 2018, the Group had approximately 5,000 employees globally.
The Group adheres to, and complies with, the relevant labour laws of the PRC and other jurisdictions in which it operates. Staff benefits include salaries, provident fund contributions, insurance, medical care and housing. The Group believes that its employees are critical to its success, and it is committed to investing in the development of its employees through continuing education and training, as well as the creation of opportunities for career growth. In order to motivate employees, employee salaries are tied to business and individual performance. To date, the Group has not experienced any labour strikes or other material labour disputes that affected its operations. The Group believes that its senior executives, labour union and employees will continue to maintain good relationships with each other.
Compliance and Legal Proceedings As at the date of this Offering Circular, the Group and its shareholders and its affiliates are involved in certain legal proceedings.
Loan disputes – Tibet Zhaorong Lawsuit In February 2019, Tibet Zhaorong initiated legal proceedings against the PRC Guarantor in the Beijing No. 1 Intermediate People’s Court and the Beijing Higher People’s Court, alleging that according to the loan contract signed between the two parties, the PRC Guarantor should repay Tibet Zhaorong the total amount of approximately RMB1.5 billion (‘‘Tibet Zhaorong Lawsuit’’). The Beijing No. 1 Intermediate People’s Court assumed jurisdiction of four cases related to the Tibet Zhaorong Lawsuit involving a total amount of RMB747 million. The Beijing Higher People’s Court assumed jurisdiction of one case related to the Tibet Zhaorong Lawsuit involving a total amount of RMB769 million. In conjunction with the Tibet Zhaorong Lawsuit, Tibet Zhaorong applied to the courts for the bank accounts and assets of the PRC Guarantor, including its 100 per cent. equity shareholding in Dongguan Sanyuan to be frozen. The PRC Guarantor has applied to the courts to unfreeze its assets and provided a guarantee, and the court has yet to make a written ruling in respect of such application.
107 Entrusted contract dispute – Zenith Holdings Lawsuit In December 2014, Beijing Zenith Holdings Co., Ltd.（北京政泉控股有限公司）(‘‘Zenith Holdings’’) initiated legal proceedings against Peking University Resources Group Holding Co., Ltd.（北大資源集團 控股有限公司）(‘‘Resources Holding’’) at Beijing No. 1 Intermediate People’s Court claiming for the payment of revenue and taxes in respect of its holding of shares of PKU Healthcare Corp., Ltd.（北大醫 藥股份有限公司）(‘‘PKU Healthcare’’) on behalf of Resources Holding. Beijing No. 1 Intermediate People’s Court ultimately decided in October 2016 the Haidian District People’s Court of Beijing (‘‘Haidian Court’’) be the competent court to assume jurisdiction over such proceedings in October 2016. Zenith Holdings requested Resources Holding to pay the revenue of RMB11,305,897, together with aggregate interests of RMB1,356,707.64 up to 7 July 2016 and various taxes amounting to RMB99,286,384.02 in total as well as the court cost.
Resources Holding filed a counter claim at the trial, requesting for ruling that: (i) Zenith Holdings shall transfer 3,225,346 shares of PKU Healthcare held by it on behalf Resources Holdings back to Resources Holding; (ii) Zenith Holdings shall pay to Resources Holding the unreturned revenues of RMB26,268,495.76 arising from reduction of shareholdings during its holding period and the interest loss in the amount of RMB2,562,637.70 (calculated from 15 September 2014 up to the actual payment date, temporarily set as 30 August 2016, based on the bank loan interest rate of the same period) resulting from overdue return of revenues; (iii) Zenith Holdings shall compensate for any loss arising from its breach of confidence to Resources Holding; and (iv) Zenith Holdings shall bear all the court costs of this case.
Recently, the Haidian Court ruled that the entrusted shareholding agreement entered between Zenith Holdings and the Resources Holding was invalid and dismissed all claims brought up by Zenith Holdings. As at the date of this Offering Circular, the enforcement of this judgment was pending.
Shareholders’ Disputes – Zhaorun Lawsuit On 19 February 2019, the Group’s shareholder Founder Group received two writs from its minority shareholder, Beijing Zhaorun Investments Management Co., Ltd.（北京招潤投資管理有限公 司）(‘‘Zhaorun’’) to be heard in Haidian Court, where: (1) in the first writ, Zhaorun requested Founder Group to return the following documents, inter alia, the books and accounts and accounting records of Zhaorun, corporate documents of Zhaorun including minutes and resolutions of its board and shareholder meetings, contracts signed by Zhaorun and documents signed and stamped by Zhaorun since 1 January 2015; and (2) in the second writ, Zhaorun requested Founder Group to provide copies of and allow inspection of all Founder Group’s minutes and resolutions of its board meetings, shareholder meetings and supervisor meetings as well as the financial statements of Founder Group since 1 January 2015, and to allow inspection of books and accounts of Founder Group since 1 January 2015 (together with the proceeding of the first writ, the ‘‘Zhaorun Lawsuit’’).
As at the date of this Offering Circular, 70 per cent. of Founder Group’s issued share capital is held by Peking University through its wholly-owned subsidiary PKU Asset Management with the remaining 30 per cent. held by Zhaorun. Zhaorun alleged that these requests were originated from its right as a shareholder of Founder Group. As at the date of this Offering Circular, the Haidian Court has not fixed a date for the hearing of the Zhaorun Lawsuit.
Shareholders’ Disputes – PKU Asset Management Lawsuit On 14 June 2019, PKU Asset Management filed a lawsuit with the First Intermediate People’sCourtof Beijing (‘‘Beijing Intermediate Court’’) against, among others, Zhaorun, Wei Xin, a former chairman of Founder Group, Li You, a former director and chief executive officer of Founder Group and Yu Li, a former chief financial officer of Founder Group. PKU Asset Management, among others, (i) alleges that the share transfer agreements signed in 2004 between PKU Asset Management (the ‘‘Transferor’’)and Wei Xin, Li You and Yu Li on behalf of certain corporates including Zhaorun (the ‘‘Transferees’’)in relation to the transfer of 65 per cent. of Founder Group’s share capital held by the Transferor to the
108 Transferees were invalid; and (ii) requests Zhaorun to return to PKU Asset Management the 30 per cent. of Founder Group’s share capital currently held by Zhaorun (the ‘‘PKU Asset Management Lawsuit’’). PKU Asset Management claims it owns all issued share capital of Founder Group.
As at the date of this Offering Circular, the Beijing Intermediate Court has not fixed a date for the hearing of PKU Asset Management Lawsuit.
Shareholders’ Disputes – Founder Group Lawsuit On 14 June 2019, Founder Group filed a lawsuit with the Beijing Intermediate Court against, among others, Zhaorun, Wei Xin, a former chairman of Founder Group, Li You, a former director and chief executive officer of Founder Group and Yu Li, a former chief financial officer of Founder Group (together, the ‘‘Defendants’’). Founder Group, among others, requests the Defendants to return to Founder Group approximately RMB1.50 billion (the ‘‘Founder Group Lawsuit’’).
As at the date of this Offering Circular, the Beijing Intermediate Court has not fixed a date for the hearing of the Founder Group Lawsuit.
Saved as disclosed in this Offering Circular, the Group is not aware of itself or any of its subsidiaries being involved in any litigation or arbitration proceeding that would have a material adverse effect on the Group’s business or financial position as a whole, and to the best knowledge of the Group after due inquiries, there is no litigation or claim against the Group pending or threatened, which may have a material adverse effect on the Group’s business or financial position as a whole.
109 DIRECTORS AND SENIOR MANAGEMENT OF THE GROUP
Directors The table below sets forth information relating to the Group’s Directors as at the date of this Offering Circular:
Name Position Wei Junmin（韋俊民）...... Chairman
Sun Min（孫敏）...... Director
Ma Jianbin（馬建斌）...... Director
Zeng Gang（曾剛）...... DirectorandCEO
Zhou Fumin（周福民）...... Director
The biographies of the Directors are set out below.
Mr. Wei Junmin, holds a Master of Laws from Peking University. He has served successively as deputy secretary of the Youth League Committee of Peking University, assistant president of Founder Group, supervisor of Founder Technology Group Co., Ltd., executive vice president of Beijing Beida Online Network Co., Ltd., and vice president of PKU Asset Management, and is a part-time lawyer of Beijing Tian Yuan Law Office. At the same time, he is also the deputy secretary of the Party Working Committee of the Office of the Industrial Management Committee of Peking University.
Ms. Sun Min, holds a bachelor degree. She is currently a member of the Disciplinary Committee, a member of the Executive Committee, a vice president and chief financial officer of Founder Group, a director of the Group, and a former vice president of the Executive Committee of Founder Group, a chief financial officer of Beijing Beida Founder Electronics Co., Ltd., director of financial management department of Peking University International Hospital Group Co., Ltd.
Mr. Ma Jianbin, holds a Ph.D. He is currently the deputy secretary of the Party Committee, a member of the Executive Committee, vice president and chief talent officer of the Founder Group. He used to be the general manager of the human resources department of Founder Group.
Mr. Zeng Gang, holds a bachelor degree. He is currently a director and CEO of the Group. Mr. Zeng was president of Guiyang PKU Resources Real Estate Company and Chengdu PKU Resources Real Estate Company and chairman of Sichuan Lianjiang Technology Co., Ltd., and Shuangzhen Gudi Engineering Technology Consulting Co., Ltd.
Mr. Zhou Fumin, holds a graduate degree. He is currently a director of Founder Group and a director of the Group. He is also the deputy director of the Office of the Industrial Management Committee of Peking University and the director of PKU Asset Management. He used to be deputy director of the Science and Technology Development Department of Peking University and worked at the Natural Science Division of Peking University.
110 Senior Management The table below sets forth information relating to the Group’s senior management as at the date of this Offering Circular:
Name Position Zeng Gang（曾剛）...... DirectorandCEO
Wang Liang（王亮）...... VicepresidentandCFO
Wang Tao（王濤）...... Vicepresident
Wang Tong（王彤）...... VicepresidentandCRO
Liu Jinquan（劉錦泉）...... VicepresidentandCOO
Zhang Wenqing（張文慶）...... Vicepresident
Su Hua（蘇華）...... Vicepresident
Zhao Junxia（趙俊霞）...... VicepresidentandCHO
Tang Fang（唐芳）...... Vicepresident
Xu Yanzheng（徐燕征）...... Assistantpresident
The biographies of the senior management are set out below.
Please see ‘‘– Directors’’ for details of the biograph of Mr. Zeng Gang.
Mr. Wang Liang, holds an EMBA degree. He is currently the Vice president and CFO of the Group. He used to be the general manager of the financial management department of Huafu Holdings (Group) Co., Ltd., the executive director and vice president of Fantasia Holdings Group Co., Ltd., and the general manager of the financial management center of Aoshan Group Co., Ltd.
Mr. Wang Tao, holds a bachelor degree. He is currently the Vice president of the Group. He used to be the executive deputy general manager of Poly Guiyang Company of Poly Real Estate Group and the director and general manager (party secretary) of Poly Guizhou Real Estate Company of Poly Real Estate Group.
Ms. Wang Tong, holds a graduate degree. She is currently the Vice president and CRO of the Group. She has worked in the Tanggu District People’s Court of Tianjin, Haikou Intermediate People’s Court of Hainan Province and Founder Group etc.
Mr. Liu Jinquan, holds a bachelor degree. He is currently the Vice president and COO of the Group. He has worked for Beijing Taihao Real Estate Holdings Co., Ltd., Lenovo Holdings Rongke Zhidi Tianjin Company and Tianjin Taida Hotel Group Co., Ltd., etc.
Mr. Zhang Wenqing, holds a bachelor’s degree. He is currently the Vice president of the Group. He has worked for Chengdu Peking University Resources Real Estate Co., Ltd., China Housing Land Development Co., Ltd., Chengdu Vanke Real Estate Co., Ltd. and Zhonghai Xingye (Chengdu) Development Co., Ltd.
111 Mr. Su Hua, holds a graduate degree. He is currently the Vice president of the Group. He is also the president of Tianjin Beida Resources Real Estate Co., Ltd. He has served in the real estate development department of China Construction Engineering Headquarters, general manager and chairman of Tianjin Development Corporation, deputy general manager and project director of Financial Street Real Estate Group Beijing Company.
Ms. Zhao Junxia, holds a bachelor degree. She is currently the Vice president and CHO of the Group. She has worked for Hejun Consulting Co., Ltd., Beijing Qidi Smart Network Technology Co., Ltd., Founder Group etc.
Ms. Tang Fang, holds a graduate degree from UCSI University in Malaysia. She is currently the Vice president of the Group. She used to be the general manager of north china business headquarters of China Ping An Shenzhen Qianhai Financial Assets Exchange Co., Ltd., and the president of Haidian Branch of Industrial Bank Beijing Branch.
Ms. Xu Yanzheng, holds a graduate degree. She is currently the Assistant president of the Group. She has worked for China Merchants Property Development Co., Ltd., Vanke Enterprise Co., Ltd., Beijing Investment Yintai Co., Ltd.
112 EXCHANGE RATES
PBOC sets and publishes daily a base exchange rate with reference primarily to the supply and demand of Renminbi against a basket of currencies in the market during the prior day. PBOC also takes into account other factors, such as the general conditions existing in the international foreign exchange markets. From 1994 to 20 July 2005, the conversion of Renminbi into foreign currencies, including Hong Kong dollars and U.S. dollars, was based on rates set daily by PBOC on the basis of the previous day’s inter-bank foreign exchange market rates and then current exchange rates in the world financial markets. During this period, the official exchange rate for the conversion of Renminbi to U.S. dollars remained generally stable. Although the PRC government introduced policies in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currencies for current account items, conversion of Renminbi into foreign currencies for capital items, such as foreign direct investment, loan principals and securities trading, still requires the approval of SAFE and other relevant authorities. On 21 July 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. On the same day, the value of the Renminbi appreciated by approximately 2 per cent. against the U.S. dollar. On 18 May 2007, PBOC enlarged the floating band for the trading prices in the inter-bank foreign exchange market of the Renminbi against the U.S. dollar from 0.3 per cent. to 0.5 per cent. around the central parity rate, effective on 21 May 2007. This allows the Renminbi to fluctuate against the U.S. dollar by up to 0.5 per cent. above or below the central parity rate published by PBOC. The floating band was further widened to 1.0 per cent. on 16 April 2012 and to 2.0 per cent. on 17 March 2014. From 21 July 2005 to 31 December 2014, the value of the Renminbi appreciated by approximately 33 per cent. against the U.S. dollar. The PRC government has since made and in the future may make further adjustments to the exchange rate system. PBOC authorised the China Foreign Exchange Trading Center, effective since 4 January 2006, to announce the central parity exchange rate of certain foreign currencies against the Renminbi on each business day. This rate is set as the central parity for the trading against the Renminbi in the inter-bank foreign exchange spot market and the over-the-counter exchange rate for the business day.
The following table sets forth the exchange rate between Renminbi and the U.S. dollar set forth in the H. 10 weekly statistical release of the Board of Governors of the Federal Reserve System of the United States for the periods indicated:
Noon Buying Rate Period end Average(1) Low High RMB per U.S.$1.00 Period 2014 ...... 6.2046 6.1704 6.0402 6.2591 2015 ...... 6.4778 6.2869 6.1870 6.4896 2016 ...... 6.9430 6.6549 6.4480 6.9580 2017 ...... 6.5063 6.7350 6.4773 6.9575 2018 ...... 6.8755 6.6292 6.2649 6.9737 2019 January ...... 6.6958 6.7863 6.6958 6.8708 February ...... 6.6912 6.7367 6.6822 6.7907 March ...... 6.7112 6.7119 6.6916 6.7381 April ...... 6.7347 6.7161 6.6870 6.7418 May ...... 6.9027 6.8519 6.7319 6.9182 June ...... 6.8650 6.8977 6.8510 6.9298
Source: Federal Reserve H.10 Statistical Release
Note:
(1) Determined by averaging the rates on the last business day of each month during the relevant year, except for the monthly average rates, which are determined by averaging the daily rates during the month.
113 TAXATION
The following summary of certain tax consequences of the purchase, ownership and disposition of the Bonds is based upon applicable laws, regulations, rulings and decisions in effect at the date of this Offering Circular, all of which are subject to change (possibly with retroactive effect). This discussion does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase, own or dispose of the Bonds and does not purport to deal with consequences applicable to all categories of investors, some of which may be subject to special rules. Neither these statements nor any other statements in this Offering Circular are to be regarded as advice on the tax position of any Bondholder or any persons acquiring, selling or otherwise dealing in the Bonds or on any tax implications arising from the acquisition, sale or other dealings in respect of the Bonds. Persons considering the purchase of the Bonds should consult their own tax advisers concerning the possible tax consequences of buying, holding or selling any Bonds under the laws of their country of citizenship, residence or domicile.
British Virgin Islands As at the date of this Offering Circular, the Issuer is exempt from all provisions of the Income Tax Ordinance of the British Virgin Islands including with respect to all dividends, interests, rents, royalties, compensations and other amounts payable by the Issuer to persons who are not resident in the British Virgin Islands. There is no capital gains tax, estate or inheritance tax payable by persons who are not persons resident in the British Virgin Islands.
Hong Kong Withholding Tax No withholding tax is payable in Hong Kong in respect of payments of principal or interest in respect of the Bonds or in respect of any capital gains arising from the sale of the Bonds.
Profits Tax Hong Kong profits tax is chargeable on every person carrying on a trade, profession or business in Hong Kong in respect of profits arising in or derived from Hong Kong from such trade, profession or business (excluding profits arising from the sale of capital assets).
Interest on the Bonds may be deemed to be profits arising in or derived from Hong Kong from a trade, professional or business carried on in Hong Kong in the following circumstances:
(a) interest on the Bonds is derived from Hong Kong and is received by or accrues to a corporation carrying on a trade, profession or business in Hong Kong; or
(b) interest on the Bonds is derived from Hong Kong and is received by or accrues to a person, other than a corporation, carrying on a trade, profession or business in Hong Kong and is in respect of the funds of that trade, profession or business;
(c) interest on the Bonds is received by or accrues to a financial institution (as defined in the Inland Revenue Ordinance (Cap. 112) of Hong Kong (the ‘‘IRO’’)) and arises through or from the carrying on by the financial institution of its business in Hong Kong; or
(d) interest on the Bonds is received by or accrues to a corporation, other than a financial institution, and arises through or from the carrying on in Hong Kong by the corporation of its intra-group financing business (within the meaning of section 16(3) of the IRO).
Sums received by or accrued to a financial institution by way of gains or profits arising through or from the carrying on by the financial institution of its business in Hong Kong from the sale, disposal and redemption of Bonds will be subject to profits tax. Sums received by or accrued to a corporation, other
114 than a financial institution, by way of gains or profits arising through or from the carrying on in Hong Kong by the corporation of its intra-group financing business (within the meaning of section 16(3) of the IRO) from the sale, disposal or other redemption of Bonds will be subject to Hong Kong profits tax.
Sums derived from the sale, disposal or redemption of Bonds will be subject to Hong Kong profits tax where received by or accrued to a person, other than a corporation, who carries on a trade, profession or business in Hong Kong and the sum has a Hong Kong source unless otherwise exempted. The source of such sums will generally be determined by having regard to the manner in which the Bonds are acquired and disposed of.
In certain circumstances, Hong Kong profits tax exemptions (such as concessionary tax rates) may be available. Investors are advised to consult their own tax advisers to ascertain the applicability of any exemptions to their individual position.
Stamp Duty No Hong Kong stamp duty will be chargeable upon the issue or transfer of a Bond.
PRC The following summary describes the principal PRC tax consequences of ownership of the Bonds by beneficial owners who, or which, are not residents of China for PRC tax purposes. These beneficial owners are referred to as non-PRC Bondholders in this section. In considering whether to invest in the Bonds, investors should consult their individual tax advisors with regard to the application of PRC tax laws to their particular situation as well as any tax consequences arising under the laws of any other tax jurisdiction. Reference is made to PRC taxes imposed in the taxable year beginning on or after 1 January 2008.
EIT Pursuant to the EIT Law and its implementation regulations, enterprises that are established under the laws of foreign countries and regions (including Hong Kong, Macau and Taiwan) but whose ‘‘de facto management bodies’’ are within the territory of China shall be treated as PRC tax resident enterprises for the purpose of the EIT Law and they are required to pay enterprise income tax at the rate of 25 per cent. in respect of their income sourced from both within and outside China. The implementing rules of the EIT Law define ‘‘de facto management’’ as ‘‘substantial and overall management and control over the production and operations, personnel, accounting, and properties’’ of the enterprise. A circular issued by the State Administration of Taxation on 22 April 2009 provides that a foreign enterprise controlled by a PRC enterprise or a PRC enterprise group will be treated as a ‘‘resident enterprise’’ with a ‘‘de facto management body’’ located within the PRC if all of the following requirements are satisfied at the same time: (i) the senior management in charge of daily operations are located mainly within the PRC and core management departments perform such obligation mainly within the PRC; (ii) financial and human resources decisions are subject to determination or approval by persons or entities in the PRC; (iii) major assets, accounting books, company seals and minutes and files of board and shareholders meetings are located or kept within the PRC; and (iv) at least half of the enterprise’s directors with voting rights or senior management reside within the PRC. Despite the said circular, it is still unclear how the PRC tax authorities will determine whether an entity will be classified as a PRC tax resident enterprise. If the relevant PRC tax authorities decide, in accordance with applicable tax rules and regulations, that the ‘‘de facto management bodies’’ of the Issuer or the HK Guarantor is within the territory of the PRC, the Issuer or the HK Guarantor may be held to be a PRC tax resident enterprise for the purpose of the EIT Law and be subject to enterprise income tax at the rate of 25 per cent. for its income sourced from both within and outside the PRC. As the PRC Guarantor is currently regarded as a PRC tax resident enterprise, if the Issuer is not able to make payments under the Bonds and the PRC Guarantor fulfils the payment obligations under the Guarantee, the PRC Guarantor must withhold PRC income tax on payments with respect to the Bonds to non-resident enterprise holders generally at the rate of 10 per
115 cent. (and possibly at a rate of 20 per cent. in the case of payments to non-resident individual holders), if such interest payments are deemed to be derived from sources within the PRC, subject to the provisions of any applicable tax treaty.
However, there is no assurance that the Issuer or the HK Guarantor will not be treated as a PRC tax resident enterprise under the EIT Law and related implementation regulations in the future. Accordingly, in the event the Issuer or the HK Guarantor is deemed to be a PRC tax resident enterprise by the PRC tax authorities in the future, interest payable to ‘‘non-resident enterprise’’ holders of the Bonds and capital gains realised by ‘‘non‑resident enterprise’’ holders of Bonds may be treated as income derived from sources within China and be subject to PRC withholding tax at a rate of 10 per cent., or a lower rate for holders who qualify for the benefits of a double-taxation treaty with China. However, despite the potential withholding of PRC tax by the Issuer or the HK Guarantor, the Issuer and the HK Guarantor have agreed to pay additional amounts to ‘‘non-resident enterprise’’ holders of the Bonds so that holders of the Bonds would receive the full amount of the scheduled payment, as further set out in ‘‘Terms and Conditions of the Bonds’’.
Non-PRC Bondholders will not be subject to the PRC tax on any capital gains derived from a sale or exchange of Bonds consummated outside mainland China between non-PRC Bondholders, except however, if the Issuer or the HK Guarantor is treated as a PRC tax resident enterprise under the New Enterprise Income Tax Law and related implementation regulations in the future, any gain realised by the non-PRC enterprise Bondholders from the transfer of the Bonds may be regarded as being derived from sources within the PRC and accordingly would be subject to PRC withholding tax at a rate of up to 10 per cent., subject to the application of any relevant income tax treaty that the PRC has entered into.
VAT On 23 March 2016, the Ministry of Finance and the State Administration of Taxation issued the Circular of Full Implementation of Replacing Business Tax with Value-Added Tax Reform（《關於全面推開營業 稅改徵增值稅試點的通知》, ‘‘Circular 36’’), confirming that business tax will be completely replaced by VAT from 1 May 2016. With effect from 1 May 2016, income derived from the provision of financial services which previously was subject to business tax will be entirely replaced by, and subject to, VAT.
According to Circular 36, entities and individuals providing services within PRC will be subject to VAT. Services are treated as being provided within the PRC where either the service provider or the service recipient is located in the PRC. Services subject to VAT include financial services, such as the provision of loans. It is further clarified under Circular 36 that ‘‘loans’’ refers to the activity of lending capital for another’s use and receiving the interest income thereon.
It is not clear from the interpretation of Circular 36 if the provision of loans to the Issuer could be considered services provided within the PRC, in order to be regarded as the provision of financial services that could be subject to VAT. Furthermore, there can be no assurance that the Issuer or the HK Guarantor would not be treated as a ‘‘resident enterprise’’ under the Enterprise Income Tax Law. PRC tax authorities could take the view that holders of Bonds are providing loans within the PRC because the Issuer or the HK Guarantor is treated as a PRC tax resident. In such an interpretation, the issuance of the Bonds and the giving of the Guarantee by the HK Guarantor could be regarded as the provision of financial services within the PRC that is subject to VAT.
If the Issuer or the HK Guarantor is treated as a PRC tax resident and if PRC tax authorities take the view that Bondholders are providing loans within the PRC, or if the interest component of the amount payable by the Guarantors to the Bondholders under the Deed of Guarantee or the Trust Deed is viewed as interest income arising within the territory of the PRC, then Bondholders could be deemed to be providing financial services within PRC and consequently, Bondholders could become subject to VAT at the rate of 6 per cent. on interest payments under the Bonds. In addition, under such an interpretation
116 Bondholders could become subject to local levies at approximately 12 per cent. of the VAT payment and consequently, the combined rate of VAT and local levies payable on interest due to Bondholders could be up to 6.72 per cent. Since Bondholders are located outside of the PRC, the Issuer or the Guarantors, acting as the obligatory withholder in accordance with applicable law, would be required in such instance to withhold VAT and local levies from the payment of interest income to Bondholders.
Where a Bondholder located outside of the PRC resells Bonds to a buyer also located outside of the PRC, since neither buyer nor seller is located in the PRC, theoretically Circular 36 would not apply and the Issuer and the Guarantors would not have the obligation to withhold VAT or local levies. However, there is uncertainty as to the applicability of VAT if either a seller or buyer of Bonds is located within the PRC.
Circular 36 has been issued recently and remains subject to the issuance of further clarification rules and/or different interpretations by the competent tax authority. There is uncertainty as to the application of the Circular 36 in the context of the issuance of the Bonds, payments thereunder, and their sale and transfer.
The Issuer and the HK Guarantor confirm that, as at the date of this Offering Circular, the Issuer and the HK Guarantor have not been notified or informed by the PRC tax authorities that they are considered as PRC tax resident enterprises. However, there is no assurance that the Issuer or the HK Guarantor will not be treated as a PRC tax resident enterprise in the future. Pursuant to the VAT reform detailed above, the Issuer or the Guarantors may need to withhold VAT (should such tax apply) from the payments of interest in respect of the Bonds for any Bondholders located outside of the PRC. The Issuer and the Guarantors have agreed to pay additional amounts to holders of the Bonds, subject to certain exceptions, so that Bondholders would receive the full amount of the scheduled payment, as further set out in the Terms and Conditions of the Bonds.
Stamp duty No PRC stamp duty will be chargeable upon the issue or transfer (for so long as the register of Bondholders is maintained outside China) of a Bond.
117 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PRC GAAP AND IFRS
The consolidated financial statements of the PRC Guarantor included in this Offering Circular have been prepared and presented in accordance with PRC GAAP. PRC GAAP are substantially in line with IFRS, except for certain modifications which reflect China’s unique circumstances and environment. The following is a general summary of certain differences between PRC GAAP and IFRS on recognition and presentation as applicable to the PRC Guarantor. The differences identified below are limited to those significant differences that are appropriate to the PRC Guarantor’s consolidated financial statements. The PRC Guarantor is responsible for preparing the summary below. Since the summary is not meant to be exhaustive, there is no assurance regarding the completeness of the summary. The PRC Guarantor has not prepared a complete reconciliation of the consolidated financial information and related footnote disclosure between PRC GAAP and IFRS and has not quantified such differences. Had any such quantification or reconciliation been undertaken by the PRC Guarantor, other potentially significant accounting and disclosure differences may have been required that are not identified below. Additionally, no attempt has been made to identify possible future differences between PRC GAAP and IFRS as a result of prescribed changes in accounting standards. Regulatory bodies that promulgate PRC GAAP and IFRS have significant projects ongoing that could affect future comparisons such as this one. Finally, no attempt has been made to identify future differences between PRC GAAP and IFRS that may affect the financial information as a result of transactions or events that may occur in the future. Accordingly, no assurance is provided that the following summary of differences between PRC GAAP and IFRS is complete. In making an investment decision, you must rely upon your own examination of the PRC Guarantor, the terms of the offering and other disclosure contained herein. You should consult your own professional advisors for an understanding of the differences between PRC GAAP and IFRS and/or between PRC GAAP and other generally accepted accounting principles, and how those differences might affect the financial information contained herein.
Government grant Under PRC GAAP, an asset-related government grant is only required to be recognised as deferred income, and evenly amortised to profit or loss over the useful life of the related asset.
However, under IFRS, such asset-related government grants are allowed to be presented in the statement of financial position either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset.
Under PRC GAAP, the relocation compensation for public interests is required to be recognised as special payables. The income from compensation attributable to losses of fixed assets and intangible assets, related expenses, losses from production suspension incurred during the relocation and reconstruction period and purchases of assets after the relocation shall be transferred from special payables to deferred income and accounted for in accordance with the government grants standard. The surplus reached after deducting the amount transferred to deferred income shall be recognised in capital reserve.
Under IFRS, if an entity relocates for reasons of public interests, the compensation received shall be recognised in profit or loss.
Reversal of an impairment loss Under PRC GAAP, once an impairment loss is recognised for a long-term asset (including fixed assets, intangible assets and goodwill, etc.), it shall not be reversed in any subsequent period.
Under IFRS, an impairment loss recognised in prior periods for an asset other than goodwill could be reversed if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised.
118 Related party disclosures Under PRC GAAP, government-related entities are not treated as related parties. Under IFRS, government-related entities are still treated as related parties.
Fixed assets and intangible assets Under PRC GAAP, only the cost model is allowed.
Under IFRS, an entity can choose either the cost model or the revaluation model as its accounting policy.
119 SUBSCRIPTION AND SALE
The Issuer and the Guarantors have entered into a subscription agreement with CMBC Securities Company Limited, Founder Securities (Hong Kong) Capital Company Limited, BOCI Asia Limited, Barclays Bank PLC, Standard Chartered Bank, CCB International Capital Limited, China Merchants Securities (HK) Co., Ltd., Haitong International Securities Company Limited, BOCOM International Securities Limited, CLSA Limited, Guotai Junan Securities (Hong Kong) Limited, China Securities (International) Corporate Finance Company Limited, China International Capital Corporation Hong Kong Securities Limited, ICBC International Securities Limited and China Everbright Bank Co., Ltd., Hong Kong Branch, as the Joint Lead Managers dated 11 July 2019 (the ‘‘Subscription Agreement’’) pursuant to which and subject to certain conditions contained in the Subscription Agreement, the Issuer agreed to sell to the Joint Lead Managers, and the Joint Lead Managers agreed to severally and not jointly subscribe and pay for, or to procure subscribers to subscribe and pay for the Bonds at an issue price of 100.00 per cent. of their principal amount set forth opposite its name below:
Principal amount of the Bonds to be Joint Lead Managers subscribed (U.S.$) CMBCSecuritiesCompanyLimited...... 36,000,000 FounderSecurities(HongKong)CapitalCompanyLimited...... 36,000,000 BOCIAsiaLimited...... 36,000,000 BarclaysBankPLC...... 36,000,000 StandardCharteredBank...... 36,000,000 CCBInternationalCapitalLimited...... 36,000,000 ChinaMerchantsSecurities(HK)Co.,Ltd...... 36,000,000 HaitongInternationalSecuritiesCompanyLimited...... 12,250,000 BOCOMInternationalSecuritiesLimited...... 12,250,000 CLSALimited...... 12,250,000 GuotaiJunanSecurities(HongKong)Limited...... 12,250,000 China Securities (International) Corporate Finance Company Limited ...... 12,250,000 China International Capital Corporation Hong Kong Securities Limited...... 12,250,000 ICBC International Securities Limited ...... 12,250,000 ChinaEverbrightBankCo.,Ltd.,HongKongBranch...... 12,250,000 Total...... 350,000,000
The Subscription Agreement provides that the Issuer and the Guarantors will jointly and severally indemnify the Joint Lead Managers against certain liabilities in connection with the offer and sale of the Bonds. The Subscription Agreement provides that the obligations of the Joint Lead Managers are subject to certain conditions precedent and entitles the Joint Lead Managers to terminate it in certain circumstances prior to payment being made to the Issuer.
The Issuer and the Guarantors have agreed to pay, through the Joint Lead Managers, a commission to certain private banks based on the principal amount of the Bonds purchased by the clients of such private banks.
Each of the Joint Lead Managers and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Each of the Joint Lead Managers and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the Issuer and the Guarantors, for which they received or will receive customary fees and expenses.
The Joint Lead Managers and their affiliates may purchase the Bonds and be allocated the Bonds for asset management and/or proprietary purposes but not with a view to distribution. In the ordinary course of their various business activities, the Joint Lead Managers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Issuer and/or the Guarantors.
120 In connection with the issue of the Bonds, the Stabilising Manager (or any person acting on behalf of the Stabilising Manger) may, to the extent permitted by applicable laws and directives, over-allot Bonds or effect transactions with a view to supporting the price of the Bonds at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any person acting on behalf of any Stabilising Manger) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the Bonds is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Bonds and 60 days after the date of the allotment of the Bonds. Any stabilisation action or over-allotment must be conducted by the relevant Stabilising Manager (or any person acting on behalf of any Stabilising Manager) in accordance with all applicable laws and rules.
General The Bonds are a new issue of securities with no established trading market. No assurance can be given as to the liquidity of any trading market for the Bonds.
The distribution of this Offering Circular or any offering material and the offering, sale or delivery of the Bonds is restricted by law in certain jurisdictions. Therefore, persons who may come into possession of this Offering Circular or any offering material are advised to consult with their own legal advisers as to what restrictions may be applicable to them and to observe such restrictions. This Offering Circular may not be used for the purpose of an offer or invitation in any circumstances in which such offer or invitation is not authorised.
No action has been taken or will be taken in any jurisdiction that would permit a public offering of the Bonds, or possession or distribution of this Offering Circular or any amendment or supplement thereto or any other offering or publicity material relating to the Bonds, in any country or jurisdiction where action for that purpose is required.
If a jurisdiction requires that the offering of the Bonds be made by a licensed broker or dealer and the Joint Lead Managers or any affiliate of the Joint Lead Managers is a licensed broker or dealer in that jurisdiction, the offering of the Bonds shall be deemed to be made by the Joint Lead Managers or their affiliate on behalf of the Issuer in such jurisdiction.
United States The Bonds and the Guarantees have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
Each of the Joint Lead Managers has represented that it has not offered or sold, and agrees that it will not offer or sell, any Bonds and the Guarantees constituting part of its allotment within the United States except in accordance with Rule 903 of Regulation S under the Securities Act. Accordingly, neither it, its affiliates nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts with respect to the Bonds and the Guarantees. Terms used in this paragraph have the meaning given to them by Regulation S under the Securities Act.
United Kingdom Each of the Joint Lead Managers has represented, warranted and agreed that:
(a) (i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business and (ii) it has not offered or sold and will not offer or sell the Bonds other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the
121 purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Bonds would otherwise constitute a contravention of Section 19 of the FSMA by the Issuer;
(b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’)) received by it in connection with the issue or sale of the Bonds in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or the Guarantors; and
(c) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom.
British Virgin Islands Each of the Joint Lead Managers has represented, warranted and agreed that no invitation has been or will be made directly or indirectly to the public in the British Virgin Islands or any natural person resident or citizen in the British Virgin Islands to subscribe for any of the Bonds. This Offering Circular does not constitute an offering of the Bonds to any person in the British Virgin Islands.
Hong Kong Each of the Joint Lead Managers has represented, warranted and agreed that:
(a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Bonds other than (i) to ‘‘professional investors’’ as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the ‘‘SFO’’) and any rules made under the SFO, or (ii) in other circumstances which do not result in the document being a ‘‘prospectus’’ as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the ‘‘CWUMPO’’) or which do not constitute an offer to the public within the meaning of the CWUMPO; and
(b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Bonds, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Bonds which are or are intended to be disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ as defined in the SFO and any rules made under the SFO.
Singapore Each of the Joint Lead Managers has acknowledged that this Offering Circular has not been and will not be registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each of the Joint Lead Managers has represented and agreed that it has not offered or sold any Bonds or caused the Bonds to be made the subject of an invitation for subscription or purchase and will not offer or sell any Bonds or cause the Bonds to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Offering Circular or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Bonds, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the ‘‘SFA’’)) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 257(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
122 Where the Bonds are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Bonds pursuant to an offer made under Section 275 of the SFA, except:
(i) to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
(ii) where no consideration is or will be given for the transfer;
(iii) where the transfer is by operation of law;
(iv) as specified in Section 276(7) of the SFA; or
(v) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018.
Singapore SFA Product Classification: In connection with Section 309B of the SFA and the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore (the ‘‘CMP Regulations 2018’’), the Issuer has determined, and hereby notifies all relevant persons (as defined in Section 309A(1) of the SFA), that the Bonds are ‘prescribed capital markets products’ (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
PRC
The Joint Lead Managers have represented and agreed that the Bonds are not being offered or sold and may not be offered or sold, directly or indirectly, in the PRC (for such purposes, not including Hong Kong and Macau Special Administrative Regions or Taiwan), except as permitted by the securities laws of the PRC.
Japan The Bonds have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended, the ‘‘Financial Instruments and Exchange Act’’). Accordingly, each of the Joint Lead Managers has represented and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any Bonds in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and other relevant laws and regulations of Japan.
123 GENERAL INFORMATION
1. Clearing Systems: The Bonds have been accepted for clearance through Euroclear and Clearstream in Common Code 202735193 and ISIN XS2027351936.
2. Legal Entity Identifier: The Legal Entity Identifier of the Issuer is 549300Q0PBSE07EM4C73.
3. Authorisations: The Issuer has obtained all necessary consents, approvals and authorisations in connection with the issue of the Bonds and the entry into, delivery and performance of its obligations under the Bonds, the Trust Deed and the Agency Agreement. The issue of the Bonds and the entry into, delivery and performance of the Trust Deed and the Agency Agreement was authorised by resolutions of the Sole Director of the Issuer on or about 11 July 2019. Each of the Guarantors has obtained all necessary consents, approvals and authorisations in connection with the giving and performance of the Guarantees and the execution, delivery and performance of the Trust Deed, the Agency Agreement and the Deed of Guarantee to which it is a party. The giving of the Guarantees was authorised by resolutions of the Board of Directors of the PRC Guarantor and the HK Guarantor on or about 14 June 2019 and 11 July 2019, respectively.
4. No Material Adverse Change: Save as disclosed in this Offering Circular, there has been no material adverse change in the financial or trading position or prospects of the Issuer, the Guarantors or the Group since 31 December 2018.
5. Litigation: Saved as disclosed in this Offering Circular, none of the Issuer, the Guarantors or any other member of the Group is involved in any litigation or arbitration proceedings that the Issuer or the Guarantors, as the case may be, believes are material in the context of the Bonds or have material adverse impact on the Issuer, the Guarantors or the Group, nor is any of the Issuer or the Guarantors aware that any such proceedings are pending or threatened.
6. Available Documents: Copies of each of the HK Guarantor’s and the PRC Guarantor’s audited consolidated financial statements as at and for the years ended 31 December 2017 and 2018, the Trust Deed, the Agency Agreement, the Deed of Guarantee and the Articles of Association of the Issuer and the Guarantors will be available for inspection from the Issue Date at the HK Guarantor’s principal office at Unit 1408, 14/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan, New Territories, Hong Kong and at the PRC Guarantor’s principal office at Room 401, 4/F, Founder Building, No. 298 Chengfu Road, Haidian, Beijing during normal business hours, so long as any of the Bonds is outstanding.
7. Financial Statements: The PRC Guarantor’s audited consolidated financial statements as at and for the years ended 31 December 2017 and 2018 have been prepared and presented in accordance with PRC GAAP and have been audited by Asia Pacific (Group) Certified Public Accountants. The Chinese Financial Statements have only been prepared in Chinese. The Financial Statements Translation has been prepared and included in this Offering Circular for reference only. Should there be any inconsistency between the Chinese Financial Statements and the Financial Statements Translation, the Chinese Financial Statements shall prevail. The Financial Statements Translation does not itself constitute audited financial statements, and is qualified in its entirety by, and is subject to the more detailed information and the financial information set out or referred to in, the Chinese Financial Statements. None of the Joint Lead Managers, the Trustee or the Agents or any of their respective directors, officers, employees, advisers, agents, representatives or affiliates have independently verified or checked the accuracy of the Financial Statements Translation and none of them can give any assurance that the information contained in the Financial Statements Translation of the PRC Guarantor’s financial statements is accurate, truthful or complete.
The HK Guarantor’s audited consolidated financial statements as at and for the years ended 31 December 2017 and 2018 have been prepared and presented in accordance with HKFRS and have been audited by Cheng & Cheng Limited.
124 8. Listing: Application has been made to the HKSE for the listing of, and permission to deal in the Bonds by way of debt issues to Professional Investors only. It is expected that dealing in, and listing of, the Bonds on the HKSE will commence on 18 July 2019.
125 INDEX TO FINANCIAL STATEMENTS
The PRC Guarantor’s Audited Consolidated Financial Statements as at and for the year ended 31 December 2018
Auditor’s Report ...... F-2 CombinedBalanceSheet ...... F-5 CombinedStatementofIncome ...... F-7 CombinedStatementofCashFlows ...... F-8 Combined Statement of Changes in Owners’ Equity ...... F-9 NotestotheFinancialStatements ...... F-15
The PRC Guarantor’s Audited Consolidated Financial Statements as at and for the year ended 31 December 2017
Auditor’s Report ...... F-89 ConsolidatedBalanceSheet ...... F-92 ConsolidatedIncomeStatement ...... F-94 ConsolidatedStatementofCashFlows ...... F-95 ConsolidatedStatementofChangesinEquity ...... F-96 NotestotheConsolidatedFinancialStatements ...... F-102
The HK Guarantor’s Audited Consolidated Financial Statements as at and for the year ended 31 December 2018
ReportofDirectors...... F-170 Independent Auditor’sReport ...... F-172 ConsolidatedStatementofProfitorLossandotherComprehensiveIncome ...... F-175 ConsolidatedStatementofFinancialPosition ...... F-176 ConsolidatedStatementofChangesinEquity ...... F-178 ConsolidatedStatementofCashFlows ...... F-179 NotestotheConsolidatedFinancialStatements ...... F-181
The HK Guarantor’s Audited Consolidated Financial Statements as at and for the year ended 31 December 2017
ReportofDirectors...... F-277 Independent Auditor’sReport ...... F-279 ConsolidatedStatementofProfitorLossandotherComprehensiveIncome ...... F-282 ConsolidatedStatementofFinancialPosition ...... F-283 ConsolidatedStatementofChangesinEquity ...... F-285 ConsolidatedStatementofCashFlows ...... F-286 NotestotheConsolidatedFinancialStatements ...... F-288
F-1 F-2 F-3 F-4 F-5 F-6 F-7 F-8 F-9 F-10 F-11 F-12 F-13 F-14 F-15 F-16 F-17 F-18 F-19 F-20 F-21 F-22 F-23 F-24 F-25 F-26 F-27 F-28 F-29 F-30 F-31 F-32 F-33 F-34 F-35 F-36 F-37 F-38 F-39 F-40 F-41 F-42 F-43 F-44 F-45 F-46 F-47 F-48 F-49 F-50 F-51 F-52 F-53 F-54 F-55 F-56 F-57 F-58 F-59 F-60 F-61 F-62 F-63 F-64 F-65 F-66 F-67 F-68 F-69 F-70 F-71 F-72 F-73 F-74 F-75 F-76 F-77 F-78 F-79 F-80 F-81 F-82 F-83 F-84 F-85 F-86 F-87 F-88 F-89 F-90 F-91 F-92 F-93 F-94 F-95 F-96 F-97 F-98 F-99 F-100 F-101 F-102 F-103 F-104 F-105 F-106 F-107 F-108 F-109 F-110 F-111 F-112 F-113 F-114 F-115 F-116 F-117 F-118 F-119 F-120 F-121 F-122 F-123 F-124 F-125 F-126 F-127 F-128 F-129 F-130 F-131 F-132 F-133 F-134 F-135 F-136 F-137 F-138 F-139 F-140 F-141 F-142 F-143 F-144 F-145 F-146 F-147 F-148 F-149 F-150 F-151 F-152 F-153 F-154 F-155 F-156 F-157 F-158 F-159 F-160 F-161 F-162 F-163 F-164 F-165 F-166 F-167 F-168 F-169 F-170 F-171 F-172 F-173 F-174 F-175 F-176 F-177 F-178 F-179 F-180 F-181 F-182 F-183 F-184 F-185 F-186 F-187 F-188 F-189 F-190 F-191 F-192 F-193 F-194 F-195 F-196 F-197 F-198 F-199 F-200 F-201 F-202 F-203 F-204 F-205 F-206 F-207 F-208 F-209 F-210 F-211 F-212 F-213 F-214 F-215 F-216 F-217 F-218 F-219 F-220 F-221 F-222 F-223 F-224 F-225 F-226 F-227 F-228 F-229 F-230 F-231 F-232 F-233 F-234 F-235 F-236 F-237 F-238 F-239 F-240 F-241 F-242 F-243 F-244 F-245 F-246 F-247 F-248 F-249 F-250 F-251 F-252 F-253 F-254 F-255 F-256 F-257 F-258 F-259 F-260 F-261 F-262 F-263 F-264 F-265 F-266 F-267 F-268 F-269 F-270 F-271 F-272 F-273 F-274 F-275 F-276 F-277 F-278 F-279 F-280 F-281 F-282 F-283 F-284 F-285 F-286 F-287 F-288 F-289 F-290 F-291 F-292 F-293 F-294 F-295 F-296 F-297 F-298 F-299 F-300 F-301 F-302 F-303 F-304 F-305 F-306 F-307 F-308 F-309 F-310 F-311 F-312 F-313 F-314 F-315 F-316 F-317 F-318 F-319 F-320 F-321 F-322 F-323 F-324 F-325 F-326 F-327 F-328 F-329 F-330 F-331 F-332 F-333 F-334 F-335 F-336 F-337 F-338 F-339 F-340 F-341 F-342 F-343 F-344 F-345 F-346 F-347 F-348 F-349 F-350 F-351 F-352 F-353 F-354 F-355 ISSUER PRC GUARANTOR HK GUARANTOR
Dawn Victor Limited Peking University Resources Founder Information 旭勝有限公司 Group Co., Ltd. (Hong Kong) Limited Vistra Corporate Services Centre Zhongguancun Founder Building Unit 1408, 14/F, Cable TV Tower Wickhams Cay II, Road Town No.298 ChengFu Road 9HoiShingRoad,TsuenWan Tortola Haidian District New Territories British Virgin Islands Beijing 100871 PRC Hong Kong
TRUSTEE PRINCIPAL PAYING AGENT
The Bank of New York Mellon, London Branch The Bank of New York Mellon, London Branch One Canada Square One Canada Square London E14 5AL London E14 5AL United Kingdom United Kingdom
REGISTRAR AND TRANSFER AGENT
The Bank of New York Mellon SA/NV, Luxembourg Branch Vertigo Building – Polaris 2-4, rue Eugène Ruppert L-2453 Luxembourg
LEGAL ADVISERS
To the Issuer and the Guarantors To the Issuer and the Guarantors as to the British Virgin Islands Law as to Hong Kong Law
Walkers (Hong Kong) Clifford Chance 15/F 27th Floor Alexandra House Jardine House 18 Chater Road, Central, Hong Kong One Connaught Place, Hong Kong
To the Joint Lead Managers To the Issuer and the Guarantors as to English Law as to PRC Law
Linklaters JunHe LLP 10th Floor, Alexandra House 20th Floor, China Resources Building Chater Road 8 Jianguomenbei Avenue Hong Kong Beijing 100005 PRC
To the Trustee as to English Law To the Joint Lead Managers as to PRC Law
Linklaters King and Wood Mallesons 10th Floor, Alexandra House 25th Floor, Guangzhou CTF, Finance Centre Chater Road No.6 Zhujiang East Road, Zhujiang New Town Hong Kong Tianhe District, Guangzhou PRC
AUDITOR OF THE PRC GUARANTOR AUDITOR OF THE HK GUARANTOR
Asia Pacific (Group) Cheng & Cheng Limited Certified Public Accountants 4/F, Allied Kajima Building Room 1401, Block B2 138 Gloucester Road No.5 Building, Chegongzhuang Avenue Wanchai, Hong Kong Xicheng District Beijing, PRC A.Plus International FINANCIAL PRESS LIMITED 190780396