Fong Industries : Connected Transaction – Entrusted Loan Agreement

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CHTC FONG'S INDUSTRIES COMPANY LIMITED

恒 天 立 信 工 業 有 限 公 司

(Incorporated in Bermuda with limited liability)

(Stock Code: 641)

CONNECTED TRANSACTION ENTRUSTED LOAN AGREEMENT

The Board is pleased to announce that on 23 January 2017, FNES (an indirect wholly- owned subsidiary of the Company) entered into the Entrusted Loan Agreement with the Borrower and the Lending Bank, pursuant to which FNES, as the entrusting party and lender, agreed to provide the Entrusted Loan in the principal amount of RMB80 million (equivalent to approximately HK$88 million) to the Borrower as borrower through the Lending Bank as the entrusted party and lending agent.

FNES is indirectly holding 13.26% equity interest in the Borrower. To the best of the Directors' knowledge, information and belief after having made all reasonable enquires, the Borrower is also owned as to 42.74% by the Parent Company and as to the remaining 44% by third parties independent of the Company and its connected persons as at the date of this announcement. Therefore, the Borrower is a connected person of the Company, and the Entrusted Loan provided by FNES to the Borrower under the Entrusted Loan Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

As each of the applicable percentage ratios represented by the principal amount of the Entrusted Loan exceeds 0.1% but is less than 5%, the transaction contemplated under the Entrusted Loan Agreement is subject to the reporting and announcement requirements but is exempt from independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

INTRODUCTION

The Board is pleased to announce that on 23 January 2017, FNES (an indirect wholly-owned subsidiary of the Company) entered into the Entrusted Loan Agreement with the Borrower and the Lending Bank, pursuant to which FNES, as the entrusting party and lender, agreed to provide the Entrusted Loan in the principal amount of RMB80 million (equivalent to approximately HK$88 million) to the Borrower as borrower through the Lending Bank as the entrusted party and lending agent.

ENTRUSTED LOAN AGREEMENT Date: 23 January 2017

Parties:	(1)	FNES;
(2)	the Borrower; and
(3)	the Lending Bank

The principal terms of the Entrusted Loan Agreement are set out as follows:

1. Amount of the Entrusted Loan

   The principal amount of the Entrusted Loan to be provided by FNES to the Borrower through the Lending Bank is RMB80 million (equivalent to approximately HK$88 million). The Entrusted Loan shall be released to the Borrower in one lump sum.

2. Term

   The loan period is from the date of drawdown to 29 December 2017. It is expected that the Entrusted Loan will be drawdown on or about 26 January 2017.

3. Interest rate

   The interest rate is 11% per annum and the accrued interest shall be payable on a quarterly basis and on 21 March, 21 June, 21 September and 29 December respectively during the term of the Entrusted Loan.

4. Repayment of the Entrusted Loan

   The Borrower shall repay the principal amount of the Entrusted Loan in one lump sum on 29 December 2017.

5. Handling fee

The handling fee payable to the Lending Bank for arranging the Entrusted Loan under the Entrusted Loan Agreement is RMB40,000 calculated at 0.05% of the principal amount of the Entrusted Loan. FNES shall pay such handling fee on an one-off basis to the Lending Bank upon drawdown of the Entrusted Loan by the Borrower.

PROVISION OF GUARANTEES

In consideration of the Entrusted Loan, two subsidiary companies of the Borrower, which are principally engaged in real estate development in the PRC, have agreed to provide guarantees in favour of FNES for the principal amount of the Entrusted Loan, i.e. RMB80 million, as well as the applicable interest, penalty and other damages (if any, when the Borrower fails to repay the Entrusted Loan when it falls due).

SOURCE OF FUNDING

The Entrusted Loan in the principal amount of RMB80 million will be funded by the Group's internal resources.

INFORMATION ON THE GROUP AND FNES

The principal business activity of the Company is investment holding. The Group is principally engaged in the manufacture and sale of dyeing and finishing machines, trading of stainless steel supplies and the manufacture and sale of stainless steel casting products. FNES is an indirect wholly-owned subsidiary of the Company and engaged in the design, manufacture and sale of dyeing and finishing machines and spare parts thereof.

The Parent Company is the controlling shareholder and hence a connected person of the Company, which is holding approximately 55.80% of the issued share capital of the Company as at the date of this announcement.

INFORMATION ON THE BORROWER

The Borrower is a company established in the PRC and is principally engaged in real estate development with a number of property development projects in certain major cities in the PRC. FNES is indirectly holding 13.26% equity interest in the Borrower. Mr. Du Qianyi, being an Executive Director, is also a director of both FNES and the Borrower.

To the best of the Directors' knowledge, information and belief after having made all reasonable enquires, the Borrower is also owned as to 42.74% by the Parent Company and as to the remaining 44% by third parties independent of the Company and its connected persons as at the date of this announcement. Therefore, the Borrower is a connected person of the Company, and the Entrusted Loan provided by FNES to the Borrower under the Entrusted Loan Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

INFORMATION ON THE LENDING BANK

The Lending Bank is a joint stock company established in the PRC and is principally engaged in the provision of a range of banking services and related financial services.

To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, the Lending Bank and its ultimate beneficial owners are third parties independent of the Company and connected persons of the Company.

REASONS AND BENEFITS FOR THE PROVISION OF ENTRUSTED LOAN

The Entrusted Loan's interest rate is higher than the interest rate received by the Group by placing cash deposits with commercial banks in the PRC. By entering into the Entrusted Loan Agreement, the Group intends to increase the rate of return of its cash and cash equivalents which can improve both the investment income and the profit of the Group. Further, the terms of the Entrusted Loan Agreement, including the interest rate charged on the Borrower, were agreed by the parties after arm's length negotiations having taking into account of, among other things, the prevailing market rates and market practices, the Borrower's financing needs for general working capital requirement for a specific project and the Group's assessment on the source of funds for repayment and the business conditions and creditworthiness of the Borrower. The Directors are of the view that the Entrusted Loan Agreement was entered into on normal commercial terms.