China Oriental : Announcements and Notices - Discloseable Transaction in Relation to (1) the Acquisition of Iron and Steel Production Capacity and (2) the Acquisition of 29% Equity Interest in Zhengda Iron and Steel

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CHINA ORIENTAL GROUP COMPANY LIMITED 中國東方集團控股有限公司*

(incorporated in Bermuda with limited liability)

(Stock code：581)

DISCLOSEABLE TRANSACTION

IN RELATION TO

(1) THE ACQUISITION OF IRON AND STEEL

PRODUCTION CAPACITY AND

(2) THE ACQUISITION OF 29% EQUITY INTEREST IN

ZHENGDA IRON AND STEEL

BACKGROUND

As of the date of the announcement, Zhengda Iron and Steel, an indirect non-wholly owned subsidiary of the Company, is held as to 71% by Jinxi Limited and 29% by Mr. Li Feng (who also holds interest on behalf of other individual minority shareholders of Zhengda Iron and Steel). As disclosed in the announcements of the Company dated 28 October 2016 and 27 June 2017, after the negotiations between the Group and the Government of Tangshan City, Zhengda Iron and Steel closed its plants in 2016 and 2017 and completed the shutdown of all production facilities on 27 June 2017 in view of the iron and steel production capacity reduction policy implemented by the PRC Government, including the Opinion of the State Council on solving the overcapacity and overcoming difficulties and achieving development for the iron and steel industry* (國務院關於鋼鐵行業化解過剩產能實現脫困發展的意見). Jinxi Limited, Mr. Li Feng (and on behalf of individual minority shareholders) and the Government of Tangshan City have been in discussions about the development of Zhengda Iron and Steel thereafter.

1

After further negotiations initiated by the Government of Tangshan City, the Government of Tangshan City, Jinxi Limited and Mr. Li Feng (and on behalf of individual minority shareholders) agreed on a master arrangement regarding Zhengda Iron and Steel pursuant to a framework agreement entered into between Jinxi Limited and Mr. Li Feng (and on behalf of individual minority shareholders) on 16 January 2019 (after trading hours). Under the framework agreement,

• (1) Jinxi Limited shall acquire the Target Shares from Mr. Li Feng (and on behalf of individual minority shareholders) for a cash consideration of RMB14.5 million, payable to Mr. Li Feng pursuant to the Share Purchase Agreement; and

• (2) Jinxi Limited shall acquire the Target Capacity from Tangshan Production Capacity Exchange for a cash consideration of RMB892.4 million pursuant to the Capacity Acquisition Agreement.

• (1) THE CAPACITY ACQUISITION

On 16 January 2019 (after trading hours), Jinxi Limited and Tangshan Production Capacity Exchange entered into the Capacity Acquisition Agreement, the principal terms of which are summarized as follows:

Date

16 January 2019 (after trading hours)

Parties

(1) Vendor	:	Tangshan Production Capacity Exchange
(2) Purchaser	:	Jinxi Limited

As of the date of the announcement, to the best of the Directors' knowledge, information and belief having made all reasonable enquiry, Tangshan Production Capacity Exchange, which is a state-owned company, and its ultimate beneficial owner(s) are third parties independent of the

Company and its connected persons (as defined under the Listing Rules).

Assets to be acquired

Pursuant to the terms of the agreement, Tangshan Production Capacity Exchange agreed to sell, and Jinxi Limited agreed to acquire, the Target Capacity.

Consideration

The consideration for the Target Capacity shall be RMB892.4 million, which will be payable by Jinxi Limited to Tangshan Production Capacity Exchange in cash within two business days upon receipt of the value-added-tax invoice issued by Tangshan Production Capacity Exchange after the execution of the Capacity Acquisition Agreement. The consideration for the Target Capacity shall be funded with the Group's internal financial resources.

Basis of Consideration

The consideration for the Target Capacity was agreed after arm's length negotiations between Jinxi Limited and Tangshan Production Capacity Exchange under the direction of the Government of Tangshan City, after taking into account, among others, the Company's intended use of the Target Capacity.

(2) THE SHARE ACQUISITION

On 16 January 2019 (after trading hours), Jinxi Limited and Mr. Li Feng (and on behalf of individual minority shareholders) entered into the Share Purchase Agreement, the principal terms of which are summarised as follows:

Date

16 January 2019 (after trading hours)

Parties

(1) Vendor	:	Mr. Li Feng (and on behalf of individual minority shareholders)
(2) Purchaser	:	Jinxi Limited

As of the date of the announcement, to the best of the Directors' knowledge, information and belief having made all reasonable enquiry, save for being a substantial shareholder (as defined under the Listing Rules) of Zhengda Iron and Steel, Mr. Li Feng is a third party independent of the Company and its connected persons (as defined under the Listing Rules).

As of the date of the announcement, to the best of the Directors' knowledge, information and belief having made all reasonable enquiry, other individual minority shareholders of Zhengda Iron and Steel are third parties independent of the Company and its connected persons (as defined under the Listing Rules).

Assets to be acquired

Pursuant to the terms of the agreement, Mr. Li Feng, and on behalf of individual minority shareholders, agreed to sell, and Jinxi Limited agreed to acquire, the Target Shares.

Completion of the transfer of the Target Shares

Within 7 business days of signing of the Share Purchase Agreement, Mr. Li Feng (and on behalf of individual minority shareholders) shall cause the Target Shares to be transferred to Jinxi Limited and both Mr. Li Feng (and on behalf of individual minority shareholders) and Jinxi Limited shall complete the registration of the transfer of the Target Shares with the relevant government authority.

Consideration

The consideration for the Target Shares shall be RMB14.5 million, which will be payable by Jinxi Limited to Mr. Li Feng (and on behalf of individual minority shareholders) in cash within three days of completion of the registration of the transfer of the Target Shares. It shall be funded with the internal financial resources of the Group.

Basis of Consideration

The consideration for the Target Shares was determined after arm's length negotiations between Jinxi Limited and Mr. Li Feng (and on behalf of individual minority shareholders) based on all individual minority shareholders' portion of the paid-up share capital of Zhengda Iron and Steel, being 29% of the paid up share capital of Zhengda Iron and Steel of RMB50 million as of the date of the announcement.

INFORMATION ON THE PARTIES

Information on the Group and Jinxi Limited

The Company is an investment holding company with trading of steel products and iron ore business. As of the date of the announcement, the Group is principally engaged in the manufacturing and sales of steel products, trading of steel products and iron ore and real estate business.

Jinxi Limited is a company incorporated in the PRC with limited liability and a 97.6% indirectly owned subsidiary of the Company and is principally engaged in manufacturing and sales of steel

products, trading of steel products and iron ore and real estate business.

Information on Tangshan Production Capacity Exchange

Tangshan Production Capacity Exchange is a state-owned company incorporated in the PRC. It is principally engaged in trading and related consultancy service of energy consumption quotas, energy-saving quotas, production capacity and carbon emission quotas, and energy-saving technologies promotion service.

Information on Zhengda Iron and Steel

Zhengda Iron and Steel is a company incorporated in the PRC with limited liability. Prior to the Zhengda Final Shutdown in 2017, it was principally engaged in the manufacturing and sales of steel products and trading of steel products and iron ore. Since the Zhengda Final Shutdown, Zhengda Iron and Steel has not had any actual business operation and remained dormant. As of the date of the announcement, Zhengda Iron and Steel is held as to 71% by Jinxi Limited and 29% by Mr. Li Feng (and on behalf of individual minority shareholders), and is an indirect non-wholly owned subsidiary of the Company with its financial results being consolidated into the financial results of the Group.

Upon completion of the Share Acquisition, Zhengda Iron and Steel will be wholly owned by Jinxi Limited and it will continue to be an indirect non-wholly owned subsidiary of the Company with its financial results continue to be consolidated into the financial results of the Group.

According to the unaudited financial statements of Zhengda Iron and Steel prepared in accordance with PRC GAAP, the unaudited total net liability value of Zhengda Iron and Steel as at 30 June 2018 is RMB 112.8 million. The unaudited net profits/losses before and after taxation of Zhengda Iron and Steel for the two financial years immediately preceding the Acquisition are as follows:

For the financial year ended 31 December

(RMB'000)	(RMB'000)
2017	2016
Net profit/(loss) before taxation	37,521	(602,059)
Net profit/(loss) after taxation	11,550	(646,728)