• Major Transaction Acquisition of 70% Equity Interest in the Target Company

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China Ecotourism Group Limited

中 國 生 態 旅 遊 集 團 有 限 公 司

(Incorporated in Bermuda with limited liability)

(Stock Code: 1371)

MAJOR TRANSACTION

ACQUISITION OF 70% EQUITY INTEREST

IN THE TARGET COMPANY

THE ACQUISITION

Reference is made to the voluntary announcement of the Company dated 7 July 2021 relating to a co-operation agreement made between the Company and the Vendor, pursuant to which the parties thereto would initiate in-depth strategic cooperation in the Project. On 13 October 2021, the Company entered into the Equity Transfer Agreement with the Vendor, pursuant to which the Purchaser conditionally agreed to acquire, and the Vendor conditionally agreed to sell, the Sale Interest, representing 70% of the total equity interest of the Target Company, at the Consideration of RMB210 million.

Upon completion of the Acquisition, the equity interest attributable to the Group in the Target Company will be 70% and the Target Company will become a subsidiary of the Company and assets and liabilities of the Target Company will be consolidated into the consolidated financial statements of the Company.

LISTING RULES IMPLICATION

As one or more of the applicable percentage ratios under Rule 14.07 of the Listing Rules in respect of the Acquisition is more than 25% and less than 100%, the Acquisition constitutes a major transaction of the Group under Rule 14.06 of the Listing Rules and is subject to the reporting, announcement, circular and Shareholders' approval requirements under Chapter 14 of the Listing Rules.

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SGM

The Company will convene and hold the SGM for the Shareholders to consider and, if thought fit, approve the Equity Transfer Agreement, the Acquisition and the transactions contemplated thereunder. A circular containing, among others, further information in respect of the Equity Transfer Agreement and the Acquisition and other information as required by the Listing Rules, together with the notice convening the SGM and the proxy form in respect of the SGM is expected to be despatched to the Shareholders on or before 30 November 2021, as additional time is required to prepare the information to be included in the circular.

Shareholders and potential investors should note that the effectiveness and completion of the Equity Transfer Agreement is subject to the satisfaction of the Conditions. As the Acquisition may or may not proceed, Shareholders and potential investors are reminded to exercise caution when dealing in the securities of the Company.

RESUMPTION OF TRADING

At the request of the Company, trading in the Shares on the Stock Exchange has been halted from 9:00 a.m. on 15 October 2021 pending the release of this announcement. Application has been made to the Stock Exchange for the resumption of trading in the Shares on the Stock Exchange from 9:00 a.m. on 19 October 2021.

BACKGROUND

Reference is made to the voluntary announcement of the Company dated 7 July 2021 relating to a co-operation agreement made between the Company and the Vendor, pursuant to which the parties thereto would initiate in-depth strategic cooperation of the Project.

On 13 October 2021, the Company entered into the Equity Transfer Agreement with the Vendor, pursuant to which the Purchaser (being the Company or a subsidiary of the Company nominated by the Company to take up the Sale Interest) conditionally agreed to acquire, and the Vendor conditionally agreed to sell, the Sale Interest, representing 70% of the total equity interest in the Target Company, at the Consideration of RMB210 million.

Following completion of the Acquisition, given the equity interest attributable to the Group in the Target Company will be 70%, the Target Company will become a subsidiary of the Company and the assets and liabilities of the Target Company will be consolidated into the consolidated financial statements of the Company.

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THE EQUITY TRANSFER AGREEMENT

The key terms of the Equity Transfer Agreement are summarised below:

Date:

13 October 2021

Parties:

1. the Company (as purchaser); and
2. the Vendor (as seller).

Pursuant to the Equity Transfer Agreement, the Company and the Vendor agreed that the Company may itself, or may nominate a subsidiary of the Company to, take up the Sale Interest. The Company, or such subsidiary of the Company nominated to take up the Sale Interest, will be the Purchaser.

To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, the Vendor and its ultimate beneficial owners are third parties independent of the Company and its Connected Persons.

Subject Assets to be Acquired

Pursuant to the Equity Transfer Agreement, the Company conditionally agreed to acquire, and the Vendor conditionally agreed to sell, the Sale Interest, representing 70% of the total equity interest of the Target Company as at the date of this announcement.

Consideration and Payment Terms

The Consideration payable by the Purchaser for the Acquisition is RMB210 million. Pursuant to the Equity Transfer Agreement, the Vendor agreed that the entire Consideration receivable by it from the Acquisition shall be applied to repay part of the outstanding indebtedness owing by the Target Company to the Creditors so as to reduce the total amount of indebtedness of the Target Company and support the Target Company's business development and operation. Accordingly, the Vendor agreed the Consideration to be paid by the Purchaser directly to the Creditors by paying into the Designated Account(s).

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The Consideration will be payable within 10 business days after the registration of the Sale Interest, the Purchaser shall start paying the Consideration into the Designated Account(s) in accordance with the Repayment Plan, where the payment(s) transmitted by the Purchaser into the Designated Account from time to time shall be treated as payment of such part of the Consideration of the same amount received by the Vendor. The Consideration shall be treated as fully paid by the Purchaser upon the full payment of RMB210 million into the Designated Account.

Basis of the Consideration

The Consideration was determined after arm's length negotiation between the Purchaser and the Vendor after considering the following factors: (i) 70% equity interest of the registered capital of the Target Company; (ii) the current development of and future prospects of the Project; and

1. the factors as set out in the section headed "Reasons for and Benefits of the Acquisition". As regards (i), the Company understood that the registered capital of the Target Company is RMB300 million and approximately RMB217 million has been paid up as at the date of this announcement, representing more than 70% of the total registered capital of the Target Company as at the date of this announcement; and pursuant to the Equity Transfer Agreement, the Vendor assured to the Purchaser that all existing shareholders of the Target Company as at the date of this announcement will pay up all outstanding registered capital on or before 31 December 2025. As regards (ii) and (iii), the hotel and scenic park in the Project have already been constructed and in operation and that after completion of the Acquisition, the Vendor and the Purchaser can through the Target Company jointly further develop the Project with new development opportunities leveraging on China eco-tourism market promoted under the Chinese government's new economic policies.

In view of above, the Directors (including the independent non-executive Directors) are of the view that the Consideration is fair and reasonable and in the interests of the Purchaser and the Shareholders as a whole.

Effectiveness and Conditions of the Equity Transfer Agreement

The Equity Transfer Agreement shall become effective subject to the following conditions being satisfied, namely (i) the approval of the Equity Transfer Agreement and the transactions contemplated thereunder by the Shareholders; and (ii) where required, approval of the Stock Exchange having been obtained.

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Pre-completion and Completion

Before Completion, (i) the Vendor shall ensure that the injection of Acquired Assets (as defined below) into, and be retained under, the Target Company are completed; and (ii) before the date of registration of the Sale Interest, the Vendor shall ensure that the liabilities of the Target Company are not increased and the assets of the Target Company are not reduced, to the effect that the following assets will be retained under the Target Company:

1. The 100% equity interests in a company, which holds (i) a hotel located in the core area of National 5A-class Scenic Areas at Mount Sanqing, Jiangxi, the PRC; and (ii) 6.67% equity interests in a company principally engages in providing ropeway service, catering and accommodation service in a scenic area at Mount Sanqing, Jiangxi, the PRC; and
2. The 81% equity interests in a company principally engages in the generation and sales of hydroelectric power at Mount Sanqing, Jiangxi, the PRC;

(collectively, the "Acquired Assets")

3. Green Valley Complex includes Jinsha Green Valley Springs Hotel, a completed 2,200-seats performance theater, tourist customer service center, food court, commercial plaza, and Xiaoyao Valley scenic area owned by Green Valley.

Within 15 days of the date the Equity Transfer Agreement having become effective, the Company and the Vendor shall apply for the registration of the transfer of the Sale Interest from the Vendor to the Purchaser with the competent PRC authority. The Vendor shall ensure that registration of the Sale Interest under the name of the Purchaser is completed within 15 business days of the date the Equity Transfer Agreement having become effective.

Completion shall take place upon the registration of the Sale Interest under the name of the Purchaser having been completed.

Post-completion obligations

After Completion, the Vendor shall procure that the registered capital of the Target Company shall be fully paid up by the Vendor and the other shareholders of the Target Company (except for the Purchaser) on or before 31 December 2025.

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