Announcements and Notices - Voluntary Announcement Investment Agreement

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(incorporated in Bermuda with limited liability)

(Stock code：581)

VOLUNTARY ANNOUNCEMENT

INVESTMENT AGREEMENT

On 3 September 2019, Jinxi Limited, an indirect non-wholly owned subsidiary of the Company, entered into the Investment Agreement with the Fangchenggang City Government in relation to the investment in Fangchenggang Economic and Technological Development Zone.

As there is uncertainty as to whether the Group would make a successful bidding for the Land, and the Project and the transactions contemplated thereunder remain subject to approvals from the relevant government or administrative authorities and the respective board and shareholders of the Company, Jinxi Limited or the Project Company, as the case may be, the Project may or may not materialise wholly or partly, shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

The Board is pleased to announce that on 3 September 2019, Jinxi Limited, an indirect non- wholly owned subsidiary of the Company, entered into the Investment Agreement with the Fangchenggang City Government in relation to the investment in Fangchenggang Economic and Technological Development Zone.

THE INVESTMENT AGREEMENT

Date

3 September 2019

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Parties

1. The Fangchenggang City Government; and
2. Jinxi Limited, an indirect non-wholly owned subsidiary of the Company.

To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, the Fangchenggang City Government, being a PRC local government, is independent of and not connected with the Company or any of its connected persons.

Principal terms

The Land

Pursuant to the Investment Agreement, subject to the Bidding Process, a land with total area of approximately 7,500 mu (畝) at the Fangchenggang Economic and Technological Development Zone will be granted for the Project. The Project is planned to be developed by two phases, with the first phase to occupy approximately 5,000 mu and the second phase to occupy approximately 2,500 mu, having an annual iron and steel production capacity of approximately 5 million tonnes for each phase.

The Land will be acquired by the Project Company through the Bidding Process. The Fangchenggang City Government is responsible to arrange the Bidding Process of the Land at a minimum bidding price of RMB112,000 per mu. The Fangchenggang City Government will deliver the Land in several stages and complete the expropriation and demolition works on the Land as well as the Bidding Process within six months from the signing of the Investment Agreement. The Fangchenggang City Government is also responsible to construct and enhance the transportation networks, utilities and communications facilities to facilitate the operation of the Project.

If the Group makes a successful bid for the land use rights in the Bidding Process, it will enter into a separate land use rights transfer agreement and complete the land transfer procedures within 30 days from the effective date of the land use rights transfer agreement.

Establishment of Project Company

Pursuant to the terms of the Investment Agreement, Jinxi Limited will commence the establishment of the Project Company within three days of the signing of the Investment Agreement. The Project Company will assume all the interests and obligations of Jinxi Limited under the Investment Agreement, including but not limited to participate in the Bidding Process.

Use of the Land and the Project

If the land use rights of the Land is successfully acquired, the Land will be used by the Group for the establishment of a production base of H-section steel and sheet piling, which could be extended to the development of prefabricated steel construction building industry (the ''Project'').

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The Project will be developed in two phases with the first phase and the second phase to be completed within 18 months from dates to be agreed respectively by Jinxi Limited and the Fangchenggang City Government. The total investment cost (including the Land acquisition cost) is estimated to be approximately RMB30 billion (approximately HK$32.8 billion) and the annual iron and steel production capacity of the Project is estimated to amount to approximately 10 million tonnes. Within five days from the signing of the Investment Agreement, Jinxi Limited should commence relocation of its existing production capacity located in Tangshan to Fangchenggang City or otherwise procure the transfer of production capacity from other means to Fangchenggang City, in order to achieve the annual iron and steel production capacity of approximately 5 million tonnes for each phase of the Project, respectively.

Deposit of Funds

Pursuant to the terms of the Investment Agreement, upon signing of the Investment Agreement, Jinxi Limited shall deposit the Funds into the Co-managed Account. The Funds can be used to pay for the expenses of the Project at its preparation stage. Upon approval of the Project to be a major project of the Guangxi Autonomous Region or termination of the Project (otherwise than for reasons attributable to Jinxi Limited), the Funds shall be returned to Jinxi Limited with interest.

Termination

Jinxi Limited may terminate the Investment Agreement if (i) the price of the Land exceeds RMB112,000 per mu during the Bidding Process; (ii) the Fangchenggang City Government fails to complete all expropriation and demolition works on the Land as well as the Bidding Process within six months from the signing of the Investment Agreement; or (iii) where due to rating on energy saving, safety, fire safety or other reasons not attributable to Jinxi Limited, the construction of the Project cannot be completed.

Fangchenggang City Government may terminate the Investment Agreement if Jinxi Limited (or the Project Company) (i) does not participate in the Bidding Process to acquire the Land;

1. fails to pay the purchase price of the Land; (iii) fails to commence construction of the Project or commence operation within a period specified in the Investment Agreement; or

1. without reasonable cause fails to commence production after completion of construction of the Project within a period specified in the Investment Agreement.

REASONS FOR AND BENEFITS OF THE INVESTMENT AGREEMENT

The Group is principally engaged in the manufacture and sale of iron and steel products, trading of steel products and iron ore and real estate business. The Group currently has manufacturing plants in Hebei Province and Guangdong Province of the PRC and sells mainly to customers located in the PRC.

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In order to strengthen the Group's leading position in manufacturing of H-section steel products in the PRC, the Group seeks to expand its production capacity and efficiency. Currently, the Group's major production base is located in Tangshan, a region subject to more stringent environmental protection measures in recent years, which restrict the Group's operation and increase production costs. Besides, the proximity of Fangchenggang Economic and Technological Development Zone to the port would enable the Group to save costs on transportation of raw materials and expand into the nearby steel market at low costs. The Board is of the view that the Project, if materialised, would provide a desirable location for the Group to expand and reach to new market in a cost-effective manner as well as diversifying the business risk in the long run.

The Directors (including the independent non-executive Directors) consider that the terms of the Investment Agreement have been reached after arm's length negotiations, are on normal commercial terms, and the terms and conditions are fair and reasonable and in the interests of the Company and the shareholders as a whole.

The Investment Agreement is an agreement setting out the framework of the Group's investment in the Fangchenggang Economic and Technological Development Zone and the support and assistance to be provided by the Fangchenggang City Government. If the Group is successful in the Bidding Process, based on acquisition cost of RMB112,000 per mu of the Land, the land acquisition costs of the Land will be approximately RMB840 million, which may constitute a discloseable transaction of the Company under Chapter 14 of the Listing Rules. The Company will make announcement in compliance with the requirements of the Listing Rules if and when the Group acquires the Land.

The total investment cost of the Project is an estimate and may involve various transactions with different parties, including the Land acquisition and construction of the manufacture base. The Company will make announcement and obtain the shareholders' approval in compliance with the requirements of the Listing Rules where appropriate.

As there is uncertainty as to whether the Group would make a successful bidding for the Land, and the Project and the transactions contemplated thereunder remain subject to approvals from the relevant government or administrative authorities and the respective board and shareholders of the Company, Jinxi Limited or the Project Company, as the case may be, the Project may or may not materialise wholly or partly, shareholders of the Company and public investors are advised to exercise caution when dealing in the shares of the Company.

DEFINITIONS

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

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