major transaction acquisition of affluent grand limited and notice of extraordinary general meeting

176 Pages·2017·2.08 MB·English

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no
responsibility for the contents of this 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 circular.
This circular appears for information purposes only and does not constitute an invitation or offer to acquire,
purchase or subscribe for any securities of China Fortune Investments (Holding) Limited.
If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a
licensed securities dealer, bank manager, solicitor, professional accountant, or other professional adviser.
If you have sold all your shares in China Fortune Investments (Holding) Limited, you should at once hand
this circular and the accompanied proxy form to the purchaser or to the licensed securities dealer, the bank
or other agent through whom the sale was effected for transmission to the purchaser.
(IncorporatedintheCaymanIslandswithlimitedliability)
(STOCK CODE: 8116)
MAJOR TRANSACTION
ACQUISITION OF AFFLUENT GRAND LIMITED
AND
NOTICE OF EXTRAORDINARY GENERAL MEETING
A notice convening the extraordinary general meeting of the Company to be held at Units 2601 & 2613,
26/F, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong on 15
August 2017 at 3:00 p.m., is set out on pages 171 to 173 of this circular. Whether or not you propose to
attend the meeting, you are advised to complete the form of proxy attached to the notice of the extraordinary
general meeting in accordance with the instructions printed thereon and return the same to the Company’s
branch share registrar in Hong Kong, Tricor Abacus Limited at Level 22, Hopewell Centre, 183 Queen’s
Road East, Hong Kong, as soon as possible and in any event not later than 48 hours before the time
appointed for holding of the extraordinary general meeting or any adjournment thereof. Completion and
return of the form of proxy will not preclude you from attending and voting in person at the meeting should
you so wish.
26 July 2017
CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (‘‘GEM’’)
OF THE STOCK EXCHANGE OF HONG KONG LIMITED (‘‘THE EXCHANGE’’)
GEM has been positioned as a market designed to accommodate companies to which
a higher investment risk may be attached than other companies listed on the Exchange.
Prospective investors should be aware of the potential risks of investing in such
companies and should make the decision to invest only after due and careful
consideration. The greater risk profile and other characteristics of GEM mean that it is a
market more suited to professional and other sophisticated investors.
Given the emerging nature of companies listed on GEM, there is a risk that
securities traded on GEM may be more susceptible to high market volatility than
securities traded on the Main Board and no assurance is given that there will be a liquid
market in the securities traded on GEM.
– i –
TABLE OF CONTENTS
Page
DEFINITIONS .................................................................. 1
LETTER FROM THE BOARD ................................................... 4
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP ............... 30
APPENDIX II – ACCOUNTANTS’ REPORT ON THE AFFLUENT GROUP ..... 34
APPENDIX III – ACCOUNTANTS’ REPORT ON THE OPCO GROUP .......... 57
APPENDIX IV – PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP ............................. 102
APPENDIX V – VALUATION REPORT ON THE TARGET GROUP ........... 110
APPENDIX VI – LETTER FROM AUDITOR ON FORECAST .................. 160
APPENDIX VII – LETTER FROM THE BOARD ON FORECAST ............... 162
APPENDIX VIII – GENERAL INFORMATION .................................. 164
NOTICE OF EXTRAORDINARY GENERAL MEETING .......................... 171
– ii –
DEFINITIONS
Inthiscircular,unlessthecontextrequiresotherwise,theexpressionsasstatedbelowwill
havethefollowingmeanings:
‘‘Acquisition’’ the acquisition of the entire issued share capital in the
Target and the Shareholders Loan pursuant to the
Agreement
‘‘Agreement’’ the sale and purchase agreement dated 28 April 2017 made
between the Vendors and the Company relating to the sale
and purchase of the entire issued share capital of the Target
and the Shareholders Loan
‘‘Business Day’’ a day (other than a Saturday) on which licensed banks are
generally open for business in Hong Kong throughout their
normal business hours
‘‘Board’’ the board of Directors or a duly authorised committee
thereof
‘‘close associates’’ has the meaning ascribed to it in the GEM Listing Rules
‘‘Company’’ China Fortune Investments (Holding) Limited, a company
incorporated in the Cayman Islands with limited liability,
the shares of which are listed on GEM
‘‘connected persons’’ has the meaning ascribed to it in the GEM Listing Rules
‘‘Completion’’ completion of the transactions contemplated under the
Agreement
‘‘Completion Date’’ the date of Completion
‘‘Conversion Shares’’ the Shares to be issued upon the exercise of the conversion
rights attaching to the Convertible Bonds
‘‘Convertible Bonds’’ the convertible bonds in the maximum principal amount of
HK$160 million, to be issued by the Company in favour of
the Vendors to satisfy part of the consideration under the
Agreement
‘‘Directors’’ the directors of the Company and each a ‘‘Director’’
– 1 –
DEFINITIONS
‘‘EGM’’ the extraordinary general meeting of the Company to be
convened to approve the Acquisition
‘‘Enlarged Group’’ the Group immediately after completion of the Acquisition
‘‘GEM’’ The Growth Enterprise Market of the Stock Exchange
‘‘GEM Listing Rules’’ Rules Governing the Listing of Securities on The Growth
Enterprise Market of the Stock Exchange
‘‘Group’’ the Company and its subsidiaries
‘‘HK Subsidiary’’ Win Wave Development Limited, a company incorporated
in Hong Kong with limited liability and a direct wholly
owned subsidiary of the Target
‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong
‘‘Hong Kong’’ the Hong Kong Special Administration Region of the
People’s Republic of China
‘‘Latest Practicable Date’’ 21 July 2017, being the latest practicable date prior to the
printing of this circular for ascertaining certain information
contained herein
‘‘Independent Third Party(ies)’’ a third party independent of and not connected with the
Company and its connected persons
‘‘OPCO’’ 口貸網絡服務股份有限公司 (Koudai Network Services
Company Limited*), a company incorporated in the PRC
with limited liability
‘‘PRC’’ The People’s Republic of China which, for the purpose of
this circular, excludes Hong Kong, the Macau Special
Administrative Region and Taiwan
‘‘Promissory Note’’ the promissory note in the principal amount of HK$100
million, to be issued by the Company in favour of the
Vendors to satisfy part of the consideration under the
Agreement
– 2 –
DEFINITIONS
‘‘Reorganization’’ the proposed reorganization of the Target Group’s structure
and business to the reasonable satisfaction of the Purchaser
including (i) cessation of OPCO’s operation of the online
platform, (ii) outsource of the operation of the online
platform to an outside service provider and (iii) OPCO
becoming a direct wholly owned subsidiary of WOFE
‘‘RMB’’ Renminbi, the lawful currency of the PRC
‘‘SFO’’ The Securities and Future Ordinance (Chapter 571 of the
Laws of Hong Kong)
‘‘Share(s)’’ share(s) of nominal value of HK$0.005 each in the share
capital of the Company
‘‘Shareholders’’ registered holders of the Shares
‘‘Shareholders Loan’’ all shareholders loan due from the Target Group to the
Vendors or their related parties as at Completion
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Takeovers Code’’ the Code on Takeovers and Mergers
‘‘Target’’ Affluent Grand Limited, a company incorporated in the
British Virgin Islands with limited liability and is wholly
owned by the Vendors
‘‘Target Group’’ the Target, HK Subsidiary, WOFE and OPCO
‘‘US$’’ United States dollars, the lawful currency of the United
States
‘‘Vendors’’ Tai Quan Enterprises Limited and Extreme Rich Corporate
Development Limited
‘‘WOFE’’ 成都幸福口袋企業管理諮詢有限公司 (Chengdu Xingfu
Koudai Enterprise Management Consulting Company
Limited*), a company incorporated in the PRC with
limited liability and a direct wholly owned subsidiary of
the HK Subsidiary
‘‘%’’ per cent
* Foridentificationonly
– 3 –
LETTER FROM THE BOARD
(IncorporatedintheCaymanIslandswithlimitedliability)
(STOCK CODE: 8116)
ExecutiveDirectors: Registeredoffice:
Pan Xiaodong (Chairman) Cricket Square
Cheng Chun Tak Hutchins Drive
Xue Huixuan P. O. Box 2681
Stephen William Frostick Grand Cayman KY1-1111
Cayman Islands
Non-executiveDirector:
Huang Shenglan HeadOfficeandPrincipalplaceof
businessinHongKong:
Independentnon-executiveDirectors: Units 2601 & 2613,
Chang Jun 26/F, China Merchants Tower,
Xu Jingan Shun Tak Centre,
Lee Chi Hwa Joshua 168-200 Connaught Road Central,
Ching Wai Han Hong Kong
26 July 2017
ToShareholdersoftheCompany
Dear Sir or Madam,
MAJOR TRANSACTION
ACQUISITION OF AFFLUENT GRAND LIMITED
AND
NOTICE OF EXTRAORDINARY GENERAL MEETING
INTRODUCTION
The Board announced on 28 April 2017 that the Company and the Vendors entered into the
Agreement pursuant to which the Company has conditionally agreed to acquire from the Vendors
the entire issued share capital of the Target and the Shareholders Loan at the consideration of
HK$380 million which is to be satisfied as to HK$120 million in cash, HK$100 million by the
issue of the Promissory Note and HK$160 million by the issue of the Convertible Bonds.
– 4 –
LETTER FROM THE BOARD
The purpose of this circular is to provide you with, among other things, (i) further
information on the Agreement and the transactions contemplated thereunder; (ii) an accountants’
report on the Target Group; (iii) a pro forma financial information on the Group upon
Completion; (iv) valuation reports on the Target Group and to give you notice of the EGM at
which a resolution will be proposed to consider and, if thought fit, approve the Agreement and
the transactions contemplated thereunder.
THE AGREEMENT
Date:
28 April 2017
Parties:
1. Tai Quan Enterprises Limited and Extreme Rich Corporate Development Limited as
vendors; and
2. the Company as purchaser.
The Vendors are principally engaged in investment holding. The ultimate beneficial owners
of the Vendors are Mr. Zhao Xin and Ms. Ren Wei. To the best of the Directors’ knowledge,
information and belief after having made all reasonable enquiries, the Vendors and their ultimate
beneficial owners are Independent Third Parties.
Assets to be acquired
Two ordinary shares of US$1.00 each in the Target, being the entire issued share capital of
the Target, together with the Shareholders Loan.
Consideration
The consideration is HK$380 million, which is subject to adjustment as set out under the
section headed ‘‘Profit guarantee and compensation’’ below.
The consideration is to be satisfied by the Company in the following manner:
(i) HK$120 million in cash to be paid upon Completion;
(ii) HK$100 million by way of issuing the Promissory Note to the Vendors or their
nominees upon Completion;
(iii) HK$80 million by way of issuing the Convertible Bonds in the equivalent amount to
the Vendors or their nominees upon Completion;
– 5 –
LETTER FROM THE BOARD
(iv) HK$80 million by way of issuing the Convertible Bonds in the equivalent amount to
the Vendors or their nominees within 7 Business Days after determination of the
Actual Profits (as defined below).
The above means of payment was determined after arm’s length negotiation between the
Vendors and the Company after taking into account of (i) the Vendor’s desire to have cash
payment as much as possible; (ii) the Company’s available cash resources; (iii) the amount of
convertible bonds requested by the Vendors and (iv) the Company’s desire to minimize the extent
of dilution to shareholders upon conversion of the convertible bonds.
Basis of consideration
The consideration of HK$380 million was determined after arm’s length negotiations
between the Vendors and the Company after taking into consideration of (i) the preliminary
indicative market value of the Target Group as at 31 December 2016 of approximately HK$400
million as advised by Peak Vision Appraisals Limited, an independent professional valuer, (ii) the
financial and operating performance of OPCO and latest financial position of OPCO as shown in
the management accounts of OPCO as at 31 December 2016; and (iii) the profit guarantee
provided by the Vendors under the Agreement as set out under the section headed ‘‘Profit
guarantee and compensation’’ below.
The valuation method used for the preliminary indicative value of the Target Group was
based on discounted cash flow using the income-based approach, which is regarded as profit
forecast under Rule 19.61 of the GEM Listing Rules.
The valuation report for the Target Group is set out in Appendix V of this circular. For the
purpose of Rule 19.62 of the GEM Listing Rules, (i) the principal assumptions upon which the
valuation is based are set out in the valuation report, (ii) a letter from the Company’s auditors
confirming that they have reviewed the accounting policies and calculations for the forecast and
containing their report is set out in Appendix VI and (iii) a letter from the Board confirming that
it has made the forecast after due and careful enquiry is set out in Appendix VII.
Profit guarantee and compensation
The Vendors irrevocably and unconditionally guarantees to the Company that the aggregate
audited consolidated net profit after tax (excluding extraordinary or exceptional items according
to the Hong Kong Financial Reporting Standards) of the Target Group for the first two years
immediately after the Completion Date shall be no less than HK$65 million (‘‘Guaranteed
Profit’’). The Guaranteed Profit was arrived at after arm’s length negotiation between the Vendors
and the Company with reference to (i) the historical performance of OPCO and (ii) the projected
cash flow of OPCO.
– 6 –
LETTER FROM THE BOARD
If the aggregate audited consolidated net profit after tax (excluding extraordinary or
exceptional items according to the Hong Kong Financial Reporting Standards of the Target
Group) for the first two years immediately after the Completion Date (‘‘Actual Profit’’) shall be
less than the Guaranteed Profit, the Vendors shall pay compensation (‘‘Compensation’’) to
Company according to the following formula:
Guaranteed Profit – Actual Profit
A = HK$160,000,000 x
Guaranteed Profit
where A is the Compensation payable to the Company. For the avoidance of doubt, if the
Actual Profit shall be negative, it shall be deemed to be zero. The maximum amount of the
Compensation shall be HK$160 million.
The Vendors and the Company shall procure the auditor nominated by the Company to
complete the audited financial statements of the Target Group for the two years immediately after
the Completion Date within 3 months after the end of the relevant period. The Compensation (if
any) shall be paid by the Vendors to the Company in cash within 7 Business Days after
determination of the Actual Profit. The Company shall be entitled to elect to set off the
Compensation against all or any part of the principal amount of the Convertible Bonds to be
issued to the Vendors and any balance of the Compensation shall be paid by the Vendors in cash.
Conditions precedent
Completion of the Share Agreement is subject to the following conditions precedent:
(a) the Company being reasonably satisfied with the results of the due diligence review of
the assets, liabilities, operations and affairs of the Target Group including completion
of the Reorganization;
(b) all necessary consents and approvals required to be obtained on the part of the
Vendors, the Target and the Company in respect of the Agreement and the transactions
contemplated thereunder having been obtained;
(c) all necessary waiver, consent, approval, licence, authorisation, permission, order and
exemption (if required) from the relevant governmental or regulatory authorities or
other third parties which are necessary in connection with the Agreement and the
transactions contemplated thereunder having been obtained;
(d) the passing by the Shareholders at the EGM of an ordinary resolution to approve the
Agreement and the transactions contemplated thereunder, including but not limited to
the issue of the Convertible Bonds to the Vendors;
– 7 –