beijing gas blue sky holdings limited · ‘‘company’’ beijing gas blue sky holdings 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 or transferred all your shares in Beijing Gas Blue Sky Holdings Limited, you should at once

hand this circular and the accompanying form of proxy to the purchaser(s) or transferee(s) or to the bank,

licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the

purchaser(s) or transferee(s).

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 disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or

any part of the contents of this circular.

Beijing Gas Blue Sky Holdings Limited

北京燃氣藍天控股有限公司(Incorporated in Bermuda with limited liability)

(Hong Kong Stock Code: 6828)

(Singapore Stock Code: UQ7)

MAJOR TRANSACTION

IN RELATION TO THE ACQUISITION OF

100% OF THE ISSUED SHARE CAPITAL OF

TOP GRAND GLOBAL LIMITED

Financial Adviser to the Company

A notice convening the special general meeting of the Company to be held at Level 9, Central Building, 1–3

Pedder Street, Central, Hong Kong at 11 : 00 a.m. on Tuesday, 17 October 2017 is set out on pages SGM-1 to

SGM-3 of this circular. The special general meeting is to be held to approve matters referred to in this circular.

If you are unable to attend the special general meeting, you are requested to complete and return the forms of

proxy accompanying this circular in accordance with the instructions printed thereon to the Company’s Hong

Kong branch share registrar and transfer office, Tricor Investor Services Limited, at Level 22, Hopewell Centre,

183 Queen’s Road East, Hong Kong, (for Hong Kong Shareholders), or the Company’s Singapore share

transfer agent, Boardroom Corporate & Advisory Services Pte Ltd., at 50 Raffles Place, #32–01 Singapore Land

Tower, Singapore 048623 (for Singapore Shareholders) as soon as possible and in any event not less than 48

hours before the time of the special 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

special general meeting or any adjournment thereof should you so wish.

25 September 2017

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Page

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

APPENDIX I — FINANCIAL INFORMATION OF THE GROUP . . . . . I-1

APPENDIX IIA — ACCOUNTANTS’ REPORT ON

TOP GRAND GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IIA-1

APPENDIX IIB — ACCOUNTANTS’ REPORT ON YUHAI . . . . . . . . . . . . . IIB-1

APPENDIX IIC — ACCOUNTANTS’ REPORT ON

SAIGUANGBO GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . IIC-1

APPENDIX III — MANAGEMENT DISCUSSION AND

ANALYSIS OF THE TARGET GROUP . . . . . . . . . . . . III-1

APPENDIX IV — UNAUDITED PRO FORMA FINANCIAL

INFORMATION OF THE ENLARGED GROUP . . . IV-1

APPENDIX V — VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1

APPENDIX VA — REPORT ON FORECASTS UNDERLYING

THE VALUATION ON SAIGUANGBO GROUP . . . VA-1

APPENDIX VI — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1

NOTICE OF THE SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SGM-1

CONTENTS

– i –

In this circular, the following expressions have the meanings set out below unless the

context requires otherwise:

‘‘Acquisition’’ the acquisition of 100% of the issued share capital of Top Grand

from the Vendor pursuant to the terms and conditions of the

Acquisition Agreement

‘‘Acquisition

Agreement’’

the conditional sale and purchase agreement dated 8 June 2017,

including its amendments or replacement, entered into among

the Purchaser, the Vendor and the Guarantor in relation to the

Acquisition

‘‘Announcements’’ the announcements of the Company dated 8 June 2017 and 31

July 2017 in relation to the Acquisition

‘‘Bermuda Companies

Act’’

the Companies Act 1981 of Bermuda, as amended, supplemented

or modified from time to time;

‘‘Board’’ the board of Directors of the Company

‘‘Business Day’’ a day (other than Saturday, Sunday or public holiday or day on

which a typhoon signal No. 8 or above or black rainstorm

warning is hoisted in Hong Kong at any time between 9 : 00 a.m.

and 5 : 00 p.m.) on which licenced banks are generally open for

general banking business in Hong Kong throughout their normal

business hours

‘‘BVI’’ the British Virgin Islands

‘‘CDP’’ the Central Depository (Pte) Limited, a wholly-owned subsidiary

of the Singapore Exchange Limited

‘‘Company’’ Beijing Gas Blue Sky Holdings Limited, a company incorporated

in Bermuda with limited liability, the issued Shares of which are

listed on the Main Board of the Stock Exchange (stock code:

6828) and secondary listed on the Singapore Exchange Securities

Trading Limited (Stock Code: UQ7)

‘‘Completion’’ completion of the Acquisition

‘‘Condition(s)’’ the condition(s) precedent of the Completion, details of which

are set out in the paragraph headed ‘‘Conditions precedent of

Acquisition’’ in the letter from the Board of this circular

‘‘Conditions Fulfilment

Date’’

31 August 2017, or such later date as the respective parties to the

Acquisition Agreement may agree in writing which the parties

have agreed in writing to delay to 31 October 2017

DEFINITIONS

– 1 –

‘‘Consideration’’ the consideration of RMB349,860,000 (equivalent to

approximately HK$402,759,000) for the Acquisition

‘‘Depositor’’,

‘‘Depository’’ and

‘‘Depository

Register’’

have their respective meanings ascribed to them in section 81SF

of the Securities and Futures Act (Cap. 289) of Singapore

‘‘Director(s)’’ director(s) of the Company

‘‘Enlarged Group’’ the Group as enlarged by the Acquisition

‘‘Financial Adviser’’ Lego Corporate Finance Limited, a corporation licensed by the

Securities and Futures Commission to carry out type 6 (advising

on corporate finance) regulated activity under the SFO, the

financial adviser to the Company in connection with the

Acquisition

‘‘Group’’ the Company and its subsidiaries

‘‘Guarantor’’ Li Xiulin* (李秀林), a businesswoman and a citizen in the PRC,

who is the ultimate beneficial owner of the Vendor

‘‘HK$’’ Hong Kong dollar, the lawful currency of Hong Kong

‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC

‘‘Independent Third

Party(ies)’’

third party(ies) independent of the Company and its connected

persons (as defined under the Listing Rules)

‘‘Independent Valuer’’ Roma Appraisals Limited

‘‘Jump Corp’’ Jump Corporation Limited (奔躍有限公司) is a company

incorporated in Hong Kong with limited liability, which is

100% directly held by Top Grand

‘‘Latest Practicable

Date’’

22 September 2017, being the latest practicable date prior to the

printing of this circular for ascertaining certain information

contained in this circular

‘‘Listing Manual’’ the Listing Manual of the Singapore Exchange Securities

Trading Limited

‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock

Exchange

DEFINITIONS

– 2 –

‘‘MOU’’ the non-legally binding memorandum of understanding dated 15

December 2016, which is supplemented by a supplemental

memorandum of understanding dated 12 April 2017, entered

into between the Purchaser and the Guarantor in relation to

Acquisition

‘‘MOU

Announcements’’

the announcements of the Company dated 15 December 2016

and 12 April 2017 in relation to the MOU

‘‘PRC’’ the People’s Republic of China, for the purpose of this circular,

excludes Hong Kong, the Macau Special Administrative Region

of the PRC and Taiwan

‘‘Purchaser’’ Goldlink Capital Limited (金連投資有限公司), a company

incorporated in the BVI with limited liability and a direct

wholly-owned subsidiary of the Company

‘‘Refundable Earnest

Money’’

the refundable earnest money of RMB250,000,000 paid by the

Purchaser in cash to the Guarantor or its nominee pursuant to

the MOU

‘‘Reporting

Accountants’’

Cheng & Cheng Limited, the reporting accountants to the

Company in respect of this Acquisition

‘‘RMB’’ Renminbi, the lawful currency of the PRC

‘‘Saiguangbo’’ Chongqing Saiguangbo Technology Company Limited* (重慶賽

廣博科技有限公司), a company established in the PRC with

limited liability, which is directly held by Yuhai and an

Independent Third Party as to 51% and 49%, respectively

‘‘Saiguangbo Group’’ Saiguangbo, Shanxi Minsheng and Yongji Minsheng

‘‘Saiguangbo’s Value’’ the valued amount of entire equity interest in Saiguangbo, which

includes its two wholly-owned subsidiaries, namely Yongji

Minsheng and Shanxi Minsheng, pursuant to the Valuation

Report

‘‘SFO’’ Securities and Futures Ordinance (Cap. 571 of the Laws of Hong

Kong)

‘‘SGM’’ the special general meeting of the Company to be convened for

the purpose of considering and, if thought fit, approving the

Acquisition Agreement and the transactions contemplated

thereunder

DEFINITIONS

– 3 –

‘‘Shanxi Minsheng’’ Shanxi Minsheng Natural Gas Co., Ltd.* (山西民生天然氣有限

公司), a company established in the PRC with limited liability,

which is wholly owned by Saiguangbo

‘‘Shareholder(s)’’ holder(s) of the share(s) of HK$0.055 each in the share capital of

the Company

‘‘Shenzhen Benfu’’ Shenzhen Benfu Energy Company Limited* (深圳奔富能源有限


which is wholly owned by Shenzhen Benyue

‘‘Shenzhen Benyue’’ Shenzhen Benyue Energy Company Limited* (深圳奔躍能源有限


which is wholly owned by Jump Corp

‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

‘‘Target Group’’ Top Grand and its subsidiaries, namely, Jump Corp, Shenzhen

Benyue, Shenzhen Benfu, Yuhai, Saiguangbo, Shanxi Minsheng

and Yongji Minsheng

‘‘Top Grand’’ Top Grand Global Limited (領宏環球有限公司) is a company

incorporated in the BVI with limited liability, which is 100%

directly held by the Vendor

‘‘Top Grand Group’’ Top Grand, Jump Corp, Shenzhen Benyue and Shenzhen Benfu

‘‘Valuation Report’’ the valuation report issued by the Independent Valuer in respect

of Saiguangbo’s Value

‘‘Vendor’’ Sea Pioneer Limited, a company incorporated in the BVI with

limited liability, which is 100% directly held by the Guarantor

‘‘Yongji Minsheng’’ Yongji Minsheng Natural Gas Co., Ltd.* (永濟市民生天然氣有

限公司), a company established in the PRC with limited liability,

which is wholly owned by Saiguangbo

‘‘Yuhai’’ Shenzhen Yuhai Energy Company Limited* (深圳市裕海能源有

限公司), a company established in the PRC with limited liability,

which is owned by Shenzhen Benfu and an Independent Third

Party as to 98% and 2%, respectively

‘‘USD’’ United States dollar, the lawful currency of United States of

America

DEFINITIONS

– 4 –

‘‘%’’ per cent.

* For identification purposes only

For the purpose of illustration in this circular, unless otherwise specified, translation

between RMB and HK$ are based on the exchange rate of RMB1 to HK$1.1512. The

translation shall not be taken as a representation that RMB could actually be converted into

HK$ at any particular rate at all.

Any reference in this circular to any enactment is a reference to that enactment as for the

time being amended or re-enacted. Any word defined under the Listing Rules, the SFO, the

Singapore Companies Act, the Listing Manual or any modification thereof and used in this

circular shall, where applicable, have the meaning assigned to it under the Listing Rules, the

SFO, the Singapore Companies Act, the Listing Manual or any modification thereof, as the

case may be.

Any reference to a time of a day in this circular shall be a reference to Hong Kong time

unless otherwise stated.

DEFINITIONS

– 5 –





Executive Directors:

Mr. Cheng Ming Kit (Co-chairman of the Board)

Mr. Sze Chun Lee

Mr. Hung Tao

Mr. Hu Xiaoming (Chief Executive Officer)

Mr. Tam Man Kin

Mr. Li Weiqi

Non-executive Director:

Mr. Zhi Xiaoye (Co-chairman of the Board)

Independent Non-executive Directors:

Mr. Lim Siang Kai

Mr. Wee Piew

Mr. Ma Arthur On-hing

Mr. Pang Siu Yin

Registered Office:

Clarendon House

2 Church Street

Hamilton HM 11

Bermuda

Headquarters and principal place

of business in Hong Kong:

Room 1411, 14th Floor

New World Tower I

16–18 Queen’s Road Central

Central, Hong Kong

25 September 2017

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

IN RELATION TO THE ACQUISITION OF

100% OF THE ISSUED SHARE CAPITAL OF

TOP GRAND GLOBAL LIMITED

INTRODUCTION

Reference is made to the Announcement in relation to the Acquisition. On 8 June 2017

(after trading hours), the Purchaser (which is a direct wholly owned subsidiary of the

Company), the Vendor and the Guarantor entered into the Acquisition Agreement,

pursuant to which (i) the Purchaser conditionally agreed to acquire, and the Vendor

LETTER FROM THE BOARD

– 6 –

conditionally agreed to sell, 100% of the issued share capital of Top Grand, which

indirectly holds 98% equity interest of Yuhai, at the Consideration of RMB349,860,000

(equivalent to approximately HK$402,759,000), subject to adjustment; and (ii) the

Guarantor has agreed to guarantee the due performance and obligations of the Vendor

under the Acquisition Agreement. Further details on the Acquisition are set out below in

this circular.

Upon Completion, the Target Group will become non-wholly-owned subsidiaries of

the Company. Accordingly, the financial results of the Target Group will be consolidated

into the financial statements of the Group.

The purpose of this circular is to provide you with, among other things: (i) further

information of the Acquisition; (ii) financial information of the Target Group; (iii) the

accountants’ reports relating to the Target Group; (iv) the unaudited pro forma financial

information of the Enlarged Group; and (v) other information as required under the Listing

Rules together with a notice of the SGM and a form of proxy.

THE ACQUISITION AGREEMENT

Date

8 June 2017 (after trading hours of the Stock Exchange)

Parties

Vendor : Sea Pioneer Limited

Purchaser : Goldlink Capital Limited, a direct wholly-owned subsidiary of the

Company

Guarantor : Li Xiulin* (李秀林)

To the best of the knowledge, information and belief of the Directors, having made all

reasonable enquiries, as at the Latest Practicable Date, the Vendor and its ultimate

beneficial owner (which is the Guarantor) are Independent Third Parties.

The Vendor is a company incorporated in the BVI with limited liability. Its principal

business is investment holding. The Vendor is directly wholly-owned by the Guarantor, who

is a PRC citizen and a business-woman. As confirmed by the Vendor and the Guarantor,

both Vendor and the Guarantor do not have any relationship (business or otherwise) with

any connected person of the Company, save and except the Acquisition.


– 7 –

Assets to be acquired

Pursuant to the Acquisition Agreement, the Vendor conditionally agreed to sell and

the Purchaser conditionally agreed to purchase 100% of the issued share capital of Top

Grand, which indirectly holds 98% of the equity interest of Yuhai, at the Consideration of

RMB349,860,000 (equivalent to approximately HK$402,759,000), subject to adjustment.

Yuhai holds 51% of the equity interest in Saiguangbo, which in turn holds 100% equity

interest in Shanxi Minsheng and Yongji Minsheng. Upon Completion, Company would

indirectly hold 49.98% of the effective equity interest in Saiguangbo.

Initially, the Company intended to acquire the entire equity interest in Saiguangbo.

However, the shareholder who held 49% equity interest in Saiguangbo (‘‘Other Saiguangbo

Shareholder’’) determined to retain 49% equity interest in Saiguangbo. Therefore, the

Company, through the Purchaser, only entered into the Acquisition Agreement to acquire

the Target Company, which indirectly held 51% equity interest in Saiguangbo, from the

Vendor. The Company considers that it is justified to acquire 51% equity interest in

Saiguangbo because the Company can exercise absolute control of Saiguangbo and its

subsidiaries and they will be treated as subsidiaries of the Company upon Completion.

As at the Latest Practicable Date, there was not any understanding, arrangement,

undertaking or agreement (initial or concrete) with the Other Saiguangbo Shareholder

concerning the Company or Purchaser’s further acquisition of any of the remaining 49%

interest in Saiguangbo.

The financial results of Saiguangbo, Shanxi Minsheng and Yongji Mingsheng will be

consolidated into the financial statements of the Group upon Completion.

On the basis that the Company will have control over Saiguangbo, Shanxi Minsheng

and Yongji Minsheng upon Completion, the Company’s auditors have confirmed to the

Company that they concur with the Directors’ view on the accounting treatment above.

Basis of determination of the Consideration

The Consideration was determined after arm’s length negotiations between the

Purchaser and Vendor and subject to adjustment, having regards to (i) the financial

position, the prospects and potential of the business of Shanxi Minsheng and Yongji

Minsheng; (ii) Shenzhen Benfu holding 98% equity interest in Yuhai and Yuhai holding

51% equity interest in Saiguangbo which in turn holding 100% equity interest in Shanxi

Minsheng and Yongji Minsheng; (iii) the unaudited net profits of Shanxi Minsheng and

Yongji Minsheng adjusted by the management fee, details of which are discussed in the

Announcement, of approximately RMB13.2 million and RMB4.2 million, respectively, for

the three months ended 31 March 2017 which represented the most recent quarterly

financial results of Shanxi Minsheng and Yongji Minsheng and in the opinion of the

Directors, a good reference to the financial performance after Completion; and (iv) the

Profit Guarantee (as defined below) of the Target Group for the period of one year from the

date of Completion provided by the Vendor which represented a comfort from the Vendor

and a good reference to the financial performance of Shanxi Minsheng and Yongji

Minsheng after Completion.


– 8 –

Taking into account the annualised net profit of the Saiguangbo Group (based on the

three months ended 31 March 2017 after adding back management fee of approximately

RMB16.2 million) of approximately RMB64.8 million, the consideration of RMB349,860,000

(representing 49.98% effective interest in Saiguangbo Group), the price to earnings ratio is

only approximately 11 times. Taking into account the profit guarantee of RMB50 million,

the price to earnings ratio is approximately 14 times. To the best knowledge of the

Directors, the above price to earnings ratio of 11 times and 14 times are fair and reasonable

in the industry.

The Consideration shall be settled by the Purchaser in the following manners:

(i) a sum of RMB250,000,000 (equivalent to approximately HK$287,800,000) having

been paid as refundable earnest money under the MOU shall be fully applied to

satisfy payment of part of the Consideration on the date of Completion;

(ii) a sum of RMB50,000,000 (equivalent to approximately HK$57,560,000) (the

‘‘Retention Fund’’) will be retained by the Purchaser on the date of Completion to

secure the performance of the Profit Guarantee as stated below; and

(iii) the balance of the Consideration, being RMB49,860,000 (equivalent to

approximately HK$57,399,000), in the event that there is no adjustment, shall

be payable by the Purchaser to Vendor (or its nominees) in cash on the date of

Completion.

Adjustment to the Consideration

Pursuant to the terms of the Acquisition Agreement, in the event that the amount of

49.98% of the Saiguangbo’s Value is:

(i) equal to or more than RMB349,860,000, there will not be any adjustment to the

Consideration;

(ii) less than RMB349,860,000 but more than RMB250,000,000, the Consideration

shall be adjusted downward accordingly;

(iii) less than RMB250,000,000 but remain positive, the Vendor shall return the

difference between the refundable earnest money and the amount of 49.98% of the

Saiguangbo’s Value, without interest, to the Purchaser on the date of Completion;

and

(iv) negative, the Purchaser shall have the right to not to proceed with the Acquisition

by written notice to the Vendor, and the Vendor shall return the entire refundable

earnest money, without interest, to the Purchaser within 5 Business Days upon

receipt of such notice.

As extracted from the Valuation Report set out in Appendix V to this circular, the

49.98% of the Saiguangbo’s Value as at 31 March 2017 was valued at approximately

RMB362,355,000 by the Independent Valuer, hence, there will be no adjustment to the


– 9 –

Consideration. For the avoidance of doubt, the refundable earnest money will not be

refundable after it has fully applied to satisfy payment of part of the Consideration at

Completion.

Profit Guarantee

Pursuant to the Acquisition Agreement, the Guarantor irrevocably and

unconditionally guaranteed and undertook to the Purchaser that the audited net profit of

the Target Group (which will be based on the audited account of the Target Group and net

of any extraordinary items, which are events or transactions that are considered abnormal,

not related to ordinary business activities, and unlikely to recur in the foreseeable future,

which the Directors had not identified any as at the Latest Practicable Date) for the period

of one year from date of Completion (the ‘‘Actual Profit’’) shall not be less than

RMB50,000,000 (equivalent to approximately HK$57,560,000) (the ‘‘Profit Guarantee’’).

Such audited account of the Target Group will be prepared by a certified public accountant

to be appointed by the Purchaser and is expected to be issued at the earliest practicable time

after the expiry of the said one year period.

As the audited account of the Target Group will be prepared by a certified public

accountant to be appointed by the Purchaser, the said certified public accountant will

determine whether an item falls into the category of the extraordinary item in accordance

with the appropriate generally accepted accounting principles.

Pursuant to the Acquisition Agreement, the Vendor irrevocably accepts that the

financial reports prepared by the Purchaser or Purchaser’s certified public accountant shall

be conclusive and binding evidence for the purpose of calculating the Actual Profit.

If the Actual Profit is lower than the Profit Guarantee, the Vendor irrevocably and

unconditionally agrees with the Purchaser to deduct an amount equivalent to the shortfall

on a dollar-to-dollar basis as monetary compensation from the Retention Fund. If the

Retention Fund is insufficient to cover such shortfall, the Vendor shall pay the balance of

such amount which is not covered by the Retention Fund within 5 days from receiving

written notice from Purchaser to the Purchaser.

If the Target Group is loss making and does not make any net profit, the loss figure

would be used for calculation of the Actual Profit. In such case, the Purchaser shall

compensate the aggregate sum of (i) the Retention Fund; and (ii) the net loss of the Target

Group in absolute value.

If the Actual Profit is equal to or more than the Profit Guarantee, the Purchaser will

pay the Retention Fund (without interest) within 5 days from receiving notice from Vendor

to the Vendor.

Given that the annualised net profit of the Saiguangbo Group (based on the three

months ended 31 March 2017 after adding back of management fee of approximately

RMB16.2 million) represents approximately 1.3 times of the Profit Guarantee and the

future prospects of Shanxi Minsheng and Yongji Minsheng, the Directors consider that the

Profit Guarantee is justified and achievable in this regard.


– 10 –

Conditions precedent of Acquisition

Completion is subject to the following Conditions being fulfilled and/or waived (as the

case may be):

(i) to the extent required by the Listing Rules, the approval of the Acquisition

Agreement and the transactions contemplated thereunder by the Shareholders

having been obtained;

(ii) the Purchaser having received and being satisfied with the Valuation Report;

(iii) the Purchaser being satisfied with the results of the due diligence review (including

but not limited to the review on liabilities) in respect of Target Group;

(iv) the Purchaser having received and being satisfied with the relevant documents in

relation to the share transfer of 100% of the issued share capital of Top Grand to

the Purchaser and/or its nominee and registered the said documents (and be

satisfied by the Purchaser) with the relevant governmental authorities in the BVI

to the satisfaction of the Purchaser;

(v) Vendor being the legal and beneficial owner of all the issued share capital of Top

Grand, which is free from any encumbrance or third party’s rights;

(vi) Shenzhen Benfu being the legal and beneficial owner of the 98% of the equity

interest of Yuhai, which is free from any encumbrance or third party’s rights;

(vii) Yuhai being the legal and beneficial owner of 51% equity interest in Saiguangbo,

which is free from any encumbrance or third party’s rights, save and except the

pledge for securing the repayment of the Refundable Earnest Money;

(viii)Saiguangbo being the legal and beneficial owner of 100% equity interests in

Shanxi Minsheng and Yongji Minsheng, which are free from any encumbrance or

third party’s rights, save and except the pledge for securing the repayment of the

Refundable Earnest Money;

(ix) Vendor, Yuhai, Saiguangbo, Shanxi Minsheng and Yongji Minsheng having

obtained all necessary approvals and authorisations in respect of the Acquisition

Agreement and transactions contemplated thereunder, including but not limited

to the approval from the board and shareholders (if applicable);

(x) Purchaser having received and being satisfied with the relevant proof and/or

certification in relation to (a) the change of directors and company secretaries of

the Target Group being duly effected; and (b) the registration of the relevant

documents at the relevant governmental authorities in Hong Kong, BVI and PRC;


– 11 –

(xi) the management of Target Group having no material change, and not having done

any act which may result in negative impact on the business, assets, properties,

financial condition, operation and prospect of Target Group before and at the

date of Completion, and the warranties having remained true and accurate in all

respects as at the date of Completion; and

(xii) the Purchaser having received (to the satisfaction of the Purchaser) the deed of

guarantee duly executed by the Guarantor.

The Purchaser shall have the right to waive any of the above Conditions, save for

Condition (i), at its discretion. If any of the conditions have not been fulfilled or waived (as

the case may be) by the Conditions Fulfillment Date or such later date as the parties to the

Acquisition Agreement may agree in writing, the Acquisition Agreement shall lapse and

have no further effect. The Vendor shall refund all amounts previously received from the

Purchaser (including but not limited to the Refundable Earnest Money), without interest, to

the Purchaser immediately. Upon the due receipt of the above payment by the Purchaser

and save for any antecedent breach of the Acquisition Agreement, none of the parties shall

make any claims against any other parties pursuant to the terms and conditions of the

Acquisition Agreement.

As at the Latest Practicable Date, Conditions (ii), (iii), (v), (vi), (vii), (viii) and (xii)

have been fulfilled.

As disclosed in the MOU Announcements, pursuant to the MOU, the Guarantor has

executed or has procured relevant parties to execute the following documents to secure the

repayment (if applicable) of the Refundable Earnest Money, which remain valid and legally

enforceable after entering into of the Acquisition Agreement:

(1) the negative pledge and undertaking letter in respect of Yuhai, Saiguangbo,

Shanxi Minsheng and Yongji Minsheng executed by the Guarantor;

(2) the negative pledge and undertaking letter in respect of Saiguangbo, Shanxi

Minsheng and Yongji Minsheng executed by Yuhai; and

(3) the negative pledge and undertaking letter in respect of Shanxi Minsheng and

Yongji Minsheng executed by Saiguangbo.

Pursuant to the respective negative pledges and undertaking letters, each of the

pledgors confirmed, among other thing, that:

(i) she or it is the legal and beneficial owners of the relevant share or equity interest;

(ii) such share or equity interest is not subject to any guarantee, trusteeship or any

other restrictions of rights;

(iii) there is no present or potential litigation or legal proceedings in respect of such

share or equity interest, and shall there be any, the relevant pledgor shall

immediately notify the Purchaser;


– 12 –

(iv) without the prior written consent from the Purchaser, the pledgor shall not create

any option, charge, pledge or any other encumbrance on the respective share or

equity interest; and

(v) without the prior written consent from the Purchaser, the pledgor shall not,

among other things, make or borrow any loan to or from third party; renounce,

make gifts of or any other way to transfer the assets of the relevant company;

provide any guarantee to third parties; and change the business scope and etc..

Pursuant to the respective negative pledges and undertaking letters, shall there be any

reason leading the Acquisition being fallen through, the Purchaser will be refunded the

entire Retention Money and the pledgors shall not enter into any commitment or make any

legal grounds to prevent the Purchaser from recovering the refundable earnest money.

Completion

Completion shall take place within five Business Days immediately following the date

that all Conditions have been satisfied and/or waived (as the case may be) which shall not

be later than the Conditions Fulfillment Date.

BUSINESS, LICENCES AND PERMITS

To the best of the Directors’ knowledge, information and belief having made all

reasonable enquiries, the business operation of and the licenses and permits obtained by

Shanxi Minsheng and Yongji Minsheng are set out below:

Company

Date of

Establishment Existing Business Future Business Plan Permits and Licenses Obtained

Shanxi Minsheng 21 April 2006 Supply of piped gas to

residential households,

public utility,

commercial and

industrial users; and

(ii) operation of 5

compressed natural gas

(‘‘CNG’’) refuelling

stations for vehicles in

Yuncheng City, Shanxi

Province.

It is expected to have

further new connection

to residential

households by Shanxi

Minsheng, in view of

(i) the new real estate

projects to be

completed; and (ii) the

conversion to piped

gas by existing

residential areas.

All the relevant permits and/or licences

for Shanxi Minsheng’s existing

business including Gas Business

License（燃氣經營許可証）, the Gas

Cylinder Filling Permit（氣瓶充裝許可

証）, Refilling Station Gas Supply

Permit（加氣站供氣許可証）and

Refilling Station Sewage Permit（加氣

站排污許可証）have been obtained.

Yongji Minsheng 17 October

2008

Supply of piped gas to

residential households,

public utility,

commercial and

industrial users; and

(ii) operation of 2

CNG refuelling

stations for vehicles in

Yongji City, Shanxi

Province.

It is expected to have

further new connection

to residential

households by Yongji

Minsheng, in view of

(i) the new real estate

projects to be

completed; and (ii) the

conversion to piped

gas by existing

residential areas.

All the relevant permits and/or licences

for Yongji Minsheng’s existing

business including Gas Business

License（燃氣經營許可証）, the Gas

Cylinder Filling Permit（氣瓶充裝許可

証）and Refilling Station Gas Supply

Permit（加氣站供氣許可証）have been

obtained.


– 13 –

INFORMATION OF THE TARGET GROUP

The shareholding structure of the Target Group as at the Latest Practicable Date is set

out in the simplified chart below:

Shenzhen Benfu (PRC)

Yuhai(PRC)

Saiguangbo(PRC)

Shanxi Minsheng(PRC)

Independent Third Party

Independent Third Party

Yongji Minsheng(PRC)

Shenzhen Benyue(PRC)

Jump Corp(Hong Kong)

Top Grand(BVI)

Vendor(BVI)

100% 100%

51% 49%

98% 2%

100%

100%

100%

100%

Guarantor

100%


– 14 –

Top Grand

Top Grand Global Limited (領宏環球有限公司) is a company incorporated in the BVI

with limited liability on 18 August 2016, which is directly wholly-owned by the Vendor. As

advised by the Vendor, the principal business of Top Grand is, among other things,

investment holding. As advised by the Vendor, save for the interest in Jump Corp, Top

Grand has no other asset and operation since its incorporation in all material respects.

Jump Corp

Jump Corporation Limited (奔躍有限公司) is a company incorporated in Hong Kong

with limited liability on 7 June 2016, which is directly wholly-owned by Top Grand. As

advised by the Vendor, the principal business of Jump Corp is, among other things,

investment holding, and save for the interest in Shenzhen Benyue, Jump Corp has no other

asset and operation since its incorporation in all material respect.

Shenzhen Benyue

Shenzhen Benyue Energy Company Limited* (深圳奔躍能源有限公司) is a company

established in the PRC with limited liability on 20 September 2016, which is directly wholly-

owned by Jump Corp. As advised by the Vendor, the principal business of Shenzhen Benyue

is, among other things, project investment consulting, development of energy saving and

environmental new energy technology, and save for the interest in Shenzhen Benfu,

Shenzhen Benyue has no other asset and operation since its incorporation in all material

respect.

Shenzhen Benfu

Shenzhen Benfu Energy Company Limited* (深圳奔富能源有限公司) is a company

established in the PRC with limited liability on 22 September 2016, which is directly wholly-

owned by Shenzhen Benyue. As advised by the Vendor, the principal business of Shenzhen

Benfu is, among other things, project investment consulting, development of energy saving

and environmental new energy technology, and save for the interest in Yuhai, Shenzhen

Benfu has no other asset and operation since its incorporation in all material respect.

Yuhai

Shenzhen Yuhai Energy Company Limited* (深圳市裕海能源有限公司) is a company

established in the PRC with limited liability on 6 September 2016, which is held by

Shenzhen Benfu as to 98%. As advised by the Vendor, the principal business of Yuhai is,

among other things, the technology development, technology transfer and consultation of

new energy. To the best knowledge of the Company, the other shareholder of Yuhai as to

2% is an Independent Third Party.


– 15 –

Saiguangbo

Chongqing Saiguangbo Technology Company Limited* (重慶賽廣博科技有限公司) is a

company established in the PRC with limited liability on 7 February 2002, which is held by

Yuhai as to 51%. As advised by the Vendor, the principal business of Saiguangbo is, among

other things, investment of town gas and sale of gas equipment. To the best knowledge of

the Company, the other shareholder of Saiguangbo as to 49% is an Independent Third

Party and, as at the Latest Practicable Date, Saiguangbo did not have other operation

except for the holding of the equity interest of Shanxi Minsheng and Yongji Minsheng.

Shanxi Minsheng

Shanxi Minsheng Natural Gas Co., Ltd.* (山西民生天然氣有限公司) is a company

established in the PRC with limited liability on 21 April 2006 which is wholly-owned by

Saiguangbo.

Business Area

Shanxi Minsheng is principally engaged in the supply of piped gas and operation of 5

compressed natural gas (‘‘CNG’’) refuelling stations for vehicles in Yuncheng City, Shanxi

Province under a number of operating rights agreements entered into with the local

government of Yuncheng City for the period ending the earliest in 2021. The target

customers include residential households, public utility, commercial and industrial users

and vehicles in Yuncheng City and the new development areas. Whilst Taiyuan, the largest

city of Shanxi, generated the highest GDP of RMB273.5 billion in 2015, Yuncheng ranked

third (RMB117.4 billion) which is just marginally after Changzhi (RMB119.5 billion) but is

higher than Linfen (RMB116.1 million), Datong (RMB105.3 million) & Jincheng (RMB104

million). However the total value of exports shows that Yuncheng has an export oriented

economic activities. In 2015 the total value of exports for Taiyuan was USD6,592 million.

Yuncheng was the second highest (USD331 million) when compared with Jincheng

(USD288 million), Datang (USD285 million), Linfen (USD166 million) & Changzhi

(USD32 million). (*source: Shanxi Statistical Yearbook 2016)

As advised by the Vendor, up to the Latest Practicable Date, Shanxi Minsheng

completed the connection for around 154,000 residential households and around 600 public

utility, commercial and industrial users. For the year ended 31 December 2016, the total gas

sales volume of Shanxi Minsheng amounted to approximately 69 million cubic meters.

Exclusive operation rights in Yuncheng City, Shanxi Province

Shanxi Minsheng entered into a number of operation rights agreements with the local

government of Yuncheng City in Shanxi Province, in which Shanxi Minsheng was granted

the build-operate-transfer (建造、營運及轉移) and exclusive operation rights (特許經營權)

for terms of 20 years to 25 years, commencing from August 2006, October 2009, September

2011 and July 2012, for the supply of natural gas via gas pipelines within the Urban

Planning Area (城市規劃區域) in Yuncheng City and the new development areas (新發展區

域), such as Yanhu (鹽湖新區), Konggang (空港新區) and Yuncheng Economic

Development Zone (運城經濟開發區), of which Konggang will be the key growth area for


– 16 –

piped gas consumption. The total development area under planning is around 65 km2 with

the development of 50 km2 central district area has been completed. Major Shanxi based

privately owned enterprises are located in Konggang including a leading heavy duty truck

manufacturer with an annual output of RMB30 billion. Konggang also housed Asia largest

yarn spinning mill invested by a Hong Kong company with a total investment of USD138

million.

Information of the exclusive operation rights of Shanxi Minsheng are set out below:

Project under

Exclusive

operation rights

Exclusive

operation rights

Exclusive

operation rights

Exclusive

operation rights

Business area Yanhu

(鹽湖新區)

Konggang

(空港新區)

Yuncheng

Economic

Development

Zone (運城經濟

開發區)

Yuncheng City

Role Service provider

and Constructor

Service provider

and Constructor

Service provider

and Constructor

Service provider

and Constructor

Business model Build-operate-

transfer

Build-operate-

transfer

Build-operate-

transfer

Build-operate-

transfer

Capital commitment

as at the Latest

Practicable Date

Nil Nil Nil Nil

Duration 25 years from

19 October 2009

20 years from

1 September

2011

25 years from

1 July 2012

25 years from

31 Mar 2006

Future prospects

It is expected that there will be further new connection to residential households by

Shanxi Minsheng, in view of (i) the new real estate projects to be completed; and (ii) the

conversion to piped gas by existing residential areas. Yuncheng City is also on track to

achieve government’s coal-to-gas conversion plan. According to the Air Pollution

Prevention and Control Action Plan (《大氣污染防治行動計劃》) issued by The State

Council (國務院) of PRC in September 2013, coal fired steam turbine below 10 steam/ton

has to be converted by the end of 2017. Coal fired steam turbines above 10 steam/ton are

expected to complete the conversion within three years. In terms of gas sourcing, Yuncheng

enjoys the benefits of a dual piped gas supplier. With such an unique infrastructure (East

gas city-gate 東門站 and North gas city-gate 北門站) Yuncheng is able to maximise the gas

output during the peak season. Yuncheng has a well-balanced gas consumption mix in

nature thus it is less affected by any economic cycle and policies.


– 17 –

Yongji Minsheng

Yongji Minsheng Natural Gas Co., Ltd.* (永濟市民生天然氣有限公司) is a company

incorporated in the PRC with limited liability on 17 October 2008 which is wholly-owned by

Saiguangbo.

Business Area

Yongji Minsheng is principally engaged in the supply of piped gas and operation of 2

CNG refuelling stations for vehicles in Yongji City, Shanxi Province under a franchise

operation agreement entered into with local government of Yongji City for the period up to

2038. The target customers include residential households, public utility, commercial and

industrial users and vehicles in Yongji City.

As advised by the Vendor, as of the Latest Practicable Date, Yongji Minsheng

completed the connection for around 24,099 residential households and around 110 public

utility, commercial and industrial users. During the year ended 31 December 2016, the total

gas sales volume of Yongji Minsheng amounted to approximately 17 million cubic meters.

Exclusive franchise operation agreement in Yongji City, Shanxi Province

As advised by the Vendor, Yongji Minsheng has entered into a franchise operation

agreement with the local government of Yongji City, pursuant to which Yongji Minsheng is

granted an exclusive operation right for 30 years commencing from November 2008 to

invest in and operate the city pipeline system to provide and distribute piped natural gas in

Yongji City, Shanxi Province.

Information of the exclusive operation rights of Yongji Minsheng are set out below:

Project under Franchise operation agreement

Business area Yongji City

Role Owner (Constructor)

Business model Build-own-operate

Capital commitment as at

the Latest Practicable Date

Nil

Duration 30 years from 1 November 2008

Future prospects


Yongji Minsheng, in view of (i) the new real estate projects to be completed; and (ii) the

conversion to piped gas by existing residential areas. Further upside on gas consumption

however will be coming from the commercial segment. Yongji City is developing its leisure

industry lately with most restaurants, hotels and shopping malls still not using natural gas

as their main source of energy.


– 18 –

Since the government in the PRC is promoting the ‘‘coal-to-gas’’ policy to reduce the

air pollution in the PRC, it is expected that the business of both Shanxi Minsheng and

Yongji Minsheng will be benefited from the policy. On the same token Yongji City is also

on track to comply with government’s coal-to-gas conversion plan. According to the Air

Pollution Prevention and Control Action Plan (《大氣污染防治行動計劃》) issued by The

State Council (國務院) of PRC in September 2013, coal fired steam turbine below 10 steam/

ton has to be converted by the end of 2017.

PRINCIPAL RISKS ASSOCIATED WITH THE TARGET GROUP

Target Group may be a party to legal claim or disputes related to pre-Acquisition period.

Target Group may from time to time become a party to various legal claim or disputes

related to pre-Acquisition period. Furthermore, if any verdict or award is rendered against

any company of the Target Group, such company could be required to pay significant

monetary damages, assume other liabilities, and suspend or terminate the related business

ventures or projects.

Pursuant to the Acquisition Agreement, the Vendor and the Guarantor jointly and

severally warrant and represent to the Purchaser that as at the date of the Acquisition and

on or before the date of the Completion, none of the companies of the Target Group is a

party (whether as a plaintiff, defendant or other capacity) to any legal proceeding,

arbitration or prosecution or subject to any court order, hearing of any regulatory,

supervisory or governmental entity, department, committee or tribunal or any material

dispute. Shall there be any breach of such warranty and representation, the Vendor and the

Guarantor shall compensate and indemnify the Purchaser the sum (including legal fee) to be

incurred by the Purchaser for revert the Target Group to the condition but for such breach.

Target Group’s future growth strategies may not succeed, and the growth expectation

may not materialise.

As promoted by the government policies, according to the China Energy Outlook 2030

(中國能源展望2030) published by the China Energy Research Society (中國能源研究會), it

is expected that the natural gas usage per capita in the PRC will increase from

approximately 135m3 in 2014 to approximately 350m3 in 2030. Together with the

favourable policies issued by the local government, in particular the coal-to-gas

conversion plan, the Directors are optimistic on the future growth and prospect of the

Target Group.

Notwithstanding the above, there is no guarantee that the Target Group can fully

capture the growth prospect or at all. After Completion, the Group will continue to

leverage on its expertise in gas business and strive its best to formulate business strategies

for the Target Group’s long-term development.


– 19 –

Target Group’s transportation and sales of piped gas operation relies on limited suppliers.

Purchased pipelined gases accounted for approximately 83.3%, 81.4%, 82.9% and

85.2% of total cost of sales by the Target Group for each of the three financial years ended

31 December 2016 and the three months ended 31 March 2017, respectively. As at the Latest

Practicable Date, the Target Group purchased natural gas primarily from two major gas

transporters or distributors in China, namely, Shanxi Natural Gas Co., Ltd.* (山西天然氣

有限公司) and Shanxi Compressed Natural Gas Group Co., Ltd.* (山西壓縮天然氣集團有

限公司).

There can be no assurance that the Target Group can continually secure supply from

the aforesaid suppliers. Failures to secure supply from other piped gas suppliers on time will

materially and adversely affect its results of operation, financial condition, as well as

reputation.

After Completion, the Group will negotiate with the two suppliers for long-term

supply agreements to secure supply and to diversify the supplier base, as appropriate.

The price of the Target Group’s products is subject to government price control.

Natural gas prices charged by the Target Group are subject to the approval of the

Commodity Price Bureau (物價局) of each operating city of the Target Group. According to

the PRC Pricing Act (中華人民共和國價格法), the Target Group is entitled to determine the

price of natural gas, subject to a ceiling price imposed by the local governments. The local

governments may introduce policies to adjust the ceiling price. To operate in line with the

local government’s policies, the Target Group may re-adjust its selling price in accordance

with the new ceiling price introduced from time to time. To do this, the Target Group must

submit applications for price adjustment to the Commodity Price Bureau of the relevant

operating city. The Commodity Price Bureau will then convene a series of hearings to form

an informed conclusion of the price. The price concluded by the Commodity Price Bureau

will be reported to the local Development and Reform Commission (發展和改革委員會) of

the relevant operating cities for confirmation. Should the Target Group fail to obtain price

adjustment approval, or fail to secure such approval in a timely manner from the

Commodity Price Bureaus or the local Development and Reform Commission of the

relevant operating cities, the Target Group’s profitability may be adversely affected. After

Completion, the Group will closely monitor the ceiling price and relevant cost from time to

time and submit applications for price adjustment to the Commodity Price Bureau as and

when appropriate to control the profit margin.

If third-party pipelines and other facilities interconnected to the Target Group’s natural

gas pipelines and processing facilities or its pipelines and facilities located on lands owned by

third parties become partially or fully unavailable to transport natural gas, its operating

results could be adversely affected.

The Target Group relies upon third party pipelines and other facilities to provide

delivery options from its facilities to its customers and some of its pipelines and facilities

located on lands owned by third parties. If any of these pipelines become unavailable to

transport the natural gas from its facilities, or if the gas quality specifications for these


– 20 –

pipelines or facilities change, the Target Group would be required to find alternate means to

transport its natural gas out of its facilities, which could increase its costs, reduce the

revenues it might obtain from the sale of its natural gas and thus affect its profit. After

Completion, the Group intends to discuss with the relevant third parties on the maintenance

requirement regularly so as to avoid any service halt.

Accidents or occurrences of public safety concerns may occur. Target Group may lack

adequate insurance coverage.

The Target Group conducts a highly hazardous business due to the flammable and

explosive nature of natural gas. There can be no assurance that accidents or occurrences of

public safety concerns or any industry-related accidents will not occur during our

operations in the future. For example, an earthquake in any of the operating city of the

Target Group may cause destruction of, or damage to, its pipelines and a leak of natural

gas. Significant operational hazards and natural disasters may cause interruptions in Target

Group’s operations that could have a material adverse impact on our business and financial

condition, as well as our reputation. The Target Group does not currently maintain fire,

casualty or other property insurance policies covering its facilities, properties or equipment,

other than with respect to vehicles. In addition, the Target Group, except for the 5 CNG gas

stations in Shanxi Minsheng, does not maintain any business interruption insurance or any

third-party liability insurance to cover claims in respect of personal injury, property or

environmental damage arising from accidents on its properties or relating to its operations,

other than third-party liability insurance with respect to vehicles and insurance as required

under the Labour Law of the PRC. Any uninsured losses and liabilities incurred by the

Target Group or a successful claim made against Target Group that is not covered by any

insurance policies could have a material adverse effect on Target Group’s operations and

financial condition.

After Completion, the Group intends to revisit the current safety measures of the

Target Group and reassess and purchase insurance as appropriate so as to reduce risks on

aforesaid potential loss.

The effects of future environmental legislation on the Target Group’s business is unknown

but could be substantial.

Environmental legislation is evolving in a manner expected to result in stricter

standards and enforcement, larger fines and liability and potentially increased capital

expenditures and operating costs. Changes in, or enforcement of, environmental laws may

result in a curtailment of the Target Group’s production activities, or a material increase in

the costs of production, development drilling or exploration, any of which could have a

material adverse effect on the Target Group’s financial condition and results of operations

or prospects. After Completion, the Group will closely monitor the environmental

legislation from time to time so as to ensure continued compliance with the relevant new

standard and policy in a cost-effective way.


– 21 –

Changes in government policies could affect Target Group’s business.

Target Group’s business will be affected by changes in policies, laws and regulations

(or the interpretation thereof) in the PRC energy industry. For example, if the PRC

Government favors a particular type of energy, other than natural gas, due to the energy

structure change or cost concern, Target Group’s financial condition and results of

operations will be materially adversely affected. In addition, recent global concerns over

carbon emission may cause the PRC Government to introduce policies that may lead to

restrictions on the industry, such as the imposition of carbon emissions tax.

It is not assured that the recent government policies on gas industry will not affect the

Target Group’s future business and operations. Should the amendments to these policies or

the promulgation of new policies be adverse to the Target Group, Target Group’s business,

results of operations and financial condition may be materially and adversely affected.

After Completion, the Group will closely monitor the government policies from time to

time so as to ensure continued compliance with the relevant new policies in a cost-effective

way.

The Target Group may be involved from time to time in legal proceedings and commercial

or contractual disputes, which could have a material adverse effect on its business, results of

operations and financial condition.

From time to time, the Target Group may be involved in legal proceedings and

commercial or contractual disputes. Such proceedings or disputes are typically claims that

arise in the ordinary course of business, including, without limitation, commercial or

contractual disputes, warranty claims and other disputes with customers and suppliers,

intellectual property matters, personal injury claims, environmental issues, tax matters and

employment matters. There is no assurance that such proceedings and claims will not have a

material adverse effect on the business, results of operations and financial condition of the

Target Group. After Completion, the Group will closely monitor the operation of the

Target Group from time to time so as to ensure continued compliance with the relevant

rules and regulation. In the event of any legal proceedings, disputes and claims originated

before Completion, the Group will consider to take legal action against the Vendor and the

Guarantor in accordance with the terms of the Acquisition Agreement, in particular the

warranty clause and indemnity clause.


– 22 –

Financial Information of the Target Group

The audited consolidated financial information of Top Grand Group for the period

from 18 August 2016 to 31 December 2016 and the three months ended 31 March 2017 as

extracted from the accountants’ report set out in Appendix IIA to this circular are as

follows:

For the three

months ended

31 March

2017

For the

period ended

31 December

2016

(Audited) (Audited)

HKD HKD

Turnover — —

Loss before taxation (22) (31,245)

Net loss (22) (31,245)

As at

31 March

2017

As at

31 December

2016

(Audited) (Audited)

HKD HKD

Total assets 102,618 102,640

Total liabilities (133,877) (133,877)

Net liabilities (31,259) (31,237)

The audited financial information of Yuhai for the period from 6 September 2016 to 31

December 2016 and the three months ended 31 March 2017 as extracted from the

accountants’ report set out in Appendix IIB to this circular are as follows:

For the three

months ended

31 March

2017

For the

period ended

31 December

2016

(Audited) (Audited)

HKD HKD

Turnover — —

Profit before taxation — —

Net profit — —


– 23 –

As at

31 March

2017

As at

31 December

2016

(Audited) (Audited)

HKD HKD

Total assets 5,984,503 5,922,743

Total liabilities 5,983,905 5,922,151

Net assets (liabilities) 598 592

The audited consolidated financial information of the Saiguangbo and its subsidiaries,

namely Shanxi Minsheng and Yongji Minsheng, for the three financial years ended 31

December 2016 and the three months ended 31 March 2017 as extracted from the

accountants’ report set out in Appendix IIC to this circular are as follows:

For the three

months ended

31 March

2017

For the

year ended

31 December

2016

For the

year ended

31 December

2015

For the

year ended

31 December

2014

(Audited) (Audited) (Audited) (Audited)

HKD’000 HKD’000 HKD’000 HKD’000

Turnover 130,750 338,564 382,013 406,666

Profit before taxation 3,852 12,515 16,154 33,259

Net profit 3,187 10,363 11,149 24,588

As at

31 March

2017

As at

31 December

2016

As at

31 December

2015

As at

31 December

2014

(Audited) (Audited) (Audited) (Audited)

HKD’000 HKD’000 HKD’000 HKD’000

Total assets 604,938 597,468 637,252 760,241

Total liabilities 491,579 487,948 532,136 699,311

Net assets 113,359 109,520 105,116 60,930


– 24 –

The turnover breakdown of Saiguangbo Group by nature are as follow:

For the three

months ended

31 March

2017

For the

year ended

31 December

2016

For the

year ended

31 December

2015

For the

year ended

31 December

2014

HK$’000 HK$’000 HK$’000 HK$’000

Sales of piped gas —

other 88,060 216,200 207,347 205,583

Gas connection income 30,129 77,391 90,583 98,814

Sales of piped gas —

gas stations 12,561 44,973 84,083 102,269

Total 130,750 338,564 382,013 406,666

Given that Top Grand Group acquired Yuhai on 5 May 2017 which is subsequent to 31

March 2017, the period end of the accountants’ report is made up to, and was not under

common control with Yuhai and Saiguangbo Group, the financial information of Yuhai

and Saiguangbo Group cannot be consolidated in the audited consolidated financial

information of Top Grand Group for the period from 18 August 2016 to 31 December 2016

and the three months ended 31 March 2017.

Given that (i) Saiguangbo was not under common control throughout the Relevant

Period (as defined below), thus Yuhai can only consolidate the financial results of

Saiguangbo Group under acquisition accounting, and such consolidation can only be

accounted for since 1 November 2016, the day of acquisition of Saiguangbo Group by

Yuhai and can only reflect the financial results of Shanxi Minsheng and Yongji Minsheng

after 1 November 2016; (ii) the audited consolidated financial information of Saiguangbo

Group can cover the period for the three financial years ended 31 December 2016 and the

three months ended 31 March 2017 which can provide sufficient information for the

Shareholders to assess the financial results of Shanxi Minsheng and Yongji Minsheng

during the Relevant Period; and (iii) Yuhai is an investment holding company and has no

active operation with its only asset being the investment cost in Saiguangbo, the Directors

consider adopting merger accounting to demonstrate the audited consolidated financial

information of the Saiguangbo Group, being the operating subsidiaries in the Target

Group, for the three financial years ended 31 December 2016 and the three months ended 31

March 2017 would be more appropriate and meaningful for the Shareholders to understand

the performance of the Target Group. In view of the above, the financial information of the

Target Group presented in three separate accountants’ reports which are included as

Appendix IIA, IIB and IIC to this circular.

Since the consolidated financial statements of Saiguangbo for the three years ended 31

December 2016 and for the three months ended 31 March 2017 (the ‘‘Relevant Period’’) have

already been set out in Appendix IIC to this circular, consolidated financial statements of

Yuhai for the Relevant Period have not been prepared in accordance with IFRS 10

‘‘Consolidated financial statements’’ due to the reasons discussed above. As explained in


– 25 –

Appendix IIB to this circular, as Yuhai has not prepared consolidated financial statements

in accordance with International Financial Reporting Standard, the Reporting Accountant

has issued a qualified opinion on Yuhai’s financial statement.

For the year ended 31 December 2016 and the three months ended 31 March 2017, the

Company has received approximately RMB8.6 million (equivalent to approximately

HK$10.0 million) and RMB13.4 million (equivalent to approximately HK$15.1 million)

management fee, respectively, from Yongji Minsheng and Shanxi Minsheng. The Group,

with its experienced management team, has been providing management service and

technical support to Shanxi Minsheng and Yongji Minsheng. It is the Company’s current

intention that the said management fee will not be charged after Completion. To the best

knowledge of the Directors, the audited consolidated net profits of Saiguangbo Group after

adding back the management fee were approximately RMB17.5 million (equivalent to

approximately HK$20.4 million) and RMB16.2 million (equivalent to approximately

HK$18.3 million) for the year ended 31 December 2016 and the three months ended 31

March 2017, respectively.

Upon Completion, Top Grand Group will become the wholly-owned subsidiaries of

the Company, while Yuhai and Saiguangbo Group will become the non-wholly-owned

subsidiaries of the Company. Accordingly, the financial results of Top Grand Group, Yuhai

and Saiguangbo Group will be consolidated into the financial statements of the Group.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is an integrated natural gas provider and distributor that offers innovative

and diversified clean energy solution in the PRC. The Group focuses on the downstream

natural gas distribution business which encompasses (i) construction and operation of

compressed natural gas and liquefied natural gas refuelling stations for vehicles; (ii)

construction of natural gas connection pipelines and supply of piped gas to industrial parks,

commercial complexes and residential communities; and (iii) distribution and trading of

CNG and LNG. The Group’s current natural gas projects covered 10 provinces in the PRC,

namely Hainan, Anhui, Shandong, Liaoning, Guizhou, Sichuan, Hubei, Zhejiang, Jilin and

Jiangsu Provinces.

Based on the government data and publicly available information, the Directors

estimated the total number of household in Yuncheng City and Yongji City to be around

1,850,000 household, which are the target customers of Shanxi Minsheng and Yongji

Minsheng. As the total existing residential household customers of Shanxi Minsheng and

Yongji Minsheng as at 31 March 2017 were around 168,000 household, the Directors

believe that there is a good potential for future business uplift.

The Chinese government endeavored the facilitation of clean energy development,

hence the National Energy Administration promulgated the energy ‘‘13th Five-Year Plan’’,

indicating that the proportion of domestic natural gas consumption in 2020 is targeted to

reach 10%. Meanwhile, with the Action Plan of the Prevention Scheme of Air Pollution

promulgated by the State Council, local governments at all levels also introduced related

policies to facilitate the local ‘‘coal-to-gas’’ project construction, so as to increase the

application coverage of natural gas, facilitated the energy structural adjustment and


– 26 –

promoted proactively the improvement of the overall environment. In addition, the

National People’s Congress and the Chinese People’s Political Consultative Conference

convened in 2017 have also pointed out that by strengthening domestic conventional

natural gas exploration and development, as well as scientific planning of introducing

foreign import natural gas in terms of scale, method and pace, it can achieve safe and stable

gas supply and promote the use of clean energy. Hence, there is tremendous potential for

development growth in natural gas industry.

Therefore, the Group will continue to grasp the opportunities arising from policies

facilitation, accelerate market exploration, expand its businesses including city gas, natural

gas for transportation, LNG direct supply trading and distribution of natural gas, and

other related segments, and achieve a synergistic development.

The Acquisition, subject to Completion, will enable the Group to expand its natural

gas operations in the PRC and to diversify the income stream from a geographical

perspective. It will benefit the Company and Shareholders as a whole, by (i) increasing the

Group’s revenue source; (ii) enlarging the Group’s geographical footprint in Shanxi

Province of the PRC, where the Company has not yet made any presence previously; (iii)

capturing the incremental gas demand driven by the nationwide coal-to-gas conversion plan

given Shanxi is a traditional heavy industry dominated province; and (iv) showcasing its

city gas project penetration and execution capability which is critical for enhancing our

shareholders’ value.

In future, the Group will invest and develop the natural gas business proactively and

expand its business layout by taking the ‘‘develop clean energy, improve customer value,

and create a better Blue Sky’’ as its mission and adhering to the corporate values of

‘‘openness, innovation, cohesion, pragmatism, accountability, listening and inclusiveness’’.

As such, the Directors considered that the Acquisition is in line with the mission of the

Group and shall benefit from the government’s ‘‘coal-to-gas’’ policy which aims to improve

the air pollution issue in the PRC. The Acquisition shall provide an excellent opportunity

for the Group to extend its geographical coverage and enlarge its market share in relation to

its natural gas business which encompasses (i) construction and operation of CNG and

liquefied natural gas (‘‘LNG’’) refueling stations for vehicles; (ii) construction of natural gas

connection pipelines and supply of piped gas to industrial parks, commercial complexes and

residential communities; and (iii) distribution and trading of CNG and LNG. The Company

can become an important player in the city gas sector, which can increase the revenue

streams of the Group, thus enhancing its industrial competitive position and generating

more investment value for investors and Shareholders.

The terms of the Acquisition Agreement were arrived at after arm’s length negotiations

between the Purchaser, the Vendor and the Guarantor. The payment of the Consideration

will be funded by the internal resources of the Group. In view of the above, the Directors

considered the terms of the Acquisition Agreement and the Consideration are fair and

reasonable and on normal commercial terms and in the interests of the Company and the

Shareholders as a whole.


– 27 –

INFORMATION OF THE COMPANY AND THE PURCHASER

The Company is principally engaged in (i) natural gas for transportation; (ii) trading

and distribution of natural gas; and (iii) city gas and other related products. The Purchaser

is incorporated in the BVI with limited liability and a wholly-owned subsidiary of the

Company. Its principal business is investment holding.

INFORMATION OF THE VENDOR AND THE GUARANTOR

The Vendor is a company incorporated in the BVI with limited liability. Its principal

business is investment holding. The Vendor is wholly-owned by the Guarantor, who is a

PRC citizen and a business-woman. At the Latest Practicable Date, the Vendor directly

holds 100% of the issued share capital of Top Grand, which indirectly holds 98% of the

equity interest in Yuhai, which in turn directly holds 51% of the equity interest in

Saiguangbo, which in turn holds 100% of the equity interest in Shanxi Minsheng and

Yongji Minsheng.

FINANCIAL EFFECTS ON EARNINGS, ASSETS AND LIABILITIES OF THE GROUP

Upon Completion, the financial results of the Target Group will be consolidated into

the financial statements of the Group.

(i) Earnings

According to the accountants’ reports enclosed in Appendices IIA to IIC to the

circular, Saiguangbo Group recorded profit attributable to owners of approximately

HK$3.2 million for the three months ended 31 March 2017 while Top Grand Group and

Yuhai recorded immaterial losses for the three months ended 31 March 2017.

The Directors consider that the Acquisition would enhance the Group’s business

performance and its earning prospect by consolidating the profit of the Target Group to the

Group’s financials.

(ii) Assets and Liabilities

According to the unaudited pro forma financial information of the Enlarged Group as

set out in Appendix IV to this circular, upon Completion, the total consolidated net assets

of the Group would increase from approximately HK$3,339.6 million to approximately

HK$3,683.9 million. The total assets would increase from approximately HK$4,992.1

million to approximately HK$5,843.1 million. The total liabilities would increase from

approximately HK$1,652.5 million to approximately HK$2,159.2 million.

Please refer to Appendices IIA to IIC and Appendix IV as set out in this circular for

further information of the assets and liabilities of the Target Group and information on the

financial effects of the Acquisition, respectively.


– 28 –

COMPLIANCE WITH RULE 14.61 OF THE LISTING RULES

As the Valuation Report as disclosed in Appendix V to this circular is based on

discounted cash flow method, it constitutes a profit forecast under Rule 14.61 of the Listing

Rules. Accordingly, Rule 14.62 of the Listing Rules are applicable.

The following are details of the principal assumptions upon which the Valuation

Report is based:

Major commercial assumptions:

Major commercial assumptions are extracted and summarised below. For details,

please refer to paragraph headed ‘‘8.4.5 Major Assumptions of Cash Flow Projection’’ in

Appendix V to this circular:

— The revenue from gas sales to residential users of Saiguangbo Group was

estimated based on the selling price and the sales volume. For the selling price, the

management of the Company (the ‘‘Management’’) has made reference to the

historical average selling price of the period from January to March 2017 and the

government document. These selling prices would be adopted for the 10 years

forecast period. The sales volume was estimated with reference to (i) the sum of

the number of users in 2016 and the annualized additional number of users for the

period from January to March 2017; and (ii) the gas consumption per household;

— The cost of gas sales to residential users of Saiguangbo Group was related to the

purchase price per unit and the volume and estimated with reference to the

historical average purchase price of the period from January to March 2017 and

the government document;

— The revenue from gas sales to commercial users, industrial users and public utility

users of Saiguangbo Group was estimated based on the respective selling price and

the sales volume. The Management has made reference to the historical average

selling price of the period from January to March 2017 and the government

document. These selling prices would be adopted for the 10 years forecast period.

The sales volume for industrial, commercial and public utility users of the

Saiguangbo Group were estimated with reference to (i) the sum of number of users

in 2016 and the annualized additional number of users for the period from

January to March 2017 in each category; (ii) the growth of the users in each

category; and (iii) the gas consumption per user in the respective category;

— The cost of gas sales to commercial, public utility and industrial users of

Saiguangbo Group were estimated based on the respective purchase price per unit

and the sales volume. The Management has made reference to the historical

average selling price of the period from January to March 2017 and the

government document;


– 29 –

— The revenue from CNG stations of Saiguangbo Group was estimated based on the

selling price and CNG sales volume. The Management has made reference to the

historical average selling price for the period from January to March 2017 and the

government document. These selling prices would be adopted for the 10 years

forecast period. The sales volume is projected based on the annualized CNG sales

volume for the period from January to March 2017 with the average growth rate

of the number of taxi in 2014 and 2015 in Shanxi Province;

— The cost of CNG sales of the Saiguangbo Group was estimated based on the

purchase price per unit and the CNG sales volume. The Management has made

reference to the historical average selling price of the period from January to

March 2017 and government document;

— The revenue from installation income of the Saiguangbo Group was estimated

based on the installation price per user and the number of new users. The

Management has made reference to the historical average selling price of natural

gas furnace, water heater and installation fee income from 2014 to 2016 and

period from January to March 2017 and the government document. The cost was

estimated based on the installation cost per user and the number of new users;

— The operating expenses of Saiguangbo Group were estimated based on the

annualized historical expenses for the period from January to March 2017 with

consideration on the average growth rate of the total sales volume in 2015 and

2016;

— The selling and distribution expenses of Saiguangbo Group were estimated based

on the annualized historical expenses for the period from January to March 2017.

The Management estimated the growth rate for selling and distribution expenses

would be similar with the inflation rate in China;

— The depreciation expense of Saiguangbo Group for the fixed assets and the

forecasted capital expenditure was estimated by straight line depreciation method;

— The income tax expense of Saiguangbo Group was estimated by adopting the

corporate tax rate in China of 25% as advised by the Management;

— The change in working capital of Saiguangbo Group was estimated by considering

the historical working capital turnover days of Saiguangbo Group and the

Management’s expectation;

— Capital expenditure of Saiguangbo Group was estimated based on the capital

expenditure in previous year and the growth rate of capital expenditure in 2016;

and

— The forecast for the Subject Group was projected for 10 years from the date of

valuation with a terminal year to assess the cash flow beyond the 10-year period.


– 30 –

Other assumptions:

— The valuation was primarily based on the financial projections and latest audited

financial statements of the Saiguangbo Group as at 31 March 2017 as provided by

the Management. The projections outlined in the financial information provided

were assumed to be reasonable, reflecting market conditions and economic

fundamentals, and will be materialised;

— With reference to a shareholder’s agreement provided by the Management, the

amount due to shareholders would be repaid on 1 November 2038, the expiry date

of the exclusive operating right of Yongji Minsheng;

— The Saiguangbo Group will commence operation as planned by the Management;

— As advised by the Management, the exclusive operating rights for Shanxi

Minsheng and Yongji Minsheng could be renewed upon expiry;

— All relevant legal approvals and business certificates or licenses to operate the

business in the localities in which the Saiguangbo Group operate or intend to

operate would be officially obtained and renewable upon expiry;

— There will be sufficient supply of technical staff in the industry in which the

Saiguangbo Group operate, and the Saiguangbo Group will retain competent

management, key personnel and technical staff to support its ongoing operations

and developments;

— There will be no major change in the current taxation laws in the localities in

which the Saiguangbo Group operate or intend to operate and that the rates of tax

payable shall remain unchanged and that all applicable laws and regulations will

be complied with;

— There will be no major change in the political, legal, economic or financial

conditions in the localities in which the Saiguangbo Group operate or intend to

operate, which would adversely affect the revenues attributable to and

profitability of the Saiguangbo Group; and

— Interest rates and exchange rates in the localities for the operation of the

Saiguangbo Group will not differ materially from those presently prevailing.

Pursuant to Rule 14.62 of the Listing Rules, the Board has reviewed the principal

assumptions upon which the Valuation Report is based and is of the view that the profit

forecast has been made after due and careful enquiry.

Please refer to Appendix VA for the reports from the Reporting Accountants and the

Financial Adviser pursuant to Rule 14.62 of the Listing Rules.


– 31 –

LISTING RULES IMPLICATIONS

As certain of the applicable percentage ratios calculated pursuant to Rule 14.07 of the

Listing Rules in respect of the Acquisition are above 25% but less than 100%, the

Acquisition constitutes a major transaction of the Company and is therefore subject to the

reporting, announcement, circular and Shareholders’ approval requirements under Chapter

14 of the Listing Rules. Accordingly, the Company will seek Shareholders’ approval at the

SGM by way of poll for the Acquisition Agreement and the transactions contemplated

therein.

To the best of the knowledge, information and belief of the Directors having made all

reasonable enquiries, no Shareholders or any of their respective associates have any

material interest in the Acquisition. As such, no Shareholder is required to abstain from

voting under the Listing Rules on the resolutions to be proposed at the SGM.

SGM

A notice of the SGM is set out on pages SGM-1 to SGM-3 of this circular. The SGM

will be convened and held at Level 9, Central Building, 1–3 Pedder Street, Central, Hong

Kong on Tuesday, 17 October 2017 at 11 : 00 a.m., at which, the relevant resolutions will be

proposed to the Shareholders to consider and, if thought fit, to approve, among others, the

Acquisition and the transactions contemplated therein.

VOTING BY POLL

Pursuant to Rule 13.39(4) of the Listing Rules, the relevant resolutions to be approved

in respect of the Acquisition and the transactions contemplated therein at the SGM will be

taken by way of poll.

Hong Kong

Shareholders (whether or not able to attend the SGM) are requested to complete and

return the enclosed Hong Kong proxy form in accordance with the instructions printed

thereon and deposit with the Hong Kong branch share registrar, Tricor Investor Services

Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as

soon as possible but in any event not less than 48 hours before the time appointed for the

holding of the SGM or any adjourned meeting thereof (as the case may be). Completion and

return of the form of proxy will not preclude Shareholders from attending and voting in

person at the SGM or any adjourned meeting thereof (as the case may be) should they elect

to do so. Please note that this paragraph is only applicable to Shareholders whose Shares are

registered in the branch register of members in Hong Kong.

Singapore

Any Shareholder, Depositor or proxy who wishes to attend, speak and vote at the

SGM may do so via video conferencing at Level 30, Singapore Land Tower, 50 Raffles

Place, Singapore 048623.


– 32 –

If a Shareholder is unable to attend the SGM and wishes to appoint a proxy to attend

and vote on his behalf, he should complete, sign and return the attached Singapore proxy

form in accordance with the instructions printed thereon as soon as possible and, in any

event, so as to reach the office of the Company’s share transfer agent in Singapore,

Boardroom Corporate & Advisory Services Pte. Ltd., at 50 Raffles Place, #32–01 Singapore

Land Tower, Singapore 048623, not less than 48 hours before the time fixed for the SGM.

The completion and return of the Singapore proxy form by a Shareholder will not prevent

him from attending and voting at the SGM in person if he so wishes, and in such event the

Singapore proxy form submitted bearing his name shall be deemed to be revoked. Please

note that this paragraph is only applicable to Shareholders who do not hold Shares through an

account with the CDP (i.e. who hold Shares in scrip).

Under the Bermuda Companies Act, only a person who agrees to become a shareholder

of a Bermuda company and whose name is entered in the register of members of such a

Bermuda company is considered a member with rights to attend and vote at general

meetings of such company.

Accordingly, under Bermuda laws, a Depositor holding Shares through the CDP

would not be recognised as a shareholder of the Company, and would not have the right to

attend and vote at general meetings convened by the Company. In the event that a

Depositor wishes to attend and vote at the SGM, the Depositor would have to do so

through the CDP appointing him as a proxy, pursuant to the Bye-laws of the Company and

he Bermuda Companies Act.

Pursuant to Bye-law 77 of the Company’s Bye-laws, unless the CDP specifies otherwise

in a written notice to the Company, the CDP shall be deemed to have appointed the

Depositors who are individuals and whose names are shown in the records of the CDP as at

a time not earlier than forty-eight (48) hours prior to the time of the relevant general

meeting supplied by the CDP to the Company as the CDP’s proxies to vote on behalf of the

CDP at a general meeting of the Company. Notwithstanding any other provisions in the

Bye-laws, the appointment of proxies by virtue of Bye-law 77 shall not require an

instrument of proxy or the lodgement of any instrument of proxy.

Accordingly, Depositors (other than Depositors which are corporations) whose names

are listed in the Depository Register as at 48 hours before the time of the SGM may attend

and vote as the CDP’s proxies at the SGM without having to complete or return any form

of proxy. A Depositor which is a corporation and who wishes to attend and vote at the

SGM must complete and return the attached Depositor proxy form, for the nomination of

person(s) to attend and vote at the SGM on its behalf as CDP’s proxy, in accordance with

the instructions printed thereon as soon as possible and, in any event, so as to reach the

office of the Company’s share transfer agent in Singapore, Boardroom Corporate &

Advisory Services Pte. Ltd., at 50 Raffles Place, #32–01 Singapore Land Tower, Singapore

048623, not less than 48 hours before the time fixed for the SGM.

If an individual Depositor is unable to attend the SGM personally and wishes to

appoint nominee(s) to attend the meeting and vote on his behalf, he must complete, sign and

return the attached Depositor proxy form attached to this circular in accordance with the


– 33 –

instructions printed thereon as soon as possible and, in any event, so as to reach the office

of the Company’s Share Transfer Agent in Singapore, Boardroom Corporate & Advisory

Services Pte. Ltd., at 50 Raffles Place, #32–01 Singapore Land Tower, Singapore 048623,

not less than 48 hours before the time fixed for the SGM. The completion and return of the

Depositor proxy form by a Depositor (who is an individual) will not prevent him from

attending and voting in person at the SGM as a proxy of CDP if he subsequently wishes to

do so, and in which event the Depositor proxy form submitted bearing his name shall be

deemed to be revoked.

The results of the SGM will be published after the conclusion of the SGM on the

websites of the Stock Exchange, the SGXNET and the Company.

RECOMMENDATION

The Board considers that the Acquisition Agreement was entered into on normal

commercial terms after arm’s length negotiations and its terms are fair and reasonable and

in the ordinary and usual course of business of the Group, and are in the interests of the

Company and its Shareholders as a whole. Accordingly, the Board recommends the

Shareholders to vote in favour of the proposed ordinary resolution to approve the

Acquisition Agreement and transactions contemplated thereunder at the SGM.

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to

this circular.

Shareholders and potential investors should note that the Completion of the Acquisition is

subject to various Conditions which may or may not be fulfilled. Therefore there is no

assurance that the Acquisition will proceed. Shareholders and potential investors are reminded

to exercise caution when dealing in the Shares.

By order of the Board


Cheng Ming Kit

Co-Chairman


– 34 –

A. FINANCIAL INFORMATION OF THE GROUP FOR THE THREE YEARS

ENDED 31 DECEMBER 2016

Financial information of the Group for the six months ended 30 June 2017 and the three

years ended 31 December 2016 is set out on: (i) pages 2 to 23 of the interim result

announcement for the six months ended 30 June 2017 of the Company published on 30 August

2017 (http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0830/LTN201708301562.pdf);

(ii) pages 80 to 200 of the annual report for the year ended 31 December 2016 of the

Company published on 26 April 2017 (http://www.hkexnews.hk/listedco/listconews/SEHK/

2017/0426/LTN20170426977.pdf); (iii) pages 47 to 146 of the annual report for the year ended

31 December 2015 of the Company published on 27 April 2016 (http://www.hkexnews.hk/

listedco/listconews/SEHK/2016/0427/LTN201604271351.pdf); and (iv) pages 43 to

120 of the annual report for the year ended 31 December 2014 of the Company

published on 28 April 2015 (http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0428/

LTN201504281449.pdf), respectively, which are also available on the website of the Stock

Exchange (www.hkexnews.hk), the website of the Company (http://www.bgbluesky.com) and

the website of the SGX-ST (www.sgx.com).

B. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

For natural gas business, the Group is optimistic about the long term economic

development in the PRC. There are a number of favorable policies launched by the PRC

government which will enhance the development of natural gas industry in the PRC,

including but not limited to (i) urbanisation plan; (ii) the proposal for energy conservation

and environmental protection; and (iii) action plans for eliminating highly polluting coal-

fired boilers and replacing with natural gas-fired boilers among high energy consumption

industries. Therefore, it is expected that there will be escalating demand for natural gas in

the PRC for industrial, transportation and residential uses and the Group will continue to

benefit from the development of the natural gas industry in the PRC.

Looking ahead, the Group will continue to expand its footprints for the natural gas

business in the PRC. The Group will spare no efforts to explore potential merger and

acquisition opportunities, which can enhance the market presence and financial return of

the Group.

Upon Completion, the Enlarged Group will be engaged in the (i) supply of piped gas to

residential households, commercial, public utility and industrial users; and (ii) operation of

7 CNG refueling stations for vehicles in Shanxi Province. The Acquisition will help the

Enlarged Group to become an important player in the PRC city gas sector, which can

increase the revenue streams of the Enlarged Group, thus enhancing its industrial

competitive position and generating more investment value for investors and

shareholders. Also, the Enlarged Group will be benefited from the government’s ‘‘Coal-

to-gas’’ policy which aims to improve the air pollution issue in China.

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

– I-1 –

After review of the principal business operations of the Group, the Board resolved to

gradually consolidate its resources to focus on the natural gas business, which is of expected

high growth potentials. During the year ended 31 December 2016, the printing business was

discontinued as the Group had resolved to dispose it. The disposal of 25% equity interest of

printing business to a third party was completed on 28 October 2016. Subsequently on 26

May 2017, the Company disposed of the remaining 75% equity interest of printing business

to the same party.

C. INDEBTEDNESS STATEMENT OF THE GROUP

The Group

As at the close of business on 31 July 2017, being the latest practicable date prior

to the printing of this circular for the purpose of this indebtedness statement, the

Group had:

a. unsecured and unguaranteed convertible bonds with outstanding carrying

amount of approximately HK$900,619,000;

b. unsecured and unguaranteed corporate bonds with outstanding carrying

amount of HK$350,690,000;

c. unsecured and unguaranteed other borrowing from individual third party

with outstanding carrying amount of HK$87,788,000; and

d. obligation under finance lease of approximately HK$3,389,000 were secured

by certain of the Group’s equipment and motor cars, of which amount of

approximately HK$1,160,000 were guaranteed by the Company or a Director

of the Company and the remaining HK$138,905,000 were unguaranteed.

Save as aforesaid and apart from intra-group liabilities and normal trade

payables, at the close of business on 31 July 2017, the Group did not have any loan

capital issued and outstanding or agreed to be issued, material mortgages, charges,

debentures, loan capital, other debt securities, term loans, bank overdrafts or other

similar indebtedness, finance lease or hire purchase commitments, liabilities under

acceptances (other than normal trade payables) or acceptance credits, guarantees or

other material contingent liabilities.


– I-2 –

The Target Group

As at the close of business on 31 July 2017, being the latest practicable date prior

to the printing of this circular for the purpose of this indebtedness statement, the

Target Group had:

a. unsecured and unguaranteed advances from shareholder of the entities

comprising the Target Group of approximately HK$325,987,000;

Save as aforesaid and apart from intra-group liabilities and normal trade

payables, at the close of business on 31 July 2017, the Target Group did not have any

loan capital issued and outstanding or agreed to be issued, material mortgages,

charges, debentures, loan capital, other debt securities, term loans, bank overdrafts or

other similar indebtedness, finance lease or hire purchase commitments, liabilities

under acceptances (other than normal trade payables) or acceptance credits,

guarantees or other material contingent liabilities.

D. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the Completion and the

present financial resources available to the Enlarged Group, including internally generated

funds, and other available banking and other facilities, the Enlarged Group will have

sufficient working capital to meet its present requirements for at least 12 months from the

date of this circular in the absence of unforeseen circumstances.

E. MATERIAL ADVERSE CHANGE

The Directors are not aware as at the Latest Practicable Date of any material adverse

change in the financial and trading position or prospects of the Group since 31 December

2016, being the date to which the Company’s latest published audited accounts were made

up.


– I-3 –

The following is the text of a report on the Top Grand Group, prepared for the purpose of

incorporation in this circular, received from the independent reporting accountants, CHENG &

CHENG LIMITED, Certified Public Accountants, Hong Kong.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE

DIRECTOR OF TOP GRAND GLOBAL LIMITED

Introduction

We report on the historical financial information of Top Grand Global Limited (‘‘Top

Grand’’) and its subsidiaries (together with Top Grand collectively referred to as the ‘‘Top

Grand Group’’) set out on pages IIA-5 to IIA-18, which comprises the consolidated

statements of financial position as at 31 December 2016 and 31 March 2017, and the

consolidated statements of profit or loss and other comprehensive income, the consolidated

statements of changes in equity and the consolidated statements of cash flows from 18

August 2016 (date of incorporation) to 31 December 2016 and for the three months period

ended 31 March 2017 (the ‘‘Relevant Period’’) and a summary of significant accounting

policies and other explanatory information (together, the ‘‘Historical Financial

Information’’). The Historical Financial Information set out on pages IIA-5 to IIA-18

forms an integral part of this report, which has been prepared for inclusion in the circular of

Beijing Gas Blue Sky Holdings Limited (the ‘‘Company’’) dated 25 September 2017 in

connection with the major transaction in relation to the proposed acquisition of 100% of

the issued share capital of Top Grand Global Limited (the ‘‘Acquisition’’).

Director’s responsibility for the Historical Financial Information

The director of Top Grand is responsible for the preparation of Historical Financial

Information that gives a true and fair view in accordance with the basis of preparation and

presentation set out in note 1 to the Historical Financial Information, and for such internal

control as the director of Top Grand determine is necessary to enable the preparation of

Historical Financial Information that is free from material misstatement, whether due to

fraud or error.

Reporting accountants’ responsibility

Our responsibility is to express an opinion on the Historical Financial Information and

to report our opinion to you. We conducted our work in accordance with Hong Kong

Standard on Investment Circular Reporting Engagements 200 ‘‘Accountants’ Reports on

Historical Financial Information in Investment Circulars’’ issued by the Hong Kong

Institute of Certified Public Accountants (‘‘HKICPA’’). This standard requires that we

comply with ethical standards and plan and perform our work to obtain reasonable

assurance about whether the Historical Financial Information is free from material

misstatement.

APPENDIX IIA ACCOUNTANTS’ REPORT ON TOP GRAND GROUP

– IIA-1 –

Our work involved performing procedures to obtain evidence about the amounts and

disclosures in the Historical Financial Information. The procedures selected depend on the

reporting accountants’ judgement, including the assessment of risks of material

misstatement of the Historical Financial Information, whether due to fraud or error. In

making those risk assessments, the reporting accountants consider internal control relevant

to the entity’s preparation of Historical Financial Information that gives a true and fair

view in accordance with the basis of preparation and presentation set out in Note 1 to the

Historical Financial Information in order to design procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the

entity’s internal control. Our work also included evaluating the appropriateness of

accounting policies used and the reasonableness of accounting estimates made by the

director of Top Grand, as well as evaluating the overall presentation of the Historical

Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide

a basis of our opinion.

Opinion

In our opinion the Historical Financial Information gives, for the purpose of the

accountants’ report, a true an fair view of the Top Grand Group’s financial position as at

31 December 2016 and 31 March 2017 and of the Top Grand Group’s financial performance

and cash flows for the Relevant Periods in accordance with the basis of preparation and

presentation set out in Note 1 to the Historical Financial Information.


– IIA-2 –

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF

SECURITIES ON THE STOCK EXCHANGE AND THE COMPANIES (WINDING UP

AND MISCELLANEOUS PROVISION) ORDINANCE

Adjustments

The Historical Financial Information is stated after making such adjustments to the

Historical Financial Statements as defined on page IIA-4 as were considered necessary.

Dividends

We refer to Note 5 to the Historical Financial Information which states that no

dividends have been paid by Top Grand in respect of the Relevant Period.

No historical financial statements for Top Grand

No financial statements have been prepared for Top Grand since its date of

incorporation.

CHENG & CHENG LIMITED

Certified Public Accountants

Hong Kong

25 September 2017


– IIA-3 –

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of

this accountants’ report.

The Historical Financial Information in this report was prepared based on previously

management accounts of Top Grand Group for the Relevant Period (‘‘Historical Financial

Statements’’).

The Historical Financial Information is presented in Hong Kong dollars, except when

otherwise indicated.


– IIA-4 –

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME

18.8.2016 to

31.12.2016

1.1.2017 to

31.3.2017

NOTE HKD HKD

Revenue — —

Administrative expenses

Auditor’s remuneration — —

Bank charges (564) (22)

Director’s remuneration — —

Other staff costs — —

Other administrative expenses (30,681) —

Loss before taxation (31,245) (22)

Taxation 4 — —

Loss and total comprehensive expense for the period (31,245) (22)


– IIA-5 –

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at

31.12.2016

As at

31.3.2017

NOTES HKD HKD

Current assets

Amount due from a shareholder 8 8 8

Bank balances and cash 7 102,632 102,610

102,640 102,618

Current liabilities

Accruals 16,627 16,627

Amount due to a director 8 117,250 117,250

133,877 133,877

Net current liabilities (31,237) (31,259)

Capital and reserve

Share capital 9 8 8

Accumulated losses (31,245) (31,267)

Total equity (31,237) (31,259)


– IIA-6 –

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Paid-up

capital

Accumulated

losses Total equity

HKD HKD HKD

Issue of shares upon incorporation 8 — 8

Loss and total comprehensive expense

for the period — (31,245) (31,245)

At 31 December 2016 8 (31,245) (31,237)

Loss and total comprehensive expense

for the period — (22) (22)

At 31 March 2017 8 (31,267) (31,259)


– IIA-7 –

CONSOLIDATED STATEMENTS OF CASH FLOWS

18.8.2016 to

31.12.2016

1.1.2017 to

31.3.2017

HKD HKD

OPERATING ACTIVITIES


Operating cash flows before movements in working capital (31,245) (22)

Increase in other payables 16,627 —

NET CASH USED IN OPERATING ACTIVITIES (14,618) (22)

NET CASH FROM FINANCING ACTIVITIES

Advance from a director 117,250 —

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS 102,632 (22)

CASH AND CASH EQUIVALENTS AT THE BEGINNING

OF THE PERIOD — 102,632

CASH AND CASH EQUIVALENTS AT THE END OF THE

PERIOD

represented by bank balances and cash 102,632 102,610


– IIA-8 –

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. GENERAL INFORMATION

Top Grand was incorporated in the British Virgin Islands with limited liability on 18 August 2016.

The addresses of the registered office and the principal place of business of Top Grand is P.O. Box 957,

Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

The Company acts as investment holding company. The principal activities of its subsidiaries are set out in

note 10.

The Historical Financial Information is presented in Hong Kong dollars (‘‘HKD’’), which is same as the

functional currency of Top Grand.

2. APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (‘‘IFRSs’’)

For the purpose of preparing and presenting the Historical Financial Information for the Track Record

Period, Top Grand Group has consistently applied IFRSs which are effective for Top Grand Group’s annual

accounting periods beginning on 1 January 2017 consistently throughout the Relevant Period.

The Top Grand Group has not early applied the following new and amendments to IFRSs that have been

issued but are not yet effective:

IFRS 9 Financial instruments2

IFRS 15 Revenue from contracts with customers and the related

amendments2

IFRS 16 Leases3

Amendments to IFRS 2 Classification and measurements of share-based payment

transactions2

Amendments to IFRS 4 Applying IFRS 9 Financial instruments with IFRS 4 Insurance

contract2

Amendments to IAS 7 Disclosure initiative1

Amendments to IAS 12 Recognition of deferred tax assets for unrealised losses1

Amendments to IAS 40 Transfers of investment property2

Amendments to IFRS 10 and

IAS 28

Sale or contribution of assets between an investor and its associate

or joint venture4

Amendments to IFRSs Annual improvements to IFRSs 2014–2016 cycle5

IFRIC 22 Foreign currency transactions and advance consideration2

1 Effective for annual periods beginning on or after 1 January 2017.2 Effective for annual periods beginning on or after 1 January 2018.3 Effective for annual periods beginning on or after 1 January 2019.4 Effective for annual periods beginning on or after a date to be determined.5 Effective for annual periods beginning on or after 1 January 2017 or 1 January 2018, as appropriate.

In the opinion of the director of Top Grand, the application of the new and amendments to IFRSs issued

but not yet effective is not expected to have a material impact on the results and the financial position of the Top

Grand Group.


– IIA-9 –

3. SIGNIFICANT ACCOUNTING POLICIES

The Historical Financial Information has been prepared on the historical cost basis and in accordance

with the following accounting policies which conform to IFRSs. In addition, the Historical Financial

Information includes the applicable disclosures required by the Rules Governing the Listing of Securities on the

Stock Exchange and by the Hong Kong Companies Ordinance.

Historical cost is generally based on the fair value of the consideration given in exchange for goods.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date, regardless of whether that price is directly

observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability,

the Top Grand Group takes into account the characteristics of the asset or liability if market participants would

take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for

measurement and/or disclosure purposes in this Historical Financial Information is determined on such a basis,

except for share-based payment transactions that are within the scope of IFRS 2 ‘‘Share-based payment’’,

leasing transactions that are within the scope of International Accounting Standards (‘‘IAS’’) 17 ‘‘Leases’’, and

measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS

2 ‘‘Inventories’’ or value in use in IAS 36 ‘‘Impairment of assets’’.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3

based on the degree to which the inputs to the fair value measurements are observable and the significance of the

inputs to the fair value measurement in its entirety, which are described as follows:

. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that

the entity can access at the measurement date;

. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for

the asset or liability, either directly or indirectly; and

. Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies adopted are set out below.

Basis of consolidation

The Historical Financial Information incorporates the financial statements of Top Grand and

entities controlled by Top Grand and its subsidiaries. Control is achieved when Top Grand:

. has power over the investee;

. is exposed, or has rights, to variable returns from its involvement with the investee; and

. has the ability to use its power to affect its returns.

The Top Grand Group reassesses whether or not it controls an investee if facts and circumstances

indicate that there are changes to one or more of the three elements of control listed above.

Consolidation of a subsidiary begins when the Top Grand Group obtains control over the

subsidiary and ceases when the Top Grand Group loses control of the subsidiary. Specifically, income and

expenses of a subsidiary acquired or disposed of during the year are included in the combined statement of

profit or loss and other comprehensive income from the date the Top Grand Group gains control until the

date when the Top Grand Group ceases to control the subsidiary.


– IIA-10 –

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their

accounting policies into line with the Top Grand Group’s accounting policies.

All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions

between members of the Top Grand Group are eliminated in full on consolidation.

Financial instruments

Financial assets and financial liabilities are recognised on the consolidated statement of financial

position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that

are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to

or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial

recognition.

Financial assets

The Top Grand Group’s financial assets are loans and receivables. The classification depends on the

nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and

of allocating interest income over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash receipts (including all fees paid or received that form an integral part of

the effective interest rate, transaction costs and other premiums or discounts) through the expected life of

the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial

recognition.

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that

are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including

bank balances and cash and amount due from a shareholder) are measured at amortised cost using the

effective interest method, less any identified impairment (see accounting policy on impairment of financial

assets below).

Impairment of loans and receivables

Loans and receivables are assessed for indicators of impairment at the end of each reporting period.

Loans and receivables are considered to be impaired where there is objective evidence that, as a result of

one or more events that occurred after the initial recognition of the loans and receivables, the estimated

future cash flows of the loans and receivables have been affected.

Objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or

. default or delinquency in interest or principal payments; or

. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.


– IIA-11 –

The amount of the impairment loss recognised is the difference between the asset’s carrying amount

and the present value of the estimated future cash flows discounted at the financial asset’s original

effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial

assets.

If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognised, the previously recognised

impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the

date the impairment is reversed does not exceed what the amortised cost would have been had the

impairment not been recognised.

Financial liabilities and equity instruments

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as

equity in accordance with the substance of the contractual arrangements and the definitions of a financial

liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after

deducting all of its liabilities. Equity instruments issued by the group entities are recognised at the

proceeds received, net of direct issue costs.


The effective interest method is a method of calculating the amortised cost of a financial liability

and of allocating interest expense over the relevant period. The effective interest rate is the rate that

exactly discounts estimated future cash payments (including all fees paid or received that form an integral

part of the effective interest rate, transaction costs and other premiums or discounts) through the expected

life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial

recognition.

Interest expense is recognised on an effective interest basis for debt instruments.

Financial liabilities

The Top Grand Group’s financial liability including amount due to a director is subsequently

measured at amortised cost, using the effective interest method.

Derecognition

The Top Grand Group derecognises a financial asset only when the contractual rights to the cash

flows from the asset expire, or when it transfers the financial assets and substantially all the risks and

rewards of ownerships of the assets to another entity.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the

sum of the consideration received and receivable and the cumulative gain or loss that had been recognized

and the consideration paid and payable is recognized in profit or loss.

The Top Grand Group derecognises financial liabilities when, and only when, the Top Grand

Group’s obligations are discharged, cancelled or expire. The difference between the carrying amount of

the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.


– IIA-12 –

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘‘profit

before taxation’’ as reported in the consolidated statement of profit or loss and other comprehensive

income because of items of income or expense that are taxable or deductible in other years and items that

are never taxable or deductible. The Top Grand Group’s liability for current tax is calculated using tax

rates that have been enacted or substantively enacted by the end of the reporting period.

Income tax expense represents the sum of the tax currently payable and deferred tax. The tax

currently payable is based on taxable profit for the year. Taxable profit differs from ‘‘profit before

taxation’’ as reported in the consolidated statement of profit or loss and other comprehensive income

because of items of income or expense that are taxable or deductible in other years and items that are

never taxable or deductible. The Top Grand Group’s liability for current tax is calculated using tax rates

that have been enacted or substantively enacted by the end of the reporting period.

Current and deferred tax are recognised in profit or loss.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and

liabilities in the consolidated financial statements and the corresponding tax base used in the computation

of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences.

Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is

probable that taxable profits will be available against which those deductible temporary differences can be

utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial

recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the

accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments

in subsidiaries, except where the Top Grand Group is able to control the reversal of the temporary

difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets arising from deductible temporary differences associated with such investments are

only recognised to the extent that it is probable that there will be sufficient taxable profits against which to

utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and

reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow

all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the

period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have

been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would

follow from the manner in which the Top Grand Group expects, at the end of the reporting period, to

recover or settle the carrying amount of its assets and liabilities.

For the purposes of measuring deferred tax liabilities or deferred tax assets for investment properties

that are measured using the fair value model, the carrying amounts of such properties are presumed to be

recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the

investment property is depreciable and is held within a business model whose objective is to consume

substantially all of the economic benefits embodied in the investment property over time, rather than

through sale.


– IIA-13 –

Current and deferred tax are recognised in profit or loss, except when they relate to items that are

recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax

are also recognised in other comprehensive income or directly in equity respectively.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies

other than the functional currency of that entity (foreign currencies) are recognised at the rates of

exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items

denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary

items carried at fair value that are denominated in foreign currencies are retranslated at the rates

prevailing on the date when the fair value was determined. Non-monetary items that are measured in

terms of historical cost in a foreign currency are not retranslated.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of Top

Grand Group’s foreign operations are translated into the presentation currency of the Top Grand Group

(i.e. Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and

expenses items are translated at the average exchange rates for the period, unless exchange rates fluctuate

significantly during the period, in which case, the exchange rates at the dates of transactions are used.

Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in

equity under the heading of translation reserve (attributed to non-controlling interests as appropriate).

4. TAXATION

No provision for Hong Kong Profits Tax has been made in the financial statements as the Top Grand

Group does not have any assessable profit for both periods. Hong Kong Profits Tax is provided at 16.5% for

the Relevant Periods.

The taxation for the periods can be reconciled to the loss before taxation as follows:

18.8.2016 to

31.12.2016

1.1.2017 to

31.03.2017

HKD HKD


Taxation at Hong Kong Profits Tax rate of 16.5% (5,155) (4)

Tax effect of expenses not deductible for tax purpose 5,155 4

Taxation for the period — —

There was no significant unrecognised deferred taxation for the Relevant Periods or at 31 December 2016

and 31 March 2017.

5. DIVIDEND

No dividend have been paid or declared by Top Grand during the Relevant Periods.

6. LOSS PER SHARE

Loss per share information is not presented as its inclusion, for the purpose of the Historical Financial

Information, is not considered meaningful.


– IIA-14 –

7. BANK BALANCES AND CASH

As at 31 December 2016 and 31 March 2017, the bank balances carried interest at prevailing market rates.

8. AMOUNTS DUE FROM (TO) A SHAREHOLDER, A DIRECTOR AND A SUBSIDIARY

The amounts are unsecured, interest-free and repayable on demand.

9. SHARE CAPITAL

The share capital at 31 December 2016 and 31 March 2017 represented the issued share capital of Top

Grand.

Top Grand was incorporated in the British Virgin Islands with limited liability on 18 August 2016, with an

authorised share capital of United States Dollar (‘‘USD’’) 50,000 divided into 50,000 shares of USD1 each.

Upon the date of incorporation, 31 December 2016 and 31 March 2017, number of share issued and fully paid is

1 with amount of USD1.

10. INVESTMENTS IN SUBSIDIARIES

As at

31.12.2016

As at

31.3.2017

HKD HKD

Unlisted shares, at cost 1 1

Details of the Top Grand’s subsidiaries as at 31 December 2016 and 31 March 2017 are as follows:

Name of

subsidiaries

Place and date of

incorporation/

establishment

Issued and fully

paid capital/

registered and paid

in capital

Shareholding/equity interest attributable

to the Top Grand Group as at

Principal activities31.12.2016 31.3.2017

As at the

date of

this report

% % %

Directly held:

Jump Corporation

Limited

Hong Kong

7 June 2016

HKD1 100 100 100 Investment holding

Indirectly held:

Shenzhen Benyue

Energy

Company

Limited

The PRC

20 September 2016

HKD100,000 100 100 100 Project investment

consulting,

development of

energy saving and

environmental new

energy technology

Shenzhen Benfu

Energy

Company

Limited

The PRC

22 September 2016

RMB80,000 100 100 100 Project investment

consulting,

development of

energy saving and

environmental new

energy technology


– IIA-15 –

11. RELATED PARTY TRANSACTIONS

During the Relevant Periods, no emoluments had been paid to the director by Top Grand, who is

considered as the key management of Top Grand.

Save as disclosed elsewhere in the Historical Financial Information, the Top Grand Group had no other

transactions with its related parties during the Relevant Periods.

12. CAPITAL RISK MANAGEMENT

The Top Grand Group manages its capital to ensure that entities in the Top Grand Group will be able to

continue as a going concern while maximising the return to shareholders through the optimisation of the debt

and equity balance. The Top Grand Group’s overall strategy remains unchanged throughout the Relevant

Periods.

The capital structure of the Top Grand Group consists of debt balance and equity balance. Equity balance

consists of equity attributable to owners of Top Grand, comprising issued share capital and accumulated losses.

Management of the Top Grand Group review the capital structure on an on-going annual basis. As part of

this review, management of the Top Grand Group consider the cost of capital and the risks associated with each

class of capital. Based on recommendations of management of the Top Grand Group, the Top Grand Group

will balance its overall capital structure through the payment of dividends and the issue of new shares.

13. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

The Top Grand Group

As at

31.12.2016

As at

31.3.2017

HKD HKD

Financial assets

Loans and receivables (including cash and cash equivalents) 102,640 102,618

Financial liability

Amortised cost 117,250 117,250


– IIA-16 –

(b) Financial risk management objectives and policies

The Top Grand Group’s major financial instruments include amount due from a shareholder, bank

balances and cash and amount due to a director. Details of these financial instruments are disclosed in

respective notes. The risks associated with these financial instruments and the policies on how to mitigate

these risks are set out below.

(i) Credit risk

As at 31 December 2016 and 31 March 2017, the maximum exposure to credit risk of the Top

Grand Group which will cause a financial loss to the Top Grand Group due to failure to discharge

an obligation by the counterparties is arising from the carrying amount of the respective recognised

financial assets as stated in the consolidated statements of financial position.

The credit risk on liquid funds is limited because the counterparties are banks with good

reputation.

The Top Grand Group does not have any other significant concentration of credit risk.

(ii) Liquidity risk

In the management of liquidity risk, the Top Grand Group monitors and maintains a level of

cash and cash equivalents deemed adequate by the management to finance the Top Grand Group’s

operations and mitigates the effects of fluctuations in cash flows.

The Top Grand Group has net current liabilities of HKD31,237 and HKD31,259 as at 31

December 2016 and 31 March 2017, respectively. The director of Top Grand is satisfied that the Top

Grand Group will have sufficient financial resources to meet its financial obligations as they fall due

for the next the twelve months from the date of this report as the immediate holding company of

Top Grand has agreed to provide adequate funds to enable Top Grand Group to meet its financial

obligations as they fall due from the foreseeable future.

As at 31 December 2016 and 31 March 2017, the amount due to a director amount of

HKD117,250 is repayable on demand which also represented the undiscounted cash flows of

financial liabilities based on the earliest date on which the Top Grand Group and Top Grand can be

required to pay.

(c) Fair value of the Top Grand Group’s financial assets and financial liabilities that are measured at

amortised cost.

The management of the Top Grand Group estimates the fair value of its financial assets and

financial liabilities measured at amortised cost using discounted cash flows analysis. The management of

the Top Grand Group considers that the carrying amounts of financial assets and financial liabilities

recorded at amortised cost in the Historical Financial Information approximate their fair values.


– IIA-17 –

14. STATEMENTS OF FINANCIAL POSITION

As at

31.12.2016 and

31.3.2017

HKD

Non-current asset

Investment in subsidiaries 1

Current Assets

Amount due from a shareholder 8

Bank balances and cash 102,485

102,493

Current liabilities

Amount due to a director 117,250

Amount due to a subsidiary 1

117,251

Net current liabilities (14,758)

Total assets less current liabilities (14,757)

Capital and reserve

Share capital 8

Accumulated losses (Note) (14,765)

Total equity (14,757)

Note:

HKD

As at the date of incorporation —

Loss and total comprehensive expenses for the period 14,765

At 31 December 2016 and 31 March 2017 14,765

15. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Top Grand or any of its subsidiaries in respect of

any period subsequent to 31 March 2017.


– IIA-18 –

The following is the text of a report on Yuhai, prepared for the purpose of incorporation

in this circular, received from the independent reporting accountants, CHENG & CHENG

LIMITED, Certified Public Accountants, Hong Kong.


DIRECTOR OF SHENZHEN YUHAI ENERGY COMPANY LIMITED

Introduction

We report on the historical financial information of Shenzhen Yuhai Energy Company

Limited (‘‘Yuhai’’) set out on pages IIB-5 to IIB-13, which comprises the statements of

financial position as at 31 December 2016 and 31 March 2017, and the statements of profit

or loss and other comprehensive income and the statements of changes in equity from 6

September 2016 (date of establishment) to 31 December 2016 and for the three months

period ended 31 March 2017 (the ‘‘Relevant Period’’) and a summary of significant

accounting policies and other explanatory information (together, the ‘‘Historical Financial

Information’’). The Historical Financial Information set out on pages IIB-5 to IIB-13 forms

an integral part of this report, which has been prepared for inclusion in the circular of

Beijing Gas Blue Sky Holdings Limited (the ‘‘Company’’) dated 25 September 2017 in

connection with the major transaction in relation to the proposed acquisition of 100% of

the issued share capital of Top Grand Global Limited (the ‘‘Acquisition’’).


The director of Yuhai is responsible for the preparation of Historical Financial



control as the director of Yuhai determine is necessary to enable the preparation of


fraud or error.









misstatement.

APPENDIX IIB ACCOUNTANTS’ REPORT ON YUHAI

– IIB-1 –



reporting accountants’ judgement, including the assessment of risks of material









director of Yuhai, as well as evaluating the overall presentation of the Historical

Information.


a basis of our qualified opinion.

Qualified Opinion

In our opinion, except for the effects of the matter described in the Basis for Qualified

Opinion section of our report, the Historical Financial Information gives, for the purpose

of the accountants’ report, a true and fair view of Yuhai’s financial position as at 31

December 2016 and 31 March 2017 and of Yuhai’s financial performance and cash flows for

the Relevant Periods in accordance with the basis of preparation and presentation set out in

Note 1 to the Historical Financial Information.

Basis for Qualified Opinion

As explained in Notes 3 and 9 to the Historical Financial Information, Yuhai has not

prepared consolidated financial statements in accordance with International Financial

Reporting Standard 10 ‘‘Consolidated Financial Statements’’ issued by the IASB and the

Hong Kong Companies Ordinance. In our opinion, there is insufficient information

concerning the subsidiaries in these Historical Financial Information to give a true and fair

view of the financial position of Yuhai and its subsidiaries (collectively referred to as the

‘‘Yuhai Group’’) as at 31 December 2016 and 31 March 2017 and of the Group’s financial

performance and cash flows as a whole for the Relevant Period.


– IIB-2 –




Adjustments

The Historical Financial Information is stated after making such adjustments to the

Historical Financial Statements as defined on page IIB-4 as were considered necessary.

Dividends


dividends have been paid by Yuhai in respect of the Relevant Period.

No historical financial statements for Yuhai

No financial statements have been prepared for Yuhai since its date of establishment.



Hong Kong

25 September 2017


– IIB-3 –




The Historical Financial Information in this report was prepared based on previously

management accounts of Yuhai for the Relevant Period (‘‘Historical Financial

Statements’’).

The Historical Financial Information is presented in Hong Kong dollars (‘‘HKD’’),

except when otherwise indicated.


– IIB-4 –

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

6.9.2016 to

31.12.2016

1.1.2017 to

31.3.2017

NOTE HKD HKD

Revenue — —

Administrative expenses

Auditor’s remuneration — —

Bank charges — —

Director’s remuneration — —

Other staff costs — —

Other administrative expenses — —

Loss before taxation — —

Taxation 4 — —

Loss for the period — —

Other comprehensive (expense) income

Items that may be reclassified subsequently to

profit or loss:

Exchange differences arising on translation to

presentation currency (570) 6

Total comprehensive (expense) income for the period (570) 6


– IIB-5 –

STATEMENTS OF FINANCIAL POSITION

As at

31.12.2016

As at

31.3.2017

NOTES HKD HKD

Non-current asset

Investment in subsidiaries 9 5,922,743 5,984,503

Current liability

Amount due to a shareholder 7 5,922,151 5,983,905

Net current liability (5,922,151) (5,983,905)

Net assets 592 598

Capital and reserve

Paid-up capital 8 1,162 1,162

Exchange reserve (570) (564)

Total equity 592 598


– IIB-6 –

STATEMENTS OF CHANGES IN EQUITY

Paid-up

capital

Exchange

reserve Total equity

HKD HKD HKD

Issue of shares upon establishment 1,162 — 1,162

Exchange difference arising on translation — (570) (570)

At 31 December 2016 1,162 (570) 592

Exchange difference arising on translation — 6 6

At 31 March 2017 1,162 (564) (598)


– IIB-7 –


1. GENERAL INFORMATION

Yuhai was incorporated in the People’s Republic of China (the ‘‘PRC’’) with limited liability on 6

September 2016.

The address of the registered office and the principal place of business of Yuhai is 9A 1-88, Chegong

Temple Tianxiang Building, Shantou Street, Futian District, Shenzhen, China.

Yuhai acts as investment holding company. The principal activities of its subsidiaries are set out in note 9.

The functional currency of Yuhai is Renminbi (‘‘RMB’’) while the Historical Financial Information is

presented in HKD, which the management of Yuhai considered is more beneficial for the users of the Historical

Financial Information.


For the purpose of preparing and presenting the Historical Financial Information for the Track Record

Period, Yuhai has consistently applied IFRSs which are effective for Yuhai’s annual accounting periods

beginning on 1 January 2017 consistently throughout the Relevant Period.

Yuhai has not early applied the following new and amendments to IFRSs that have been issued but are

not yet effective:


IFRS 15 Revenue from contracts with customers and the related amendments2

IFRS 16 Leases3

Amendments to IFRS 2 Classification and measurements of share-based payment transactions2

Amendments to IFRS 4 Applying IFRS 9 Financial instruments with IFRS 4 Insurance contract2




Amendments to IFRS 10 and

IAS 28

Sale or contribution of assets between an investor and its associate or

joint venture4




In the opinion of the director of Yuhai, the application of the new and amendments to IFRSs issued but

not yet effective is not expected to have a material impact on the results and the financial position of Yuhai.



with the following accounting policies which conform to IFRSs except that consolidated financial statements

have not been prepared in accordance with IFRS 10 ‘‘Consolidated Financial Statements’’. In addition, the

Historical Financial Information includes the applicable disclosures required by the Rules Governing the

Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance.


– IIB-8 –





Yuhai takes into account the characteristics of the asset or liability if market participants would take those

characteristics into account when pricing the asset or liability at the measurement date. Fair value for















Investments in subsidiaries

Investments in subsidiaries are included in Yuhai’s statement of financial position at cost, less any

identified impairment loss. The results of the subsidiaries are accounted for by Yuhai on the basis of

dividends received and receivable.


Financial liability is recognised on the statement of financial position when the entity becomes a

party to the contractual provisions of the instrument.

Financial liability is initially measured at fair value. Transaction costs that are directly attributable

to the acquisition or issue of financial liability is added to or deducted from the fair value of the financial

liability, as appropriate, on initial recognition.


Debt and equity instruments issued by an entity are classified as either financial liabilities or as



Equity instruments


deducting all of its liabilities. Equity instruments issued by the entities are recognised at the proceeds

received, net of direct issue costs.


– IIB-9 –







recognition.



Yuhai’s financial liability including amount due to a shareholder is subsequently measured at

amortised cost, using the effective interest method.

Derecognition

Yuhai derecognises financial liability when, and only when, Yuhai’s obligations are discharged,

cancelled or expire. The difference between the carrying amount of the financial liability derecognised and

the consideration paid and payable is recognised in profit or loss.

Taxation



before taxation’’ as reported in the statement of profit or loss and other comprehensive income because of

items of income or expense that are taxable or deductible in other years and items that are never taxable or

deductible. Yuhai’s liability for current tax is calculated using tax rates that have been enacted or

substantively enacted by the end of the reporting period.



taxation’’ as reported in the statement of profit or loss and other comprehensive income because of items

of income or expense that are taxable or deductible in other years and items that are never taxable or

deductible. Yuhai’s liability for current tax is calculated using tax rates that have been enacted or

substantively enacted by the end of the reporting period.



liabilities in the financial statements and the corresponding tax base used in the computation of taxable

profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax

assets are generally recognised for all deductible temporary difference to the extent that it is probable that

taxable profits will be available against which those deductible temporary differences can be utilised. Such

assets and liabilities are not recognised if the temporary difference arises from the initial recognition of

other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.


in subsidiaries, except where Yuhai is able to control the reversal of the temporary difference and it is

probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets

arising from deductible temporary differences associated with such investments are only recognised to the

extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of

the temporary differences and they are expected to reverse in the foreseeable future.


– IIB-10 –








follow from the manner in which Yuhai expects, at the end of the reporting period, to recover or settle the

carrying amount of its assets and liabilities.




Foreign currencies

In preparing the financial statements of the entity, transactions in currencies other than the

functional currency of that entity (foreign currencies) are recognised at the rates of exchanges prevailing

on the dates of the transactions. At the end of the reporting period, monetary items denominated in

foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair

value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when

the fair value was determined. Non-monetary items that are measured in terms of historical cost in a

foreign currency are not retranslated.

4. TAXATION

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of

the EIT Law, the tax rate applied to Yuhai is 25% for the Relevant Periods. No provision for EIT has been

made in the financial statements as Yuhai does not have any assessable profit for the period.

There was no significant unrecognised deferred taxation for the Relevant Periods or at 31 December 2016

and 31 March 2017.

5. DIVIDEND

No dividend have been paid or declared by Yuhai during the Relevant Periods.

6. LOSS PER SHARE

Loss per share information is not presented as its inclusion, for the purpose of the Historical Financial

Information, is not considered meaningful.

7. AMOUNT DUE TO A SHAREHOLDER

The amount is unsecured, interest-free and repayable on demand.

8. PAID-UP CAPITAL

The paid-up capital at 31 December 2016 and 31 March 2017 represented the paid-up share capital of

Yuhai.


– IIB-11 –


As at

31.12.2016

As at

31.3.2017

HKD HKD

Unlisted shares, at cost 5,922,743 5,984,503

Details of the Company’s subsidiaries as at 31 December 2016 and 31 March 2017 are as follows:

Name of

subsidiaries

Place and date of

establishment

Registered and

paid-up capital

Shareholding/equity interest

attributable to Yuhai as at

Principal activities31.12.2016 31.3.2017

As at the

date of

this report

% % %

Directly held:

Chongqing

Saiguangbo

Technology

Co. Limited

The PRC

7 February 2002

RMB10,400,000 51 51 51 Investment holding

Indirectly held:

Shanxi Minsheng

Natural Gas

Company

Limited

The PRC

21 April 2006

RMB80,000,000 51 51 51 Sales and distribution

of CNG through

refueling station

for vehicles

Yongji Minsheng

Natural Gas

Company

Limited

The PRC

17 October 2008

RMB60,000,000 51 51 51 Sales and distribution

of CNG through

refueling station

for vessels

For the purpose of the Historical Financial Information, consolidated financial statements have not been

prepared in accordance with IFRS 10 ‘‘Consolidated Financial Statements’’ as the director considers that this

would involve expense and delay out of proportion to the value to the shareholders of Yuhai.


During the Relevant Periods, no emoluments had been paid to the director by Yuhai, who is considered as

the key management of Yuhai.

Save as disclosed elsewhere in the Historical Financial Information, Yuhai had no other transactions with

its related parties during the Relevant Periods.


Yuhai manages its capital to ensure that entities in Yuhai will be able to continue as a going concern while

maximising the return to shareholders through the optimisation of the debt and equity balance. Yuhai’s overall

strategy remains unchanged throughout the Relevant Periods.

The capital structure of Yuhai consists of debt balance and equity balance. Equity balance consists of

equity attributable to owners of Yuhai, comprising issued paid-up capital and exchange reserve.

Management of Yuhai review the capital structure on an on-going annual basis. As part of this review,

management of Yuhai consider the cost of capital and the risks associated with each class of capital. Based on

recommendations of management of Yuhai, Yuhai will balance its overall capital structure through the payment

of dividends and the issue of new shares.


– IIB-12 –



Yuhai

As at

31.12.2016

As at

31.3.2017

HKD HKD

Financial liability

Amortised costs 5,922,151 5,983,905


Yuhai’s major financial instruments include amount due to a shareholder. Details of the financial

instrument are disclosed in respective note. The risks associated with the financial instrument and the

policies on how to mitigate these risks are set out below.

(i) Liquidity risk

In the management of liquidity risk, Yuhai monitors and maintains a level of cash and cash

equivalents deemed adequate by the management to finance Yuhai’s operations and mitigates the

effects of fluctuations in cash flows.

Yuhai has net current liability of HKD5,922,151 and HKD5,983,905 as at 31 December 2016

and 31 March 2017, respectively. The director of Yuhai is satisfied that Yuhai will have sufficient

financial resources to meet its financial obligations as they fall due for the next the twelve months

from the date of this report as the immediate holding company of Yuhai has agreed to provide

adequate funds to enable Yuhai to meet its financial obligations as they fall due from the foreseeable

future.

As at 31 December 2016 and 31 March 2017, the amount due to a shareholder amount of

HKD5,992,151 and HKD5,983,905, respectively, are repayable on demand which also represented

the undiscounted cash flows of financial liabilities based on the earliest date on which Yuhai can be

required to pay.

(c) Fair value of Yuhai’s financial liability that is measured at amortised cost.

The management of Yuhai estimates the fair value of its financial liability measured at amortised

cost using discounted cash flows analysis. The management of Yuhai considers that the carrying amounts

of financial liability recorded at amortised cost in the Historical Financial Information approximate its

fair value.


No audited financial statements have been prepared by Yuhai in respect of any period subsequent to 31

March 2017.


– IIB-13 –

The following is the text of a report on the Saiguangbo Group, prepared for the purpose

of incorporation in this circular, received from the independent reporting accountants, Cheng

& Cheng Limited, Certified Public Accountants, Hong Kong.


DIRECTOR OF CHONGQING SAIGUANGBO TECHNOLOGY COMPANY LIMITED

Introduction

We report on the historical financial information of Chongqing Saiguangbo

Technology Company Limited (‘‘Saiguangbo’’) and its subsidiaries (together with

Saiguangbo collectively referred to as the ‘‘Saiguangbo Group’’) set out on pages IIC-5

to IIC-41, which comprises the consolidated statements of financial position as at 31

December 2014, 31 December 2015, 31 December 2016 and 31 March 2017, and the

consolidated statements of profit or loss and other comprehensive income, the consolidated

statements of changes in equity and the consolidated statements of cash flows the three

years ended 31 December 2016 and for the three-month period ended 31 March 2017 (the

‘‘Relevant Period’’) and a summary of significant accounting policies and other explanatory

information (together, the ‘‘Historical Financial Information’’). The Historical Financial

Information set out on pages IIC-5 to IIC-41 forms an integral part of this report, which

has been prepared for inclusion in the circular of Beijing Gas Blue Sky Holdings Limited

(the ‘‘Company’’) dated 25 September 2017 in connection with the major transaction in

relation to the proposed acquisition of 100% of the issued share capital of Top Grand

Global Limited (the ‘‘Acquisition’’).


The director of Saiguangbo is responsible for the preparation of Historical Financial



control as the director of Saiguangbo determine is necessary to enable the preparation of


fraud or error.







APPENDIX IIC ACCOUNTANTS’ REPORT ON SAIGUANGBO GROUP

– IIC-1 –



misstatement.



reporting accountants judgement, including the assessment of risks of material









director of Saiguangbo, as well as evaluating the overall presentation of the Historical

Financial Information.


a basis of our opinion.

Opinion

In our opinion the Historical Financial Information gives, for the purpose of the

accountants’ report, a true an fair view of the Saiguangbo Group’s financial position as at

31 December 2014, 31 December 2015, 31 December 2016 and 31 March 2017 and of the

Saiguangbo Group’s financial performance and cash flows for the Relevant Periods in

accordance with the basis of preparation and presentation set out in Note 1 to the

Historical Financial Information.

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information of the

Saiguangbo Group which comprises the consolidated statement of profit or loss and

other comprehensive income, the consolidated statement of changes in equity and the

consolidated statement of cash flows for three months period ended 30 March 2016 and

other explanatory information (the ‘‘Stub Period Comparative Financial Information’’).

The director of Saiguangbo is responsible for the preparation and presentation of the Stub

Period Comparative Financial Information in accordance with the basis of preparation and

presentation set out in Note 1 to the Historical Financial Information. Our responsibility is

to express a conclusion on the Stub Period Comparative Financial Information based on

our review. We conducted our review in accordance with Hong Kong Standard on Review

Engagements 2410 ‘‘Review of Interim Financial Information Performed by the

Independent Auditor of the Entity’’ issued by the HKICPA. A review consists of making

inquiries, primarily of persons responsible for financial and accounting matters, and

applying analytical and other review procedures. A review is substantially less in scope than

an audit conducted in accordance with Hong Kong Standard on Auditing and consequently

does not enable us to obtain assurance that we would become aware of all significant


– IIC-2 –

matters that might be identified in an audit. Accordingly, we do not express an audit

opinion. Based on our review, nothing has come to our attention that causes us to believe

that the Stub Period Comparative Financial Information, for purposes of the accountants’

report, is not prepared, in all material respects, in accordance with the basis of preparation

and presentation set out in Note 1 to the Historical Financial Information.




Adjustments

In preparing the Historical Financial Information no adjustments to the Underlying

Financial Statements as defined on pages IIC-4 have been made.

Dividends


dividend has been paid by the Saiguangbo in respect of the Relevant Period.

No historical financial statements for Saiguangbo

No financial statements have been prepared for Saiguangbo since its date of

establishment.



Hong Kong

25 September 2017


– IIC-3 –




The consolidated financial statements of Saiguangbo Group for the Relevant Periods,

on which the Historical Financial Information is based, have been prepared in accordance

with the accounting policies which conform with International Financial Reporting

Standards which issued by International Accounting Standard Board (‘‘IASB’’) and were

audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA

(the ‘‘Underlying Financial Statements’’).

The Historical Financial Information is presented in Hong Kong dollars (‘‘HKD’’) and

all values are rounded to the nearest thousand (HKD’000) except when otherwise indicated.


– IIC-4 –

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME

Year ended 31 December

Three months ended

31 March

2014 2015 2016 2016 2017

NOTES HKD’000 HKD’000 HKD’000 HKD’000 HKD’000

(unaudited)

Revenue 5 406,666 382,013 338,564 84,641 130,750

Cost of sales (341,123) (337,642) (292,571) (73,143) (103,734)

Gross profit 65,543 44,371 45,993 11,498 27,016

Other income 7 489 736 720 16 187

Other gains and losses 7 (70) 1,779 1,681 218 (2,575)

Distribution and selling

expenses (5,302) (5,863) (5,000) (1,250) (345)

Administrative expenses (27,401) (24,423) (30,454) (4,865) (20,431)

Finance cost 8 — (626) (425) (340) —

Profit before taxation 9 33,259 16,154 12,515 5,277 3,852

Income tax expense 10 (8,671) (5,005) (2,152) (538) (665)

Profit for the year 24,588 11,149 10,363 4,739 3,187

Other comprehensive (expense)

income

Items that may be reclassified

subsequently to profit or

loss:

Exchange differences

arising on translation to

presentation currency (121) (4,302) (6,621) 879 1,047

Total comprehensive income for

the year 24,467 6,847 3,742 5,618 4,234

Profit for the year attribute to

Owner of Saiguangbo 18,983 11,371 9,768 3,975 3,187

Non-controlling interests 5,605 (222) 595 764 —

24,588 11,149 10,363 4,739 3,187

Total comprehensive income for

the year attribute to

Owner of Saiguangbo 18,981 9,143 3,769 4,902 4,234

Non-controlling interests 5,486 (2,296) (27) 716 —

24,467 6,847 3,742 5,618 4,234


– IIC-5 –

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at 31 December

As at

31 March

2014 2015 2016 2017

NOTES HKD’000 HKD’000 HKD’000 HKD’000

Non-current assets

Property, plant and equipment 13 437,418 403,102 366,963 364,601

Prepaid lease payments 14 49,245 44,238 40,563 40,572

486,663 447,340 407,526 405,173

Current assets

Inventories 15 8,404 6,292 7,314 5,759

Prepaid lease payments 14 1,189 1,124 1,051 1,062

Trade and other receivables 16 120,277 96,382 89,904 94,813

Amounts due from customers for contract

work 17 128,762 62,339 33,636 48,408

Amounts due from related companies 20 5,429 1,192 13,761 16,161

Bank balances and cash 18 9,517 22,583 44,276 33,562

273,578 189,912 189,942 199,765

Current liabilities

Trade and other payables 19 157,664 142,106 124,960 115,060

Amount due to customers for contract

work 17 27,879 25,599 33,304 42,985

Amount due to a shareholder 20 442,929 324,273 326,613 329,931

Amount due to related companies 20 62,554 12,956 — —

Bank borrowing 21 — 23,870 — —

Tax payable 8,285 3,332 3,071 3,603

699,311 532,136 487,948 491,579

Net current liabilities (425,733) (342,224) (298,006) (291,814)

Net assets 60,930 105,116 109,520 113,359

Capital and reserves

Paid-up capital 22 28,525 48,820 9,801 9,801

Reserves 3,932 13,546 99,719 103,558

Equity to the owner of Saiguangbo 32,457 62,366 109,520 113,359

Non-controlling interests 28,473 42,750 — —

Total equity 60,930 105,116 109,520 113,359


– IIC-6 –

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Attributable to owners of the Company

Paid-up

capital

Other

reserves

Exchange

reserve

Statutory

reserve

(Accumulated

loss) retained

profits Total

Non-

controlling

interest Total

HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000(Notes)

At 1 January 2014 28,525 1,169 4,712 3,976 (25,795) 12,587 22,804 35,391

Profit for the year — — — — 18,983 18,983 5,605 24,588Exchange differences arising on

translation — — (2) — — (2) (119) (121)

Total comprehensive (expense) incomefor the year — — (2) — 18,983 18,981 5,486 24,467

Appropriations — — — 2,459 (2,459) — — —Transfer to other reserve — 889 — — — 889 183 1,072

At 31 December 2014 28,525 2,058 4,710 6,435 (9,271) 32,457 28,473 60,930

Profit for the year — — — — 11,371 11,371 (222) 11,149Exchange differences arising on

translation — — (2,228) — — (2,228) (2,074) (4,302)

Total comprehensive (expense) incomefor the year — — (2,228) — 11,371 9,143 (2,296) 6,847

Issue of shares 20,295 — — — — 20,295 16,605 36,900Appropriations — — — 1,497 (1,497) — — —Transfer to other reserve — 471 — — — 471 (32) 439

At 31 December 2015 48,820 2,529 2,482 7,932 603 62,366 42,750 105,116

Profit for the year — — — — 9,768 9,768 595 10,363Exchange differences arising on

translation — — (5,999) — — (5,999) (622) (6,621)

Total comprehensive (expense) incomefor the year — — (5,999) — 9,768 3,769 (27) 3,742

Transfer of equity interests from non-controlling interest (39,019) 81,742 — — — 42,723 (42,723) —

Appropriations — — — 1,037 (1,037) — — —Transfer to other reserve — 662 — — — 662 — 662

At 31 December 2016 9,801 84,933 (3,517) 8,969 9,334 109,520 — 109,520

Profit for the period — — — — 3,187 3,187 — 3,187Exchange differences arising on

translation — — 1,047 — — 1,047 — 1,047

Total comprehensive income for theperiod — — 1,047 — 3,187 4,234 — 4,234

Utilisation of other reserve — (395) — — — (395) — (395)

At 31 March 2017 9,801 84,538 (2,470) 8,969 12,521 113,359 — 113,359

At 1 January 2016 48,820 2,529 2,482 7,932 603 62,366 42,750 105,116

Profit for the period — — — — 3,975 3,975 764 4,739Exchange differences arising on

translation — — 927 — — 927 (48) 879

Total comprehensive income for theperiod — — 927 — 3,975 4,902 716 5,618

Transfer of equity interests from non-controlling interest (39,019) 72,727 — — — 33,708 (33,708) —

At 31 March 2016 (unaudited) 9,801 75,256 3,409 7,932 4,578 100,976 9,758 110,734


– IIC-7 –

Notes:

(i) The amount comprises the difference between the consideration and paid-up capital of entities transferred

as set out in the Note 1 to the Historical Financial Information and the safety reserve in accordance with

the People’s Republic of China (the ‘‘PRC’’) rules and regulations.

(ii) As stipulated by the relevant laws in the PRC, the PRC subsidiaries are required to maintain a statutory

reserve fund. The minimum transfer to statutory reserve is 10% of profit after tax of the PRC subsidiaries

according to the PRC subsidiaries’ statutory financial statements. No appropriation is required if the

balance of the statutory reserve has reached 50% of the registered capital of the PRC subsidiaries. The

statutory reserves can be used to make up losses or for conversion into capital.


– IIC-8 –

CONSOLIDATED STATEMENTS OF CASH FLOWS


Three months ended

31 March

2014 2015 2016 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000 HKD’000

(unaudited)

OPERATING ACTIVITIES

Profit before taxation 33,259 16,154 12,515 5,277 3,852

Adjustments for:

Finance costs — 626 425 340 —

Interest income (44) (53) (74) (16) (31)

Depreciation of property, plant and

equipment 35,801 38,244 38,043 9,510 8,512

Reversal of social securities expense

provided — (3,047) (3,319) (165) —

Loss on disposal of property, plant and

equipment 2 — — — —

Witten off of property, plant and

equipment 30,355 — — — —

Impairment loss recognised in respect of

trade receivables 77 1,435 1,626 — 2,917

Impairment loss recognised in respect of

other receivables 368 123 — — —

Transfer to (utilisation of) other reserve 1,072 439 662 — (395)

Amortisation of prepaid lease payment 2,023 2,358 1,344 318 436

Operating cash flows before movements in

working capital 102,914 56,279 51,011 15,429 12,374

Decrease (increase) in inventories 430 1,649 (1,430) (60) 1,635

(Increase) decrease in trade and other

receivables (8,497) 39,857 (1,401) (12,332) (6,841)

(Increase) decrease in amount due from

customer for contract work (23,088) 34,879 24,659 41,586 (14,403)

Decrease in trade and other payables (146,308) (3,823) (254) (31,515) (11,269)

(Decrease) increase in amount due to

customer for contract work (10,378) (744) 9,366 1,505 9,316

Cash (used in) generated from operations (84,928) 128,097 82,162 14,448 (6,271)

Income tax (paid)/refunded (386) (691) (1,041) 1,209 (362)

NET CASH (USED IN) FROM

OPERATING ACTIVITIES (85,314) 127,406 81,121 15,657 (6,633)


– IIC-9 –


Three months ended

31 March

2014 2015 2016 2016 2017


(unaudited)

INVESTING ACTIVITIES

Purchases of property, plant and equipment (37,857) (27,790) (27,413) (21,930) (2,333)

Payments for prepaid lease payment (25,872) — (466) — —

Net repayment from (advance to) related

companies 23,023 3,938 (12,646) 1,192 (2,249)

Proceeds from disposal of property, plant

and equipment 63 105 — — —

Interest received 44 53 74 16 31

NET CASH USED IN INVESTING

ACTIVITIES (40,599) (23,694) (40,451) (20,722) (4,551)

FINANCING ACTIVITIES

Net advance from (repayment to) a

shareholder 81,700 (103,533) 22,840 16,877 (170)

Net advance from (repayment to) related

companies 46,892 (46,150) (16,468) (16,468)

Capital Injection — 36,900 — — —

Bank borrowings — 23,870 — — —

Repayment of bank borrowings — — (23,870) — —

Interest paid — (626) (425) (340) —

NET CASH FROM (USED IN)

FINANCING ACTIVITIES 128,592 (88,539) (17,923) 69 (170)

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS 2,679 15,473 22,747 (4,996) (11,354)

CASH AND CASH EQUIVALENTS AT

BEGINNING OF THE YEAR 6,931 9,517 22,583 22,583 44,276

EFFECT OF FOREIGN EXCHANGE

RATE CHANGES (93) (1,107) (1,054) 295 640

CASH AND CASH EQUIVALENTS AT

END OF THE YEAR,

represented by bank balances and cash 9,517 22,583 44,276 17,882 33,562


– IIC-10 –


1. GENERAL INFORMATION AND BASIS OF PREPARATION AND PRESENTATION OF THE

HISTORICAL FINANCIAL INFORMATION

General

Saiguangbo was established in the PRC with limited liability on 7 February 2002.

The address of the registered office and the principal place of business of the Saiguangbo is D1-11-4,

Oriental Court, No. 100 Jianhua Village, Jiangbei District, Chongqing, China.

Saiguangbo act as an investment holding company. The principal activities of its subsidiaries are set

out in note 23.

Saiguangbo’s immediate and ultimate holding company are Shenzhen Yuhai Energy Company

Limited (‘‘Yuhai’’) and Sea Pioneer Limited (‘‘Sea Pioneer’’), companies established in the PRC and

incorporated in the British Virgin Islands (the ‘‘BVI’’), respectively. The Saiguangbo’s ultimate controlling

party is Ms. Li Xiulin, who owns 100% interest of Sea Pioneer.

The functional currency of Saiguangbo is Renminbi (‘‘RMB’’) while the Historical Financial

Information is presented in HK$, which the management of the Saiguangbo Group considered is more

beneficial for the users of the Historical Financial Information.

Basis of preparation and presentation of Historical Financial Information

Saiguangbo Group accounts for all its business combinations involving entities under common

control using the principles of merger accounting in accordance with Accounting Guideline 5 ‘‘Merger

Accounting for Common Control Combinations’’ (‘‘AG 5’’) issued by the HKICPA.

During the year ended and as at 31 December 2014 and 2015, Saiguangbo and Yongji Minsheng

Natural Gas Co, Ltd (‘‘Yongji’’), were owned by Mr. Xue Zhenhai as to 51% and 55% respectively. On 22

January 2016, Mr. Xue Zhenzhai, together with Ms. Li Xiulin which held 45% equity interest of Yongji

transferred all their equity interests in Yongji to Saiguangbo at nil consideration as contribution from

shareholders (the ‘‘Transfer’’).

In applying AG 5, Saiguangbo Group’s consolidated statements of profit or loss and other

comprehensive income, consolidated statements of changes in equity and consolidated statements of cash

flows have incorporated the results, changes in equity and cash flows of Saiguangbo Group and Yongji

since 1 January 2014, which is considered as the date Saiguangbo and Yongji first came under the common

control of the Mr. Xue Zhenhai prior to the Transfer.

In the preparation of the Historical Financial Information, the director of Saiguangbo has given due

and careful consideration of the liquidity of the Saiguangbo Group in light of the Saiguanbo Group’s net

current liabilities of HK$291,814,000 as at 31 March 2017. The director is of the opinion that the

shareholder of Saiguangbo has agreed not to demand for the repayment of shareholder loan until the

Saiguangbo Group has the financial ability for repayment and has agreed to provide funds within twelve

months from the end of the reporting period to enable Saiguanbo Group and Saiguanbo to meet its

financial obligations as they fall due for the foreseeable future. Accordingly, the Historical Financial

Information has been prepared on a going concern basis.


– IIC-11 –


For the purpose of preparing and presenting the Historical Financial Information for the Relevant

Periods, the Saiguangbo Group has consistently applied IFRSs issued by the IASB that are effective for the

Saiguangbo Group’s annual accounting periods beginning on 1 January 2017 throughout the Relevant Periods.

The Saiguangbo Group has not early applied the following new and amendments to IFRSs that have been

issued but are not yet effective:


IFRS 15 Revenue from contracts with customers and the related amendments2

IFRS 16 Leases3

Amendments to IFRS 2 Classification and measurements of share-based payment transactions2

Amendments to IFRS 4 Applying IFRS 9 Financial instruments with IFRS 4 Insurance contract2




Amendments to IFRS 10

and IAS 28

Sale or contribution of assets between an investor and its associate or

joint venture4




IFRS 9 ‘‘Financial instruments’’

IFRS 9 introduced new requirements for the classification and measurement of financial assets,

financial liabilities, general hedge accounting and impairment requirements for financial assets.

Certain key requirements of IFRS 9 which are relevant to the Group are:

. all recognised financial assets that are within the scope of IFRS 9 are required to be

subsequently measured at amortised cost or fair value. Specifically, debt investments that are

held within a business model whose objective is to collect the contractual cash flows, and that

have contractual cash flows that are solely payments of principal and interest on the principal

outstanding are generally measured at amortised cost at the end of subsequent accounting

periods. Debt instruments that are held within a business model whose objective is achieved

both by collecting contractual cash flows and selling financial assets, and that have

contractual terms of the financial asset give rise on specified dates to cash flows that are

solely payments of principal and interest on the principal amount outstanding, are measured

at fair value through other comprehensive income. All other debt investments and equity

investments are measured at their fair values at the end of subsequent accounting periods. In

addition, under IFRS 9, entities may make an irrevocable election to present subsequent

changes in the fair value of an equity investment (that is not held for trading) in other

comprehensive income, with only dividend income generally recognised in profit or loss.

. in relation to the impairment of financial assets, IFRS 9 requires an expected credit loss

model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss

model requires an entity to account for expected credit losses and changes in those expected


– IIC-12 –

credit losses at each reporting date to reflect changes in credit risk since initial recognition. In

other words, it is no longer necessary for a credit event to have occurred before credit losses

are recognised.

The director of the Saiguangbo anticipate that the application of IFRS 9 in the future may have

impact on amounts reported in respect of the Saiguangbo Group’s financial assets. The expected credit

loss model may result in early provision of credit loss which are not yet incurred in relation to the

Saiguangbo Group’s financial assets measured at amortised cost. However, it is not practicable to provide

a reasonable estimate of that effect until a detailed review has been completed.

IFRS 15 ‘‘Revenue from contracts with customers’’

IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting

for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition

guidance including IAS 18 ‘‘Revenue’’, IAS 11 ‘‘Construction Contracts’’ and the related Interpretations

when it becomes effective.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of

promised goods or services to customers in an amount that reflects the consideration to which the entity

expects to be entitled in exchange for those goods or services. Specifically, IFRS 15 introduces a 5-step

approach to revenue recognition:

. Step 1 : Identify the contract(s) with a customer

. Step 2 : Identify the performance obligations in the contract

. Step 3 : Determine the transaction price

. Step 4 : Allocate the transaction price to the performance obligations in the contract

. Step 5 : Recognise revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e.

when ’control’ of the goods or services underlying the particular performance obligation is transferred to

the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios.

Furthermore, extensive disclosures are required by IFRS 15.

In 2016, the IASB issued classification to IFRS 15 in relation to the identification of performance

obligations, principal versus agent consideration as well as licensing application guidance.

At the date of issuance of Historical Financial Information, the director of Saiguangbo is in the

process of assessing the potential financial impact on the Group.

IFRS 16 ‘‘Leases’’

IFRS 16, which upon the effective date will supersede IAS 17 ‘‘Leases’’, introduces a single lessee

accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more

than 12 months, unless the underlying asset is of low value. Specifically, under IFRS 16, a lessee is

required to recognise a right-of-use asset representing its right-to-use the underlying leased asset and a

lease liability representing its obligation to make lease payments. Accordingly, a lessee should recognise

depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments

of the lease liability into a principal portion and an interest portion and presents them in the consolidated

statement of cash flow. Also, the right-of-use asset and the lease liability are initially measured on a

present value basis. The measurement includes non-cancellable lease payments and also includes payments


– IIC-13 –

to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease,

or not to exercise an option to terminate the lease. The accounting treatment is significantly different from

the lessee accounting for leases that are classified as operating leases under IAS 17.

As set out in note 24, total operating lease commitment of the Saiguangbo Group in respect of

leased premises as at 31 December 2014, 2015, 2016 and 31 March 2017 is amounted to HK$673,000,

HK$655,000, HK$503,000, and HK$318,000, respectively.

The application of IFRS 16 may result in potential changes in classification of these assets

depending on whether the Saiguangbo Group presents right-of-use assets separately or within the same

line item at which the corresponding underlying assets would be presented if they were owned.

In respect of the lessor accounting, IFRS 16 substantially carries forward the lessor accounting

requirements in IAS 17 and continues to require a lessor to classify a lease as an operating lease or a

finance lease.

In the opinion of the Director, the application of the other new and amendments to IFRSs issued

but not yet effective is not expected to have a material impact on the results and the financial position of

the Group.



with the following accounting policies which conform to IFRSs. In addition, the Historical Financial

Information includes the applicable disclosures required by the Rules Governing the Listing of Securities on the

Stock Exchange and by the Hong Kong Companies Ordinance.





the Saiguangbo Group takes into account the characteristics of the asset or liability if market participants would

take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for
















– IIC-14 –

Basis of consolidation

The Historical Financial Information incorporates the financial statements of Saiguangbo and

entities controlled by Saiguangbo and its subsidiaries. Control is achieved when Saiguangbo:

. has power over the investee;

. is exposed, or has rights, to variable returns from its involvement with the investee; and

. has the ability to use its power to affect its returns.

The Saiguangbo Group reassesses whether or not it controls an investee if facts and circumstances

indicate that there are changes to one or more of the three elements of control listed above.

Consolidation of a subsidiary begins when the Saiguangbo Group obtains control over the

subsidiary and ceases when the Saiguangbo Group loses control of the subsidiary. Specifically, income

and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated

statement of profit or loss and other comprehensive income from the date the Saiguangbo Group gains

control until the date when the Saiguangbo Group ceases to control the subsidiary.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their

accounting policies into line with the Saiguangbo Group’s accounting policies.

All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions

between members of the Saiguangbo Group are eliminated in full on consolidation.

Non-controlling interests in subsidiaries are presented separately from the Saiguangbo Group equity

therein.

Merger accounting for business combination involving entities under common control

The consolidated financial statements incorporate the financial statements items of the combining

entities or businesses in which the common control combination occurs as if they had been consolidated

from the date when the combining entities or businesses first came under the control of the controlling

party.

The net assets of the combining entities or businesses are consolidated using the existing book values

from the controlling party’s perspective. No amount is recognised in respect of goodwill or excess of

acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities

over cost at the time of common control combination, to the extent of the continuation of the controlling

party’s interest.

The consolidated statement of profit or loss and other comprehensive income includes the results of

each of the combining entities or businesses from the earliest date presented or since the date when the

combining entities or businesses first came under the common control, where this is a shorter period.

The comparative amounts in the consolidated financial statements are presented as if the entities or

businesses had been consolidated at the end of the previous reporting period or when they first came under

common control, whichever is shorter.

Investments in subsidiaries

Investments in subsidiaries are included in the Saiguangbo’s statements of financial position at cost

less any identified impairments loss. The results of the subsidiaries are accounted for on the basis of

dividends received or receivable.


– IIC-15 –

Revenue recognition

Revenue is measured at fair value of the consideration received or receivable and represents amounts

receivable for goods sold in the normal course of business, net of discounts and related taxes.

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at

which time all the following conditions are satisfied:

. the Saiguangbo Group has transferred to the buyer the significant risks and rewards of

ownership of the goods;

. the Saiguangbo Group retains neither continuing managerial involvement to the degree

usually associated with ownership nor effective control over the goods sold;

. the amount of revenue can be measured reliably;

. it is probable that the economic benefits associated with the transaction will flow to the

Saiguangbo Group; and

. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Gas supply is recognised when gas is supplied to/used by the customers. The Group’s policy for the

recognition of revenue from construction services is described in the accounting policy for construction

contracts below.

Interest income from a financial asset is recognised when it is probable that the economic benefits

will flow to the Saiguangbo Group and the amount of income can be measured reliably. Interest income is

accrued on a time basis, by reference to the principal outstanding and at the effective interest rate

applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected

life of the financial asset to that asset’s net carrying amount on initial recognition.

Construction contracts

Where the outcome of a construction contract can be estimated reliably, revenue and costs are

recognised by reference to the stage of completion of the contract activity at the end of the reporting

period, measured based on the proportion that contract costs incurred for work performed to date relative

to the estimated total contract costs. Where the outcome of a construction contract cannot be estimated

reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be

recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is

recognised as an expense immediately.

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress

billings, the surplus is shown as amounts due from customers for contract work. For contracts where

progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the

surplus is shown as amounts due to customers for contract work. Amounts received before the related

work is performed are included in the consolidated statement of financial position, as a liability, as

advances received. Amounts billed for work performed but not yet paid by the customer are included in

the consolidated statement of financial position under trade receivables.


– IIC-16 –

Property, plant and equipment

Property, plant and equipment including building for use in production or supply of goods or

services, or for administrative purpose, other than construction in progress, are stated in the consolidated

statement of financial position at cost less subsequent accumulated depreciation and subsequent

accumulated impairment losses, if any.

Depreciation is recognised so as to write off the cost of assets other than construction in progress

less their residual values over their estimated useful lives, using the straight-line method. The estimated

useful lives, residual values and depreciation method are reviewed at the end of each reporting period,

with the effect of any changes in estimate accounted for a prospective basis.

Properties in the course of construction for production and administrative purposes are carried at

cost, less any recognised impairment loss. Costs include professional fees and, for qualifying assets,

borrowing costs capitalised in accordance with the Saiguangbo Group’s accounting policy. Such

properties are classified to the appropriate categories of property, plant and equipment when completed

and ready for intended use. Depreciation of these assets, on the same basis as other property assets,

commences when the assets are ready for their intended use.

An item of property, plant and equipment is derecognised upon disposal or when no future

economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the

disposal or retirement of an item of property, plant and equipment is determined as the difference between

the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Impairment loss on tangible assets

At the end of the reporting period, the Saiguangbo Group reviews the carrying amounts of its

tangible assets with finite useful lives to determine whether there is any indication that those assets have

suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated

in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the

recoverable amount of an individual asset, the Saiguangbo Group estimates the recoverable amount of the

cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can

be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are

allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation

basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing

value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount

rate that reflects current market assessments of the time value of money and the risks specific to the asset

for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its

carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable

amount.

An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-

generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased

carrying amount does not exceed the carrying amount that would have been determined had no

impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an

impairment loss is recognised as in profit or loss.


– IIC-17 –

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost of inventories are

determined on the weighted average cost method. Net realisable value represents the estimated selling

price for inventories less all estimated costs of completion and costs necessary to make the sale.


Financial assets and financial liabilities are recognised on the consolidated statement of financial

position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that

are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to

or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial

recognition.

Financial assets

The Saiguangbo Group’s financial assets are loans and receivables. The classification depends on

the nature and purpose of the financial assets and is determined at the time of initial recognition.


The effective interest method is a method of calculating the amortised cost of a debt instrument and

of allocating interest income over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash receipts (including all fees paid or received that form an integral part of

the effective interest rate, transaction costs and other premiums or discounts) through the expected life of

the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial

recognition.

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that

are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including

trade receivables and other receivables, bank balances and cash and amounts due from related companies)

are measured at amortised cost using the effective interest method, less any identified impairment (see

accounting policy on impairment of financial assets below).

Impairment of loans and receivables

Loans and receivables are assessed for indicators of impairment at the end of each reporting period.

Loans and receivables are considered to be impaired where there is objective evidence that, as a result of

one or more events that occurred after the initial recognition of the loans and receivables, the estimated

future cash flows of the loans and receivables have been affected.

Objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or

. default or delinquency in interest or principal payments; or

. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.


– IIC-18 –

For certain categories of loans and receivables, such as trade receivables, assets that are assessed not

to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective

evidence of impairment for a portfolio of trade receivables could include the Saiguangbo Group’s past

experience of collecting payments, an increase in the number of delayed payments in the portfolio past the

average credit period, observable changes in national or local economic conditions that correlate with

default on trade receivables.

The amount of the impairment loss recognised is the difference between the asset’s carrying amount

and the present value of the estimated future cash flows discounted at the financial asset’s original

effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial

assets with the exception of trade receivables, where the carrying amount is reduced through the use of an

allowance account. Changes in the carrying amount of the allowance account are recognised in profit or

loss. When a trade receivable is considered uncollectible, it is written off against the allowance account.

Subsequent recoveries of amounts previously written off are credited to profit or loss.

If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognised, the previously recognised

impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the

date the impairment is reversed does not exceed what the amortised cost would have been had the

impairment not been recognised.


Debt and equity instruments issued by a group entity are classified as either financial liabilities or as



Equity instruments


deducting all of its liabilities. Equity instruments issued by the group entities are recognised at the

proceeds received, net of direct issue costs.







recognition.



The Saiguangbo Group’s financial liabilities including trade payable, amount due to a shareholder/

related companies and bank borrowing are subsequently measured at amortised cost, using the effective

interest method.


– IIC-19 –

Derecognition

The Saiguangbo Group derecognises a financial asset only when the contractual rights to the cash

flows from the asset expire, or when it transfers the financial assets and substantially all the risks and

rewards of ownerships of the assets to another entity.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the

sum of the consideration received and receivable and the cumulative gain or loss that had been recognised

and the consideration paid and payable is recognized in profit or loss.

The Saiguangbo Group derecognises financial liabilities when, and only when, the Saiguangbo

Group’s obligations are discharged, cancelled or expire. The difference between the carrying amount of

the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Retirement benefits costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees

have rendered service entitling them to the contributions.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the

risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Saiguangbo Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term.

Leasehold land and building

When a lease includes both land and building elements, the Saiguangbo Group assesses the

classification of each element as a finance or an operating lease separately based on the assessment as to

whether substantially all the risks and rewards incidental to ownership of each element have been

transferred to the Saiguangbo Group, unless it is clear that both elements are operating leases in which

case the entire lease is classified as an operating lease. Specifically, the minimum lease payments (including

any lump-sum upfront payments) are allocated between the land and the building elements in proportion

to the relative fair values of the leasehold interests in the land element and building element of the lease at

the inception of the lease.

To the extent the allocation of the lease payments can be made reliably, interest in leasehold land

that is accounted for as an operating lease is presented as ‘‘prepaid lease payments’’ in the consolidated

statement of financial position and is amortised over the lease term on a straight-line basis.

Taxation



before taxation’’ as reported in the consolidated statement of profit or loss and other comprehensive

income because of items of income or expense that are taxable or deductible in other years and items that

are never taxable or deductible. The Saiguangbo Group’s liability for current tax is calculated using tax

rates that have been enacted or substantively enacted by the end of the reporting period.


– IIC-20 –



taxation’’ as reported in the consolidated statement of profit or loss and other comprehensive income

because of items of income or expense that are taxable or deductible in other years and items that are

never taxable or deductible. The Saiguangbo Group’s liability for current tax is calculated using tax rates

that have been enacted or substantively enacted by the end of the reporting period.



liabilities in the consolidated financial statements and the corresponding tax base used in the computation

of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences.

Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is

probable that taxable profits will be available against which those deductible temporary differences can be

utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial

recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the

accounting profit.


in subsidiaries, except where the Saiguangbo Group is able to control the reversal of the temporary

difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets arising from deductible temporary differences associated with such investments are

only recognised to the extent that it is probable that there will be sufficient taxable profits against which to

utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.








follow from the manner in which the Saiguangbo Group expects, at the end of the reporting period, to

recover or settle the carrying amount of its assets and liabilities.

For the purposes of measuring deferred tax liabilities or deferred tax assets for investment properties

that are measured using the fair value model, the carrying amounts of such properties are presumed to be

recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the

investment property is depreciable and is held within a business model whose objective is to consume

substantially all of the economic benefits embodied in the investment property over time, rather than

through sale.




Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies

other than the functional currency of that entity (foreign currencies) are recognised at the rates of

exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items

denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary


– IIC-21 –

items carried at fair value that are denominated in foreign currencies are retranslated at the rates

prevailing on the date when the fair value was determined. Non-monetary items that are measured in

terms of historical cost in a foreign currency are not retranslated.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the

Group’s foreign operations are translated into the presentation currency of the Saiguangbo Group (i.e.

Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and

expenses items are translated at the average exchange rates for the period, unless exchange rates fluctuate

significantly during the period, in which case, the exchange rates at the dates of transactions are used.

Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in

equity under the heading of translation reserve (attributed to non-controlling interests as appropriate).

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying

assets, which are assets that necessarily take a substantial period of time to get ready for their intended use

or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their

intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their

expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Saiguangbo Group’s accounting policies, which are described in note 3,

management of Saiguangbo Group is required to make judgments, estimates and assumptions about the

carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and

underlying assumptions are based on historical experience and other factors that are considered to be relevant.

Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimates is revised if the revision affects only that period, or

in the period of the revision and future periods if the revision affects both current and future periods.

The following is the key assumptions concerning the future, and other key sources of estimation

uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the

carrying amounts of assets and liabilities within the next financial year.

Estimated useful life of property, plant and equipment

Property, plant and equipment are depreciated over their useful economic lives. The assessment of

estimated useful lives is a matter of judgment based on the experience of the management of Saiguangbo

Group, taking into account factors such as technological process, conditions of property, plant and

equipment and changes in market demand. Useful lives are periodically reviewed for continued

appropriateness.

The carrying amount of property, plant and equipment was approximately HK$437,418,000,

HK$403,102,000, HK$366,963,000 and HK$364,607,000, respectively, as at 31 December 2014, 31

December 2015, 31 December 2016 and 31 March 2017.


– IIC-22 –

5. REVENUE AND SEGMENTAL INFORMATION

Revenue represents the fair value of amounts received and receivable from the sales of piped gas and

construction contract revenue from gas connection contracts by the Saiguangbo Group to outside customers,

net of discounts and related taxes. An analysis of the Saiguangbo Group’s revenue for the years and periods are

as follows:


Three months ended

31 March

2014 2015 2016 2016 2017


(unaudited)

Sales of piped gas — gas stations 102,269 84,083 44,973 7,991 12,561

Sales of pipe gas — others 205,583 207,347 216,200 48,873 88,060

Gas connection income 98,814 90,583 77,391 27,777 30,129

406,666 382,013 338,564 84,641 130,750

The Saiguangbo Group’s operation is solely derived from the sales of pipe gas and gas connection income

in the PRC during the Relevant Periods. For the purpose of resources allocation and performance assessment,

the chief operating decision maker (i.e. the chief executive officer of Saiguangbo) reviews the overall results and

financial position of the Saiguangbo Group as a whole and prepared based on same accounting policies set out

in note 3. Accordingly, the Saiguangbo Group has only one single operating segment and no further analysis of

this single segment is presented.

Geographical information

No geographical segment information is presented as the Saiguangbo Group’s revenue are all

derived from the PRC based on the location of services delivered and the Saiguangbo Group’s property,

plant and equipment are all located in the PRC by physical location of assets.

Information about major customers

There is no single customers committing over 10% of the total revenue of Saiguangbo Group during

the Relevant Periods.


– IIC-23 –

6. DIRECTOR’S AND EMPLOYEES’ EMOLUMENTS

(a) Director’s and chief executive’s emoluments

During the Relevant Periods, the emoluments paid or payable by the entities comprising the

Saiguangbo Group to the director of Saiguangbo (‘‘Director’’) were as follows:

Mr. Xue Zhenzhai

HKD’000

Year ended 31 December 2014

Fees —

Other emoluments

Salaries 193

Retirement benefit scheme contributions 60

Total emoluments 253


Fees —

Other emoluments

Salaries and other benefits 189




Fees —

Other emoluments




Period ended 31 March 2016 (unaudited)

Fees —

Other emoluments



Total emoluments 63

Period ended 31 March 2017

Fees —

Other emoluments



Total emoluments 69

Mr. Xue Zhenzhai is the Chief Executive of the Saiguangbo.

During the Relevant Periods, no remuneration was paid by the Saiguangbo Group to the director as

an inducement to join or upon joining the Saiguangbo Group or as compensation for loss of office.


– IIC-24 –

(b) Employees’ emoluments

The five highest paid individuals included one director and whose emoluments are included in the

disclosures in (a) above during the Relevant Periods. The emoluments of the remaining four individuals,

which were individually less than HK$1,000,000, were as follows:


Three months ended

31 March

2014 2015 2016 2016 2017


(unaudited)

Salaries and other benefits 979 911 912 221 323

Retirement benefit scheme

contributions 320 362 372 95 100

1,299 1,273 1,284 316 423

During the Relevant Periods, no emoluments were paid by the Saiguangbo Group to the five highest

paid individuals as an inducement to join or upon joining the Saiguangbo Group or as compensation for

loss of office.

7. OTHER INCOME AND OTHER GAINS AND LOSSES


Three months ended

31 March

2014 2015 2016 2016 2017


(unaudited)

Other income

Bank interest income 44 53 74 16 31

Government subsidy (Note) 445 683 646 — 156

489 736 720 16 187

Other gains and losses

Impairment loss recognised in respect

of trade receivables (77) (1,435) (1,626) — (2,917)

Loss on disposal of property, plant and

equipment (2) — — — —

Reversal of social securities expense

provided — 3,047 3,319 165 —

Impairment loss recognised in respect

other receivables (368) (123) — — —

Others 377 290 (12) 53 342

(70) 1,779 1,681 218 (2,575)

Note: The amount represents subsidy from the government for every tons of compressed natural gas

(‘‘CNG’’) imported outside of Shanxi province, which the government want to motivate the gas

seller to import more gas from outside.


– IIC-25 –

8. FINANCE COST


Three months ended

31 March

2014 2015 2016 2016 2017


(unaudited)

Finance cost represents interest on:

— bank borrowing — 626 425 340 —

9. PROFIT BEFORE TAXATION


Three months ended

31 March

2014 2015 2016 2016 2017


(unaudited)

Profit before taxation has been arrived

at after charging:

Auditor’s remuneration 52 33 31 — —

Director’s emoluments (note 7):

Salaries and other allowances 193 189 185 46 52

Retirement benefits scheme

contributions 60 66 68 17 17

Other staff costs:

Salaries and other allowances 11,357 11,242 10,214 2,926 2,769

Retirement benefits scheme

contributions 5,842 6,042 5,986 1,295 1,460

Total staff costs 17,452 17,539 16,453 4,284 4,298

Depreciation of property, plant and

equipment 35,801 38,244 38,043 9,510 8,512

Inventories recognised as an expense 294,810 280,807 253,330 63,236 88,708

Amortisation of prepaid lease payment 2,023 2,358 1,344 318 436


– IIC-26 –

10. INCOME TAX EXPENSE


Three months ended

31 March

2014 2015 2016 2016 2017


(unaudited)

PRC Enterprise Income Tax (‘‘EIT’’):

Current year 8,671 5,005 2,152 538 665

Under the Law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and Implementation Regulation of

the EIT Law, the tax rate applied to entities comprising the Saiguangbo Group is 25% for the Relevant Periods.

There was no significant unrecognised deferred taxation for the Relevant Periods or at 31 December 2014,

31 December 2015, 31 December 2016 and 31 March 2017.

The income tax expense for the years and periods can be reconciled to the profit before taxation as

follows:


Three months ended

31 March

2014 2015 2016 2016 2017


(unaudited)

Profit before taxation 33,259 16,154 12,515 5,277 3,852

Taxation at PRC EIT rate of 25% 8,315 4,039 3,129 1,319 963

Tax effect of expenses not deductible

for tax purposes 970 250 486 44 44

Tax effect of income not taxable for tax

purposes (111) (171) (625) (41) (654)

Tax effect of tax losses not recognised — 887 — — 312

Tax effect of deductible temporarily

differences not recognised (503) — — — —

Utilisation of tax losses previously not

recognised — — (838) (784) —

Income tax expense for the years and

periods 8,671 5,005 2,152 538 665

No deferred tax has been recognised in respect of the unutilised tax losses of HK$3,548,000 and

HK$312,000 approximately as at 31 December 2015 and 31 March 2017, respectively, due to the

unpredictability of future profit streams. The tax losses available may be carried forward for up to five years.

11. DIVIDEND

No dividend have been paid or declared by Saiguangbo during the Relevant Periods.

12. EARNINGS PER SHARE

Earnings per share information is not presented as its inclusion, for the purpose of the Historical

Financial Information, is not considered meaningful.


– IIC-27 –

13. PROPERTY, PLANT AND EQUIPMENT

The Saiguangbo Group

Construction

in progress

Land and

buildings

Plant and

machinery

Furniture

and fixture

Motor

vehicles Pipelines Total

HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000

COSTAt 1 January 2014 12,323 33,626 22,305 1,587 5,291 477,295 552,427

Additions 26,642 3,913 5,880 1,063 359 — 37,857Disposal — — — (38) (361) — (399)Written off — — — — — (30,355) (30,355)

Transfer (26,704) 345 1,359 — — 25,000 —Exchange difference (65) (176) (114) (8) (28) (2,540) (2,931)

At 31 December 2014 12,196 37,708 29,430 2,604 5,261 469,400 556,599Additions 4,911 7,511 3,817 436 4,235 6,880 27,790Disposal — — — (105) — — (105)

Transfer (10,420) 803 — — — 9,617 —Exchange difference (492) (2,349) (1,746) (154) (428) (26,405) (31,574)

At 31 December 2015 6,195 43,673 31,501 2,781 9,068 459,492 552,710Additions 9,203 8,738 1,201 427 118 7,726 27,413Transfer (5,165) 4,506 22 — — 637 —

Exchange difference (573) (3,395) (2,096) (198) (593) (29,973) (36,828)

At 31 December 2016 9,660 53,522 30,628 3,010 8,593 437,694 543,108

Additions 1,022 — — 5 — 1,306 2,333Transfer (172) — — — — 172 —

Exchange difference 113 586 336 33 94 4,600 5,954

At 31 March 2017 10,623 54,108 30,964 3,048 8,687 437,694 543,108

DEPRECIATIONAt 1 January 2014 — 1,586 3,895 1,061 2,549 75,047 84,138

Provided for the year — 2,240 2,414 285 979 29,883 35,801Eliminated on disposal — — — — (334) — (334)Exchange difference — (7) (19) (5) (13) (380) (419)

At 31 December 2014 — 3,819 6,290 1,341 3,181 104,550 119,185Provided for the year — 2,781 3,191 566 1,042 30,664 38,244

Exchange difference — (301) (451) (92) (209) (6,764) (7,818)

At 31 December 2015 — 6,299 9,030 1,815 4,014 128,450 149,608

Provided for the year — 3,260 3,161 565 1,519 29,538 38,043Exchange difference — (547) (720) (142) (325) (9,585) (11,319)

At 31 December 2016 — 9,012 11,471 2,238 5,208 148,403 176,332

Provided for the period — 671 616 136 242 6,847 8,512

Exchange difference — 100 127 25 57 1,636 1,945

At 31 March 2017 — 9,783 12,214 2,399 5,507 156,886 186,789

CARRYING AMOUNTSAt 31 December 2014 12,196 33,889 23,140 1,263 2,080 364,850 437,418

At 31 December 2015 6,195 37,374 22,471 966 5,054 331,042 403,102

At 31 December 2016 9,660 44,510 19,157 772 3,385 289,479 366,963

At 31 March 2017 10,623 44,325 18,750 649 3,180 287,074 364,601


– IIC-28 –

The above items of property, plant and equipment, other than construction in progress are

depreciated on a straight-line basis at the following rates per annum:

Land and buildings 6.67%

Plant and machinery 10%

Furniture and fixture 33.3%

Motor vehicles 20%

Pipelines 5% to 6.67%

The construction in progress comprise mainly the CNG station in the course of construction and

machinery in installation.

14. PREPAID LEASE PAYMENTS


The carrying amount of prepaid lease payments of the Saiguangbo Group, which the Saiguangbo

Group’s buildings as disclosed in note 13 are located, analysed for reporting purposes as follows:

As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Non-current assets 49,245 44,238 40,563 40,572

Current assets 1,189 1,124 1,051 1,062

50,434 45,362 41,614 41,634

As at 31 December 2015, the Saiguangbo Group pledged certain land use rights in the PRC with

total carrying amounts of HK$13,405,000 to secure its bank borrowing. Details of assets pledged are

disclosed in note 27.

15. INVENTORIES

The amount represents inventories of CNG.


– IIC-29 –

16. TRADE AND OTHER RECEIVABLES


As at 31 December

As at

31 March

2014 2015 2016 2017

Notes HKD’000 HKD’000 HKD’000 HKD’000

Trade receivables 42,111 45,401 63,889 74,162

Less: Allowance for bad

and doubtful debts (c) (2,488) (3,739) (5,275) (7,910)

Total trade receivables (a), (b) 39,623 41,662 58,614 66,252

Prepayments and other

receivables 82,719 56,790 33,228 30,518

Less: Allowance for bad

and doubtful debts (d) (2,065) (2,070) (1,938) (1,957)

Total trade and other

receivables (a), (b) 120,277 96,382 89,904 94,813

Notes:

(a) The Saiguangbo Group allows credit period of 30 days to 90 days to its trade customers. The

following is an aged analysis of trade receivables net of impairment losses presented based on the

invoice date at the end of the reporting periods.


As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Trade receivables

0–90 days 21,516 25,082 34,545 23,663

91–180 days 1,488 1,619 1,326 9,664

181–365 days 3 41 11,007 21,705

Over 365 days 16,616 14,920 11,736 11,220

Total 39,623 41,662 58,614 66,252

Before accepting any new customer, the Saiguangbo Group will assess the potential customer’s

credit quality and defines its credit limits. Credit sales are made to customers with a satisfactory

trustworthy credit history. Credit limits attributed to customers are reviewed regularly. Trade

receivables that are neither past due nor impaired have good track records with the Saiguangbo

Group.

As at 31 December 2014, 2015, 2016 and 31 March 2017, included in the Saiguangbo Group’s trade

receivables balance are debtors with an aggregate carrying amount of HK$18,107,000,

HK$16,580,000, HK$24,069,000 and HK$42,589,000, respectively, which were past due at the end

of the reporting periods for which the Saiguangbo Group has not provided for impairment loss, as


– IIC-30 –

there has not been a significant change in credit quality and the amounts are still considered

recoverable based on the historical experience and subsequent settlements. The Saiguangbo Group

does not hold any collateral over these balances.

(b) Ageing of trade receivables which are past due but not impaired:


As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Neither past due nor impaired 21,516 25,082 34,545 23,663

91–180 days 1,488 1,619 1,326 9,664

181–365 days 3 41 11,007 21,705

Over 365 days 16,616 14,920 11,736 11,220

39,623 41,662 58,614 66,252

No interest is charged on the trade receivables. The Saiguangbo Group has policy regarding

impairment losses on trade receivables which is based on the evaluation of collectability and ageing

analysis of accounts and on management’s judgment including the current creditworthiness and the

past collection history of each customer.

(c) Movement in the allowance for bad and doubtful debts is as follows:


As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Balance at the beginning of the year 2,424 2,488 3,739 5,275

Impairment losses recognised 77 1,435 1,626 2,917

Exchange difference (13) (184) (90) (282)

Balance at the end of the year 2,488 3,739 5,275 7,910


– IIC-31 –

(d) Movement in the allowance for other receivables is as follows:


As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Balance at the beginning of the year 1,705 2,065 2,070 1,938

Impairment losses recognised 368 123 — —

Exchange difference (8) (118) (132) 19

Balance at the end of the year 2,065 2,070 1,938 1,957

Included in other receivables are loan receivables from individual third parties amounted to

HK$3,798,000, HK$3,581,000, HK$3,433,000 and HK$3,468,000 as at 31 December 2014, 2015 and

2016 and 31 March 2017 respectively. The amounts are unsecured, interest-free and repayable on

demand.

17. AMOUNT DUE FROM (TO) CUSTOMERS FOR CONTRACT WORK

As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Contracts in progress at the end of the reporting

periods

Contract costs incurred plus recognised profits less

recognised losses 100,883 36,740 332 5,423

Analysis for reporting purpose as:

Amounts due from contract customers 128,762 62,339 33,636 48,408

Amount due to contract customers (27,879) (25,599) (33,304) (42,985)

100,883 36,740 332 5,423

18. BANK BALANCES AND CASH

As at 31 December 2014, 2015, 2016 and 31 March 2017, the bank balances carried interest at prevailing

market rates.


– IIC-32 –

19. TRADE AND OTHER PAYABLES


As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Trade payables 82,728 126,512 46,122 57,075

Other payables and accrued charges 74,936 15,594 78,838 57,985

157,664 142,106 124,960 115,060

The average credit period on purchases of goods is 90 days. The following is an aged analysis of trade

payables presented based on the invoice date at the end of the reporting periods payables presented based on the

date of issuance of bills:


Trade payables

As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

0–90 days 53,500 49,089 34,062 44,166

91–180 days 3,127 35,074 1,539 2,753

181–365 days 25,341 23,741 6,831 3,631

Over 365 days 760 18,608 3,690 6,525

82,728 126,512 46,122 57,075

20. AMOUNT DUE FROM (TO) SHAREHOLDERS AND RELATED COMPANIES

The amounts are unsecured, interest-free and repayable on demand.

21. BANK BORROWING

Bank borrowing amounted to RMB20,000,000 was subjected to variable-rate interest at the Benchmark

Loan Rate offered by the People’s Bank of China. The effective interest rate on the Group’s bank borrowing

was 5.1%. The bank borrowing was secured by certain land use rights in the PRC of Saiguangbo Group and was

repayable within 1 year as at 31 December 2015. The bank borrowing was fully repaid during 2016.

22. PAID-UP CAPITAL

The paid-up capital at 1 January 2014, 31 December 2014 and 2015 represented the aggregate paid up

capital of Saiguangbo and Yongji attribute to the owner of Saiguangbo.

The paid-up capital at 31 December 2016 and 31 March 2017 represented the paid-up capital of

Saiguangbo attribute to the owner of Saiguangbo.


– IIC-33 –


As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Unlisted shares, at cost 90,944 85,932 156,332 157,962

Details of the Saiguangbo’s subsidiaries as at 31 December 2014, 2015, 2016 and 31 March 2017 are as

follows:

Name of

subsidiaries

Place and date of

establishment

Registered and

paid-up capital

Shareholding/equity interest attributable

to the Saiguangbo as at Principal activities

31 December

31

March

As at

the date

of this

report2014 2015 2016 2017

% % % % %

Directly held:

Yongji The PRC

17 October

2008

RMB60,000,000 55 55 100 100 100 Sales and distribution

of CNG through

refueling stations

for vehicles, supply

of piped gas and

gas connection

construction

Shanxi Minsheng

Natural Gas

Co., Ltd

(‘‘Minsheng’’)

The PRC

21 April 2006

RMB80,000,000 90 90 100 100 100 Sales and distribution

of CNG through

refueling stations

for vehicles, supply

of piped gas and

gas connection

construction

No audited financial statements have been prepared for the Saiguangbo and its subsidiaries since their

respective dates of establishment as they were established in jurisdiction where there is no statutory audit

requirements.

24. COMMITMENTS

Operating lease commitments as lessee

At the reporting date, the Saiguangbo Group had commitment for future minimum lease payments

under non-cancellable operating leases for office which fall due as follows:

As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Within one year 195 209 209 107

In the second to fifth year inclusive 348 352 236 185

Over five years 130 94 58 26

673 655 503 318

Operating lease payments represent rental payable by Saiguangbo Group for certain of its office

properties. Lease are negotiated for an average term of 3 years and rental are fixed for an average 3 years.


– IIC-34 –

25. RETIREMENT BENEFITS SCHEME

The Saiguangbo Group participates in a defined contribution retirement scheme organised by the relevant

local government authority in the PRC. Eligible employees of the Saiguangbo Group to participate in the

retirement scheme are entitled to retirement benefits from the scheme. The local government authority is

responsible for the pension liabilities to these retired employees. The Saiguangbo Group is required to make

monthly contributions to the retirement scheme up to the time of retirement of the eligible employees, at 20% of

the local standard basic salaries.

As at 31 December 2014, 31 December 2015, 31 December 2016 and 31 March 2017, the Saiguangbo

Group had no significant obligation apart from the contribution as stated above.


Save as disclosed elsewhere in the Historical Financial Information, the Saiguangbo Group had no other

transactions with its related parties during the Relevant Periods.

Compensation of key management personnel

The remuneration of director who represents the key management personnel of the Saiguangbo

Group, during the Relevant Periods were as follows:


Three months ended

31 March

2014 2015 2016 2016 2017


(unaudited)

Short-term employee benefits 193 189 185 46 52

Post-employment benefits 60 66 68 17 17

253 255 253 63 69

27. PLEDGE OF ASSETS

At the reporting date, certain land use rights of the Saiguangbo Group were pledged to secure the bank

borrowing with the amounts as follows:

As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Land use rights — 13,405 — —


The Saiguangbo Group manages its capital to ensure that entities in the Saiguangbo Group will be able to

continue as a going concern while maximising the return to shareholders through the optimisation of the debt

and equity balance. The Saiguangbo Group’s overall strategy remains unchanged throughout the Relevant

Periods.

The capital structure of the Saiguangbo Group consists of debt balance and equity balance. Equity

balance consists of equity attributable to owners of Saiguangbo, comprising paid-up capital and reserves.


– IIC-35 –

Management of the Saiguangbo Group review the capital structure on an on-going annual basis. As part

of this review, management of the Saiguangbo Group consider the cost of capital and the risks associated with

each class of capital. Based on recommendations of management of the Saiguangbo Group, the Saiguangbo

Group will balance its overall capital structure through the payment of dividends and the issue of new shares.




As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Financial assets

Loans and receivables (including cash and cash

equivalents) 58,367 69,018 120,084 119,443


Amortised costs 588,211 487,611 372,735 387,006


The Saiguangbo Group’s major financial instruments include trade and other receivables, amounts

due from (to) related companies, trade payables, amount due to a shareholder and bank borrowing.

Details of these financial instruments are disclosed in respective notes. The risks associated with these

financial instruments and the policies on how to mitigate these risks are set out below.

(i) Market risk

Interest rate risk

The Saiguangbo Group was exposed to cash flow interest rate risk in relation to

variable-rate bank balances and bank borrowing. Details of bank balances and bank

borrowing are disclosed in notes 18 and 21, respectively. It is the Group’s policy to keep its

bank borrowing at floating rate of interests so as to minimise the fair value interest rate risk.

The Saiguangbo Group’s cash flow interest rate risk mainly arised from the fluctuation of the

Benchmark Loan Rates offered by the People’s Bank of China for the Group’s RMB

denominated bank borrowing.

Sensitivity analysis

The sensitivity analyses have been determined based on the exposure to interest rates for

non-derivative instruments for the year ended 31 December 2015. The analysis is prepared

assuming the financial instruments outstanding at the end of the reporting period were

outstanding for the whole year. A 50 basis points increase or decrease is used when reporting

interest rate risk internally to key management personnel and represents management’s

assessment of the reasonably possible change in the interest rate.

If interest rate had been 50 basis points higher/lower and all other variables were held

constant, the Group’s post-tax profit for the year ended 31 December 2015 would decrease/

increase by HK$90,000 approximately.


– IIC-36 –

(ii) Credit risk

As at 31 December 2014, 2015, 2016 and 31 March 2017, the maximum exposure to credit risk

of the Saiguangbo Group which will cause a financial loss to the Saiguangbo Group due to failure to

discharge an obligation by the counterparties is arising from the carrying amount of the respective

recognised financial assets as stated in the consolidated statements of financial position.

In order to minimise the credit risk, management of the Saiguangbo Group has delegated a

team responsible for determination of credit limits, credit approvals and other monitoring

procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the

Saiguangbo Group reviews the recoverable amount of each individual debt at the end of the

reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In

this regard, the director of the Saiguangbo consider that the Saiguangbo Group’s credit risk is

significantly reduced.

Saiguangbo Group’s concentrate of credit risk by geographical location is mainly in the PRC.

Saiguangbo Group has no other significant concentration of credit risk, with exposure spread over a

number of counterparties.

The credit risk on liquid funds of the Saiguangbo Group is limited because the counterparties

are banks with good reputation and the Saiguangbo Group has limited exposure to any single

financial institution.

Also the Saiguangbo Group has significant concentration of credit risk on amounts due from

related companies as the credit risk is attributable to related parties as at 31 December 2014, 2015,

2016 and 31 March 2017. The director of Saiguangbo consider the counterparty with good credit

worthiness based on its past repayment history and subsequent settlement.

(iii) Liquidity risk

In the management of liquidity risk, the Saiguangbo Group monitors and maintains a level of

cash and cash equivalents deemed adequate by the management to finance the Saiguangbo Group’s

operations and mitigates the effects of fluctuations in cash flows.

The Saiguangbo Group has net current liabilities of HK$425,733,000, HK$342,224,000,

HK$298,006,000 and HK$291,814,000 as at 31 December 2014, 2015, 2016 and 31 March 2017,

respectively. The director of Saiguangbo is satisfied that the Saiguangbo Group will have sufficient

financial resources to meet its financial obligations as they fall due for the next the twelve months

from the date of this report as the shareholder of Saiguangbo has agreed to provide adequate funds

to enable Saiguangbo Group to meet its financial obligations as they fall due from the foreseeable

future and not to demand the repayment of shareholder loan until Saiguangbo Group has financial

ability for repayment.

The following tables detail the Saiguangbo Group’s remaining contractual maturity for its

non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash

flows of financial liabilities based on the earliest date on which the Saiguangbo Group and

Saiguangbo can be required to pay. Specifically, bank borrowings with a repayment on demand

clause are included in the earliest time band regardless of the probability of the banks or financial

institutions choosing to exercise their rights. The table includes both interest and principal cash

flows.


– IIC-37 –


Effective

interest rate

On demand

or within

1 year

Between

1–2 years

Between

2–5 years

Total

undiscounted

cash flow

Total

carrying

amount

% HKD’000 HKD’000 HKD’000 HKD’000 HKD’000

As at 31 December 2014

Non-derivative financial

liabilities

Trade payables — 82,728 — — 82,728 82,728

Amount due to a

shareholder — 442,929 — — 442,929 442,929

Amounts due to related

companies — 62,554 — — 62,554 62,554

588,211 — — 588,211 588,211



liabilities

Trade payables — 126,512 — — 126,512 126,512

Amount due to a

shareholder — 324,273 — — 324,273 324,273

Amounts due to related

companies — 12,956 — — 12,956 12,956

Bank borrowing 5.1 24,250 — — 24,250 23,870

487,991 — — 487,991 487,611



liabilities

Trade payables — 46,122 — — 46,122 46,122

Amount due to a

shareholder — 326,613 — — 326,613 326,613

372,735 — — 372,735 372,735

As at 31 March 2017


liabilities

Trade payables — 57,075 — — 57,075 57,075

Amount due to a

shareholder — 329,931 — — 329,931 329,931

387,006 — — 387,006 387,006

(c) Fair value of the Saiguangbo Group’s financial assets and financial liabilities that are measured at

amortised cost.

The management of the Saiguangbo Group estimates the fair value of its financial assets and

financial liabilities measured at amortised cost using discounted cash flows analysis. The management of

the Saiguangbo Group considers that the carrying amounts of financial assets and financial liabilities

recorded at amortised cost in the Historical Financial Information approximate their fair values.


– IIC-38 –

30. NON-CONTROLLING INTERESTS

The following table presents the information relating to Yongji, which has material non-controlling

interest (‘‘NCI’’) as at 31 December 2014 and 2015 until additional 55% equity interests was acquired during the

year of 2016. The following summarised consolidated historical financial information represents the amounts

before any inter-company elimination during the Relevant Periods. Subsequent to the Transfer as detailed in

note 1 to the Historical Financial Information, Yongji became a wholly-owned subsidiary of the Saiguangbo.

As at 31 December

2014 2015 2016

HKD’000 HKD’000 HKD’000

Percentage of NCI 45% 45% —

Current assets 59,131 52,390 —

Non-current assets 46,942 56,696 —

Current liabilities (60,505) (34,123) —

Net assets 45,568 74,963 —

Carrying value of NCI in the Historical Financial Information 20,506 33,733 —

Revenue 71,465 53,493 3,960

Profit (loss) for the year/period 8,990 (3,820) 232

Total comprehensive income (expense) 8,802 (7,290) (56)

Profit (loss) for the year/period attributed to NCI 4,045 (1,719) 104

Net cash from (used in) operating activities 9,148 (12,820) —

Net cash used in investing activities (15,108) (13,499) —

Net cash from financing activities 3,900 33,845 —


– IIC-39 –

31. STATEMENTS OF FINANCIAL POSITION

As at 31 December

As at

31 March

2014 2015 2016 2017

HKD’000 HKD’000 HKD’000 HKD’000

Non-current assets

Investment in subsidiaries 90,944 85,932 156,332 157,962

Current asset

Bank balances and cash 8 11 11 11

Current liability

Amount due to a shareholder 77,822 73,538 68,805 69,523

Net current liabilities (77,814) (73,527) (68,794) (69,512)

Net assets 13,130 12,405 87,538 88,450

Capital and reserves

Paid-up capital 9,801 9,801 9,801 9,801Reserves (Note) 3,329 2,604 77,737 78,649

Total equity 13,130 12,405 87,538 88,450

Note:

Movements of the Company’s reserve:

Other

reserve

Exchange

reserve

Accumulated

losses Total

HKD’000 HKD’000 HKD’000 HKD’000

At 1 January 2014 — 3,405 (5) 3,400

Loss for the year — — (1) (1)

Exchange difference arising on translation — (70) — (70)

At 31 December 2014 — 3,335 (6) 3,329


Exchange difference arising on translation — (723) — (723)

At 31 December 2015 — 2,612 (8) 2,604


Exchange difference arising on translation — (3,548) — (3,548)

Total comprehensive expense for the year — (3,548) (1) (3,549)

Transfer of equity interests from non-controlling shareholders

of subsidiaries 78,682 — — 78,682

At 31 December 2016 78,682 (936) (9) 77,737

Exchange difference arising on translation — 912 — 912

At 31 March 2017 78,682 (24) (9) 78,649


– IIC-40 –


No audited financial statements have been prepared by Saiguangbo or any of its subsidiaries in respect of

any period subsequent to 31 March 2017.


– IIC-41 –

As shown in Appendix IIA and IIB, Top Grand, Jump Corp, Shenzhen Benyue,

Shenzhen Benfu and Yuhai have no material assets and business operations save for their

equity interest in Saiguangbo and as such the management discussion and analysis of the

Target Group focuses on Saiguangbo Group.

Chongqing Saiguangbo Technology Company Limited* (重慶賽廣博科技有限公司) is a

company established in the PRC with limited liability on 7 February 2002, which is held by

Yuhai as to 51%. To the best knowledge of the Company, the other shareholder of

Saiguangbo as to 49% is an Independent Third Party. Shanxi Minsheng Natural Gas Co.,

Ltd.* (山西民生天然氣有限公司) is a company established in the PRC with limited liability

on 21 April 2006 which is wholly-owned by Saiguangbo. Yongji Minsheng Natural Gas Co.,

Ltd.* (永濟市民生天然氣有限公司) is a company incorporated in the PRC with limited

liability on 17 October 2008 which is wholly-owned by Saiguangbo.

As at the Latest Practicable Date, Saiguangbo Group supplies piped gas to residential

households, public utility, commercial and industrial users and operates 5 compressed

natural gas (‘‘CNG’’) refuelling stations for vehicles in Yuncheng City, Shanxi Province

through Shanxii Minsheng and supplies piped gas to residential households, public utility,

commercial and industrial users and operates 2 CNG refuelling stations for vehicles in

Yongji City, Shanxi Province through Yongji Minsheng.

Set out below is the management discussion and analysis of the operating results and

business review of Saiguangbo Group for the period from 1 January 2014 to 31 March 2017

(the ‘‘Track Record Period’’).

FOR THE YEAR ENDED 31 DECEMBER 2014

Business review

For the year ended 31 December 2014, Saiguangbo Group solely derived its revenue

from supplying piped gas to residential households, commercial, public utility and

industrial users and operating CNG refueling stations. Saiguangbo Group recorded

revenue of approximately HK$406.7 million and gross profit of approximately HK$65.5

million. Among the revenue generated, approximately HK$335.2 million was generated

from Shanxi Minsheng and approximately HK$71.5 million was generated from Yongji

Minsheng.

Saiguangbo Group incurred administrative expenses of approximately HK$27.4

million and distribution costs of approximately HK$5.3 million for the year ended 31

December 2014. The other losses of the Saiguangbo Group is approximately HK$0.07

million. As a result, Saiguangbo Group recorded net profit of approximately HK$24.6

million.

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET GROUP

– III-1 –

Financial position

As at 31 December 2014, the total assets of Saiguangbo Group were approximately

HK$760.2 million which were mainly made up of: (i) property, plant and equipment of

approximately HK$437.4 million; (ii) Trade and other receivables of approximately

HK$120.3 million; (iii) amount due from customers from contract works of approximately

HK$128.8 million; (iv) inventory of approximately HK$8.4 million; (v) amount due from

related company of approximately HK$5.4 million; and (vi) bank and cash balance of

approximately HK$9.5 million. Included in other receivables as at 31 December 2014 are

mainly the advance to staff, utility deposits and prepayment for natural gas, construction

contract and construction materials.

As at 31 December 2014, the total liabilities of Saiguangbo Group were approximately

HK$699.3 million, which were mainly made up of: (i) trade and other payables of

approximately HK$157.7 million; (ii) amount due to a shareholder of approximately

HK$442.9 million; (iii) amount due to supplier from contract works of approximately

HK$27.9 million; (iv) amount due to related companies of approximately HK$62.6 million

and (v) tax payables of approximately HK$8.3 million. Other payables as at 31 December

2014 are mainly the receipt in advance of natural gas income and construction income, staff

cost, tax payables and other payables. During the year of 2014, Saiguangbo Group has

financed its operation mainly by the advance from its related companies and shareholder.

As a result, the net assets recorded in Saiguangbo Group was approximately HK$60.9

million as at 31 December 2014.

Gearing ratio

Saiguangbo Group had a gearing ratio of approximately 92.0% as at 31 December

2014 which is calculated as the total liabilities divided by the total assets.

Capital Commitments

As at 31 December 2014, Saiguangbo Group had no capital commitment contracted

for but not provided in the financial statements.

Significant investment, material acquisition and disposals

Saiguangbo Group did not have any significant investments or carried out any material

acquisition and disposal during the year ended 31 December 2014.

Pledge of assets

As at 31 December 2014, Saiguangbo Group did not pledge any of its assets.


– III-2 –

Remuneration policies and employee information

As at 31 December 2014, Saiguangbo Group had 293 employees, with total staff costs

of approximately HK$17.5 million for the year ended 31 December 2014. Saiguangbo

Group remunerated its employees based on the job nature, individual performance, working

experiences, professional qualification and market trends.

Foreign exchange risk

Saiguangbo Group’s exposure to foreign currency risk is minimal as Saiguangbo

Group’s operations were principally in China and the principal assets and liabilities of

Saiguangbo Group were denominated in Renminbi. Saiguangbo Group considered that it

did not have any material exposure to fluctuations in exchange rate. Accordingly, no

hedging measure of foreign currency risk was taken during the year ended 31 December

2014.

Contingent liabilities

As at 31 December 2014, Saiguangbo Group had no contingent liabilities pursuant to

which material losses were expected.

Segmental information

Saiguangbo Group had only one business segment, being the supply of piped gas to

residential households, commercial, public utility and industrial users and operation of

CNG refueling stations for the year ended 31 December 2014.


Business review







Minsheng.

The deteriorated operating results of the Saiguangbo Group for the year ended 31

December 2015 when compare to that for the year ended 31 December 2014 were mainly

attributable to the increase in average unit cost of natural gas by approximately 3.4% and

1.7%, respectively, in Yongji Minsheng and Shanxi Minsheng, respectively and decrease in

average unit selling price of natural gas by approximately 4.3% and 0.5% in Yongji

Minsheng and Shanxi Minsheng, respectively. As a result, the gross profit margin on sales

of natural gas was decreased by approximately 5.2% and 4.2% in Yongji Minsheng and

Shanxi Minsheng, respectively.


– III-3 –



December 2015. The other gain of the Saiguangbo Group was approximately HK$1.8

million and hence, Saiguangbo Group recorded net profit of approximately HK$11.1

million.

Financial position


HK$637.3 million, which were mainly made up of: (i) property, plant and equipment of



HK$62.3 million; (iv) inventory of approximately of HK$6.3 million; (v) amount due from

related companies of approximately HK$1.2 million; and (vi) bank and cash balance of

approximately HK$22.6 million. Included in other receivables as at 31 December 2015 were

mainly the advance to staff, utility deposits and prepayment for natural gas, construction

contract and construction materials. The increase in cash and cash equivalents reflected the

shorter debtor collection period in the year of 2015.





HK$25.6 million; (iv) amount due to related companies of approximately HK$13.0 million;

(v) bank borrowing of approximately HK23.9 million; and (vi) tax payables of

approximately HK$3.3 million. Other payables as at 31 December 2015 are mainly the

receipt in advance of natural gas income and construction income, staff cost, tax payables

and other payables. In year of 2015, Saiguangbo Group has financed its operation mainly

by the advance from its related companies and shareholder and the proceeds from the bank

borrowings.

As a result, the net assets recorded in approximately HK$105.1 million as at 31

December 2015.

Gearing ratio


2015 which is calculated as total liabilities divided by the total assets.

Capital Commitments




– III-4 –




Pledge of assets

As at 31 December 2015, certain land use rights in the PRC of Saiguangbo Group with

total carrying amounts of HK$13,405,000 were pledged to secure the bank borrowings. The

effective interest rate on the Group’s bank borrowing was 5.1%.












2015.









Business review






– III-5 –



Minsheng.

The improved gross profit of the Saiguangbo Group for the year ended 31 December

2016 when compare to that for the year ended 31 December 2015 were mainly attributable

to the decrease in average unit cost of natural gas by approximately 17.7% and 18.7% in

Yongji Minsheng and Shanxi Minsheng, respectively which partially mitigated by the

decrease in average unit selling price of natural gas by approximately 15.3% and 15.9% in

Yongji Minsheng and Shanxi Minsheng respectively. As a result, the gross profit margin on

sales of natural gas was increased by approximately 5.6% and 1.2% in Yongji Minsheng

and Shanxi Minsheng, respectively.



December 2016. The other gain of the Saiguangbo Group is approximately HK$1.7 million

and as a result, Saiguangbo Group recorded net profit of approximately HK$10.4 million.

Financial position


HK$597.5 million, which were mainly made up of: (i) property, plant and equipment of





approximately HK$44.3 million.

Included in other receivables as at 31 December 2016 are mainly the advance to staff,

utility deposits and prepayment for natural gas, construction contract and construction

materials. The increase in cash and cash equivalents reflected the shorter debt collection

period in the year of 2016. For the year ended 31 December 2016, the Saiguangbo Group

recognised a bad debt provision on trade receivables of approximately HK$1.6 million,

which represents the trade receivables and the amount due from customers experiencing

financial difficulties that were in default or delinquency of payments or have been past due

for more than one year and have not responded to repayment demands. With an aim to

reduce the rate of the impairment loss, the Saiguangbo Group had tightened up its credit

approval to new customers in forthcoming years and keep check on the payment pattern

from customers.





HK$33.3 million; and (iv) tax payables of approximately HK$3.1 million. Other payables as

at 31 December 2016 are mainly the receipt in advance of natural gas income and

construction income, staff cost, tax payables and other payables. In year of 2016,


– III-6 –

Saiguangbo Group has benefited from its operation and able to finance its working capital

so that the amount due to related companies and shareholder reduced and amount due from

related companies increased. The fluctuation of amount due from or to customer for

contract work was reflected the percentage of completion of various construction contracts.

As a result, the net assets recorded in approximately HK$109.5 million as at 31

December 2016.

Gearing ratio


2016 which is calculated as total liabilities divided by the total assets.

Capital Commitments




Save for the acquisition of the 100% of the equity interests of Yongji Minsheng

Saiguangbo Group did not have any significant investments or carry out any material


Pledge of assets

As at 31 December 2016, Saiguangbo Group did not pledge any of its assets.












2016.





– III-7 –





FOR THE THREE MONTHS ENDED 31 MARCH 2017

Business review

For the three months ended 31 March 2017, Saiguangbo Group solely derived its

revenue from supplying piped gas to residential households, commercial, public utility and

industrial users and operating CNG refueling stations. Saiguangbo Group recorded revenue

of approximately HK$130.8 million and gross profit of approximately HK$27.0 million.

Among the revenue generated, approximately HK$103.8 million was generated from Shanxi

Minsheng and approximately HK$27.0 million was generated from Yongji Minsheng.

The improved operating results of the Saiguangbo Group for the three months ended

31 March 2017 when compare to that for the three months ended 31 March 2016 were

mainly attributable to the decrease in average unit cost of natural gas by 4.7% and 1.3% in

Yongji Minsheng and Shanxi Minsheng respectively and the average selling price of natural

gas remained stable in both Yongji Minsheng and in Shanxi Minsheng. Under the

government endeavored the facilitation of clean energy development, the sales volume of

natural gas were increased by 37.8% and 28.0% in Yongji Minsheng and Shanxi Minsheng

respectively. As a result, the gross profit on sales of natural gas decreased by 2.3% in

Yongji Minsheng and increased by 3.3% in Shanxi Minsheng.


million and distribution costs of approximately HK$0.3 million for the three months

ended 31 March 2017. The other losses of the Saiguangbo Group is approximately HK$2.6

million and as a result, Saiguangbo Group recorded net profit of approximately HK$3.2

million.

Financial position

As at 31 March 2017, the total assets of Saiguangbo Group were approximately

HK$604.9 million which were mainly made up of: (i) property, plant and equipment of





approximately HK$33.6 million.

Included in other receivables as at 31 March 2017 are mainly the advance to staff,

utility deposits and prepayment for natural gas, construction contract and construction

materials. For the three months ended 31 March 2017, the Saiguangbo Group recognised a

bad debt provision on trade receivables of approximately HK$2.9 million, which represents


– III-8 –

the trade receivables and the amount due from customers experiencing financial difficulties

that were in default or delinquency of payments or have been past due for more than one

year and have not responded to repayment demands. With an aim to reduce the rate of the

impairment loss, the Saiguangbo Group had tightened up its credit approval to new

customers in forthcoming years and keep check on the payment pattern from customers.

As at 31 March 2017, the total liabilities of Saiguangbo Group were approximately




HK$43.0 million; and (iv) tax payables of approximately HK$3.6 million. Other payables as

at 31 March 2017 were mainly the receipt in advance of natural gas income and construction

income, staff cost, tax payables and other payables.

As a result, the net assets were approximately HK$113.4 million as at 31 March 2017.

Gearing ratio

Saiguangbo Group had a gearing ratio of approximately 81.3% as at 31 March 2017

which is calculated as total liabilities divided by the total assets.

Capital Commitments

As at 31 March 2017, Saiguangbo Group had no capital commitment contracted for

but not provided in the financial statements.



acquisition and disposal during the three months ended 31 March 2017.

Pledge of assets

As at 31 March 2017, Saiguangbo Group did not pledge any of its assets.


As at 31 March 2017, Saiguangbo Group had 285 employees, with total staff costs of

approximately HK$4.3 million for the three months ended 31 March 2017. Saiguangbo








– III-9 –


hedging measure of foreign currency risk was taken during the three months ended 31

March 2017.


As at 31 March 2017, Saiguangbo Group had no contingent liabilities pursuant to





CNG refueling stations for the three months ended 31 March 2017.

Future prospects


Shanxi Minsheng and Yongji Minsheng, in view of (i) the new real estate projects to be

completed; and (ii) the conversion to piped gas by existing residential areas. Further upside

on gas consumption however will be coming from the commercial segment. Yongji City is

developing its leisure industry lately with most restaurants, hotels & shopping malls are still

not using natural gas as the main source of energy. In terms of gas sourcing, Yuncheng

enjoys the benefits of a dual piped gas supplier. With such an unique infrastructure (East

gas city-gate 東門站 and North gas city-gate 北門站) Yuncheng is able to maximise the gas

output during the peak season. Yuncheng has a well-balanced gas consumption mix in

nature thus it is less affected by any economic cycle and policies.

Since the government in the PRC is promoting the ‘‘coal-to-gas’ policy to reduce the

air pollution in the PRC. Therefore, it is expected that the business of both Shanxi

Minsheng and Yongji Minsheng will also be benefited from the policy. On the same token

Yongji City is also on track to comply with government’s coal-to-gas conversion plan.

According to the Air Pollution Prevention and Control Action Plan (《大氣污染防治行動計

劃》) issued by The State Council (國務院) of PRC in September 2013, coal fired steam

turbine below 10 steam/ton has to be converted by the end of 2017.


– III-10 –

1. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF

THE ENLARGED GROUP

(A) INTRODUCTION

The unaudited pro forma statement of assets and liabilities (the ‘‘Unaudited Pro

Forma Financial Information’’) of the Enlarged Group has been prepared to illustrate the

effect of the acquisition of 100% of the issued share capital of Top Grand Global Limited

(‘‘Top Grand’’). (Top Grand together with its subsidiaries, herein after collectively referred

as the ‘‘Target Group’’) (the ‘‘Acquisition’’), assuming the Acquisition had been completed

as at 30 June 2017 (‘‘Completion’’), might have affected the financial position of the Group.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group is

prepared based on the condensed consolidated statement of financial position of the Group

as at 30 June 2017 as extracted from the interim report of the Group for the period ended 30

June 2017, the audited consolidated statement of financial position of the Top Grand and

the Chongqing Saiguangbo Technology Company Limited (‘‘Saiguangbo’’) and the audited

statement of financial position of Shenzhen Yuhai Energy Company Limited as at 31 March

2017 as extracted from the Accountants’ Report set out in Appendix IIA, IIC and IIB

respectively, of this Circular after making certain pro forma adjustments resulting from the

Acquisition. The Company also confirm with its auditors that they will audit and opine on

the consolidated financial statements of the Group in accordance with Hong Kong

Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants.

The Unaudited Pro Forma Financial Information has been prepared for illustrative

purposes only and, because of its hypothetical nature, it may not give a true picture of the

financial position of the Enlarged Group had the Acquisition been completed as at 30 June

2017 or at any future date. The Unaudited Pro Forma Financial Information should be read

in conjunction with other financial information included elsewhere in this Circular.

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP

– IV-1 –

(B) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND

LIABILITIES OF THE ENLARGED GROUP

Pro forma adjustments

Unaudited

consolidated

statement of

assets and

liabilities of

the Group

as at

30 June

2017

Audited

consolidated

statement of

assets and

liabilities of

Top Grand

as at

31 March

2017

Audited

consolidated

statement of

assets and

liabilities of

Saiguangbo

as at

31 March

2017

Audited

statement of

assets and

liabilities of

Yuhai as at

31 March

2017

Being

adjustment of

transfer of

equity interests

in Yuhai and

Saiguangbo

Sub-total of

the Target

Group (after

transfer of

equity interest

in Yuhai and

Saiguangbo) as

at 31 March

2017 Note 7 Note 8 Note 9

Unaudited pro

forma

consolidated

statement of

assets and

liabilities of

the Enlarged

Group

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9

Non-current assets

Prepaid lease payments 20,335 — 40,572 — 40,572 (6,740) 54,167Property, plant and equipment 368,150 — 364,601 — 364,601 (5,348) 727,403Intangible assets 846,150 — — — — 543,942 1,390,092Goodwill 1,183,533 — — — — 61,359 1,244,892Investment in subsidiaries — — — 5,985 (5,985) — —Interest in associates 212,510 — — — — 212,510Interest in joint ventures 422,197 — — — — 422,197Deposits for acquisition of subsidiaries 815,341 — — — — 815,341Deposits for acquisition of property, plant

and equipment 90,898 — — — — 90,898Prepayment 16,396 — — — — 16,396Promissory not receivable 6,509 — — — — 6,509Available-for-sale investments 134,813 — — — — 134,813Other non-current assets 300 — — — — 300

4,117,132 — 405,173 5,985 405,173 5,115,518

Current assets

Prepaid lease payments 330 — 1,062 — 1,062 1,392Inventories 9,640 — 5,759 — 5,759 15,399Trade and other receivables 275,251 — 94,813 — 94,813 (291,615) 16,161 94,610Amounts due from customers for contract

work — — 48,408 — 48,408 48,408Amounts due from non-controlling

shareholders of subsidiaries 11,940 — — — — 11,940Amounts due from joint ventures 55,170 — — — — 55,170Amounts due from related companies — — 16,161 — 16,161 (16,161) —Promissory notes receivables 178,340 — — — — 178,340Financial assets at fair value through

profit or loss 183,463 — — — — 183,463Cash and bank balances 160,847 103 33,562 — 33,665 (55,647) 138,865

874,981 103 199,765 — 199,868 727,587

Total assets 4,992,113 103 604,938 5,985 605,041 5,843,105

Liabilities

Non-current liabilities

Obligations under finance leases 108,418 — — — — 108,418Other borrowings 293,000 — — — — 293,000Amount due to non-controlling

shareholders of a subsidiary — — — — — 85,964 85,964Convertible bonds 466,258 — — — — 466,258Deferred tax liabilities 210,525 — — — — 193,696 404,221

1,078,201 — — — — 1,357,861

Current liabilities

Trade and other payables 226,628 17 115,060 115,077 55,804 3,436 5,984 406,929Amount due to customers for contract

work — — 42,985 42,985 42,985Obligation under finance lease 50,208 — — — 50,208Other borrowings 87,128 — — — 87,128Convertible bonds 62,210 — — — 62,210Embedded derivatives at fair value

through profit or loss 139,120 — — — 139,120Amount due to an associate — — — — —Amounts due to joint ventures 9,038 — — — 9,038Amount due to director — 117 — 117 117Amount due to shareholders — — 329,931 5,984 335,915 (243,967) (91,948) —Tax payable — — 3,603 3,603 3,603

574,332 134 491,579 5,984 497,697 801,338

Total liabilities 1,652,533 134 491,579 5,984 497,697 2,159,199

Net assets 3,339,580 (31) 113,359 1 107,344 3,683,906


– IV-2 –

Notes:

(1) The unaudited consolidated statement of assets and liabilities of the Group as at 30 June 2017 is extracted

from the condensed consolidation statement of position as at 30 June 2017 of the Group as set out in the

published interim report of the Company as at and for the period ended 30 June 2017.

(2) The consolidated statement of assets and liabilities of Top Grand as at 31 March 2017 is extracted from

the historical financial information of Top Grand as set out in appendix IIA to this Circular.

(3) The consolidated statement of assets and liabilities of Saiguangbo as at 31 March 2017 is extracted from

the historical financial information of Saiguangbo as set out in appendix IIC to this Circular.

(4) The statement of assets and liabilities of Yuhai as at 31 March 2017 is extracted from the historical

financial information of Yuhai as set out in appendix IIB to this Circular.

(5) On 1 November 2016, the shareholders of Saiguangbo transferred 51% equity interest of Saiguangbo to

Yuhai and on 5 May 2017, sole shareholder of Yuhai transferred 2% and 98% equity interest of Yuhai to

a independent third party and Shenzhen Bengu Energy Company Limited, an indirectly wholly owned

subsidiary of Top Grand, respectively. (the ‘‘Transfer’’). No consolidated statement of assets and liabilities

of Yuhai as at 30 June 2017 has been prepared, the adjustment represents the consolidation adjustments in

eliminating the investment cost of Yuhai in Saiguangbo in its consolidated statement of assets and

liabilities, upon if the Completion of the Transfer.

(6) The balances represent the assets and liabilities of the Target Group as at 31 March 2017 before the pro

forma adjustments in relation to the Acquisition.

(7) The Acquisition

The Acquisition involves the acquisition of entire equity interest in Target Group by the Company

pursuant to the terms of the Sale and Purchase Agreement dated on 8 June 2017 at a total consideration of

RMB349,860,000 (equivalent to approximately HK$390,469,000) which will be satisfied by deposit paid

by the Group of RMB250,000,000 (equivalent to approximately HK$291,615,000), retention fund payable

of RMB50,000,000 (equivalent to approximately HK$55,804,000) (‘‘Retention Fund Payable’’) and cash

of RMB49,860,000 (equivalent to approximately HK$55,647,000).

Pursuant to the terms of the sale and purchase agreement, the Vendor’s guarantor has agreed to provide a

profit guarantee to the Group in relation to the financial performance of the Target Group for the period

of one year from date of Completion. If the actual financial performance of the Target Group falls short

of the guarantee profits, the Group can deduct an amount equivalent to the shortfall as monetary

compensation from the Retention Fund Payable.

For the purpose of preparing the Unaudited Pro Forma Consolidated Statement of Financial Position, it

is assumed that the guarantee profit will be attained and the pro forma fair value of the Retention Fund

Payable is RMB50,000,000 (equivalent to approximately HK$55,804,000).


– IV-3 –

The adjustments represent the recognition of goodwill, intangible assets, property, plant and equipment,

prepaid lease payment and deferred tax liabilities arising from the Acquisition Upon Completion, the

identifiable assets and liabilities of the Target Group were accounted for in the consolidated statement of

assets and liabilities of the Enlarged Group at fair value under the acquisition method in accordance with

International Financial Reporting Standard 3 ‘‘Business Combination’’ (IFRS 3’’). For the purpose of the

Unaudited Pro Forma Financial Information and for illustrative purpose only, the Group has carried out

the illustrative consideration allocation exercise in accordance with IFRS 3. The identifiable assets and

liabilities of the Target Grand Group are recorded in the Unaudited Pro Forma Financial Information

assets and liabilities of the Enlarged Group at their fair values estimated by the Directors with reference to

the valuation performed by an independent professional qualified valuer which issued a valuation report

dated 25 September 2017 (the ‘‘PPA Valuation Report’’) on the Target Group for the purpose of purchase

price allocation.

The excess amount of the consideration over the Group’s share of the fair value of the net identifiable

assets of the Target Group is recognised as goodwill. The goodwill arising from the Acquisition of the

continuing business of Target Group is calculated as follows:

Notes HK$’000

Consideration:

— Deposit paid by the Group recognised as trade and

other receivable before Completion of Acquisition 291,615

— Retention Fund Payable 55,804

— Cash 55,647

Total consideration 403,066

Less:

Net assets of Target Group as at 31 March 2017 a 107,344

Fair value deficit of property, plant and equipment b (5,348)

Fair value deficit of prepaid lease payment c (6,740)

Fair value surplus of intangible assets d 543,942

Fair value adjustment on amount due to shareholder of Target Group e 243,967

Effect on deferred tax liabilities arising from fair value surplus of

intangible assets, deficit of property, plant and equipment and prepaid

lease payment f (193,696)

Less:

Non-controlling interests of subsidiaries of the Target Group g (56,582)

Non-controlling interest of 49% of Saiguanbo h (285,241)

Non-controlling interest of 2% of Yuhai i (5,939)

Total fair value of identifiable assets acquired and liabilities assumed of

the Target Group 341,707

Goodwill j 61,359


– IV-4 –

Notes:

(a) Net assets of Target Group after the completion of Transfer.

(b) For the purpose of the Unaudited Pro Forma Financial Information, the fair values of the property,

plant and equipment of the Top Grand Group was adjusted which based on the purchase price

allocation with reference to PPA Valuation Report, with a fair value deficit of

RMB4,861,000(equivalent to approximately HK$5,348,000).

(c) For the purpose of the Unaudited Pro Forma Financial Information, the fair values of the prepaid

lease payment of the Top Grand Group was adjusted which based on the purchase price allocation

with reference to PPA Valuation Report, with a fair value deficit of RMB6,127,000 (equivalent to

approximately HK$6,740,000).

(d) Fair value surplus of intangible assets represent a fair value of exclusive operating rights acquired

amounted to RMB494,443,000 (equivalent to approximately HK$543,942,000), which are based on

the purchase price allocation with reference to PPA Valuation Report.

(e) As at the date of Completion, the shareholder of Target Group agreed not to demand the repayment

for the amounts due from Target Group upon the expiry date of exclusive operating rights. The

amount represents the adjustment on the discounted value of the amount due to shareholder by

Target Group,which are based on the purchase price allocation with reference to PPA Valuation

Report.

(f) The adjustment on deferred tax liabilities is determined based on the fair value surplus of intangible

assets, netted against the fair value deficit of property, plant and equipment and prepaid lease

payment by applying statutory tax rate of 25% in People’s Republic of China.

(g) The amount represents the 49% of non-controlling interests of subsidiaries of the Target Group

upon the Completion of the Transfer before fair value adjustment.

(h) The amount represents 49% of the recognised fair value of identifiable net assets attributable to

non-controlling shareholder of the Saiguanbo.

(i) The amount represents 2% of the recognised fair value of identifiable net assets attributable to non-

controlling shareholder of the Yuhai.

(j) Since the fair values of the identifiable assets and liabilities of the Top Grand Group at the date of

Completion may substantially different from the fair values used in the preparation of this

Unaudited Pro Forma Financial Information of the Enlarged Group, the final amounts of the

identified net assets (including intangible assets) and goodwill may be different from the amounts

presented above. The directors of the Company have assessed whether there is any impairment on

the intangible asset with indefinite useful life (i.e. exclusive operating right) and goodwill arising

from the Acquisition as at 30 June 2017 in accordance with IAS 36 Impairment of Assets (‘‘IAS 36’’)

and concluded that there is no impairment in respect of the intangible assets with indefinite useful

life and goodwill. The recoverable amount of the cash generating until comprising these pro forma

intangible assets (i.e. at exclusive operating right) and goodwill is determined based on the value in

use calculation. The calculation uses cash flow forecast based on the most recent financial budget of

the cash generating unit for the next five years approved by the management of Saiguangbo Group.

Key assumptions of the value in use calculations of the cash generating unit relate to the estimation

of cash inflows and outflows which include budgeted gross margins and operating expenses. Such

estimation is based on the cash generating unit’s past performance and the management’s

expectations for the market development.


– IV-5 –

The directors of the Company confirmed that they will apply consistent accounting policies,

principal assumptions and valuation methods as assess impairment of the intangible asset and

goodwill in subsequent reporting periods in accordance with the requirement of IAS 36. The

Company also confirm with its auditors that they will audit and opine on the consolidated financial

statements of the Group in accordance with Hong Kong Standards on Auditing issued by the Hong

Kong Institute of Certified Public Accountants.

(8) The adjustment represents the estimated professional fee and transaction costs of approximately

HK$3,436,000 increased by the Enlarged Group in connection with the Acquisition, which are assumed to

be payable upon the completion of the Acquisition.

(9) The adjustment represents reclassification of amount due from(to) related companies and shareholders to

other receivables, other payables and amounts due to non-controlling shareholders of a subsidiary as if

the Acquisition completed on 30 June 2017.

(10) For the purpose of preparation of the unaudited pro forma financial information, the consolidated

statement of assets and liabilities is presented in Hong Kong dollar (‘‘HK$’’) and all values are rounded to

the nearest thousand (HK$’000) except when otherwise indicated. Items of the consolidated statement of

assets and liabilities are translated into RMB at the exchange rate ruling at 30 June 2017 of HK$1 to

RMB0.909.

(11) Apart from the Acquisition, no other adjustment has been made to the Unaudited Pro Forma Financial

Information to reflect any trading results or other transactions entered into by the Group and the Top

Grand Group subsequent to 30 June 2017.


– IV-6 –

The following is the text of a report received from the reporting accountants, CHENG &

CHENG LIMITED, Certified Public Accountants, Hong Kong, in respect of the Group’s

proforma financial information for the purpose of incorporation in this Circular.

2. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON

THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION

To the Director of Beijing Gas Blue Sky Holdings Limited

We have completed our assurance engagement to report on the compilation of pro

forma financial information (the ‘‘Unaudited Pro Forma Financial Information’’) of Beijing

Gas Blue Sky Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter

collectively referred to as the ‘‘Group’’) by the directors of the Company (the

‘‘Directors’’) for illustrative purposes only. The Unaudited Pro Forma Financial

Information consists of the unaudited pro forma statement of assets and liabilities of the

Group as at 30 June 2017 and related notes as set out on pages IV-2 to IV-3 of the circular

of the Company dated 25 September 2017 (the ‘‘Circular’’). The applicable criteria on the

basis of which the Directors have compiled the Unaudited Pro Forma Financial

Information are described on page IV-1 of Appendix IV to the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the Directors

to illustrate the impact of the proposed acquisition of 100% of the issued share capital of

Top Grand Global Limited (the ‘‘Proposed Acquisition’’) on the Group’s assets and

liabilities as at 30 June 2017 as if the Proposed Acquisition, had taken place at 30 June 2017.

As part of this process, information about the Group’s assets and liabilities has been

extracted by the Directors from the Group’s condensed financial statements for the period

ended 30 June 2017.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial

Information in accordance with paragraph 4.29 of the Rules Governing the Listing of

Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with

reference to Accounting Guideline 7 ‘‘Preparation of Pro Forma Financial Information for

Inclusion in Investment Circulars’’ (‘‘AG 7’’) issued by the Hong Kong Institute of Certified

Public Accountants (‘‘HKICPA’’).


– IV-7 –

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the ‘‘Code

of Ethics for Professional Accountants’’ issued by the HKICPA, which is founded on

fundamental principles of integrity, objectivity, professional competence and due care,

confidentiality and professional behavior.

Our firm applies Hong Kong Standard on Quality Control 1 ‘‘Quality Control for

Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and

Related Services Engagements’’ issued by the HKICPA and accordingly maintains a

comprehensive system of quality control including documented policies and procedures

regarding compliance with ethical requirements, professional standards and applicable legal

and regulatory requirements.

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the

Listing Rules, on the Unaudited Pro Forma Financial Information and to report our

opinion to you. We do not accept any responsibility for any reports previously given by us

on any financial information used in the compilation of the Unaudited Pro Forma Financial

Information beyond that owned to those to whom those reports were addressed by us at the

dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance

Engagements 3420 ‘‘Assurance Engagements to Report on the Compilation of Pro Forma

Financial Information Included in a Prospectus’’ issued by the HKICPA. This standard

requires that the reporting accountants plan and perform procedures to obtain reasonable

assurance about whether the Directors have compiled the Unaudited Pro Forma Financial

Information in accordance with paragraph 4.29(7) of the Listing Rules and with reference

to AG 7 issued by the HKICPA.

For the purposes of this engagement, we are not responsible for updating or reissuing

any reports or opinions on any historical financial information used in compiling the

Unaudited Pro Forma Financial Information, nor have we, in the course of this

engagement, performed an audit or review of the financial information used in compiling

the Unaudited Pro Forma Financial Information.

The purpose of Unaudited Pro Forma Financial Information included in the Circular

is solely to illustrate the impact of a significant event or transaction on unadjusted financial

information of the Group as if the event had occurred or the transaction had been

undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do

not provide any assurance that the actual outcome of the event or transaction at 31

December 2016 would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma

Financial Information has been properly compiled on the basis of the applicable criteria

involves performing procedures to assess whether the applicable criteria used by the


– IV-8 –

Directors in the compilation of the Unaudited Pro Forma Financial Information provide a

reasonable basis for presenting the significant effects directly attributable to the event or

transaction, and to obtain sufficient appropriate evidence about whether:

— the related pro forma adjustments give appropriate effect to those criteria; and

— the Unaudited Pro Forma Financial Information reflects the proper application

of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgement, having

regard to the reporting accountants’ understanding of the nature of the Group, the event or

transaction in respect of which the Unaudited Pro Forma Financial Information has been

compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro

Forma Financial Information.


a basis for our opinion.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by

the Directors on the basis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the pro forma adjustments are appropriate for the purposes of the Unaudited Pro

Forma Financial Information on the Group as disclosed pursuant to paragraph

4.29(1) of the Listing Rules.

Your faithfully,



Hong Kong

25 September 2017


– IV-9 –

22/F, China Overseas Building,

139 Hennessy Road, Wan Chai, Hong Kong

Tel (852) 2529 6878 Fax (852) 2529 6806

E-mail [email protected]

http://www.romagroup.com

25 September 2017


Rooms 1411, 14/F.,

New World Tower I,

16–18 Queen’s Road Central,

Hong Kong

Case Ref: AK/BVPPA4207p/MAY17(a)

Dear Sir/Madam,

Re: Valuation of 100% Equity Interest in Chongqing Saiguangbo Technology Company

Limited and its Subsidiaries

In accordance with the instructions from Beijing Gas Blue Sky Holdings Limited

(hereinafter referred to as the ‘‘Company’’) to us to conduct a business valuation on 100%

equity interest in Chongqing Saiguangbo Technology Company Limited (hereinafter

referred to as the ‘‘Business Enterprise’’) and its subsidiaries (collectively referred to as the

‘‘Subject Group’’), we are pleased to report that we have made relevant enquiries and

obtained other information which we considered relevant for the purpose of providing our

valuation as at 31 March 2017 (hereinafter referred to as the ‘‘Date of Valuation’’).

This report states the purpose of valuation, scope of work, an economic overview, an

industry overview, an overview of the Subject Group, basis of valuation, investigation and

analysis, valuation methodology, major assumptions, information reviewed, limiting

conditions, remarks and opinion of value.

1. PURPOSE OF VALUATION

This report is prepared solely for the use of the directors and management of the

Company. Roma Appraisals Limited (hereinafter referred to as ‘‘Roma Appraisals’’)

acknowledges that this report may be made available to the Company for public

documentation purpose only.

Roma Appraisals assumes no responsibility whatsoever to any person other than the

Company in respect of, or arising out of, the contents of this report. If others choose to rely

in any way on the contents of this report they do so entirely at their own risk.

APPENDIX V VALUATION REPORT

– V-1 –

2. SCOPE OF WORK

Our valuation conclusion is based on the assumptions stated herein and on

information provided by the management of the Company, the management of the

Subject Group and/or their representative(s) (together referred to as the ‘‘Management’’).

In preparing this report, we have had discussions with the Management in relation to

the development and prospect of the natural gas supply industry, and the development,

operations and other relevant information of the Subject Group. As part of our analysis, we

have reviewed such financial information and other pertinent data concerning the Subject

Group provided to us by the Management and have considered such information and data

as attainable and reasonable.

We have no reason to believe that any material facts have been withheld from us;

however, we do not warrant that our investigations have revealed all of the matters which

an audit or more extensive examination might disclose.

We do not express an opinion as to whether the actual results of the business operation

of the Subject Group will approximate those projected because assumptions regarding

future events by their nature are not capable of independent substantiation.

In applying these projections to the valuation of the Subject Group, we are making no

representation that the business expansion will be successful, or that market growth and

penetration will be realized.

3. ECONOMIC OVERVIEW

3.1 Overview of the Economy in China

According to the National Bureau of Statistics of China, the nominal gross

domestic product (‘‘GDP’’) of China in 2016 was RMB74,412.7 billion, a year over

year nominal increase of 8.0% comparing to December 2015. China was the third

largest economy in the world, ranked after the European Union and the United States,

in terms of nominal GDP measured by the International Monetary Fund (‘‘IMF’’) in

2014. Despite the global financial crisis in late 2008, the Chinese economy continued to

be supported by the Chinese government through spending in infrastructure and real

estates.

Throughout 2009, the global economic downturn reduced foreign demand for

Chinese exports for the first time in many years. The government vowed to continue

reforming the economy and emphasized the need to increase domestic consumption in

order to make China less dependent on foreign exports. China’s economy rebounded

quickly in 2010, outperforming all other major economies with robust GDP growth

and the economy remained in strong growth since 2011.


– V-2 –

Over the past five years from 2012 to 2016, compound annual growth rate of

China’s nominal GDP was 8.3% whereas the Chinese government targeted to grow its

GDP by around 7.0% annually for the period from 2012 to 2016. Figure 1 illustrates

the nominal GDP of China from 2012 to 2016.

Figure 1 — China’s Nominal GDP from 2012 to 2016

0

10,000

2012 2013 2014 2015 2016

20,000

30,000

40,000

50,000

60,000

70,000

80,000

billion RMB

Source: National Bureau of Statistics of China

3.2 Inflation in China

Tackling inflation problem has long been the top priority of the Chinese

government as high prices are considered as one of the causes of social unrest. For such

a fast-growing economy, the middle-class’ demand for food and commodities has been

rising continuously. Inflation in China has been driven mainly by food prices, which

have been stayed high in 2011. According to the National Bureau of Statistics of

China, the consumer price index (‘‘CPI’’) demonstrated an uptrend in the first half of

2011. Thanks to the government’s policies in suppressing commodity prices, the

inflation in CPI slowed in the second half of 2011 and first half of 2012 and maintained

at around 2.0% to 3.2% during 2013. During 2014, the CPI dropped and reached 1.5%

in December 2014. During first half of 2015, the CPI maintained at around 0.8% to

1.5%, and fluctuated around 1.3% to 2.0% in second half of 2015. In 2016, the CPI

dropped from 2.3% in January to 1.3% in August, but rose in the later months and

arrived at 2.1% in December. Figure 2 shows the year-over-year change in CPI of

China from July 2013 to December 2016.


– V-3 –

Figure 2 — Year-over-year Change in China’s CPI from July 2013 to December 2016

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jul Oct Jan2014

Apr Jul Oct Jan2015

Apr July Oct Jan2016

Apr July Oct

%

Source: Bloomberg

China’s inflation rate was volatile during the past decade. According to the IMF,

the inflation rate in China increased from 2.8% in 2006 to 6.5% in 2007, and then

dropped to 1.2% and 1.9% in 2008 and 2009 respectively. The inflation rate increased

to 4.6% in 2010 and maintained at 4.1% in 2011. The inflation rate dropped again to

2.5% in 2012 and 2013, and further to 1.5% in 2014. It started to climb then in the

recent two years from 1.6% at 2015 to 2.1% in 2016. According to IMF’s forecast, the

long-term inflation rate of China is expected to be around 3.0%. Figure 3 shows the

historical trend of China’s inflation rate from 2006 to 2016.


– V-4 –

Figure 3 — China’s Inflation Rate from 2006 to 2016

0

1

2

3

4

5

6

7

2012201120102009200820072006 2013 2014 2015 2016

Source: International Monetary Fund

4. INDUSTRY OVERVIEW

4.1 Overview of Natural Gas Industry in China

China is the world’s most populous country and has a rapidly growing economy,

which has driven the country’s high overall energy demand and the quest for securing

energy resources. According to U.S. Energy Information Administration (‘‘EIA’’),

China has become the largest global energy consumer since 2010 and passed Japan. It

became the world’s third-largest natural gas consumption country in 2013, based on

the information from the Ministry of Land and Resources. According to EIA, the

Chinese government is planning to produce about 5.5 trillion cubic meters of natural

gas by the end of 2015, in line with its desire to use more natural gas to replace other

hydrocarbons in the country’s energy portfolio. The Chinese government also

anticipates boosting the share of natural gas as part of total energy consumption to

around 10% by 2020 to alleviate air pollution resulting from China’s heavy coal use.

Generally speaking, the drastic growth of natural gas consumption in China provides

prerequisites for the rising of liquefied natural gas fueling station industry.

According to the National Bureau of Statistics of China, the total natural gas

consumption in China rises from 130,530 million cubic meters in 2011 to 193,175

million cubic meters in 2015. Figure 4 shows the total natural gas consumption from

2011 to 2015.


– V-5 –

Figure 4 — Total Natural Gas Consumption in China between 2011 and 2015

(in 100 million cubic meters)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2011 2012 2013 2014 2015


The consumption of natural gas in China was also supported by governmental

policy. In 2016, the National Energy Admission of China announced the ‘‘Guiding

Opinions on Energy Development for 2016’’ in promoting the use of natural gas as

fuels for public transportation and electricity generation.

4.2 The Compressed Natural Gas (’’CNG’’) Fueling Station Industry

The CNG fueling station industry has promising future in China. In recent years,

the demand of natural gas vehicles has showed large growth potential since they are

more energy efficient and environmentally friendly, compared with traditional gasoline

automobiles. According to China5e, an energy information and consulting service

provider in China, there are around 4.9 million of CNG vehicles in China, with 12

provinces and autonomous region owned over a hundred thousands of CNG vehicles.

It is anticipated that there will be 7 more cities will have over a hundred thousands of

CNG vehicles in 2020. As a consequence, the rapid increasing usage of natural gas and

natural gas vehicles has boosted the demand and intensive construction of CNG

fueling stations in China. In addition to the above, the urgent need of China’s energy

structure adjustment promoted the development of natural gas fueling stations. The

long lasting and widespread haze in China in 2013 accelerated the release of relevant

technical rules standardizing the construction of natural gas fueling stations. Such

technical rules, to some extent, accelerated the government’s administrative approval

and construction of natural gas fueling stations, as well as the CNG fueling station.

According to Society of Automotive Engineers of China, the number of CNG fueling

station in use was 1,800 in 2010, increasing gradually to 4,455 in 2014. Figure 5 shows

the number of CNG fueling stations in China from 2010 to 2014.


– V-6 –

Figure 5 — Number of CNG Fueling Stations in China between 2010 and 2014

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2010 2011 2012 2013 2014

Source: Society of Automotive Engineers of China

4.3 The Pipeline Natural Gas Industry

The promotion in use of natural gas has boosted the demand for the pipeline

natural gas. Pipeline natural gas in China are majorly imported from Turkmenistan

and Qatar. In the recent years, the Chinese government worked hard in developing a

better pipeline network for transport natural gas. According to the National Bureau of

Statistics in China, the length of natural gas pipeline rise steadily from 298,972

kilometers in 2011 to 498,087 kilometers in 2015. Figure 6 shows the length of natural

gas pipeline in China between 2011 and 2015.


– V-7 –

Figure 6 — Length of Natural Gas Pipeline in China between 2011 and 2015

0

100,000

200,000

300,000

400,000

500,000

600,000kilometers

2011 2012 2013 2014 2015


With the improving development of the natural gas pipeline network in China, the

demand for pipeline natural gas is expected to grow sharply.

5. OVERVIEW OF THE SUBJECT GROUP

The following figure shows the group structure of the Subject Group.

Figure 7 — Group Structure of the Subject Group

100% 100%

The Business Enterprise

山西民生天然氣有限公司(“Shanxi Minsheng”)

永濟市民生天然氣有限公司(“Yongji Minsheng”)

The Business Enterprise is a company established in the People’s Republic of

China with limited liability. The principal business of the Business Enterprise is,

among other things investment of town gas, and sale of gas equipment.

Shanxi Minsheng, is principally engaged in the supply of piped gas to residential

households, public utility, commercial and industrial users; and operation of 5 CNG

refueling stations for vehicles in Yuncheng City, Shanxi Province. Shanxi Minsheng

entered into a number of operation rights agreements with the local government of

Yuncheng City in Shanxi Province, in which Shanxi Minsheng was granted the build-

operate-transfer (建造、營運及轉移) and exclusive operation rights (特許經營權)


– V-8 –

(hereinafter referred to as the ‘‘Exclusive Operating Rights’’) for terms of 20 years to 25

years, commencing from August 2006, October 2009, September 2011 and July 2012,

for the supply of natural gas via gas pipelines within the urban planning area (城市規劃

區域) in Yuncheng City and the new development areas (新發展區域), such as Yanhu

(鹽湖新區), Konggang (空港新區) and Yuncheng Economic Development Zone (運城

經濟開發區).

Yongji Minsheng is principally engaged in the supply of piped gas to residential

households, public utility, commercial and industrial users; and operation of 2 CNG

refueling stations for vehicles in Yongji City, Shanxi Province. Yongji Minsheng has

entered into a franchise operation agreement with the local government of Yongji City,

pursuant to which Yongji Minsheng is granted an exclusive operation right for 30 years

commencing from November 2008 to invest in and operate the city pipeline system to

provide and distribute piped natural gas in Yongji City, Shanxi Province.

6. BASIS OF VALUATION

Our valuation is conducted on a market value basis. According to the International

Valuation Standards established by the International Valuation Standards Council in 2017,

market value is defined as ‘‘the estimated amount for which an asset or liability should

exchange on the valuation date between a willing buyer and a willing seller in an arm’s

length transaction, after proper marketing and where the parties had each acted

knowledgeably, prudently and without compulsion’’.

7. INVESTIGATION AND ANALYSIS

Our investigation included discussions with members of the Management in relation to

the development, operations and other relevant information of the Subject Group. In

addition, we have made relevant inquiries and obtained further information and statistical

figures regarding the economy in China as we considered necessary for the purpose of the

valuation.

As part of our analysis, we have reviewed such financial information and other

pertinent data concerning the Subject Group provided to us by the Management and have

considered such information and data as attainable and reasonable. We have also consulted

other sources of financial and business information.

The valuation of the Subject Group requires consideration of all pertinent factors,

which may or may not affect the operation of the business and its ability to generate future

investment returns. The factors considered in our valuation include, but are not necessarily

limited to, the following:

. The nature and prospect of the Subject Group;

. The financial condition of the Subject Group;

. The status and performance of the Subject Group;


– V-9 –

. The economic outlook in general and the specific economic environment and

market elements affecting the business, industry and market;

. Relevant licenses and agreements; and

. The business risks of the Subject Group such as the ability in maintaining

competent technical and professional personnel.

8. VALUATION METHODOLOGY

There are generally three accepted approaches to obtain the market value of the

Subject Group, namely the Market-Based Approach, Income-Based Approach and Asset-

Based Approach. Each of these approaches is appropriate in one or more circumstances,

and sometimes, two or more approaches may be used together. Whether to adopt a

particular approach will be determined by the most commonly adopted practice in valuing

business entities that are similar in nature.

8.1 Market-Based Approach

The Market-Based Approach values a business entity by comparing prices at

which other business entities in a similar nature changed hands in arm’s length

transactions. The underlying theory of this approach is that one would not pay more

than one would have to for an equally desirable alternative. By adopting this

approach, the valuer will first look for valuation indication of prices of other similar

business entities that have been sold recently.

The right transactions employed in analyzing indications of values need to be sold

at an arm’s length basis, assuming that the buyers and sellers are well informed and

have no special motivations or compulsions to buy or to sell.

8.2 Income-Based Approach

The Income-Based Approach focuses on the economic benefits due to the income

producing capability of the business entity. The underlying theory of this approach is

that the value of the business entity can be measured by the present worth of the

economic benefits to be received over the useful life of the business entity. Based on

this valuation principle, the Income-Based Approach estimates the future economic

benefits and discounts them to their present values using a discount rate appropriate

for the risks associated with realizing those benefits.

Alternatively, this present value can be calculated by capitalizing the economic

benefits to be received in the next period at an appropriate capitalization rate. This is

subject to the assumption that the business entity will continue to maintain stable

economic benefits and growth rate.


– V-10 –

8.3 Asset-Based Approach

The Asset-Based Approach is based on the general concept that the earning power

of a business entity is derived primarily from its existing assets. The assumption of this

approach is that when each of the elements of working capital, tangible and intangible

assets is individually valued, their sum represents the value of a business entity and

equals to the value of its invested capital (‘‘equity and long term debt’’). In other

words, the value of the business entity is represented by the money that has been made

available to purchase the business assets needed.

This money comes from investors who buy stocks of the business entity (‘‘equity’’)

and investors who lend money to the business entity (‘‘debt’’). After collecting the total

amounts of money from equity and debt, and converted into various types of assets of

the business entity for its operation, their sum equals the value of the business entity.

8.4 Business Valuation

In the process of valuing the Subject Group, we have taken into account the

operation and financial information of the Subject Group and conducted discussions

with the Management to understand the status and prospect of the Subject Group and

the natural gas supply industry it is participating. Also, we have considered the

accessibility to available data and relevant market transactions in choosing among the

valuation approaches. We have conducted valuation on the 100% equity interest in

Shanxi Minsheng and Yongji Minsheng respectively to determine the value of 98%

equity interest in the Subject Group.

The Market-Based Approach was not adopted in this case because most of the

important assumptions of the comparable transactions, such as discount or premium

on the transaction prices or considerations, were unavailable. Moreover, the financial

performance of the Subject Group has not been normalized nor reached a stabilized

level as the Management expected to expand their business, the current financial

figures could not capture the future growth of the Subject Group.

The Asset-Based Approach was also not adopted because it could not cater the

future profitability which resulted from the future business expansion of the Subject

Group as forecasted by the Management and thus underestimated the market value of

the Subject Group.

The Income Based Approach can fully reflect and represent the Subject Group’s

future plan, including the growth rate and thus the future earning potentials in the

valuation. We have therefore considered the adoption of the Income-Based Approach

in arriving at the market value of the Subject Group.


– V-11 –

8.4.1 Discounted Cash Flow

Under the Income-Based Approach, we have adopted the discounted cash

flow (‘‘DCF’’) method, which is based on a simple reversal calculation to restate

all future cash flows in present terms. The expected free cash flow for each year

was determined as follows:

Expected Free Cash Flow = Net Profit + Depreciation – Change in Net Working Capital

– Capital Expenditure

The present value of the expected free cash flows was calculated as follows:

PVCF = CF1/(1+r)1 + CF2/(1+r)2 + ··· + CFn/(1+r)n

In which

PVCF = Present value of the expected free cash flows;

CF = Expected free cash flow;

r = Discount rate; and

n = Number of years.

To adopt this method, we obtained the weighted average cost of capital

(‘‘WACC’’) of the Subject Group as a basic discount rate. WACC of the Subject

Group is the minimum required return that the Subject Group must earn to satisfy

various capital providers including shareholders and debt holders. WACC

calculation takes into account the relative weights of debt and equity. It is

computed using the formula below:

WACC = We x Re + Wd x Rd x (1 – Tc)

In which

Re = Cost of equity;

Rd = Cost of debt;

We = Weight of equity value to enterprise value;

Wd = Weight of debt value to enterprise value; and

Tc = Corporate tax rate.

8.4.2 Cost of Debt

The cost of debt was determined by the expected borrowing rate of the

Subject Group to finance the Subject Group. Since the interest expenses paid on

debts are tax-deductible for the Subject Group, the cost of the Subject Group to

get debt funds is less than the required rate of return of the suppliers of the debt

capital. The after-tax cost of debt was calculated by multiplying one minus the

corporate tax rate by the cost of debt.


– V-12 –

8.4.3 Cost of Equity

The cost of equity was determined using the Capital Asset Pricing Model

(‘‘CAPM’’), which describes the relationship between the risk of the Subject

Group and expected return to investors. It is calculated by the following formula:

Re = Rf+ β x Market Risk Premium + Other Risk Premium

In which

Re = Cost of equity;

Rf = Risk-free rate; and

β = Beta coefficient.

8.4.4 Discount Rate

In the process of determining the WACC, we adopted several listed

companies with similar business scopes and operations to the Subject Group as

comparable companies. The comparable companies were selected mainly with

reference to the following selection criteria:

. The companies are principally engaged in the gas supply industry in

China;

. The companies have sufficient listing and operating histories; and

. The financial information of the companies is available to the public.

Details of the comparable companies adopted were listed as follows:

Company Name Stock Code

Listing

Location Business Description

Shenzhen Gas

Corporation Ltd.

601139.CH China Shenzhen Gas Corporation Ltd.,

supplies gas in Shenzhen. The

company business includes

wholesale of gas, pipeline and the

supply of bottled gas, investment

and construction in the

distribution network of gas

transmission.

China Gas Holdings

Ltd.

384.HK Hong Kong China Gas Holdings Ltd. invests

in, operates and manages natural

gas distribution pipelines. The

company distributes and sells

natural gas to residential,

commercial and industrial users,

and bottles and sells compressed

natural gas. It also constructs and

operates gas stations.


– V-13 –

Company Name Stock Code

Listing

Location Business Description

China Oil & Gas Group

Ltd.

603.HK Hong Kong China Oil and Gas Group Ltd. is

engaged in the investments in, and

the operation and management of

the natural gas and energy related

business. The company’s

operations include city piped gas

business, natural gas vehicle

refilling stations, pipeline

construction and operation, as well

as transportation, delivery and

distribution of CNG and liquefied

natural gas.

Towngas China

Company Limited

1083.HK Hong Kong Towngas China Company Limited

distributes and markets gas. The

company sells liquefied petroleum

gas (‘‘LPG’’) in bulk and cylinder

containers, provides piped LPG

and natural gas, constructs gas

pipelines, operates city gas-pipeline

networks and gas stations, and sells

LPG natural gas household

appliances.

China Resources Gas

Group Limited

1193.HK Hong Kong China Resources Gas Group

Limited distributes natural gas and

petroleum gas in the cities of

China. The company also operates

compressed natural gas filling

stations in Chengdu, Nanjing and

Wuxi.

China Tian Lun Gas

Holdings Ltd.

1600.HK Hong Kong China Tian Lun Gas Holdings Ltd.

processes and distributes natural

gas through urban pipelines. The

company operates in Henan

Province, China. It also operates a

compressed natural gas filling

station.

Source: Bloomberg

In searching the comparable companies for Shanxi Minsheng and Yongji

Minsheng, we have searched for comparable companies principally engaged in

pipeline gas supply and CNG gas station operation. However, comparable

companies principally engaged in the aforementioned business sector only was

unavailable. In balancing the relevancy of the comparable companies and the

representativeness of the data extracted from these comparables, we have relaxed

the selection criteria by selecting comparable companies principally engaged in

gas supply industry in China.


– V-14 –

The list of selected comparable companies is an exhaustive list based on the

aforementioned criteria in section 8.4.4 of the valuation report. We have

conducted searches through Bloomberg and public internet domains in selecting

the comparable companies suitable for the valuation. We have made full-fledged

attempt to search for as many comparable companies as possible.

We have analyzed the revenue mix of the comparable companies and noted

that majority of their revenues in 2016 involved sales and distribution of fuel gas

or natural gas. In regard to the similarity of the business of the comparable

companies to the Subject Group, we are of the view that the comparable

companies adopted are relevant, fair and reasonable for this valuation.

Given that the comparable companies are of different development stage and

generally of larger size in operation than that of the Subject Group, we have

considered firm specific risk premium and size premium respectively in estimating

the discount rates of the Subject Group. For details, please refer to the following

calculation.

Below is the summary of the key parameters of the WACC of the Subject

Group adopted as at the Date of Valuation:

Key Parameters

As at

31 March

2017

a) Risk-free Rate 3.29%

b) Market Risk Premium 9.33%

c) Beta Coefficient 1.00

d) Size Premium 3.58%

e) Firm Specific Risk Premium 4.00%

f) Cost of Equity 20.24%

g) Cost of Debt 8.90%

h) Weight of Equity Value to Enterprise Value 66.52%

i) Weight of Debt Value to Enterprise Value 33.48%

j) Corporate Tax Rate 25.00%

WACC 15.70%

Notes:

a) The risk-free rate adopted was the yield rate of China 10-year government bond, which

represented long-term China government generic bond yield, as at the Date of Valuation

as extracted from Bloomberg since it was a long-term risk free rate applicable to the

Subject Group which operates in China. Government bonds are considered to be

relatively risk-free to a holder of a government bond, because there is no risk of default.

Moreover, government bond with longer life may not be frequented quoted, which may

not accurately reflect the market risk free rate. Thus, the yield rate of China 10-year

government bond was adopted.


– V-15 –

b) The market risk premium adopted was the equity market risk premium of China as at

the Date of Valuation as extracted from Bloomberg.

c) The beta coefficient adopted was the median adjusted beta of the comparable companies

as extracted from Bloomberg.

d) The size premium adopted was the size premium for micro-cap companies, which is the

Subject Group belongs to, with reference to the size premium study published by Duff &

Phelps, LLC (‘‘Duff & Phelps’’), an independent advisor founded in 1932 with expertise

in the areas of valuation, corporate finance, disputes and investigations, compliance and

regulatory matters, and other governance-related issues. Duff & Phelps publishes

reports on risk premiums, brand valuation and transactions etc.as well as contributes to

third party reports. Based on the size premium study, the market capitalization of

micro-cap company was ranged from USD1.963 million to USD448.079 million, which

is around RMB13.520 million to RMB3,086.010 million. The Subject Group fall into

this range such that we considered it as a micro-cap company.

e) The firm specific risk premium adopted was to reflect the status and business risk of the

Subject Group as at the Date of Valuation. It is an industry practice of valuers to apply

firm specific risk premium in the WACC calculation in order to reflect the status and

business risk of the valuation target in the valuation. We have conducted sampling of

firm specific risk premium adopted in publicly disclosed valuation report, the samples

fell within the range from 1% to 8%.

After discussing with the Management on the current status and development of the

Subject Group, in particular the Subject Group is profit making for the year ended 31

December 2016 and three months ended 31 March 2017, we considered the risk of the

Subject Group is medium, and 4% firm specific risk premium was adopted for the

Subject Group so as to consider the difference in the development stage between the

comparable companies and the Subject Group.

f) The cost of equity was determined based on Capital Asset Pricing Model (‘‘CAPM’’).

g) The calculation of WACC considers long term debt for approximation, therefore the

cost of debt adopted was estimated with reference to China 5-year benchmark lending

rate plus firm specific risk premium. China 5-year benchmark lending rate is the longest

available China benchmark lending rate source from the People’s Bank of China, as at

the Date of Valuation since it was a long-term borrowing rate applicable to the Subject

Group which operates in China.

h) As the calculation of WACC would be based on an optimal weight of equity value to

enterprise value, and as advised by the Management, the current status of the Subject

Group has not reached the optimal capital structure, the weight of equity value to

enterprise value adopted was derived from the median debt-to-equity ratio of the

comparable companies as at the Date of Valuation as extracted from Bloomberg.

i) As the calculation of WACC would be based on an optimal weight of debt value to

enterprise value, and as advised by the Management, the current status of the Subject

Group has not reached the optimal capital structure, the weight of debt value to

enterprise value adopted was derived from the median debt to-equity ratio of the

comparable companies as at the Date of Valuation as extracted from Bloomberg.

j) The corporate tax rate adopted was the corporate tax rate in China.


– V-16 –

Hence, we adopted the WACC of 15.70% for the Subject Group as at the

Date of Valuation.

8.4.5 Major Assumptions of Cash Flow Projection

8.4.5.1 Revenue and Cost

Shanxi Minsheng

The Management expected the cost of sales will generally growth in line

with that of the selling price. For simplicity, it is assumed that both the

selling price and the cost of sales will keep constant over the forecast period.

Gas Sales to Residential Users

The revenue from gas sales to residential users was estimated based on

the selling price and the sales volume. For the selling price, the Management

has made reference to the historical average selling price of the period from

January to March 2017 and the government document named ‘‘2015年11月25

日運城市發改委《關於轉發〈山西省物價局關於降低我省非居民用天然氣價

格的通知〉的通知》（運發改價管字[2015]516號）’’ to set the selling price at

RMB2.38 per m3 for the residential users. The selling price would be adopted

for the 10 years forecast period.

The volume was estimated with with reference to (i) the sum of the

number of users in 2016 and the annualized additional number of users for

the period from January to March 2017; and (ii) the gas consumption per

household.

The number of residential users was estimated to be increased by 24,000

users per year, which was referenced to the annualized additional number of

users for the period from January to March 2017.

According to the ‘‘13th Five-year Plan’’, the government endeavors the

facilitation of clean energy development, as such, the Management expected

that the favourable policy from the government will encourage residential

users to use more of natural gas instead of other forms of energy.

Based on government’s intention on the development of specific areas

(through public land auction with specification of the land) and various

discussions with property developers for their development plan, the

Management obtained relevant information and noted that in coming 10

years, an average of not less than 24,000 new households per year is expected

to be generated in Yuncheng of Shanxi province.

As a conservative approach, the forecast applied the annualized increase

in number of residential household in 2017 of 24,000 for residential users for

the next 10 years.


– V-17 –

The gas consumption per household was estimated based on the

annualized gas consumption for the period from January to March 2017

divided by the number of users.

The cost of gas sales to residential users was related to the purchase

price per unit and the volume. With reference to the historical average

purchase price of the period from January to March 2017 and the

government document named ‘‘2015 年 11 月 23 日山西省物價局《關於降低

我省非居民用天然氣價格的通知》（晉價商字[2015]305號）’’, the Management

has set the unit cost at RMB1.72 per m3.

Gas Sales to Commercial Users, Industrial Users and Public Utility Users

The revenue from gas sales to commercial users, industrial users and

public utility users was estimated based on the respective selling price and the

sales volume. The Management has made reference to the historical average

selling price of the period from January to March 2017 and the government

document named ‘‘2015 年 11 月 25 日運城市發改委《關於轉發〈山西省物價

局關於降低我省非居民用天然氣價格的通知〉的通知》（運發改價管字[2015]

516號）’’ to set the selling price at RMB3.26 per m3, RMB3.03 per m3 and

RMB2.65 per m3 for commercial users, industrial users and public utility

users respectively. These selling prices would be adopted for the 10 years

forecast period.

The sales volume for industrial, commercial and public utility users were

estimated with reference to (i) the sum of number of user in each category in

2016 and the annualized additional number of users for the period from

January to March 2017 in each category (ii) the growth rate of the users in

each category; and (iii) the gas consumption per user in the respective

category.

The growth rate of the revenue was mainly determined by the growth in

number of industrial users, commercial users and public utility users

respectively. The number of industrial users was estimated to be increased

by 12% per year, which was referenced to the growth rate of the industrial

users in 2016. The number of commercial users was estimated to be increased

by 100 users per year, which was referenced to the annualized additional

number of users for the period from January to March 2017. The number of

public utility users was estimated to be increased by 24 users per year, which

was referenced to the annualized additional number of users for the period

from January to March 2017.

Different from residential and commercial users, which the per capita

gas usage would not have significant variance from one user to another, the

per capita gas usage for each industrial user can be varied significantly based

on the production process, size and scale of the industrial user, and as such,

we adopted a percentage growth when projecting the growth of industrial

users so as to reflect the overall growth of gas usage of industrial users.


– V-18 –

The forecast was prepared based on, amongst others, the financial

information as of 31 March 2017. The Company also kept appraised of

certain key operating data from time to time. Taking into account the latest

user data available to the Management, they considered that adopting the

aforementioned growth rates for different categories of users are more

appropriate to reflect the growth trend.

The gas consumption per user was estimated by the annualized gas

consumption for the period from January to March 2017 in each category

divided by the number of users in the respective category as at 31 December

2016.

The cost of gas sales to commercial, public utility and industrial users

were estimated based on the respective purchase price per unit and the sales

volume. The Management has made reference to the historical average selling

price of the period from January to March 2017 and the government

document named ‘‘2015年11月23日山西省物價局《關於降低我省非居民用天

然氣價格的通知》（晉價商字[2015]305號）’’ and set the unit cost at RMB2.46

per m3.

CNG Station

The revenue from CNG stations was estimated based on the selling price

and CNG sales volume. The Management has made reference to the

historical average selling price for the period from January to March 2017

and the government document named ‘‘2015年11月25日運城市發改委《關於

轉發〈山西省物價局關於降低我省非居民用天然氣價格的通知〉的通知》（運

發改價管字[2015]516號）’’, to set the selling price at RMB3.73 per m3. The

selling price would be adopted for the 10 years forecast period.

The sales volume is projected based on the annualized CNG sales

volume for the period from January to March 2017 with the average growth

rate of the number of taxi in 2014 and 2015 in Shanxi Province. In

determining the average growth rate for the number of taxi, the Management

has made reference to the latest available research data issued by National

Bureau of Statistics of China.

As the CNG stations mainly provide gas supply to taxis, the growth rate

of CNG gas sales volume was determined by the number of taxis in

Yuncheng City. The estimated growth rate for CNG gas sales volume was

1%, with reference to the historical growth rate of number of taxis in

Yuncheng City, Shanxi Province from 2014 to 2015.

The cost of CNG sales was estimated based on the purchase price per

unit and the CNG sales volume. The Management has made reference to the

historical average selling price of the period from January to March 2017 and


– V-19 –

government document named ‘‘2015年11月23日山西省物價局《關於降低我省

非居民用天然氣價格的通知》（晉價商字[2015]305號）’’, to set the unit cost at

RMB2.46 per m3.

Installation Income from Residential User

The revenue from installation income was estimated based on the

installation price per household and the number of new users. The

Management has made reference to the historical average selling price of

natural gas furnace, water heater and installation fee income from 2014 to

2016 and period from January to March 2017 and the government document

named ‘‘山西省物價局《關於對運城巿燃氣相關收費項目和標準的批覆》（晉

價商字[2013]17號）’’ to set the installation fee per household at RMB2,948

for residential user.


users per year, with reference to the annualized additional number of users

for the period from January to March 2017.

The cost was estimated based on the installation cost per residential user

and the number of new users. The Management has made reference to the

historical average selling price of the natural gas furnace, water heater and

installation fee in the years of 2014 to 2016 and the period from January to

March 2017 to set the unit cost at RMB1,612 per residential user.

Installation Income from Commercial User, Industrial User and Public

Utility User

The revenue was estimated based on the installation price per user and

number of new users from commercial user, industrial user and public utility

user respectively. With reference to the historical installation income per user

in the years of 2014 to 2016 and period from January to March 2017, the

Management estimated the installation fee per user would be set at

RMB121,936, RMB299,445 and RMB230,324 for commercial user,

industrial user, public utility user respectively.




by 12% per year, which was referenced to the growth rate of the industrial

users in 2016. The number of commercial users was estimated to be increased

by 100 users per year, which was referenced the annualized additional

number of users for the period from January to March 2017. The number of

public utility users was estimated to be increased by 24 users per year, which

was referenced to the annualized additional number of users for the period

from January to March 2017.


– V-20 –

The cost was estimated based on the installation cost per user for each

category and the number of new users from the respective category. With

reference to the historical installation cost per user in the years of 2014 to

2016 and the period from January to March 2017, the Management estimated

that the installation cost would be set at RMB163,992 per industrial user,

RMB126,299 per public utility user and RMB62,814 per commercial user.

Revenue from the sales of natural gas to industrial users was the biggest

revenue stream to Shanxi Minsheng for the three months ended 31 March

2017, and it will continue to be the biggest revenue stream to Shanxi

Minsheng during the forecast period.

Yongji Minsheng

The Management expected the cost of sales will generally growth in line

with that of the selling price. For simplicity, it is assumed that both the

selling price and the cost of sales will keep constant over the forecast period.

Gas Sales to Residential User

Revenue for gas sales to residential user was estimated based on the

selling price and the sales volume. For the selling price, the Management has

made reference to the historical average selling price of the period from

January to March 2017 and the government document named ‘‘2016年11月21

日永濟市發展和改革局《關於調整我市非居民用天然氣價格的通知》（永政發

改字[2016]88號）’’ to set the selling price at RMB2.48 per m3 for the

residential user. The price would be adopted for the 10 years forecast period.

The volume was estimated with reference to (i) the sum of the number of

user in 2016 and the annualized additional number of user for the period

from January to March 2017; and (ii) the gas consumption per household.


users per year, which was referenced to the annualized additional number of

users for the period from January to March 2017.

The gas consumption per household was estimated based on the

annualized gas consumption for the period from January to March 2017

divided by the number of user.

The cost of sales was estimated by the purchase price per unit and the

volume. The Management has made reference to the historical average

purchase price for the period from January to March 2017 and the

government document named ‘‘2015年11月23日山西省物價局《關於降低我

省非居民用天然氣價格的通知》（晉價商字[2015]305號）’’, to set the unit cost

at RMB1.80 per m3.


– V-21 –

Gas Sales to Commercial User and Industrial User

The revenue was estimated based on the selling price and the sales

volume. The Management has made reference to the historical average selling

price of the period from January to March 2017 and the government

document named ‘‘2016年11月21日永濟市發展和改革局《關於調整我市非居

民用天然氣價格的通知》（永政發改字[2016]88號）’’, to set the selling price at

RMB3.30 per m3 and RMB3.03 per m3 for commercial user and industrial

user and respectively. These prices would be adopted for the 10 years forecast

period.

The sales volume for commercial and industrial user were estimated with

reference to (i) the sum of number of user in each category in 2016 and the

annualized additional number of user in the period from January to March

2017; (ii) the growth rate of the users in each category; and (iii) the gas

consumption per user in the respective category.




by 20% per year, which was referenced to the annualized additional number

of users for the period from January to March 2017. The number of

commercial users was estimated to be increased by 23 users per year, which

was referenced to the additional number of commercial users in 2016.

Different from residential and commercial users, which the per capita

gas usage would not have significant variance from one user to another, the

per capita gas usage for each industrial user can be varied significantly based

on the production process, size and scale of the industrial user, and as such,

we adopted a percentage growth when projecting the growth of industrial

users so as to reflect the overall growth of gas usage of industrial users.

The forecast was prepared based on, amongst others, the financial

information as of 31 March 2017. The Company also kept appraised of

certain key operating data from time to time. Taking into account the latest

user data available to the Management, they considered that adopting the

aforementioned growth rates for different categories of users are more

appropriate to reflect the growth trend.

The gas consumption per user was estimated by the annualized gas

consumption for the period from January to March 2017 in each category

divided by the number of user in the respective category.

The cost of sales for commercial and industrial users was estimated by

the purchase price per unit and sales volume. The Management has made

reference to the historical average selling price of the period from January to


– V-22 –

March 2017 and the government document named ‘‘2015年11月23日山西省物

價局《關於降低我省非居民用天然氣價格的通知》（晉價商字[2015]305號）’’and set the unit cost at RMB2.26 per m3.

CNG Station

The revenue was estimated by the selling price and CNG sales volume.

The Management has made reference to the historical average selling price of

the period from January to March 2017 and the government document

named ‘‘2016年11月21日永濟市發展和改革局《關於調整我市非居民用天然氣

價格的通知》（永政發改字[2016]88號）’’, to set the selling price at RMB3.80

per m3. The price would be adopted for the 10 years forecast period.

The sales volume is projected based on the annualized CNG sales

volume for the period from January to March 2017 with the average growth

rate of the number of taxi in 2014 and 2015 in Shanxi Province. In

determining the average growth rate for the number of taxi, the Management

has made reference to the latest available research data issued by National

Bureau of Statistics of China.

As the CNG stations mainly provide gas supply to taxis, the growth rate

of CNG gas sales volume was determined by the number of taxis in Yongji

City. The estimated growth rate for CNG gas sales volume was 1%, with

reference to the historical growth rate of number of taxis in Yongji City,

Shanxi Provence from 2014 to 2015.

The cost of CNG sales was determined by the purchase price per unit

and sales volume. The Management has made reference to the historical

average selling price of the period from January to March 2017 and

government document named ‘‘2015年11月23日山西省物價局《關於降低我省

非居民用天然氣價格的通知》（晉價商字[2015]305號）’’, to set the unit cost at

RMB2.26 per m3.

Installation Income from Residential Users

The revenue was estimated by the installation fee per household and the

number of new users. For the installation fee, The Management has made

reference to the historical average selling price of natural gas furnace, water

heater and installation fee income from 2014 to2016 and period from January

to March 2017 and the government document named ‘‘山西省物價局《關於對

運城巿燃氣相關收費項目和標準的批覆》（晉價商字[2013]17號）’’ to set the

installation fee per household at RMB2,321 for residential user. As advised

by the Management, since government pricing document was not available

for installation income from residential users specifically for Yongji

Minsheng, reference was made to government document for Shanxi

Minsheng ‘‘山西省物價局《關於對運城巿燃氣相關收費項目和標準的批覆》

（晉價商字[2013]17號）’’.


– V-23 –


users per year, with reference to the annualized additional number of users

for the period from January to March 2017.

The cost was estimated based on the installation cost per residential user

and the number of new residential users. The Management has made

reference to the historical average selling price of the natural gas furnace,

water heater and installation fee from 2014 to 2016 and period from January

to March 2017 to set the unit cost at RMB1,251 per residential user.

Installation Income from Commercial User and Industrial Users

The revenue was estimated by the annual installation fee and number of

new users in the respective category of user. With reference to the historical

installation income per user from 2014 to 2016 and period from January to

March 2017 respectively, the Management estimated that the installation fee

would be set at RMB96,261 per commercial user and RMB358,810 per

industrial users respectively.




by 20% per year, which was referenced to the annualized additional number

of industrial users for the period from January to March 2017. The number

of commercial users was estimated to be increased by 23 users per year, which

was referenced the annualized additional number of commercial users for the

period from January to March 2017.

The cost was estimated by installation cost per user for each category

and the number of new users in the respective category. With reference to the

historical installation cost per user in the years of 2014 to 2016 and the period

from January to March 2017, the Management estimated that the installation

cost would be set at RMB185,831 per industrial user and RMB44,119 per

commercial user respectively.

Revenue from the sales of natural gas to residential and commercial

users were the two major revenue streams to Yongji Minsheng for the three

months ended 31 March 2017, and they will continue to be the two major

revenue streams to Yongji Minsheng during the forecast period.

8.4.5.2 Operating Expenses

The operating expenses were based on the annualized historical expenses for

the period from January to March 2017 with consideration on the average growth

rate of the total sales volume in 2015 and 2016. The operating expenses include all

the relevant items, which mainly represent staff cost, water and electricity charges,

repair and maintenance expense and gas consumption expenses which were mainly


– V-24 –

variable costs in relation to the total sales volume, and as such the Management

estimated the growth rate for the operating expenses with reference to the average

growth rate of the total sales volume in 2015 and 2016.

8.4.5.3 Management Expenses

The selling and distribution expenses were based on the annualized historical

expenses for the period from January to March 2017. The Management estimated

the growth rate for selling and distribution expenses would be similar with the

inflation rate in China of 3% with reference to IMF’s forecast as extracted from

Bloomberg. The selling and distribution expenses include all the relevant items,

which mainly represent staff cost, insurance expenses, water and electricity

charges, traveling expenses, entertainment fee, telecommunication expense,

advertising expenses, land and property tax, rental expenses and bank charges

which the Management do not consider to have significant change during the

forecast period, and as such inflation rate in China was used as growth rate.

8.4.5.4 Depreciation Expenses

Fixed assets include plant and equipment, land, building and construction in

progress for Shanxi Minsheng; while that for Yongji Minsheng include property,

plant and equipment, prepaid lease payment and construction in progress.

The depreciation expense for the fixed assets and the forecasted capital

expenditure for Shanxi Minsheng and Yongji Minsheng was estimated by straight

line depreciation method with weighted average remaining useful life of respective

fixed assets. Below listed the fixed assets with their weighted average remaining

useful life and their rate of depreciation:

Shanxi Minsheng

Weighted

average

remaining

useful life

Rate of

Depreciation

Plant and Equipment 10.30 9.71%

Land 35.07 2.85%

Building 27.50 3.64%

construction in progress 14.00 7.14%


– V-25 –

Yongji Minsheng

Weighted

average

remaining

useful life

Rate of

Depreciation

Property, Plant and Equipment 15.09 6.62%

prepaid lease payment 21.59 4.63%

construction in progress 15.00 6.67%

Rate of depreciation by straight line depreciation method = 1/weighted

average remaining useful life of respective fixed assets.

8.4.5.5 Income Tax Expenses

The income tax expense was estimated by adopting the corporate tax rate in

China of 25% as advised by the Management.

8.4.5.6 Working Capital

The change in working capital was estimated by considering the historical

working capital turnover days of Shunxi Minsheng and Yongji Minsheng

respectively and the Management’s expectation.

8.4.5.7 Capital Expenditure

Capital expenditure was estimated based on the capital expenditure in

previous year and the growth rate of capital expenditure in 2016. The

Management advised that the capital expenditure would be incurred for

pipeline, machineries, office equipment and vehicles while there is no capital

expenditure for buildings in the forecast.

8.4.5.8 Forecast Period

The forecast for the Subject Group was projected for 10 years from the Date

of Valuation with a terminal year to assess the cash flow beyond the 10-year

period. Based on market research conducted by the Company (including

consultation with natural gas industry association the PRC), the operation of

Shanxi Minsheng and Yongji Minsheng would be stabilized in 10 years and

Shanxi Minsheng and Yongji Minsheng would have no obstacle for renewing the

exclusive operating right.


– V-26 –

Terminal Value

The terminal value was determined based on the below formula:

CFT/(Discount rate – Terminal growth rate)

In which

CFT = Cash flow in terminal year, i.e. 2027, being the ending year of the 10 year

forecast period; and

Terminal growth rate = long-term inflation rate of China forecasted by IMF as sourced

from Bloomberg.

Discount rate = WACC stated on page V-15

8.5 Marketability Discount

Compared to similar interest in public companies, ownership interest is not

readily marketable for closely held companies. Therefore, the value of a share of stock

in a privately held company is usually less than an otherwise comparable share in a

publicly held company. We have made reference to the result of the restricted stock

study published in ’’A Companion Guide to the FMV Restricted Stock Study 2016

Edition’’ (’’Guide’’) by FMV Opinions, Inc., one of the national preeminent firms

offering a broad range of financial advisory services to private and public companies.

According to the study, 736 private placement transactions of unregistered common

stock issued by publicly traded companies from July 1980 through September 2015

were examined. As a specific marketability discount for gas supply industry was

unavailable in the Guide, we have therefore applied the marketability discount derived

from 736 samples. The marketability discount was the percentage difference between

the private placement price per share and the market trading price per share. Although

the study does not specify the details of the transactions, the study states that a

company’s industry should not in itself have a significant impact on the discount for

lack of marketability. Therefore, we were of the opinion that it was fair and reasonable

to adopt the median discount for the 736 transactions (excluding premiums) of 16.11%

as the marketability discount in arriving at the market value of the Subject Group as at

the Date of Valuation.

8.6 Summary of Subject Group Valuation

The values of the Subject Group were showed as follows:

RMB

100% Equity Interest of Shanxi Minsheng 636,568,161

100% Equity Interest of Yongji Minsheng 243,400,774


– V-27 –

To determine the market value of the Subject Group as at the Date of Valuation,

we have considered the cash and debt balances, non-operating assets and liabilities of

the Business Enterprise. Detailed calculation is shown as below:

The Business Enterprise

As at

31 March

2017

RMB

Total Present Value of the Shanxi Minsheng and Yongji

Minsheng 879,968,935

Add: Cash 9,949

Less: Debt 0

Add/(Less): Net Non-Operating Assets/(Liabilities) (15,270,347)

100% Equity Interest of the Subject Group 864,708,537

Less: Marketability Discount of 16.11% (139,304,545)

100% Market Value of the Subject Group 725,403,992

Note: The numbers may not add up due to rounding.

9. MAJOR ASSUMPTIONS

We have adopted certain specific assumptions in our valuation and the major ones are

as follows:

. The valuation was primarily based on the financial projections and latest audited

financial statements of the Subject Group as at 31 March 2017 as provided by the

Management. The projections outlined in the financial information provided were

assumed to be reasonable, reflecting market conditions and economic

fundamentals, and will be materialized;

. With reference to a shareholder’s agreement provided by the Management, the

amount due to shareholders would be repaid on 1 November 2038, the expiry date

of the exclusive operating right of Yongji Minsheng;

. The Subject Group will commence operation as planned by the Management;

. As advised by the Management, the Exclusive Operating Rights for Shanxi

Minsheng and Yongji Minsheng could be renewed upon expiry;

. All relevant legal approvals and business certificates or licenses to operate the

business in the localities in which the Subject Group operate or intend to operate

would be officially obtained and renewable upon expiry;


– V-28 –

. There will be sufficient supply of technical staff in the industry in which the

Subject Group operate, and the Subject Group will retain competent

management, key personnel and technical staff to support its ongoing

operations and developments;

. There will be no major change in the current taxation laws in the localities in

which the Subject Group operate or intend to operate and that the rates of tax

payable shall remain unchanged and that all applicable laws and regulations will

be complied with;

. There will be no major change in the political, legal, economic or financial

conditions in the localities in which the Subject Group operate or intend to

operate, which would adversely affect the revenues attributable to and

profitability of the Subject Group; and

. Interest rates and exchange rates in the localities for the operation of the Subject

Group will not differ materially from those presently prevailing.

10. INFORMATION REVIEWED

Our opinion requires consideration of relevant factors affecting the market value of the

Subject Group. The factors considered included, but were not necessarily limited to, the

following:

. Audited financial statements of the Subject Group as at 31 March 2017;

. Exclusive Operating Rights of Shanxi Minsheng and Yongji Minsheng

respectively;

. Shareholder’s agreement in relation to the amount due to shareholders in the

Subject Group;

. The financial projections as provided by the Management;

. Historical operational information of the Subject Group;

. General descriptions in relation to the Subject Group; and

. Economic outlook in China.

We have discussed the details with the Management. We had assumed the accuracy of

information provided and relied on such information to a considerable extent in arriving at

our opinion.

11. LIMITING CONDITIONS

The valuation reflects facts and conditions existing at the Date of Valuation.

Subsequent events or circumstances have not been considered and we are not required to

update our report for such events and conditions.


– V-29 –

We would particularly point out that our valuation was based on the information such

as company background and business nature of the Subject Group provided to us.

To the best of our knowledge, all data set forth in this report are reasonable and

accurately determined. The data, opinions, or estimates identified as being furnished by

others that have been used in formulating this analysis are gathered from reliable sources;

yet, no guarantee is made nor liability assumed for their accuracy.

We have relied on the historical and/or prospective information provided by the

Management and other third parties to a considerable extent in arriving at our opinion of

value. The information has not been audited or compiled by us. We are not in the position

to verify the accuracy of all information provided to us. However, we have had no reason to

doubt the truth and accuracy of the information provided to us and to doubt that any

material facts have been omitted from the information provided. No responsibilities for the

operation and financial information that have not been provided to us are accepted.

We assumed that the Management is competent and perform duties under the company

regulation. Also, ownership of the Subject Group was in responsible hands, unless

otherwise stated in this report. The quality of the Management may have direct impact on

the viability of the business as well as the market value of the Subject Group.

We have not investigated the title to or any legal liabilities of the Subject Group, and

have assumed no responsibility for the title to the Subject Group appraised.

Our conclusion of the market value was derived from generally accepted valuation

procedures and practices that rely substantially on the use of various assumptions and the

consideration of many uncertainties, not all of which can be easily quantified or

ascertained. The conclusion and various estimates may not be separated into parts, and/

or used out of the context presented herein, and/or used together with any other valuation

or study.

We assume no responsibility whatsoever to any person other than the directors and the

Management in respect of, or arising out of, the content of this report. If others choose to

rely in any way on the contents of this report, they do so entirely at their own risk.

No change to any item in any part of this report shall be made by anyone except Roma

Appraisals. We have no responsibility for any such unauthorized change. Neither all nor

any part of this report shall be disseminated to the public without the written consent and

approval of Roma Appraisals through any means of communication or referenced in any

publications, including but not limited to advertising, public relations, news or sales media.

This report may not be reproduced, in whole or in part, and utilized by any third

parties for any purpose, without the written consent and approval of Roma Appraisals.

The working papers and models for this valuation are being kept in our files and would

be available for further references. We would be available to support our valuation if

required. The title of this report shall not pass to the Company until all professional fee has

been paid in full.


– V-30 –

12. REMARKS

Unless otherwise stated, all monetary amounts stated in this valuation report are in

Renminbi (RMB).

We hereby confirm that we have neither present nor prospective interests in the

Company, the Subject Group and their associated companies, or the values reported herein.

13. OPINION OF VALUE

Based on the investigation and analysis stated above and on the valuation method

employed, the market value of 100% equity interest in the Subject Group as at the Date of

Valuation, in our opinion, was reasonably stated as RMB725,000,000 (RENMINBI SEVEN

HUNDRED AND TWENTY FIVE MILLION ONLY).

Yours faithfully,

For and on behalf of

Roma Appraisals Limited


– V-31 –

The following is the text of a report received from the independent reporting accountants,

CHENG & CHENG LIMITED, Certified Public Accountants, Hong Kong, for the purpose of

incorporation of this circular.

INDEPENDENT ASSURANCE REPORT ON CALCULATIONS OF DISCOUNTED

FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE VALUATION

OF THE ENTIRE EQUITY INTEREST IN CHONGQING SAIGUANGBO

TECHNOLOGY COMPANY LIMITED

TO THE DIRECTORS OF BEIJING GAS BLUE SKY HOLDINGS LIMITED

We have examined the calculations of the discounted future estimated cash flows on

which the valuation prepared by Roma Appraisals Limited dated 25 September 2017, of the

entire equity interest in Chongqing Saiguangbo Technology Company Limited

(‘‘Saiguangbo’’) (the ‘‘Valuation’’). The Valuation based on the discounted future

estimated cash flows is regarded as a profit forecast under Rule 14.61 of the Rules

Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the

‘‘Listing Rules’’) and will be included in a circular dated 25 September 2017 to be issued by

Beijing Gas Blue Sky Holdings Limited (the ‘‘Company’’) in connection with the proposed

acquisition of the entire equity interest in Top Grand Global Limited, which indirectly owns

51% equity interest in Saiguangbo (the ‘‘Circular’’).

Directors’ Responsibility for the Discounted Future Estimated Cash Flows

The directors of the Company are responsible for the preparation of the discounted

future estimated cash flows in accordance with the bases and assumptions determined by

the directors and set out in the Circular (the ‘‘Assumptions’’). This responsibility includes

carrying out appropriate procedures relevant to the preparation of the discounted future

estimated cash flows for the Valuation and applying an appropriate basis of preparation;

and making estimates that are reasonable in the circumstances.

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the ‘‘Code

of Ethics for Professional Accountants’’ issued by the Hong Kong Institute of Certified

Public Accountants (the ‘‘HKICPA’’), which is founded on fundamental principles of

integrity, objectivity, professional competence and due care, confidentiality and

professional behavior. Our firm applies Hong Kong Standard on Quality Control 1

‘‘Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and

Other Assurance and Related Services Engagements’’ issued by the HKICPA and

APPENDIX VA REPORT ON FORECASTS UNDERLYINGTHE VALUATION ON SAIGUANGBO GROUP

– VA-1 –

accordingly maintains a comprehensive system of quality control including documented

policies and procedures regarding compliance with ethical requirements, professional

standards and applicable legal and regulatory requirements.

Reporting Accountants’ Responsibility

Our responsibility is to express an opinion on the arithmetical accuracy of the

calculations of the discounted future estimated cash flows on which the Valuation is based

and to report solely to you, as a body, as required by Rule 14.62(2) of the Listing Rules, and

for no other purpose. We do not assume responsibility towards or accept liability to any

other person for the contents of this report. Our engagement was conducted in accordance

with Hong Kong Standard on Assurance Engagements 3000 (Revised) ‘‘Assurance

Engagements Other Than Audits or Reviews of Historical Financial Information’’ issued

by the HKICPA. This standard requires that we comply with ethical requirements and plan

and perform the assurance engagement to obtain reasonable assurance on whether the

discounted future estimated cash flows, so far as the calculations are concerned, have been

properly compiled in accordance with the Assumptions. Our work was limited primarily to

making inquiries of the Company’s management, considering the analyses and assumptions

on which the discounted future estimated cash flows are based and checking the arithmetic

accuracy of the compilation of the discounted future estimated cash flows. Our work does

not constitute any valuation of Saiguangbo Group. Because the Valuation relates to

discounted future estimated cash flows, no accounting policies of the Company have been

adopted in its preparation. The Assumptions include hypothetical assumptions about future

events and management actions which cannot be confirmed and verified in the same way as

past results and these may or may not occur. Even if the events and actions anticipated do

occur, actual results are still likely to be different from the Valuation and the variation may

be material. Accordingly, we have not reviewed, considered or conducted any work on the

reasonableness and the validity of the Assumptions and do not express any opinion

whatsoever thereon.

Opinion

Based on the foregoing, in our opinion, the discounted future estimated cash flows, so

far as the calculations are concerned, have been properly compiled, in all material respects,

in accordance with the Assumptions.



Hong Kong

25 September 2017


– VA-2 –

25 September 2017

The Board of Directors

Beijing Gas Blue Sky Holdings Limited (the ‘‘Company’’)

Dear Sirs,

RE: THE DISCOUNTED FUTURE CASH FLOWS IN CONNECTION WITH THE

BUSINESS VALUATION OF 100% EQUITY INTEREST IN CHONGQING

SAIGUANGBO TECHNOLOGY COMPANY LIMITED

We refer to the business valuation (the ‘‘Valuation’’) prepared by Roma Appraisals

Limited (the ‘‘Independent Valuer’’) set out in the valuation report dated 25 September 2017

in relation to the valuation of the entire equity interest in Chongqing Saiguangbo

Technology Company Limited* (重慶賽廣博科技有限公司), which includes its two wholly-

owned subsidiaries, namely Shanxi Minsheng Natural Gas Co., Ltd.* (山西民生天然氣有限

公司) and Yongji Minsheng Natural Gas Co., Ltd.* (永濟市民生天然氣有限公司), as

referred to in the circular of the Company dated 25 September 2017 (the ‘‘Circular’’). Terms

defined in this letter shall have the same meanings as those used in the Circular, unless the

context otherwise requires.

The Valuation, which has been arrived at using the discounted cash flow method, is

based on the cash flow forecast (the ‘‘Forecasts’’) provided by the management of the

Company. As the Forecasts are regarded as a profit forecast under Rule 14.61 of the Listing

Rules, we have been engaged solely for the purpose of reporting to you under Rule 14.62(3)

of the Listing Rules and for no other purpose. We are not reporting on the arithmetical

calculations of the Forecasts or the Valuation, nor the adoption of accounting policies

thereof.

We confirm that the assessment, review and discussion carried out by us as described in

this letter are primarily based on financial, economic, market and other conditions in effect,

and the information made available to us as of the date of this letter and that we have, in

arriving at our views, relied on information and materials supplied to us by the Independent

Valuer, the Group and the Saiguangbo Group and opinions expressed by, and

representations of, the employees and/or management of the Independent Valuer, the

Group and the Saiguangbo Group. We have assumed that all information, materials and

representations so supplied, including all information, materials and representations

referred to or contained in the Circular, for which the Directors are wholly responsible,

were true, accurate, complete and not misleading at the time they were supplied or made

and continued to be so up to the date of this letter and that no material fact or information

has been omitted from the information and materials supplied. No representation or

warranty, expressed or implied, is made by us on the accuracy, truth or completeness of

such information, materials, opinions and/or representations. Circumstances could have

developed or could develop in the future that, if known to us at the time of this letter, would


– VA-3 –

have altered our respective assessment and review. Further, the qualifications, bases and

assumptions adopted by the Independent Valuer are inherently subject to significant

business, economic and competitive uncertainties and contingencies, many of which are

beyond the control of the Company and the Independent Valuer.

We have not independently verified the computations leading to the Independent

Valuer’s determination of the fair value and market value of Saiguangbo. We have had no

role or involvement and have not provided and will not provide any assessment of the fair

value and market value of Saiguangbo. Our work does not constitute any valuation of

Saiguangbo. We accept no responsibility for, and express no views, whether expressly or

implicitly, on the fair value, market value or any of the value of Saiguangbo.

We have discussed with the management of the Company and the Independent Valuer

the information and documents provided by the Company and the Saiguangbo Group.

We have also considered the letter dated 25 September 2017 from Cheng & Cheng

Limited, the reporting accountants of the Company to you regarding the calculation upon

which the Forecasts have been made. We have noted that no accounting policies of the

Company have been adopted in your preparation of the Forecasts as the Valuation relates

only to discounted future estimated cash flows.

On the basis of the foregoing and without giving any opinion on the reasonableness of

the valuation methods, we are of the opinion that the bases and assumptions of the

Forecasts adopted by the Independent Valuer, for which you as the Directors are solely

responsible, have been made after due and careful enquiry.

Your faithfully,

For and on behalf of

Lego Corporate Finance Limited

Stanley Ng

Managing Director

* For identification purposes only


– VA-4 –

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full

responsibility, includes particulars given in compliance with the Listing Rules for the

purpose of giving information with regard to the Group. The Directors, having made all

reasonable enquiries, confirm that to the best of their knowledge and belief, the information

contained in this circular is accurate and complete in all material respects and not

misleading or deceptive, and there are no other matters the omission of which would make

any statement herein or this circular misleading.

2. SHARE CAPITAL OF THE COMPANY

As at the Latest Practicable Date, the authorised and issued share capital of the

Company were as follows:

Authorised: HK$

91,000,000,000 Ordinary shares of HK$0.055 each 5,005,000,000

Issued and fully paid or credited as fully paid: HK$

9,824,660,684 Ordinary shares of HK$0.055 each 540,356,338

All Shares currently in issue rank pari passu in all respects with each other, including,

in particular, as to dividends, voting rights and return of capital.

APPENDIX VI GENERAL INFORMATION

– VI-1 –

3. DISCLOSURE OF INTERESTS

(a) Directors’ and chief executive’s interests and short positions in the securities of the

Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the

Directors in the Shares, warrants, underlying Shares and debentures of the Company

or any of its associated corporations (within the meaning of Part XV of the SFO)

which were required to be notified to the Company and the Stock Exchange pursuant

to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions

which they are taken or deemed to have under such provisions of the SFO), or which

were required as recorded in the register required to be kept under section 352 of the

SFO, or which were required to be notified to the Company and the Stock Exchange

pursuant to the model code contained in the Listing Rules were as follows:

(i) Directors’ interests and short positions in Shares and underlying Shares and

debentures of the Company

Name of Director Nature of interest

Number of shares

(Note 1)

Approximate

percentage of

shareholding

Mr. Cheng Ming Kit(Note 2)

Beneficial owner 107,141,040 (L) 1.09%Interest of controlled

corporation1,082,862,256 (L) 11.02%

Interest in share optionsof the Company

9,962,690 (L) 0.10%

Beneficial owner 163,750,000 (L) 1.67%

Mr. Sze Chun Lee(Note 3)

Beneficial owner 1,800,000 (L) 0.02%Interest of controlled

corporation110,000,000 (L) 1.12%

Mr. Hu Xiaoming Beneficial owner 2,640,000 (L) 0.03%Interest in share options

of the Company

10,000,000 (L) 0.10%

Mr. Hung Tao Beneficial owner 23,220,040 (L) 0.24%Interest in share options

of the Company

20,462,690 (L) 0.21%

Mr. Lim Siang Kai Interest in share options

of the Company

2,490,670 (L) 0.03%

Mr. Ma Arthur On-hing Interest in share options

of the Company

2,490,670 (L) 0.03%

Mr. Wee Piew Interest in share options

of the Company

2,490,670 (L) 0.03%


– VI-2 –

Notes:

1. The letters ‘‘L’’ denote a long position in the shares of the Company.

2. Mr. Cheng Ming Kit (‘‘Mr. Cheng’’) holds 100% interest in Grand Powerful Group

Limited and is deemed to be interested in 1,082,862,256 Shares held by Grand Powerful

Group Limited. Mr. Cheng personally holds 107,141,040 Shares and 9,962,690 share

options. Further, Mr. Cheng has an obligation, derived from an option, to purchase up

to 163,750,000 Shares upon request.

3. Mr. Sze Chun Lee (‘‘Mr. Sze’’) holds 43.75% interest in China Print Power Limited and

is deemed to be interested in 110,000,000 Shares held by China Print Power Limited. Mr.

Sze personally holds 1,800,000 Shares.

As at the Latest Practicable Date, none of the Directors is a director or

employee of a company which has an interest or short position in the shares and

underlying shares of the Company which would fall to be disclosed to the

Company under the provision of Division 2 and 3 of Part XV of SFO.

(ii) Directors’ interests and short positions in Shares, underlying Shares and

debentures of any associated corporation

Name of Director

Name of associated

corporation

As at

the Latest Practicable Date

Number of

shares

Percentage of

shareholding

Mr. Cheng Ming Kit Grand Powerful

Group Limited

1 100%

Mr. Sze Chun Lee China Print Power

Limited

4,375 43.75%

Save as disclosed above, as at the Latest Practicable Date, none of the

Directors or any chief executive of the Company and their associates had an

interest or short position in any Shares, underlying Shares or debentures of the

Company or any of its associated corporations (within the meaning of Part XV of

the SFO) which would have to be notified to the Company and the Stock

Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including

interests and short positions which he or she has taken or deemed to have under

such provisions of the SFO) or which was required, pursuant to section 352 of the

SFO, to be entered in the register referred to therein, or pursuant to the Model

Code for Securities Transactions by Directors of Listed Issuers in the Listing

Rules to be notified to the Company and the Stock Exchange.


– VI-3 –

(b) Persons who have an interest or short position which is discloseable under Divisions

2 and 3 of Part XV of the SFO

As at the Latest Practicable Date, according to the register kept by the Company

pursuant to section 336 of SFO, and so far as is known to any Directors or chief

executives of the Company, the following persons/corporations (other than the

Directors and the chief executive officer of the Company) had, or were deemed or

taken to have, an interest or short position in the Shares or underlying Shares which

would fall to be disclosed to the Company and the Stock Exchange under the

provisions of Divisions 2 and 3 of Part XV of the SFO or will be directly or indirectly

interested in 5% or more of the nominal value of any class of share capital carrying

rights to vote in all circumstances at general meetings of any other members of the

Group:

(i) Long positions of substantial shareholders’ interests and short positions in

Shares of the Company


Number of shares

(Note 1)

Approximate

percentage of

shareholding

Grand Powerful GroupLimited (Note 2)

Beneficial owner 1,082,862,256 (L) 11.02%

Mr. Lee Tsz Hang

(Note 3)


Interest of controlledcorporation

202,680,000 (L) 2.06%

Beijing Gas Group Co.,

Ltd (Note 4)

Beneficial owner 2,644,444,443 (L) 26.92%

Beijing Enterprises GroupCompany Limited(Note 4)


2,644,444,443 (L) 26.92%

(ii) Long positions of substantial shareholders’ interests and short positions in

underlying Shares of the Company


Number of

underlying shares

(Note 1)

Approximate

percentage of

shareholding

Beijing Gas Group Co.,

Ltd (Note 4)


Beijing Enterprises GroupCompany Limited(Note 4)


288,888,888 (L) 2.94%

Notes:

1. The letters ‘‘L’’ denote a long position in the shares of the Company.

2. Grand Powerful Group Limited is wholly-owned by Mr. Cheng Ming Kit, a director of

the Company and is deemed to be interested in 1,082,862,256 Shares held by Grand

Powerful Group Limited. Mr. Cheng personally holds 107,141,040 Shares.


– VI-4 –

3. Mr. Lee Tsz Hang holds 100% interest in Win Ways Investment Limited and is deemed

to be interested in 202,680,000 Shares held by Win Ways Investment Limited. Mr. Lee

Tsz Hang personally holds 462,685,000 Shares.

4. Beijing Enterprises Group Company Limited indirectly controlled Beijing Gas Company

Limited through Beijing Enterprises Holdings Limited and Beijing Gas Group Co., Ltd.

and is deemed to be interested in 2,644,444,443 Shares and convertible bond in an

aggregate principal amount of HK$130,000,000 at the issue price of HK$0.45 which will

be convertible into 288,888,888 Shares. Mr. Zhi Xiaoye, the non-executive Director and

Co-Chairman of the Board, is currently vice president of Beijing Enterprises Holdings

Limited and he also serves as general manager of Beijing Gas Group Co., Ltd.

Save as disclosed above, as at the Latest Practicable Date, the Directors were

not aware of any person had or were deemed or taken to have, an interest or short

position in the Shares or underlying Shares which would fall to be disclosed to the

Company and the Stock Exchange under the provisions of Divisions 2 and 3 of

Part XV of the SFO or will be directly or indirectly interested in 5% or more of

the nominal value of any class of share capital carrying rights to vote in all

circumstances at general meetings of any other members of the Group.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had a service contract with the

Company which is not determinable by the Company within one year without payment of

compensation, other than statutory compensation.

5. DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS

As at the Latest Practicable Date, none of the Directors had any direct or indirect

interest in any assets which had been or were proposed to be acquired, disposed of by or

leased to any member of the Enlarged Group since 31 December 2016, the date to which the

latest published audited financial statements of the Company were made up. None of the

Directors was materially interested in any contract or arrangement subsisting at the Latest

Practicable Date which is significant in relation to the business of the Enlarged Group.

6. EXPERT AND CONSENTS

The following are the qualifications of the experts who have given their opinion and

advice included in this circular:

Name Qualification

Cheng & Cheng Limited Certified Public Accountants

Lego Corporate Finance Limited A corporation licenced to carry on type 6

(advising on corporate finance) regulated

activities under the Securities and Futures

Ordinance (Chapter 571 of the Laws of Hong

Kong)


– VI-5 –

Name Qualification

Roma Appraisals Limited An independent professional valuer

Each of the Reporting Accountants, the Financial Adviser and the Independent Valuer

has given and has not withdrawn its respective written consent to the publication of this

circular with inclusion of its respective letter, report, advice and/or references to its name in

the form and context in which it respectively appears.

As at the Latest Practicable Date, each of the Reporting Accountants, the Financial

Adviser and the Independent Valuer has no shareholding in any company in the Enlarged

Group or the right (whether legally enforceable or not) to subscribe for or to nominate

persons to subscribe for securities in any company in the Enlarged Group and has no direct

or indirect interest in any assets which have been acquired or disposed of by or leased to any

member of the Enlarged Group since 31 December 2016, being the date to which the latest

published audited financial statements of the Group were made up or are proposed to be

acquired or disposed of by or leased to any member of the Enlarged Group.

7. MATERIAL CONTRACTS

Save as disclosed below, there are no material contracts (not being contracts entered

into in the ordinary course of business) which have been entered into by the Enlarged

Group within the two years immediately preceding the date of this circular:

(i) a convertible bond subscription agreement dated 30 November 2015 between the

Company and Templeton pursuant to which Templeton conditionally agreed to

subscribe, and the Company conditionally agreed to issue the convertible bonds in

an aggregate principal amount of HK$15,000,000 at the price equivalent to 100%

of the aggregate principal amount of the convertible bond at which the convertible

bond shall be subscribed. Details of the transaction were disclosed in the

announcement of the Company dated 30 November 2015;

(ii) a convertible bond subscription agreement dated 4 December 2015 between the

Company and Haitong pursuant to which Haitong conditionally agreed to


an aggregate principal amount of HK$200,000,000 at the price equivalent to

100% of the aggregate principal amount of the convertible bond at which the

convertible bond shall be subscribed. Details of the transaction were disclosed in

the announcement of the Company dated 4 December 2015;

(iii) an acquisition agreement dated 11 December 2015 among the Company, Goldlink

and Huang Liedan pursuant to which Goldlink conditionally agreed to acquire

and Huang Liedan conditionally agreed to sell, the entire issued share capital of

Fox Smart Ltd., in consideration of HK$136,000,000. Details of the transaction

were disclosed in the announcement and the circular of the Company dated 11

December 2015 and 25 February 2016, respectively;


– VI-6 –

(iv) an acquisition agreement dated 5 January 2016 entered into between the Company

and Beijing Gas Group Co., Ltd (‘‘BGGCL’’) pursuant to which the Company

conditionally agreed to acquire, and BGGCL agreed to sell, the entire issued share

capital of a company to be incorporated in the BVI by BGGCL at a total

consideration of HK$152,000,000 to be satisfied by the Group allotment and issue

of 337,777,778 consideration shares in the Company. Details of the transaction

were disclosed in the announcement and the circular of the Company dated 6

January 2016 and 29 February 2016, respectively;

(v) a subscription agreement dated 5 January 2016 entered into between the Company

and BGGCL pursuant to which (i) BGGCL or its designated wholly-owned

subsidiary agreed to conditionally subscribe, and the Company conditionally

agreed to issue the convertible bond in an aggregate principal amount of

HK$350,000,000 at the issue price; and (ii) based on the initial conversion price of

HK$0.45 per conversion share and assuming full conversion of the convertible

bond, a maximum number of 777,777,777 conversion shares will be allotted and

issued by the Company. Details of the transaction were disclosed in the

announcement and the circular of the Company dated 6 January 2016 and 29

February 2016, respectively;

(vi) a share subscription agreement dated 5 January 2016 entered into between the

Company and BGGCL pursuant to which BGGCL or its designated wholly-

owned subsidiary agreed to conditionally subscribe and pay for 2,155,555,555

fully paid subscription shares of the Company at the subscription price of

HK$0.45 per subscription share. Details of the transaction were disclosed in the

announcement and the circular of the Company dated 6 January 2016 and 29

February 2016, respectively; and

(vii) a sale and purchase agreement dated 27 June 2016 entered into between the

Company and Tian Feng International Limited pursuant to which the Company

has conditionally agreed to sell, and Tian Feng International Limited has

conditionally agreed to purchase the 25% equity interest in Legon Ventures

Limited, in consideration of HK$16,500,000 which is to be satisfied partly by cash

and partly by the promissory note in the principal amount of HK$10,000,000.

Details of the transaction were disclosed in the announcement and the circular of

the Company dated 27 June 2016 and 24 August 2016, respectively;

(viii) a convertible bond subscription agreement dated 16 December 2016 between the

Company and Talent Impact Enterprises Corp. (‘‘Talent Impact’’) pursuant to

which Talent Impact conditionally agreed to subscribe, and the Company

conditionally agreed to issue the convertible bonds in an aggregate principal

amount of HK$200,000,000 at the price of HK$0.67 per Conversion Share.

Details of the transaction were disclosed in the announcement of the Company

dated 16 December 2016;


– VI-7 –

(ix) a convertible bond subscription agreement dated 13 April 2017 between the

Company and China Huarong International Holdings Limited (‘‘Huarong’’)

pursuant to which Huarong conditionally agreed to subscribe, and the Company

conditionally agreed to issue the convertible bonds in an aggregate principal

amount of HK$200,000,000 at the issue price of HK$0.67 per conversion share.

Details of the transaction were disclosed in the announcement of the Company

dated 13 April 2017;

(x) a convertible bond subscription agreement dated 18 April 2017 between the

Company and Central China International Investment Company Limited

(‘‘Central China’’) pursuant to which Central China conditionally agreed to


an aggregate principal amount of HK$150,000,000 at the issue price of HK$0.67

per conversion share. Details of the transaction were disclosed in the

announcement of the Company dated 18 April 2017;

(xi) two sale and purchase agreements both dated 2 May 2017 entered into (a)

amongst the Company and Vendor and the Guarantor pursuant to which Vendor

A conditionally agreed to sell and the Company conditionally agreed to purchaser

the entire issued share capital of OctoNet at consideration of RMB162 million;

and (b) amongst the Company and Vendor B and Vendor C pursuant to which

Vendor B and Vendor C conditionally agreed to sell 90% and 10% of the issued

share capital of August Zone and the Company conditionally agreed to purchase

the entire issued share capital of August Zone at consideration of RMB198

million; and

(xii) the Acquisition Agreement.

8. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or their respective associates

has any interests, either direct or indirect, in any assets which had been or were proposed to

be acquired, disposed of by or leased to any member of the Group since 31 December 2016,

the date to which the latest published audited financial statements of the Company were

made up, nor do they have any interest in any business that competes or is likely to compete

with the business of the Group.

9. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any Material

Adverse Change in the financial or trading position of the Group since 31 December 2016,

the date to which the latest published audited financial statements of the Company were

made up.


– VI-8 –

10. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in

any litigation or claims of material importance and there is no litigation or claims of

material importance known to the Directors to be pending or threatened against any

member of the Enlarged Group.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection at the office of

the Company at Room 1411, 14/F, New World Tower I, 16–18 Queen’s Road Central,

Central, Hong Kong during normal business hours on any Business Day for the period of 14

days from the date of this circular:

(i) the memorandum and bye-laws of the Company;

(ii) this circular;

(iii) the Accountants’ Report of the Top Grand Group, the text of which is set out in

Appendix IIA;

(iv) the Accountants’ Report of Yuhai, the text of which is set out in Appendix IIB;

(v) the Accountants’ Report of Saiguangbo Group, the text of which is set out in

Appendix IIC;

(vi) the Valuation Report, the text of which is set out in Appendix V;

(vii) the reports on forecasts underlying the valuation of Saiguangbo Group, the texts

of which are set out in Appendix VA;

(viii) the unaudited pro forma financial information of the Enlarged Group, the text of

which is set out in Appendix IV;

(ix) the annual reports of the Company for the three years ended 31 December 2016;

(x) the written consent from the experts referred to in the paragraph headed ‘‘Experts

and Consents’’ in this appendix;

(xi) the material contracts referred to in the above paragraph headed ‘‘Material

Contracts’’ in this appendix; and

(xii) the circulars of the Company dated 18 January 2017.


– VI-9 –

12. GENERAL

(a) In the event of any inconsistency, the English texts of this circular and the

accompanying form of proxy shall prevail over their respective Chinese texts.

(b) The registered office and the principal place of business of the Company are

situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda and

Room 1411, 14/F, New World Tower I, 16–18 Queen’s Road Central, Hong

Kong, respectively.

(c) The Hong Kong branch share registrar of the Company is Tricor Investor Services

Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

(d) The company secretary of the Company is Mr. Siew Chun Fai, a Financial

Controller of the Company, who is a member of the Hong Kong Institute of

Certified Public Accountants, CPA Australia and the Chartered Accountants

Australia and New Zealand.


– VI-10 –





NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Beijing Gas Blue Sky

Holdings Limited (the ‘‘Company’’) will be convened and held at Level 9, Central Building,

1–3 Pedder Street, Central, Hong Kong on Tuesday, 17 October 2017 at 11 : 00 a.m.

(‘‘SGM’’) for the purpose of considering and, if thought fit, passing with or without

modifications, the following resolution as ordinary resolution of the Company.

Any shareholder of the Company (‘‘Shareholder’’), person being a depository agent or

a holder of a securities account maintained with The Central Depository (Pte) Limited

(‘‘Depositor’’) or proxy who wishes to attend, speak and vote at the SGM may do so via

video conferencing at Level 30, Singapore Land Tower, 50 Raffles Place, Singapore 048623.

The person attending the said video conference will be able to pose questions to the

Company management and to comment on issues on the SGM’s agenda. Please be on time

to avoid disrupting the SGM as the SGM will commence at the stipulated time.

ORDINARY RESOLUTION

‘‘THAT

(a) the sale and purchase agreement dated 8 June 2017 (the ‘‘Acquisition Agreement’’)

entered into amongst Goldlink Capital Limited, a direct wholly-owned subsidiary

of the Company, as purchaser, Li Xiulin* (李秀林) as guarantor and Sea Pioneer

Limited as vendor (the ‘‘Vendor’’) in relation to the acquisition of the entire issued

share capital of Top Grand Global Limited, a copy of which has been tabled at

the meeting and marked ‘‘X’’ and initialed by the chairman for the purpose of

identification, and transactions contemplated thereunder be and hereby approved,

confirmed and ratified; and

(b) any one director of the Company be and is hereby authorised to do all such acts

and/or things (including, without limitation, signing, executing (under hand or

under seal), perfecting and delivering all agreements, documents and instruments)

as he in his sole and absolute discretion deem necessary, desirable or expedient to

implement and/or give effect to any matters related to the Acquisition Agreement

NOTICE OF THE SGM

– SGM-1 –

and the transactions contemplated thereunder, and to agree to and make such

variations, amendments or waivers of any of the matters relating thereto or in

connection therewith.’’

By order of the Board


Cheng Ming Kit

Co-chairman

Hong Kong, 25 September 2017

Registered office:

Clarendon House

2 Church Street

Hamilton HM 11

Bermuda

Place of business in Hong Kong:

Room 1411, 14/F,

New World Tower I

16–18 Queen’s Road Central

Central, Hong Kong

Notes:

1. A Singapore proxy form (for Singapore Shareholders), a Hong Kong proxy form (for

Hong Kong Shareholders) or a Depositor proxy form (for Depositors) is enclosed

herewith.

2. A Shareholder who is entitled to attend and vote at the SGM may appoint another

person as his/her proxy to attend and vote instead of him/her. A Shareholder entitled

to attend and vote at the SGM who is a holder of two or more shares is entitled to

appoint no more than two proxies to attend and vote on his/her behalf. If a

Shareholder is the Depository or a clearing house (in each case, as defined in the

byelaws of the Company) (or its nominee(s)), the Depository or a clearing house (or its

nominee(s)) may appoint more than two proxies to attend and vote at the SGM. A

proxy need not be a Shareholder of the Company.

3. A Shareholder (other than The Central Depository (Pte) Limited or a clearing house or

its nominee(s)) in Singapore who wishes to appoint a proxy should complete the

attached Singapore proxy form. Thereafter, the Singapore proxy form must be lodged

at the office of the Company’s Singapore share transfer agent, Boardroom Corporate

& Advisory Services Pte. Ltd., at 50 Raffles Place, #32–01 Singapore Land Tower,

Singapore 048623, not less than 48 hours before the time appointed for the SGM or

any adjournment thereof.

4. A Shareholder in Hong Kong who wishes to appoint a proxy should complete the

attached Hong Kong proxy form. Thereafter, the Hong Kong proxy form must be

lodged at the office of the Company’s branch share registrar and transfer office in

Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183

Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for

the SGM or any adjournment thereof.

NOTICE OF THE SGM

– SGM-2 –

5. A Depositor whose name appears in the Depository Register (as defined in Section

81SF of the Securities and Futures Act (Cap. 289) of Singapore) and who is unable to

attend personally but wishes to appoint a nominee to attend and vote on his behalf, or

if such Depositor is a corporation, should complete the attached Depositor proxy form

and lodge the same at the office of the Company’s Singapore share transfer agent,

Boardroom Corporate & Advisory Services Pte. Ltd., at 50 Raffles Place, #32–01

Singapore Land Tower, Singapore 048623, not later than 48 hours before the time

appointed for the SGM.

6. Where a Shareholder appoints more than one proxy, the proportion of the

shareholding concerned to be represented by each proxy shall be specified.

7. The instrument appointing a proxy shall be in writing under the hand of the appointor

or by his/her attorney duly authorised in writing. If a Shareholder or Depositor is a

corporation, the instrument appointing a proxy must be executed under seal or the

hand of its duly authorised officer, attorney or other person authorised to sign the

same.

8. Completion and return of the Singapore proxy form, the Hong Kong proxy form or the

Depositor proxy form will not preclude members or Depositor as the case may be from

attending and voting in person at the meeting or at any adjournment thereof (as the

case may be) should they so wish, and in such event, such proxy form shall be deemed

to be revoked.

9. Where there are joint holders of any share, any one of such joint holders may vote,

either in person or by proxy, in respect of such share as if he/she was solely entitled

thereto, but if more than one of such joint holders are present at the meeting, whether

in person or by proxy, the joint registered holder present whose name stands first on

the register of members in respect of the shares shall be accepted to the exclusion of the

votes of the other registered holders.

10. If the member is a corporation, the instrument appointing a proxy must be executed

under seal or the hand of its duly authorised officer or attorney.

11. As at the date of this circular, the executive directors of the Company are Mr. Cheng

Ming Kit, Mr. Sze Chun Lee, Mr. Hung Tao, Mr. Hu Xiaoming, Mr. Tam Man Kin

and Mr. Li Weiqi; the non-executive director of the Company is Mr. Zhi Xiaoye; and

the independent non-executive directors of the Company are Mr. Lim Siang Kai, Mr.

Wee Piew, Mr. Ma Arthur On-hing and Mr. Pang Siu Yin.

NOTICE OF THE SGM

– SGM-3 –

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