esun holdings limited - lai sun group2020/04/24 · company’s branch share registrar in hong...

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser for independent advice.

If you have sold or transferred all your shares in eSun Holdings Limited, you should at once hand this circular with the accompanying form of proxy to the purchaser(s) or the transferee(s), or to the licensed securities dealer, registered institution in securities, bank 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 disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

eSun Holdings Limited(Incorporated in Bermuda with limited liability)

(Stock Code: 571)

VERY SUBSTANTIAL DISPOSAL ANDCONNECTED TRANSACTION REGARDING

THE POSSIBLE DISPOSAL OF 50.99% SHAREHOLDING INTEREST INLAI FUNG PURSUANT TO THE POTENTIAL ACCEPTANCE OF

THE CONDITIONAL VOLUNTARY GENERAL CASH OFFERBY HSBC ON BEHALF OF THE OFFEROR,A WHOLLY-OWNED SUBSIDIARY OF LSD,

TO ACQUIRE ALL OF THE ISSUED SHARES OF LAI FUNG(OTHER THAN THOSE ALREADY OWNED OR

AGREED TO BE ACQUIRED BY LSD, THE OFFEROR ORTHE OTHER WHOLLY-OWNED SUBSIDIARIES OF LSD)

ANDNOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee, Independent Shareholders and Non-Connected Shareholders

Trinity Corporate Finance Limited

Capitalised terms used in the lower portion of this cover page shall have the same respective meanings as those defined in the section headed “Definitions” in this circular.

A letter from the Board is set out on pages 12 to 43 of this circular. A letter from the Independent Board Committee is set out on pages 44 and 45 of this circular. A letter from the Independent Financial Adviser, to the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders, is set out on pages 46 to 100 of this circular.

A notice convening the SGM to be held at the Meeting Rooms, Level B, Hong Kong Ocean Park Marriott Hotel, 180 Wong Chuk Hang Road, Aberdeen, Hong Kong on Wednesday, 13 May 2020 at 9:00 a.m. is set out on pages SGM-1 to SGM-3 of this circular.

Shareholders are advised to read the Notice of SGM and if you are not able to attend the SGM or its adjournment (as the case may be) in person but wish to exercise your right as a Shareholder, please complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible, but in any event not less than 48 hours before the time fixed for holding the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy shall not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) should you so wish and in such event, the instrument appointing a proxy shall be deemed to be revoked.

Considering the outbreak of the novel coronavirus (COVID-19), certain measures will be implemented at the SGM with a view to addressing the risk to attendees of infection, including the following:

(a) all attendees will be required to undergo body temperature check;

(b) all attendees will be required to complete a health declaration form (a copy of the form is enclosed with this circular), which may be used for contact tracing, if required;

(c) any attendees who are subject to health quarantine prescribed by the Government of the HKSAR will not be admitted to the venue of the SGM;

(d) all attendees will be required to wear surgical face masks throughout the SGM;

(e) each attendee will be assigned a designated seat at the time of registration to ensure social distancing;

(f) any person who does not comply with the measures above may be denied entry into, or be required to leave, the venue of the SGM; and

(g) no refreshments or beverages will be provided, and there will be no corporate gifts.

The Company reminds Shareholders that they should carefully consider the risks of attending the SGM, taking into account their own personal circumstances. The Company would like to remind Shareholders that physical attendance in person at the SGM is not necessary for the purpose of exercising their voting rights and strongly recommends that Shareholders appoint the Chairman of the SGM as their proxy and submit their form of proxy as early as possible. In light of the risks posed by the COVID-19 pandemic, the Company strongly encourages Shareholders NOT to attend the SGM in person.

The Company will keep the evolving COVID-19 situation under review and may implement additional measures (which it will announce closer to the date of the SGM).

24 April 2020

TABLE OF CONTENTS

– i –

Page

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

LETTER FROM THE BOARD ............................................................................................ 12

LETTER FROM THE INDEPENDENT BOARD COMMITTEE .................................... 44

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ................................... 46

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

APPENDIX II — FINANCIAL INFORMATION OF THE LAI FUNG GROUP ....................................................... II-1

APPENDIX III — UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP .................................................. III-1

APPENDIX IV — MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP .................................................. IV-1

APPENDIX V — VALUATION REPORT OF THE LAI FUNG GROUP ....................................................... V-1

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

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

ACCOMPANYING DOCUMENTS: FORM OF PROXYHEALTH DECLARATION FORM

This circular in both English and Chinese is available in printed form and published on the respective websites of the Company at www.esun.com and the Stock Exchange at www.hkexnews.hk.

DEFINITIONS

– 1 –

In this circular and the appendices to it, the following expressions shall have the following respective meanings unless the context otherwise requires:

“Announcement Date” 21 February 2020, being the date of the Joint Announcement;

“associate” has the meaning ascribed to it under the Takeovers Code;

“Board” the board of Directors;

“Business Day(s)” a day (other than a Saturday or a Sunday or a public holiday) on which licensed banks in Hong Kong are generally open for normal banking business;

“chief executive” has the meaning ascribed to it under the Listing Rules;

“close associate” has the meaning ascribed to it under the Listing Rules;

“Companies Law” the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands;

“Company” or “eSun” eSun Holdings Limited (豐德麗控股有限公司 ), an exempted company incorporated in Bermuda with limited liability, the issued Shares of which are listed and traded on the Main Board of the Stock Exchange (Stock Code: 571);

“Completion” completion of the Possible Disposal;

“Composite Document” the composite offer and response document dated 24 April 2020 issued by LSD, the Offeror and Lai Fung to the LF Shareholders and the LF Optionholders in accordance with the Takeovers Code in relation to the LF Offers;

“Composite Document Latest 21 April 2020, being the latest practicable date prior to the Practicable Date” printing of the Composite Document for ascertaining certain

information for inclusion in the Composite Document;

“Conditions” the conditions to the LF Share Offer, as set out under “Conditions to the LF Share Offer” in the letter from the Board in this circular;

“connected person(s)” has the meaning ascribed to it under the Listing Rules;

“controlling shareholder” has the meaning ascribed to it under the Listing Rules;

“core connected person(s)” has the meaning ascribed to it under the Listing Rules;

DEFINITIONS

– 2 –

“Director(s)” the director(s) of the Company;

“disclosure(s) of interests” disclosure(s) of interests pursuant to Part XV of the SFO or otherwise;

“Dr. Peter Lam” Dr. Lam Kin Ngok, Peter, an Offeror Director, a deputy chairman and an executive director of LSG, the chairman and an executive director of LSD and the ultimate controlling shareholder of LSG, LSD and the Offeror;

“Excluded Directors” Mr. FA Chew, Mr. Lester Lam, Madam U, Mr. Richard Lui and Mr. Yip Chai Tuck (the chief executive officer of LSG), who abstained from voting on the Board resolutions in connection with the Possible Disposal to avoid any conflict of interests as disclosed in the paragraph headed “Recommendation” of the letter from the Board on pages 42 and 43 of this circular;

“Executive” the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director;

“Group” the Company and its subsidiaries (including, for the avoidance of doubt, the Lai Fung Group before the Completion);

“HK$” or “HKD” Hong Kong dollars, the lawful currency of Hong Kong;

“Hong Kong” or “HKSAR” the Hong Kong Special Administrative Region of the PRC;

“HSBC” The Hongkong and Shanghai Banking Corporation Limited, being the financial adviser to LSD and the Offeror in relation to the LF Offers, a registered institution under the SFO, registered to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO and a licensed bank under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong);

“HSBC Group” HSBC and persons controlling, controlled by or under the same control as HSBC;

DEFINITIONS

– 3 –

“Independent Board Committee” an independent committee of the Board comprising all independent non-executive Directors, established to advise the Independent Shareholders in respect of the Possible Disposal as a very substantial disposal of the Company under Chapter 14 of the Listing Rules and the Non-Connected Shareholders in respect of the Possible Disposal as a connected transaction of the Company under Chapter 14A of the Listing Rules;

“Independent Financial Adviser” Trinity Corporate Finance Limited, a corporation licensed to carry on Type 6 (advising on corporate finance) regulated activity under the SFO, the independent financial adviser to the Independent Board Committee, Independent Shareholders and Non-Connected Shareholders in respect of the Possible Disposal;

“Independent LSD Shareholders” the LSD Shareholders other than (a) Mr. FA Chew and Mr. Julius Lau, who, on the basis of their disclosures of interests in LSG, LSD and Lai Fung as at the Latest Practicable Date, will be required under the Listing Rules to abstain from voting on the resolution to be proposed at the general meeting of LSD to approve the LF Offers as a major acquisition, and their respective close associates; (b) the Yu Shareholders, who, on the basis of their disclosures of interests in Lai Fung as at the Latest Practicable Date, will be required under the Listing Rules to abstain from voting on the same resolution, and their close associates; and (c) any other LSD Shareholder who has a material interest in such major acquisition and will be required under the Listing Rules to abstain from voting on the same resolution and his close associates. For the avoidance of doubt, the Independent LSD Shareholders include LSG and Dr. Peter Lam;

“Independent LSG Shareholders” the LSG Shareholders other than (a) Mr. FA Chew, who, on the basis of his disclosures of interests in LSG, LSD and Lai Fung as at the Latest Practicable Date, will be required under the Listing Rules to abstain from voting on the resolution to be proposed at the general meeting of LSG to approve the LF Offers as a major acquisition, and his close associates; and (b) any other LSG Shareholder who has a material interest in such major acquisition and will be required under the Listing Rules to abstain from voting on the same resolution and his close associates. For the avoidance of doubt, the Independent LSG Shareholders include Dr. Peter Lam, Mr. Lester Lam and the Yu Shareholders;

DEFINITIONS

– 4 –

“Independent Shareholder(s)” the Shareholders other than (a) Transtrend; (b) Dr. Peter Lam and Mr. Lester Lam, who, on the basis of their disclosures of interests in LSG, LSD and the Company as at the Latest Practicable Date, will be required under the Listing Rules to abstain from voting on the resolution to be proposed at the SGM to approve the Possible Disposal as a very substantial disposal, and their respective close associates; and (c) any other Shareholder who has a material interest in such very substantial disposal and will be required under the Listing Rules to abstain from voting on the same resolution and his close associates. For the avoidance of doubt, the Independent Shareholders include the Yu Shareholders;

“Joint Announcement” the announcement dated 21 February 2020 jointly issued by LSG, LSD, the Offeror, the Company and Lai Fung, in relation to the LF Offers;

“Lai Fung” Lai Fung Holdings Limited (麗豐控股有限公司), an exempted company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange (Stock Code: 1125);

“Lai Fung Group” Lai Fung and its subsidiaries;

“Laisun Creative Culture the agreement dated 19 January 2020 entered into between Subscription Agreement” 珠海大橫琴置業有限公司 (Zhuhai Da Hengqin Real Estate

Co., Ltd.*) (“Zhuhai Da Hengqin”, a company established in the PRC with limited liability and a wholly-owned subsidiary o f 珠海大橫琴集團有限公司 (Da Hengqin Group Co . , Ltd.*)), 珠海橫琴麗新文創天地有限公司 (Zhuhai Hengqin Laisun Creative Culture City Co., Ltd*) (“Laisun Creative Culture”, a wholly-owned subsidiary of Winfield (defined later)) and Winfield Concept Limited (永輝基業有限公司) (“Winfield”, an indirect non-wholly-owned subsidiary of Lai Fung) in relation to, among other things, the subscription of 16.68% equity interest in and capital injection into Laisun Creative Culture by Zhuhai Da Hengqin in the amount of approximately RMB948.4 million, and the grant of a put option and a call option in relation to shares issued in the capital of Laisun Creative Culture (details of which were disclosed in the joint announcement of LSG, LSD, the Company and Lai Fung dated 19 January 2020);

“Last Trading Date” 21 February 2020, being the last trading day which ended before the publication of the Joint Announcement, which is the date of the Joint Announcement;

DEFINITIONS

– 5 –

“Latest Practicable Date” 21 April 2020, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein;

“LF Disinterested Shares” the LF Shares other than those owned by the Offeror or any of the Offeror Concert Parties;

“LF Offer Shareholders” the holders of the LF Offer Shares;

“LF Offer Shares” the LF Shares which are subject to the LF Share Offer;

“LF Offers” the LF Share Offer and the LF Option Offer;

“LF Option Offer” the offer to be made by HSBC on behalf of the Offeror to the LF Optionholders in compliance with Rule 13 of the Takeovers Code to cancel all the LF Options;

“LF Option Offer Price” in relation to any LF Option, the price at which the LF Option Offer will be made;

“LF Optionholders” the holders of the LF Options;

“LF Options” the share options, each relating to one LF Share, granted and outstanding under the LF Share Option Schemes from time to time, whether such options are vested or not;

“LF Share Offer” the conditional voluntary general cash offer to be made by HSBC on behalf of the Offeror to acquire all of the issued LF Shares (other than those already owned or agreed to be acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD);

“LF Share Offer Closing Date” the date to be stated in the Composite Document as the first offer closing date of the LF Share Offer or any subsequent offer closing date in the event that the LF Share Offer is extended or revised in accordance with the Takeovers Code;

“LF Share Offer Price” HK$8.99 per LF Offer Share;

“LF Share Option Schemes” the share option schemes adopted by Lai Fung on 21 August 2003 (as amended on 8 August 2018) and 18 December 2012, respectively;

“LF Shareholders” the holders of the LF Shares;

“LF Shares” the shares in the capital of Lai Fung;

DEFINITIONS

– 6 –

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;

“LR associate” has the meaning ascribed to “associate” under Chapter 14A of the Listing Rules;

“LSD” Lai Sun Development Company Limited (麗新發展有限公司), a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange (Stock Code: 488);

“LSD Options” the share options, each relating to one LSD Share, granted and outstanding under the share option schemes adopted by LSD on 22 December 2006 and on 11 December 2015, respectively, from time to time, whether such options are vested or not;

“LSD Shareholders” the holders of the LSD Shares;

“LSD Shares” the shares in the capital of LSD;

“LSG” Lai Sun Garment (International) Limited (麗新製衣國際有限公司), a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange (Stock Code: 191);

“LSG Options” the share options, each relating to one LSG Share, granted and outstanding under the share option schemes adopted by LSG on 22 December 2006 and on 11 December 2015, respectively, from time to time, whether such options are vested or not;

“LSG Shareholders” the holders of the LSG Shares;

“LSG Shares” the shares in the capital of LSG;

“Macau” the Macau Special Administrative Region of the PRC;

“Madam U” Madam U Po Chu, an executive director of LSG and Lai Fung, a non-executive director of LSD and the Company, and Dr. Peter Lam’s mother;

“MAGHL” Media Asia Group Holdings Limited (寰亞傳媒集團有限公司), an exempted company incorporated in the Cayman Islands and continued in Bermuda with limited liability, the issued shares of which are listed and traded on GEM of the Stock Exchange (Stock Code: 8075);

DEFINITIONS

– 7 –

“Merit Worth” Merit Worth Limited, a company incorporated in the British Virgin Islands with limited liability, being a direct wholly-owned subsidiary of the Company. As at the Latest Practicable Date, Merit Worth directly held 89,457,323 LF Shares, representing 27.02% of the total issued LF Shares;

“Mr. FA Chew” Mr. Chew Fook Aun, an Offeror Director, a deputy chairman and an executive director of LSG, the deputy chairman and an executive director of LSD, an executive director of the Company and the chairman and an executive director of Lai Fung;

“Mr. Julius Lau” Mr. Lau Shu Yan, Julius, an Offeror Director and an executive director and the chief executive officer of LSD;

“Mr. Lester Lam” Mr. Lam Hau Yin, Lester, an Offeror Director, an executive director of LSG (and an alternate to Madam U as an executive director of LSG), an executive director of LSD and the Company, the chief executive officer and an executive director of Lai Fung and Dr. Peter Lam’s son;

“Mr. Richard Lui” Mr. Lui Siu Tsuen, Richard, the chief executive officer and an executive Director of the Company;

“Non-Connected LSD in respect of the making of one or more of the LF Offers Shareholders” to any connected person of LSD which is a connected

transaction of LSD subject to the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules (if there is any such connected transaction), the LSD Shareholders other than (a) such connected person and his LR associates and (b) any other LSD Shareholder who has a material interest in such connected transaction and will be required under the Listing Rules to abstain from voting on the resolution to be proposed at the general meeting of LSD to approve such connected transaction;

DEFINITIONS

– 8 –

“Non-Connected LSG in respect of the making of one or more of the LF Offers Shareholders” to any connected person of LSG which is a connected

transaction of LSG subject to the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules, the LSG Shareholders other than (a) such connected person and his LR associates and (b) any other LSG Shareholder who has a material interest in such connected transaction and will be required under the Listing Rules to abstain from voting on the resolution to be proposed at the general meeting of LSG to approve such connected transaction. On the basis of their disclosures of interests in LSG and Lai Fung as at the Latest Practicable Date, the making of the LF Share Offer to the Yu Shareholders is such connected transaction and the Yu Shareholders and their LR associates fall within (a) of this definition in respect of such connected transaction;

“Non-Connected Shareholders” in respect of the Possible Disposal, which is a connected transaction of the Company subject to the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules, the Shareholders other than (a) LSD, Transtrend and their respective LR associates and (b) any other Shareholder who has a material interest in such connected transaction and will be required under the Listing Rules to abstain from voting on the resolution to be proposed at the SGM to approve such connected transaction. On the basis of their disclosures of interests in LSG, LSD, the Company and Lai Fung as at the Latest Practicable Date, Dr. Peter Lam, Mr. Lester Lam and their LR associates fall within (b) of this definition in respect of such connected transaction. For the avoidance of doubt, the Non-Connected Shareholders include the Yu Shareholders;

“Notice of SGM” the notice convening the SGM as set out on pages SGM-1 to SGM-3 of this circular;

“Offeror” Holy Unicorn Limited, a company incorporated in the British Virgin Islands with limited liability, being a wholly-owned subsidiary of LSD;

DEFINITIONS

– 9 –

“Offeror Concert Parties” the persons who are acting in concert with the Offeror, as determined in accordance with the Takeovers Code (except for members of the HSBC Group which are exempt principal traders and/or exempt fund managers in their capacity as such, in each case recognised by the Executive as such for the purposes of the Takeovers Code). As disclosed in the Composite Document, Offeror Concert Parties include (a) LSD, being the sole shareholder of the Offeror; (b) LSG, being a holding company of LSD; (c) Dr. Peter Lam, being their ultimate controlling shareholder; and (d) the Company, being a subsidiary of LSD;

“Offeror Director(s)” the director(s) of the Offeror;

“percentage ratio(s)” has the meaning ascribed to it in Rule 14.07 of the Listing Rules;

“Possible Disposal” the possible disposal by the Company of all the LF Shares (being 168,792,467 LF Shares, representing 50.99% of the total number of issued LF Shares as at the Latest Practicable Date) held by the Company (via its wholly-owned subsidiaries, namely Merit Worth and Silver Glory) in the event that the LF Share Offer is accepted by Merit Worth and Silver Glory in respect of all the LF Shares respectively held by them, subject to the LF Offers becoming unconditional in all respects. For this purpose, Shareholders should note that the Company will accept the LF Share Offer if each of the resolutions to be proposed at the SGM for the approval of the Possible Disposal is passed; and the Company will not accept the LF Share Offer if any of these resolutions is not passed at the SGM;

As set out in the letter from the Independent Board Committee in this circular, the Independent Board Committee, having taken into account, among other factors, the advice from the Independent Financial Adviser, and on the basis as set out in the letter from the Independent Board Committee, would recommend (a) the Independent Shareholders not to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Possible Disposal as a very substantial disposal of the Company under Chapter 14 of the Listing Rules; and (b) the Non-Connected Shareholders not to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Possible Disposal as a connected transaction of the Company under Chapter 14A of the Listing Rules;

“PRC” or “Mainland China” the People’s Republic of China and for the purpose of this circular, excluding Hong Kong, Macau and Taiwan;

DEFINITIONS

– 10 –

“public” has the meaning ascribed to it under the Listing Rules;

“Reassessed NAV” the amount determined as such by the Independent Financial Adviser to Lai Fung and disclosed in the Composite Document, being the net asset value of the Lai Fung Group adjusted for the valuation surplus (which has not taken into account potential tax liabilities) resulting from the market value of the properties held by the Lai Fung Group determined by Knight Frank Petty Limited as set out in its report in Appendix III to the Composite Document (a copy of which is also set out in Appendix V to this circular);

“Remaining Group” the Company and its subsidiaries upon Completion;

“RMB” Renminbi, the lawful currency of the PRC;

“Silver Glory” Silver Glory Securities Limited, a company incorporated in the British Virgin Islands with limited liability, being a direct wholly-owned subsidiary of Merit Worth. As at the Latest Practicable Date, Silver Glory directly held 79,335,144 LF Shares, representing 23.97% of the total issued LF Shares;

“SFC” the Securities and Futures Commission of Hong Kong;

“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time;

“SGM” the special general meeting of the Company to be convened and held at the Meeting Rooms, Level B, Hong Kong Ocean Park Marriott Hotel, 180 Wong Chuk Hang Road, Aberdeen, Hong Kong on Wednesday, 13 May 2020 at 9:00 a.m., or any adjournment thereof;

“Share(s)” the ordinary share(s) of HK$0.50 each in the share capital of the Company;

“Shareholder(s)” the duly registered holder(s) of the Shares;

“Stock Exchange” The Stock Exchange of Hong Kong Limited;

“subsidiary(ies)” has the meaning ascribed to it under the Listing Rules;

“substantial shareholder(s)” has the meaning ascribed to it under the Listing Rules;

DEFINITIONS

– 11 –

“Takeovers Code” the Hong Kong Code on Takeovers and Mergers issued by the SFC;

“Transtrend” Transtrend Holdings Limited, a company incorporated in Hong Kong with limited liability, being a wholly-owned subsidiary of LSD;

“US$” or “USD” United States dollars, the lawful currency of the USA;

“United States” or “USA” the United States of America, its territories and possessions, any State of the United States and the District of Columbia;

“Yu Shareholders” Mr. Yu Cheuk Yi and Ms. Yu Siu Yuk; and

“%” per cent.

* All the English translation of certain Chinese names or words in this circular and the appendices to it are included for the purpose of information only, and should not be regarded as an official English translation of such Chinese names or words.

LETTER FROM THE BOARD

– 12 –


(Stock Code: 571)

Executive Directors: Registered Office:Mr. Lui Siu Tsuen, Richard (Chief Executive Officer) Clarendon HouseMr. Chew Fook Aun 2 Church StreetMr. Lam Hau Yin, Lester Hamilton HM 11Mr. Yip Chai Tuck Bermuda

Non-executive Director: Head Office and Principal Place Madam U Po Chu of Business in Hong Kong: 11th FloorIndependent non-executive Directors: Lai Sun Commercial Centre Mr. Low Chee Keong (Chairman) 680 Cheung Sha Wan Road Mr. Lo Kwok Kwei, David KowloonDr. Ng Lai Man, Carmen Hong KongMr. Alfred Donald Yap

24 April 2020

To the Shareholders

Dear Sir or Madam,






ANDNOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the Joint Announcement and the Composite Document.


– 13 –

As disclosed in the Joint Announcement, as at the Announcement Date the Board had not decided whether to accept the LF Share Offer. If the Company accepts the LF Share Offer in respect of all the LF Shares held by it, such acceptance would result in the Possible Disposal. As the highest applicable percentage ratio for the Company in respect of the Possible Disposal exceeds 75%, the Possible Disposal constitutes a very substantial disposal for the Company under Chapter 14 of the Listing Rules and is subject to the reporting, announcement and the Independent Shareholders’ approval requirements under Chapter 14 of the Listing Rules. In addition, as the Offeror is a connected person of the Company, the Possible Disposal also constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and Non-Connected Shareholders’ approval requirements under Chapter 14A of the Listing Rules. The Company will accept the LF Share Offer if each of the resolutions to be proposed at the SGM for the approval of the Possible Disposal is passed; and the Company will not accept the LF Share Offer if any of the resolutions to be proposed at the SGM for the approval of the Possible Disposal is not passed.

The purpose of this circular is to provide you with, among other things, (i) further information on the Possible Disposal; (ii) a letter from the Independent Board Committee containing its recommendation to the Independent Shareholders and Non-Connected Shareholders in respect of the Possible Disposal; (iii) a letter from the Independent Financial Adviser containing its advice and recommendation to the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders in relation to the Possible Disposal; (iv) financial information of the Group and the Lai Fung Group and pro forma financial information of the Remaining Group; and (v) the notice of the SGM, in order to enable you to make an informed decision on how to vote at the SGM.

THE POSSIBLE DISPOSAL

The LF Share Offer

On 24 April 2020, HSBC, on behalf of the Offeror, a wholly-owned subsidiary of LSD, made conditional voluntary general cash offers (i) to acquire all of the issued LF Shares not already owned or agreed to be acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD and (ii) to cancel all the outstanding LF Options. For the avoidance of doubt, the LF Offer Shares include the LF Shares which are owned by the Offeror Concert Parties (other than those already owned or agreed to be acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD), including the LF Shares owned by the Company. As at the Latest Practicable Date, the Company (via its wholly-owned subsidiaries, namely Merit Worth and Silver Glory) held 168,792,467 LF Shares, representing approximately 50.99% of the total number of issued LF Shares.

Your attention is drawn to the terms and conditions of the LF Share Offer as set out in the Composite Document. A summary of the material terms of the LF Share Offer that are relevant to the Possible Disposal are set out below to provide you with further information on the Possible Disposal:

The LF Share Offer is being made by HSBC on behalf of the Offeror in compliance with the Takeovers Code on the basis set out below.

For each LF Offer Share ...............................................................................................HK$8.99 in cash


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As stated in the Composite Document, if any dividend and/or other distribution and/or other return of capital is announced, declared or paid in respect of the LF Shares at any time after the Announcement Date, the Offeror reserves the right to reduce the LF Share Offer Price by all or any part of the amount or value of such dividend, distribution and/or, as the case may be, return of capital, in which case any reference in the Joint Announcement, the Composite Document or any other announcement or document to the LF Share Offer Price will be deemed to be a reference to the LF Share Offer Price as so reduced (and the LF Option Offer Price shall be reduced accordingly). As at the Latest Practicable Date, there was no such dividend, distribution or other return of capital.

As stated in the Composite Document, the LF Share Offer Price was determined after taking into account, among other things, (i) the historical trading prices of LF Shares as detailed in the paragraph headed “LF Share Offer Price” below, in particular the average closing price of HK$8.68 per LF Share for the 180 trading days immediately prior to and including the Last Trading Date, over which the LF Share Offer Price represents a 3.57% premium approximately; (ii) the audited consolidated net asset value attributable to owners per LF Share of approximately HK$48.36 as at 31 July 2019 based on the total number of issued LF Shares as at 31 July 2019, to which the LF Share Offer Price represents a discount of 81.41% approximately, which is largely in line with the discounts resulting from the historical trading prices of LF Shares (the discount of the simple average closing price of LF Shares on the Stock Exchange (as obtained from Bloomberg) for Lai Fung’s five financial years ended 31 July 2019 to the net assets per LF Share as at the end of each such financial year was approximately 79.70%, 84.59%, 78.91%, 73.57% and 79.94% respectively); (iii) the low liquidity of the LF Shares (with an average daily trading volume of approximately 0.03 million LF Shares or 0.01% of the issued share capital of Lai Fung during the one-year period ended on and including the Last Trading Date); (iv) the performance of the Hang Seng Index and volatility in the equity market amid the outbreak of the novel coronavirus (COVID-19) up to the Announcement Date; and (v) the decline in Lai Fung’s adjusted net profit attributable to owners of Lai Fung (excluding the effect of property revaluations) from HK$987.8 million for the year ended 31 July 2017 to HK$629.1 million for the year ended 31 July 2018 and to HK$263.7 million for the year ended 31 July 2019 despite the relatively steady turnover from the investment properties of Lai Fung. Please refer to the paragraph headed “LF Share Offer Price” below for more detailed comparisons between the LF Share Offer Price and historical trading prices of LF Shares and historical discounts to net asset value attributable to owners per LF Share.

LF Share Offer Price

The LF Share Offer Price of HK$8.99 per LF Offer Share under the LF Share Offer represents:

(a) a discount of approximately 7.61% to the closing price of HK$9.73 per LF Share as quoted on the Stock Exchange on the Last Trading Date;

(b) a discount of approximately 8.82% to the average closing price of HK$9.86 per LF Share, being the average closing price of LF Shares as quoted on the Stock Exchange for the 5 trading days immediately prior to and including the Last Trading Date;

(c) a discount of approximately 9.38% to the average closing price of HK$9.92 per LF Share, being the average closing price of LF Shares as quoted on the Stock Exchange for the 10 trading days immediately prior to and including the Last Trading Date;

(d) a discount of approximately 6.74% to the average closing price of HK$9.64 per LF Share, being the average closing price of LF Shares as quoted on the Stock Exchange for the 30 trading days immediately prior to and including the Last Trading Date;


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(e) a discount of approximately 8.92% to the average closing price of HK$9.87 per LF Share, being the average closing price of LF Shares as quoted on the Stock Exchange for the 60 trading days immediately prior to and including the Last Trading Date;

(f) a premium of approximately 3.57% over the average closing price of HK$8.68 per LF Share, being the average closing price of LF Shares as quoted on the Stock Exchange for the 180 trading days immediately prior to and including the Last Trading Date;

(g) a premium of approximately 8.31% over the closing price of HK$8.30 per LF Share as quoted on the Stock Exchange on the Latest Practicable Date;

(h) a discount of approximately 81.41% to the audited consolidated net asset value attributable to owners per LF Share of approximately HK$48.36 as at 31 July 2019, based on the total number of issued LF Shares as at 31 July 2019;

(i) a discount of approximately 80.26% to the unaudited consolidated net asset value attributable to owners per LF Share of approximately HK$45.55 as at 31 January 2020, based on the total number of issued LF Shares as at 31 January 2020;

(j) a discount of approximately 85.13% to the Reassessed NAV per LF Share of approximately HK$60.44 as at 31 January 2020, based on the total number of issued LF Shares as at 31 January 2020; and

(k) a discount of approximately 84.96% to the Reassessed NAV per LF Share of approximately HK$59.79 as at 31 January 2020, based on the total number of issued LF Shares as at the Latest Practicable Date.

As shown in the audited consolidated statement of financial position as at 31 July 2019 and the unaudited consolidated statement of financial position as at 31 January 2020 of Lai Fung set out in Appendix II to this circular, a significant portion of Lai Fung’s assets consisted of property, plant and equipment, properties under development, investment properties and completed properties for sale. A valuation report on the property interests of the Lai Fung Group is set out in Appendix V to this circular and Appendix III to the Composite Document. The value of those assets as stated in such consolidated statements of financial position or such property valuation report may or may not reflect their market value as at the date of this circular or as at the date of the Composite Document.

Highest and Lowest Closing Prices of LF Shares

During the six-month period ended the Last Trading Date, the highest closing price of LF Shares as quoted on the Stock Exchange was HK$10.50 per LF Share on 11 February 2020 and the lowest closing price of LF Shares as quoted on the Stock Exchange was HK$6.48 per LF Share on 11 and 12 September 2019.

Settlement of Consideration

Settlement of the consideration in respect of an acceptance of the LF Offers will be made as soon as possible and in any event within seven (7) Business Days (as defined in the Takeovers Code) of (i) the date of receipt of the complete and valid acceptance or (ii) the date on which the LF Offers become or are declared unconditional in all respects, whichever is the later.


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Hong Kong Stamp Duty

Seller’s ad valorem stamp duty at a rate of 0.1% of the market value of the LF Offer Shares or the consideration payable by the Offeror in respect of the relevant acceptances of the LF Share Offer, whichever is higher (rounded up to the nearest HK$1.00), will be deducted from the amount payable to the relevant holder of LF Offer Shares on acceptance of the LF Share Offer. The Offeror will bear its own portion of buyer’s ad valorem stamp duty at the rate of 0.1% of the market value of the LF Offer Shares or consideration payable by the Offeror in respect of the relevant acceptances of the LF Share Offer, whichever is higher (rounded up to the nearest HK$1.00) and will be responsible to account to the Stamp Office of Hong Kong for all the stamp duty payable for the sale and purchase of the LF Shares which are validly tendered for acceptance under the LF Share Offer.

Conditions to the LF Share Offer

The LF Share Offer is subject to the fulfilment of the following Conditions:

(a) the approval:

(i) by the Independent LSD Shareholders of the LF Offers as a major acquisition of LSD; and

(ii) by the Non-Connected LSD Shareholders of the making of one or more of the LF Offers to any connected person of LSD which is a connected transaction of LSD subject to the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules (if there is any such connected transaction),

in each case, in accordance with the Listing Rules;

(b) the approval:

(i) by the Independent LSG Shareholders of the LF Offers as a major acquisition of LSG; and

(ii) by the Non-Connected LSG Shareholders of the making of one or more of the LF Offers to any connected person of LSG which is a connected transaction of LSG subject to the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules (if there is any such connected transaction),


(c) the approval of the Possible Disposal:

(i) by the Independent Shareholders as a very substantial disposal of the Company; and

(ii) by the Non-Connected Shareholders as a connected transaction of the Company subject to the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules,



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(d) valid acceptances of the LF Share Offer being received by 4:00 p.m. on the LF Share Offer Closing Date (and not, where permitted, withdrawn) in respect of such number of LF Shares which, together with LF Shares already (directly or indirectly) held or agreed to be acquired by LSD, the Offeror or any of the other wholly-owned subsidiaries of LSD, would result in LSD, the Offeror and the other wholly-owned subsidiaries of LSD holding in aggregate more than 50% of the voting rights in Lai Fung;

(e) valid acceptances of the LF Share Offer being received within four (4) months of the posting of the Composite Document (and not, where permitted, withdrawn) in respect of such number of LF Shares which (i) is not less than 90% of the LF Offer Shares and (ii) when aggregated with the total number of the LF Disinterested Shares (if any) purchased by the Offeror and the Offeror Concert Parties during the period of four (4) months after the posting of the Composite Document, would represent not less than 90% of the LF Disinterested Shares;

(f) the LF Shares remaining listed and traded on the Main Board of the Stock Exchange up to and including the LF Share Offer Closing Date (save for any temporary suspension of trading of the LF Shares pending any announcement in connection with the LF Offers) and no indication being received on or before the LF Share Offer Closing Date from the SFC and/or the Stock Exchange to the effect that the listing of the LF Shares on the Stock Exchange is or is likely to be withdrawn or suspended;

(g) no event having occurred which would make any of the LF Offers, the acquisition of any of the LF Offer Shares or the cancellation of the LF Options under the LF Offers void, unenforceable or illegal, would prohibit the implementation of any of the LF Offers or would impose any material conditions or obligations with respect to any of the LF Offers or their implementation in accordance with their respective terms;

(h) all necessary consents (including consents from the relevant lenders) in connection with the LF Offers and/or (in the event that the Offeror were to exercise the right (if any) to acquire compulsorily those LF Offer Shares not already owned or acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD) the possible withdrawal of the listing of the LF Shares from the Stock Exchange which may be required under any existing contractual or other obligations of Lai Fung having been obtained and remaining in effect;

(i) no government, court or governmental, quasi-governmental, statutory or regulatory body or agency in Hong Kong, the Cayman Islands or any other jurisdiction having taken or instituted any action, proceeding, suit, investigation or enquiry (or enacted, made or proposed, and there not continuing to be outstanding, any statute, regulation, demand or order) that would make any of the LF Offers or their implementation in accordance with their respective terms void, unenforceable, illegal or impracticable (or which would impose any material conditions or obligations with respect to any of the LF Offers or their implementation in accordance with their respective terms);

(j) since the Announcement Date, there having been no material adverse change in the business, assets, financial or trading position or the prospects or conditions (whether operational, legal or otherwise) of the Lai Fung Group to an extent which is material in the context of the Lai Fung Group; and


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(k) there having, since the Announcement Date, not been instituted any, and there remaining no outstanding, litigation, arbitration proceedings, prosecution or other legal proceedings to which any member of the Lai Fung Group is a party (whether as plaintiff, defendant or otherwise), and no such proceedings having, since the Announcement Date, been threatened in writing against any such member (and no investigation by any government, court or governmental, quasi-governmental, statutory or regulatory body or agency in Hong Kong, the Cayman Islands or any other jurisdiction against or in respect of any such member or the business carried on by any such member having, since the Announcement Date, been threatened in writing, announced or instituted or remaining outstanding against or in respect of any such member), in each case, which is material and adverse in the context of the Lai Fung Group or in the context of the LF Offers.

The Offeror reserves the right to waive, in whole or in part, all or any of the Conditions (other than Conditions (a), (b), (c) and (d)). As disclosed in the Composite Document, (i) on the basis of the disclosures of interests in LSD and Lai Fung as at the Composite Document Latest Practicable Date, no connected transaction of LSD fell within paragraph (ii) of Condition (a); (ii) on the basis of the disclosures of interests in LSG and Lai Fung as at the Composite Document Latest Practicable Date, the making of the LF Share Offer to the Yu Shareholders was a connected transaction of LSG falling within paragraph (ii) of Condition (b); (iii) as at the Composite Document Latest Practicable Date, the Offeror was not aware of any consent required under Condition (h) from any person who is not a lender; and (iv) as at the Composite Document Latest Practicable Date, none of the Conditions had been fulfilled. Pursuant to Note 2 to Rule 30.1 of the Takeovers Code, the Offeror should not invoke any of the Conditions so as to cause the LF Share Offer to lapse unless the circumstances which give rise to the right to invoke such Condition are of material significance to the Offeror in the context of the LF Share Offer.

The Offeror will issue an announcement stating whether the LF Share Offer has been revised or extended, has expired or has become or been declared unconditional (and, in such case, whether as to acceptances or in all respects), by 7:00 p.m. on the LF Share Offer Closing Date in accordance with the Takeovers Code. The latest time on which the Offeror can declare the LF Share Offer unconditional as to acceptances is 7:00 p.m. on the 60th day after the posting of the Composite Document, being Tuesday, 23 June 2020 (or such later date to which the Executive may consent).

Approval of the Possible Disposal by the Independent Shareholders and the Non-Connected Shareholders at the SGM and the subsequent valid acceptance of the LF Share Offer by Merit Worth and Silver Glory, being wholly-owned subsidiaries of the Company that together hold 50.99% of the total number of issued LF Shares as at the Latest Practicable Date, will result in the satisfaction of Conditions (c) and (d) above. If the LF Share Offer lapses, the Possible Disposal will not be completed and the Company will continue to retain its existing indirect shareholding of 168,792,467 LF Shares (assuming that there are no other changes to the Company’s shareholding in Lai Fung from the Latest Practicable Date up to the date on which the LF Share Offer lapses).

The LF Share Offer is subject to the Conditions being fulfilled or waived. Accordingly, the LF Share Offer may or may not become unconditional and the Possible Disposal may or may not proceed. Shareholders and holders of options and other securities of and potential investors in LSG, LSD, the Company and Lai Fung should therefore exercise caution when dealing in the securities of LSG, LSD, the Company and Lai Fung. Persons who are in doubt as to the action they should take should consult their stockbroker, bank manager, solicitor or other professional advisers.


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Value of the LF Offers

As at the Latest Practicable Date, there were (i) 331,033,443 LF Shares in issue, (ii) 331,015,933 LF Offer Shares and (iii) 11,124,526 LF Options (all of which vested on their respective dates of grant) entitling the LF Optionholders to subscribe for an aggregate of 11,124,526 LF Shares at an exercise price ranging from HK$6.650 to HK$13.520 per LF Share.

On the assumption that before the close of the LF Share Offer the number of LF Shares will not change (whether by way of any exercise of the LF Options or otherwise) and the number of LF Options will not change, the value of the LF Share Offer is approximately HK$2,975.8 million and the total amount required to satisfy the cancellation of all LF Options is approximately HK$3.4 million. On this basis, in aggregate, the LF Offers are valued at approximately HK$2,979.2 million.

On the assumption that before the close of the LF Share Offer no further LF Options will be granted and all of the LF Options will be exercised, Lai Fung will have to issue 11,124,526 new LF Shares, representing approximately 3.25% of the enlarged issued share capital of Lai Fung, upon such exercise of the LF Options. On this basis and on the assumption that the number of LF Shares will otherwise not change, there will be 342,140,459 LF Offer Shares (including the new LF Shares issued as a result of the exercise of the LF Options) and the value of the LF Share Offer will be approximately HK$3,075.8 million. In this case, no amount will be payable by the Offeror under the LF Option Offer.

Possible Compulsory Acquisition and Withdrawal of Listing of LF Shares

Subject to compliance with the other relevant requirements under Section 88 of the Companies Law, if the Offeror, within four (4) months of the posting of the Composite Document, has received valid acceptances in respect of not less than 90% of the LF Offer Shares, the Offeror will have the right under Section 88 of the Companies Law to acquire compulsorily those LF Offer Shares not already owned or acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD. (For the avoidance of doubt, for the purposes of ascertaining whether the level of acceptances of the LF Share Offer reaches such prescribed threshold under Section 88 of the Companies Law, acceptances by the Offeror Concert Parties (other than LSD, the Offeror, the other wholly-owned subsidiaries or their respective nominees) will be included).

Pursuant to Rule 2.11 of the Takeovers Code, except with the consent of the Executive, where the Offeror seeks to acquire or privatise Lai Fung by means of the LF Share Offer and the use of the compulsory acquisition right under the Companies Law, such right may only be exercised if, in addition to satisfying the requirements imposed by the Companies Law, acceptances of the LF Share Offer in respect of the LF Disinterested Shares and purchases of the LF Disinterested Shares made by the Offeror and the Offeror Concert Parties during the period of four (4) months after the posting of the Composite Document amount to not less than 90% of the LF Disinterested Shares.


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If (a) the level of acceptances of the LF Share Offer reaches the prescribed threshold under Section 88 of the Companies Law so that the Offeror has the right to acquire compulsorily those LF Offer Shares not already owned or acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD and (b) the Offeror is permitted under Rule 2.11 of the Takeovers Code to exercise such right, the Offeror may, but is not obliged to, exercise such right. If the Offeror does exercise such right and completes the compulsory acquisition, Lai Fung will become an indirect wholly-owned subsidiary of LSD, an application will be made for the withdrawal of the listing of the LF Shares from the Stock Exchange pursuant to Rule 6.15 of the Listing Rules and a suspension of dealings in the LF Shares from the close of the LF Share Offer up to the withdrawal of listing of LF Shares from the Stock Exchange.

Pursuant to Rule 15.6 of the Takeovers Code, where the Offeror has stated in the Composite Document its intention to avail itself of any powers of compulsory acquisition, the LF Share Offer may not remain open for acceptance for more than four (4) months from the posting of the Composite Document unless the Offeror has by that time become entitled to exercise such right of compulsory acquisition available to it under the Companies Law, in which event the Offeror must do so without delay.

Reference is made to the announcement of Lai Fung dated 18 September 2019 relating to the shortfall in its public float arising from an increase in the Yu Shareholders’ holding of LF Shares. The Yu Shareholders became substantial shareholders and therefore core connected persons of Lai Fung as a result of such increase. On the basis of the Yu Shareholders’ latest disclosures of interests in Lai Fung, the public float of Lai Fung was approximately 18.15% as at the Latest Practicable Date, which is below the minimum prescribed by Rule 8.08(1) (a) of the Listing Rules (being 25%).

In the event that the LF Share Offer becomes unconditional in all respects and the Offeror does not effect the compulsory acquisition of the remaining LF Offer Shares, whether by reason of the level of acceptances of the LF Share Offer not reaching the prescribed thresholds under the Companies Law or the Takeovers Code or otherwise, the Offeror intends to continue the listing of the LF Shares on the Stock Exchange and will take appropriate steps to ensure that any shortfall in the public float of Lai Fung as a result of the LF Offers is restored after the close of the LF Offers as long as Lai Fung remains listed on the Stock Exchange.

In the event that the LF Share Offer does not become unconditional in all respects, Lai Fung will continue to consider steps to restore its public float in accordance with the Listing Rules. Further announcement(s) will be made by Lai Fung on the restoration of public float as and when appropriate.

The Stock Exchange has stated that if, upon the close of the LF Share Offer, less than a minimum prescribed percentage applicable to Lai Fung, being 25% of the total number of issued LF Shares, are held by the public, or if the Stock Exchange believes that:

– a false market exists or may exist in the trading of the LF Shares; or

– that there are insufficient LF Shares in public hands to maintain an orderly market,

then the Stock Exchange will consider exercising its discretion to suspend dealings in the LF Shares.


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The Offeror Directors have jointly and severally undertaken to the Stock Exchange that, in the event the LF Share Offer becomes unconditional in all respects and the Offeror does not effect the compulsory acquisition of the remaining LF Offer Shares, they will take appropriate steps to ensure that any shortfall in the public float of Lai Fung as a result of the LF Offers is restored after the close of the LF Offers as long as Lai Fung remains listed on the Stock Exchange.

FINANCIAL EFFECT OF THE POSSIBLE DISPOSAL ON THE GROUP

Upon Completion, the Group will no longer hold any interest in Lai Fung. Lai Fung will cease to be an indirect non-wholly-owned subsidiary of the Company and the financial results of Lai Fung will no longer be consolidated into the financial statements of the Group with effect from the date of Completion.

One-off disposal loss and impact on the Remaining Group’s profitability

It is estimated that the Group will record an unaudited loss before taxation of approximately HK$8,000 million from the Possible Disposal, which is calculated as the difference between the gross proceeds from the Possible Disposal and the net assets of Lai Fung Group attributable to the Group in the Group’s consolidated financial statements as at 31 July 2019, after taking into account the release of exchange reserve. Based on the unaudited pro forma financial information of the Remaining Group as set out in Appendix III to this circular, assuming the Possible Disposal had been completed on 1 August 2018, the unaudited pro forma consolidated loss of the Remaining Group for the year ended 31 July 2019 would be approximately HK$7,899 million. The actual loss as a result of the Possible Disposal to be recorded by the Group is subject to any changes to the carrying amount of Lai Fung Group on the date of Completion and is subject to audit by the independent auditors of the Company, and therefore may be different from the amount mentioned above.

Moreover, the Group’s turnover from property development and property investment, which was contributed by the Lai Fung Group, of approximately HK$1,453 million, HK$945 million and HK$1,321 million for the years ended 31 July 2019, 2018 and 2017, respectively, represented approximately 50.05%, 43.27% and 49.35% of the Group’s total turnover of approximately HK$2,903 million, HK$2,184 million and HK$2,677 million for the years ended 31 July 2019, 2018 and 2017, respectively. As Lai Fung will cease to be a subsidiary of the Company after the Completion and accordingly, the turnover of the Lai Fung Group, among other financial results of the Lai Fung Group, will no longer be consolidated into the Group’s consolidated financial statements, and given the adverse impacts of the recent social and pandemic events on the business and financial position of the Group, in particular that of the Remaining Group, as disclosed in the paragraph headed “Assessment of the LF Share Offer – Pros (2): An opportunity to transform the Remaining Group into a pure-play cinema, media and entertainment company with funding to be received from the acceptance of the LF Share Offer to promote the growth and long-term development of these businesses” in this section below (“Pros (2) of the LF Share Offer”) and the paragraph headed “Material Adverse Change” in Appendix I to this circular, it is expected that the Possible Disposal may have negative impact on the Remaining Group’s profitability in the short term.


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Nevertheless, the Company is generally confident about the outlook for the media and entertainment industry and its media and entertainment businesses in the long run on the bases set out in Pros (2) of the LF Share Offer, and having taken into account the proceeds of approximately HK$1,517.4 million which the Remaining Group will receive upon Completion, the Company currently intends to improve the profitability of the Remaining Group’s businesses after the Completion through the implementation of the business plans below. It should however be noted that in light of the market uncertainties arising from the aforementioned social and pandemic events and the uncertainties on their ultimate and eventual impact on the Remaining Group and the general media and entertainment industry, the Company will remain cautious about pursuing these business plans to ensure that they will only be implemented if they are considered to be in the interests of the Company and its Shareholders based on the market and industry circumstances at the time of their implementation:

(i) Cinema Operation:

As a result of the expansion of the Group’s cinema operation, in particular in the last three financial years, the Group has captured a significant share of the Hong Kong cinema market, which has enabled the Group to enjoy economies of scale in its operations and manage its costs more efficiently. The Company currently intends to continue to seek to expand its share of the cinema market in Hong Kong and the PRC through improving its existing cinemas and acquiring new cinema sites and upgrading the facilities of its existing cinemas, subject to the then market conditions and circumstances of the cinema operation industry. For details, please see sub-paragraph (iii) under the paragraph headed “Possible Use of Proceeds” in this section below.

Also, to create new sources of revenue without any substantial additional costs, the Company has been exploring different ways to diversify the usage of its cinema facilities, such as organising and hosting film festivals and exhibitions and live-broadcasting alternative entertainment programmes, including but not limited to concerts and live shows held abroad, and intends to continue to implement this business strategy to broaden the income streams of the Remaining Group.

In addition, the Company intends to continue to strengthen and utilise brand awareness, including through collaborations with financial institutions, and to improve customer loyalty through its customer loyalty programmes, in order to attract new customers and maintain and enhance business from existing customers.


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(ii) Media and Entertainment:

The Company intends to continue to nurture new talented artistes. For example, in October 2019, the Company launched a new project called “Kre8 Music Lab” to actively scout for new talented music artistes including through auditions in Beijing, Shanghai, Guangzhou, Chengdu, Changsha and Taipei. Successful candidates will be trained with a view to becoming artistes managed by the Company. Such project will give the Remaining Group an opportunity to grow its pool of artistes organically and reduce costs associated with signing established artistes. It will also be a potential source of additional revenue attributable to copyrights, performances, commercial endorsements and merchandising. Subject to the then market conditions and circumstances of the media and entertainment industry, the Company also intends to broaden the channels for the distribution of its music products and expects to increase its music product licensing revenue through new media distribution. For further details, please see sub-paragraph (iv) under the paragraph headed “Possible Use of Proceeds” in this section below.

(iii) Film Production and Distribution:

To better safeguard the Remaining Group’s investments, the Company intends to adopt effective risk management approaches such as using joint ventures for producing larger budget films. Subject to the then market conditions and circumstances of the film industry, the Company also intends to continue to invest prudently in the production and distribution of films and expand activities in production and investments in quality TV drama series in line with the continued strong demand for good programmes from internet platforms and TV stations in the PRC. For details, please see sub-paragraph (iv) under the paragraph headed “Possible Use of Proceeds” in this section below.

Impact on the Remaining Group’s assets, liabilities and reserves

Based on the unaudited pro forma financial information of the Remaining Group as set out in Appendix III to this circular, assuming the Possible Disposal had been completed on 31 July 2019, the unaudited pro forma consolidated net assets, net current assets and total liabilities of the Remaining Group as at 31 July 2019 would be approximately HK$2,580 million, HK$1,504 million and HK$2,126 million, respectively, as compared to the consolidated net assets, net current assets and total liabilities of the Group as at 31 July 2019 of approximately HK$17,425 million, HK$3,015 million and HK$17,188 million, respectively. Furthermore, assuming the Possible Disposal had been completed on 31 July 2019, the unaudited pro forma consolidated reserves of the Remaining Group as at 31 July 2019 would, as compared to the consolidated reserves of the Group as at 31 July 2019, drop significantly by approximately HK$6,562 million, or approximately 78.56%.


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Under section 54 of the Companies Act 1981 of Bermuda, a company shall not declare or pay a dividend, or make a distribution out of contributed surplus, if there are reasonable grounds for believing that (a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realisable value of the company’s assets would thereby be less than its liabilities. In addition, under bye-law 138 of the Company’s Bye-laws, no dividend shall be paid or distribution made out of contributed surplus if to do so would render the Company unable to pay its liabilities as they become due or the realisable value of its assets would thereby become less than its liabilities. In view of the aforementioned unaudited pro forma consolidated net current assets and net assets of the Remaining Group as at 31 July 2019 of HK$1,504 million and HK$2,580 million, respectively, it is expected that the Remaining Group would remain legally capable of paying dividends or making distributions (if declared by the Board).

Notwithstanding the above, according to the dividend policy adopted by the Board on 22 January 2019 (“Dividend Policy”), in deciding whether to propose a dividend and in determining the dividend amount, the Board will take into account of factors such as (i) the Group’s actual and expected underlying financial performance; (ii) the Shareholders’ interests; (iii) business condition and strategies; (iv) expected working capital requirements and future business growth plans; and (v) any other factors that the Board may consider appropriate. Any declaration and payment of future dividends under the Dividend Policy will be subject to, among others, the Bye-laws of the Company and the Board’s determination that the same would be in the best interests of the Group and the Shareholders as a whole.

LISTING RULES IMPLICATIONS

Very Substantial Disposal

The Possible Disposal, if approved by the Independent Shareholders and the Non-Connected Shareholders by passing the requisite resolutions to be proposed at the SGM and subject to the LF Offers becoming unconditional in all respects, will be effected by way of Merit Worth and Silver Glory (being wholly-owned subsidiaries of the Company through which it holds the LF Shares) accepting the LF Share Offer in respect of all the LF Shares respectively held by them, which comprise 168,792,467 LF Shares in aggregate, representing 50.99% of the total number of issued LF Shares as at the Latest Practicable Date. As the highest applicable percentage ratio for the Company in respect of the Possible Disposal would exceed 75%, the Possible Disposal would constitute a very substantial disposal for the Company under Chapter 14 of the Listing Rules and is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14 of the Listing Rules.


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Upon Completion, Lai Fung will cease to be a subsidiary of the Company and accordingly, the Lai Fung Group’s financial results, assets, liabilities and cash flows will no longer be consolidated into the Group’s consolidated financial statements. Save for this, the Company and its remaining subsidiaries will continue to hold their respective assets and businesses.

Connected Transaction in relation to the Possible Disposal

Both the Offeror and Transtrend are wholly-owned subsidiaries of LSD. LSD, through Transtrend, is a holding company of the Company interested in 1,113,260,072 Shares (representing approximately 74.62% of the total number of issued Shares). Accordingly, the Offeror is a connected person of the Company under the Listing Rules. The Possible Disposal constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and Non-Connected Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

INFORMATION ON LSG, LSD AND THE OFFEROR

LSG is a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. LSG and its subsidiaries are principally engaged in property investment, property development, investment in and operation of hotels and restaurants, media and entertainment, music production and distribution, films, video format products and television programmes production and distribution, cinema operation, cultural, leisure, entertainment and related facilities and investment holding.

LSD is a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. LSD and its subsidiaries are principally engaged in property investment, property development, investment in and operation of hotels and restaurants, media and entertainment, music production and distribution, films, video format products and television programmes production and distribution, cinema operation, cultural, leisure, entertainment and related facilities and investment holding.

The Offeror is a company incorporated in the British Virgin Islands with limited liability and is a wholly-owned subsidiary of LSD. The Offeror is engaged in investment holding.

As at the Latest Practicable Date, (i) LSG was interested in approximately 56.30% of the total number of issued LSD Shares and (ii) Dr. Peter Lam was interested in approximately 42.10% of the total number of issued LSG Shares.

INFORMATION ON THE GROUP

The Company is an exempted company incorporated in Bermuda with limited liability, the issued Shares of which are listed and traded on the Main Board of the Stock Exchange. The Company acts as an investment holding company and the principal activities of the Group include the development, operation of and investment in media and entertainment, music production and distribution, the investment in and production and distribution of television programmes, films and video format products, cinema operation and (through the Company’s interest in Lai Fung) property development for sale and property investment as well as the development and operation of and investment in cultural, leisure, entertainment and related facilities.


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As at the Latest Practicable Date, LSD was interested in approximately 74.62% of the total number of issued Shares and held such interest through Transtrend.

As at the Latest Practicable Date, the Company was interested in approximately 50.99% of the total number of issued LF Shares.

INFORMATION ON THE LAI FUNG GROUP

Lai Fung is a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. The Lai Fung Group is principally engaged in property development for sale, property investment, and development and operation of and investment in cultural, leisure, entertainment and related facilities.

As at the Latest Practicable Date, Lai Fung was held as to (i) 50.99% (or 168,792,467 LF Shares) indirectly by the Company (including (a) 27.02% (or 89,457,323 LF Shares) directly by Merit Worth (a direct wholly-owned subsidiary of the Company) and (b) 23.97% (or 79,335,144 LF Shares) directly by Silver Glory (a direct wholly-owned subsidiary of Merit Worth); and (ii) 0.01% (or 17,510 LF Shares) directly by Transtrend.

The following is a summary of the consolidated financial information of the Lai Fung Group for the three financial years ended 31 July 2017, 2018 and 2019 and for the six months ended 31 January 2019 and 2020:

As at 31 July As at 31 January 2019 2018 2017 2020 2019

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) (Unaudited) (Unaudited)

Total assets 31,309,627 28,228,264 25,220,279 31,263,016 31,001,169

Net assets attributable to owners of Lai Fung 15,834,007 15,502,867 14,584,111 14,918,407 15,832,181

For the financial year For the six months ended 31 July ended 31 January 2019 2018 2017 2020 2019

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) (Unaudited) (Unaudited)

Net profit/(loss) before tax and tax indemnity 1,170,537 1,556,005 1,652,804 (365,378) 261,489

Net profit/(loss) after tax and tax indemnity 740,055 1,291,471 1,590,584 (570,790) 82,686

For details of the financial information of the Lai Fung Group, please refer to the financial information of the Lai Fung Group for the three years ended 31 July 2017, 2018 and 2019 and for the six months ended 31 January 2020 set out in Appendix II to this circular.


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ASSESSMENT OF THE LF SHARE OFFER

The assessment of the LF Share Offer of the Directors (including members of the Independent Board Committee) is set out below:

Pros (1): An opportunity to realise value for the LF Offer Shareholders

The LF Share Offer offers the LF Offer Shareholders, including the Company, the opportunity to realise their investments in the LF Shares, which have consistently suffered from low levels of liquidity, particularly in light of the recent volatility in the equity market and uncertainties around the economy amid the outbreak of the novel coronavirus (COVID-19):

(a) LF Share Offer Price being largely in line with historical trading prices of LF Shares

The LF Share Offer is being made to all LF Shareholders at the LF Share Offer Price, which as disclosed in the Composite Document, was determined after taking into account, among other things, (i) the historical trading prices of LF Shares as detailed in section 3 “The LF Share Offer Price” of the Composite Document and (ii) the decline in the adjusted net profit attributable to owners of Lai Fung (excluding the effect of property revaluations) from HK$987.8 million for the year ended 31 July 2017 to HK$629.1 million for the year ended 31 July 2018 and to HK$263.7 million for the year ended 31 July 2019 despite the relatively steady turnover from the investment properties of Lai Fung Group.

In relation to (i) above, the Directors noted that the discount of the simple average closing price of LF Shares on the Stock Exchange (as obtained from Bloomberg) for Lai Fung’s five financial years ended 31 July 2019 and the six months ended 31 January 2020 to the net assets per LF Share as at the end of each such financial period was 79.70%, 84.59%, 78.91%, 73.57%, 79.94% and 81.10%, respectively.

Thus, while the LF Share Offer Price represents (i) a discount of approximately 81.41% to the audited consolidated net asset value attributable to owners per LF Share of approximately HK$48.36 as at 31 July 2019, based on the total number of issued LF Shares and the consolidated net assets attributable to owners of Lai Fung as at 31 July 2019 and (ii) a discount of approximately 80.26% to the unaudited consolidated net asset value attributable to owners per LF Share of approximately HK$45.55 as at 31 January 2020, based on the total number of issued LF Shares and the consolidated net assets attributable to owners of Lai Fung as at 31 January 2020, the Directors considered that such discounts are largely in line with those resulting from the historical trading prices of LF Shares.


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(b) Low trading volume and trading liquidity and uncertainties in the prospects of share price performance of LF Shares

The Directors noted that, to the disadvantage of LF Shareholders, including the Company, the liquidity of the LF Shares has been at a relatively low level over a long period of time. The average daily trading volume of LF Shares for the 12 months preceding the Latest Practicable Date, i.e. from 1 February 2019 up to the Latest Practicable Date was no more than 76,931 LF Shares per day, representing less than 0.0232% of the total number of issued LF Shares as at the Latest Practicable Date and less than 0.0474% of the public float of Lai Fung as at the Latest Practicable Date. The low trading liquidity of LF Shares makes it difficult for LF Shareholders, including the Company, to execute on-market disposals without adversely affecting the price of the LF Shares.

While the Company had no previous plan of disposing of its shareholding interests in Lai Fung, as the Company had received the LF Share Offer through Merit Worth and Silver Glory as at the date of this circular, the Directors considered that in assessing the fairness and reasonableness of the terms of the Possible Disposal by way of acceptance of the LF Share Offer, a major factor that should be taken into consideration is whether the Company would be able to dispose of its shareholding interests in Lai Fung via alternative means at more favourable terms than those of the Possible Disposal. As one of these alternative means is on-market disposal of the LF Shares held by the Group, the possibility and costs of which in turn depend on the trading liquidity and trading volume of LF Shares, these factors are relevant to the assessment of the LF Share Offer.

It is also noted that while the business of the Lai Fung Group had remained steady in the past years and it is holding a sizeable portfolio of properties under development, the Lai Fung Group’s business, operations and hence share price performance may be affected by the slowdown of the Chinese property market given the uncertainties brought about by various adverse factors including, among others, the outbreak of the COVID-19 pandemic, in addition to the ongoing trade war between the United States and the PRC, rising geopolitical tensions and the social unrest in Hong Kong.

In light of the low liquidity of the LF Shares, it would be difficult for a significant number of LF Offer Shares to be sold in the market without adversely affecting the market price of the LF Shares. The LF Share Offer affords the holders of the LF Offer Shares, including the Company, the certainty to realise their investments in Lai Fung without such difficulty.

Given that (i) the trading volume of LF Shares had been extremely low or almost negligible during the 12 months preceding the Last Trading Date and up to the Latest Practicable Date; and (ii) it is uncertain if the Lai Fung Group may be affected by the slowdown of the PRC property market, which may further adversely affect the price performance and trading volume of LF Shares, the Directors consider that without the LF Share Offer, there does not appear to be a sufficiently traded market in LF Shares which could allow the Company to liquidate or divest or monetise any part of its investment in Lai Fung on-market, if it so wishes, at a price with certainty and/or in reasonable volume without exerting downward pressure on the price of the LF Shares in the near term.


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Pros (2): An opportunity to transform the Remaining Group into a pure-play cinema, media and entertainment company with funding to be received from the acceptance of the LF Share Offer to promote the growth and long-term development of these businesses

Acceptance of the LF Share Offer by the Company and the Possible Disposal will result in the Remaining Group becoming a pure-play cinema, media and entertainment company, providing a more focused overall business objective to the benefit of the Remaining Group, and providing it with the funding for and enabling the Company to concentrate its resources on the reinforcement of its industry position and the promotion of the growth and long-term development of its businesses of the development, operation of and investment in media and entertainment, music production and distribution, the investment in and production and distribution of television programmes, films and video format products and cinema operation, which is expected to be in the interests of the Company and the Shareholders as a whole in the long run.

Through its indirect non-wholly-owned subsidiary, Intercontinental Group Holdings Limited, which is engaged in the operation of cinemas in Hong Kong, the distribution of films, DVDs, Blu-ray discs and video games, the provision of advertising services and the trading of merchandises and gaming products, the Group is one of the leading film and video distribution companies in Hong Kong, releasing around 30 films every year and distributing a variety of video products. It is also one of the leading multiplex cinema operators in Hong Kong, operating a total of thirteen cinemas in Hong Kong and the PRC. For the year ended 31 July 2019, the Group’s cinema operation had a market share of 20.09% of the total box office takings of Hong Kong and it was the second largest cinema operator in Hong Kong in terms of total number of cinemas, box office sales and market share according to Hong Kong Box Office Limited, an independent organisation established to report on the daily Hong Kong box office revenue, details of latest movies and box office data analysis. In addition, through its indirect non-wholly-owned subsidiary MAGHL, the Group is involved in film production and distribution; organisation, management and production of concerts and live performances; artiste management; production and distribution of television programs; music production and publishing; licensing of media contents and the provision of consultancy services in planning and management of cultural, entertainment and live performance projects.

The Directors acknowledge that the Group’s film production and distribution business has recorded segmental losses in the past primarily due to unsatisfactory box office performance of certain films produced and distributed by the Group, in particular certain films with substantial budgets; and the Group’s cinema operation business has also recorded segmental losses, which were mainly attributable to (i) impairment of property, plant and equipment of certain cinemas of the Group, the performance of which has not reached its expected level primarily due to keen competition from newly opened cinemas in neighbouring areas and (ii) high cinema rents as a result of other cinema operators with strong financial backings aggressively bidding for new and existing cinema sites upon expiry of their leases. Furthermore, the media and entertainment and cinema businesses of the Group had suffered from repercussions of a prolonged social unrest in Hong Kong emerging since mid-2019. The industry outlook was further clouded by the outbreak of the novel coronavirus (COVID-19) since early 2020. For instance, as disclosed in the Company’s interim results announcement for the six months ended 31 January 2020, the Group recorded a decline of approximately HK$19.7 million, or approximately 10%, in its cinema turnover from approximately HK$214.3 million for


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the six months ended 31 January 2019 to approximately HK$194.6 million for the six months ended 31 January 2020, mainly attributable to the temporary closure of certain cinemas of the Group amid the social unrest in Hong Kong and the delay in release for certain blockbuster films during the Lunar New Year in January 2020 as a result of the outbreak of COVID-19. The number of cinema goers in February 2020 and March 2020 had further dropped significantly as the general public in Hong Kong and the PRC reduced social outing drastically in response to the governments’ appeals on minimising social contact. On top of this, the Group’s cinemas had been temporarily closed from 28 March 2020 pursuant to the crowd control measures against COVID-19 announced by the Hong Kong government. Furthermore, as disclosed in the paragraph headed “Financial Effect of the Possible Disposal on the Group” above, it is expected that the Possible Disposal may have negative impact on the Remaining Group’s profitability in the short term.

In recent years, the Group has continued to invest in its film production and distribution and cinema operation businesses with a view to further solidifying its industry positioning and to capture the opportunities of the entertainment market in Hong Kong and the PRC as they might arise, so as to enhance and expand its media and entertainment businesses in Hong Kong and the PRC. However, in view of the challenges brought about by the abovementioned social and pandemic events to the industry, the uncertainties as to the period for which the impacts of these challenges may last and the difficulty for the Company to assess such length of time and the eventual impact on the Group’s business operations and financial performance at this stage, in the short term, the Company will be cautious in pursuing aggressive business plans to accelerate growth of its fully-integrated media and entertainment platform but will stay alert and prepared to capture new opportunities when market activities return.

Notwithstanding the above, the Company is generally confident about the outlook for the media and entertainment industry and its media and entertainment businesses in the long run on the bases set out below:

(i) the Group has continuously released albums and increased its music licensing revenue and has continuously expanded its television drama production and film production business with its strong artiste management team and a sizeable number of talents, which had contributed to the modest segmental profit generated by the Group’s media and entertainment business in recent years;

(ii) the media and entertainment industry has been generally recession resistant and demand for entertainment is expected to sustain as a result of the growing middle class and rising per capita income in Hong Kong and the PRC. In this connection, according to the market research conducted by the Independent Financial Adviser on the cinema, entertainment and media industry in Hong Kong (details of which are set out in the paragraph headed “Principal Factors and Reasons Considered – D. Assessment of the LF Share Offer” in the letter from the Independent Financial Adviser in this circular), the outlook for the cinema, entertainment and media industry in Hong Kong is expected to remain positive generally in the long term. The Group’s management is thus of the view that the business model of the media and entertainment businesses of the Group and the industry outlook for its operations are favourable in the long run, and will generate stable future income streams for the Company; and


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(iii) the growing PRC market is believed to present significant business development and expansion opportunities for Hong Kong media and entertainment business operators including the Group.

In addition, as there are clear differences between the Remaining Group and Lai Fung in terms of business focus, strategies and operations, the Company believes that the transformation of the Remaining Group into a pure-play cinema, media and entertainment company will provide it with a more focused overall business objective, which is expected to help streamline the business of the Remaining Group, enable the Remaining Group to concentrate its resources, including funding derived from the Possible Disposal, on the reinforcement of the Remaining Group’s industry position, the maintenance of its market share in the highly competitive media and entertainment business in Hong Kong and Mainland China and the promotion of the growth and development of the Remaining Group’s media and entertainment businesses. For instance, if the Possible Disposal is approved by Independent Shareholders and Non-Connected Shareholders at the SGM and the Company has accordingly accepted the LF Share Offer (subject to the LF Offers becoming unconditional in all respects), the Remaining Group will receive gross proceeds of approximately HK$1,517.4 million from the Possible Disposal, and the Company was contemplating to cautiously utilise the proceeds from the Possible Disposal in the manner disclosed in the paragraph headed “Possible Use of Proceeds” below, including, among others, for the development and enhancement of the Remaining Group’s cinema operation and the film and TV production and distribution and media and entertainment businesses, in the furtherance of the interests of the Company and its Shareholders as a whole. The Company also intends to address the short-term impact of the Possible Disposal and the abovementioned social and pandemic events on the profitability of the Remaining Group, and improve the profitability of the Remaining Group’s businesses after the Completion, through the careful implementation of the business plans set out in the paragraph headed “Financial Effect of the Possible Disposal on the Group - One-off disposal loss and impact on the Remaining Group’s profitability” above.

Given the Company’s confidence in the outlook for the media and entertainment industry and the Remaining Group’s businesses in the long run as stated above, it is currently expected that, despite the negative financial impact of the Possible Disposal on the Remaining Group and the challenges and uncertainties brought about by the abovementioned social and pandemic events in the short term, the transformation of the Remaining Group into a pure-play cinema, media and entertainment company, as supported by the business plans for improvement of the Remaining Group’s profitability and by the business and development strategies to be funded by proceeds from the Possible Disposal as disclosed above, will be in the interests of the Company and its Shareholders as a whole in the long run. From this perspective, the opportunity to transform the Remaining Group into a pure-play cinema, media and entertainment company, as presented by the LF Share Offer to the Company, is considered as a factor for accepting the LF Share Offer.


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Pros (3): Provide fresh capital to the Group

On the basis of the number of LF Shares owned by the Company as at the Latest Practicable Date, if the resolutions to be proposed at the SGM for approving the Possible Disposal are passed by the Independent Shareholders and the Non-Connected Shareholders, acceptance of the LF Share Offer by the Company will (subject to the LF Offers becoming unconditional in all respects) provide the Remaining Group with gross proceeds of approximately HK$1,517.4 million.

Taking into account the cash and bank balances of the Remaining Group of approximately HK$640.1 million as at 31 January 2020, total debt of approximately HK$597.3 million as at 31 January 2020, approximately HK$262.9 million of which will be due within one year; and the capital commitment of the Remaining Group including, among others, the rent payable of over HK$200 million per annum in relation to cinema operation of the Remaining Group and the capital expenditure of approximately HK$246 million for the recently secured two cinema sites in Kai Tak and Cyberport in Hong Kong, the three potential cinema projects under discussion, and renovation of existing cinemas, the Group has been considering different ways to strengthen its financial position in order to support the continuing development of the Group’s media and entertainment business activities. In light of the recent financial market volatility and increased uncertainties over the local and global economic outlook, the Directors consider that it would be difficult to raise a meaningful amount of financing for the development of these cinema, media and entertainment operations from the equity capital market or by way of new borrowings at a reasonable cost. As analysed in the sub-paragraph headed “Pros (1): An opportunity to realise value for the LF Offer Shareholders” above, the LF Share Offer provides an opportunity for the Group to crystalise and realise the value of its investment in Lai Fung Group at a price with certainty. The Company will be able to redirect the capital to be derived from the Possible Disposal to reduce its borrowings, improve its working capital position, support its business operations and capture business opportunities as they arise if they are considered to be in the interests of the Company and its Shareholders, which would otherwise be impossible given the extremely low trading volume and trading liquidity of LF Shares and the uncertainties over the prospects of the share price performance of LF Shares in the near term.

Cons (1): Discounts of the LF Share Offer Price to underlying fundamental values of the LF Shares

As disclosed in the paragraph headed “The Possible Disposal – The LF Share Offer – LF Share Offer Price” in this section above, the LF Share Offer Price represented substantial discounts of approximately 81.41% and 80.26% to the audited consolidated net asset value attributable to owners per LF Share as at 31 July 2019 and the unaudited consolidated net asset value attributable to owners per LF Share as at 31 January 2020, respectively.


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Also, the Independent Financial Adviser has opined that the implied price-to-book ratios of Lai Fung of (i) approximately 0.20 times, as calculated based on the LF Share Offer Price divided by Lai Fung’s net asset value per LF Share published in the announcement of interim results of Lai Fung for the six months ended 31 January 2020, and (ii) approximately 0.15 times, as calculated based on the LF Share Offer Price and the Reassessed NAV, are both significantly lower than the mean of the price-to-book ratios of the comparable companies of Lai Fung as at the Latest Practicable Date of 0.56 times, by approximately 64.3% and 73.2%, respectively, and accordingly, the Independent Financial Adviser is of the view that the LF Share Offer Price, although largely in line with the historical trading prices of LF Shares, is not fair and reasonable based on its analysis as set out in the paragraph headed “Principal Factors and Reasons Considered – L. Comparable Companies Analysis of Lai Fung” in the letter from the Independent Financial Adviser in this circular, and therefore not in the interests of the Group and the Shareholders as a whole. While the Company had not considered to dispose of its shareholding interests in Lai Fung prior to the announcement of the LF Share Offer in the Joint Announcement, as the Company had received the LF Share Offer through Merit Worth and Silver Glory as at the date of this circular, the Directors considered that for the purpose of a meaningful assessment of the fairness and reasonableness of the terms of the LF Share Offer, in particular the LF Share Offer Price, it is important to evaluate if the LF Share Offer Price represents an undervaluation of the market value of the LF Shares. For this purpose, the Directors considered that it is critical to compare the value of LF Shares as represented by the LF Share Offer Price against the value of the shares of comparable companies of Lai Fung, and the price-to-book ratio is an appropriate benchmark for the valuation of Lai Fung and its comparable companies in conducting such comparison, as the core value of Lai Fung and its comparable companies, being companies that are engaged in property development and property investment, lies in the net asset value of the underlying assets held by them, whereas other benchmarks, such as price-to-earnings ratio, may not be appropriate for valuing these companies as such benchmarks may vary significantly with the different status of the property developments and time span of property projects of Lai Fung and its comparable companies.

Moreover, as the LF Share Offer to the Company as a holder of LF Offer Shares is an unsolicited one, the Company is only provided with a passive choice of either to accept or decline the LF Share Offer, but had not had any opportunity to negotiate the terms of the LF Share Offer, including the LF Share Offer Price with the Offeror separately. Given the Group’s interests in Lai Fung is over 50% of its total number of issued LF Shares as at the Latest Practicable Date, acceptance of the LF Share Offer by the Group will enable the Offeror to obtain the majority stake in Lai Fung, but no control premium is reflected in the LF Share Price offered by the Offeror under LF Share Offer to the Company. In this connection, the Company studied the prices offered under the unconditional mandatory general offers made in respect of the issued shares of companies listed on the Main Board of the Stock Exchange in 2019 and 2020 that had been closed and completed as at the Latest Practicable Date (“MGO Reference Transactions”). As unconditional mandatory general offer transactions are usually triggered by the sale and purchase of the controlling stake of listed companies, the Company considered that the MGO Reference Transactions are relevant to its assessment of whether it is in line with recent market transactions for a premium to be reflected in the price offered for the purchase of the controlling stake of companies listed on the Main Board of the Stock Exchange like Lai Fung. Based on the Company’s analysis, out of the 32 MGO Reference Transactions noted by the Company, the offer price adopted in (i) 17 MGO Reference Transactions represented a premium over


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the closing price per share as quoted on the Stock Exchange on trading day prior to the publication of the announcement on the relevant MGO Reference Transaction in accordance with Rule 3.7 or Rule 3.5 of the Takeovers Code (whichever was earlier); and (ii) 19 MGO Reference Transactions represented a premium over the audited consolidated net asset value or unaudited consolidated net asset value (whichever was more recent at the time when the offer under the relevant MGO Reference Transaction was made) attributable to shareholders per share. The Company therefore concluded that in the majority of the recent takeover transactions, a premium was reflected in the price offered for the acquisition of the controlling stake of companies listed on the Main Board of the Stock Exchange. Accordingly, the Company considered that the substantial discounts of the LF Share Offer Price to the underlying fundamental values of the LF Shares and the non-inclusion of a control premium in the LF Share Offer Price are not in line with the recent market transactions involving the sale and purchase of controlling stakes in Main Board-listed companies.

The Directors are therefore of the view that the LF Share Offer Price is unattractive from the perspective of the Company.

Cons (2): Significant financial effect of the Possible Disposal on the Group

As disclosed in the paragraph headed “Financial Effect of the Possible Disposal on the Group” in this section above, it is currently estimated that upon Completion, the Group will incur a significant unaudited loss before taxation of approximately HK$8,000 million. Moreover, the Lai Fung Group had been a major contributor to the Group’s turnover in recent years. For instance, the Group’s turnover from property development and property investment, which was contributed by the Lai Fung Group, of approximately HK$1,453 million, HK$945 million and HK$1,321 million for the years ended 31 July 2019, 2018 and 2017, respectively, represented approximately 50.05%, 43.27% and 49.35% of the Group’s total turnover of approximately HK$2,903 million, HK$2,184 million and HK$2,677 million for the years ended 31 July 2019, 2018 and 2017, respectively. Upon Completion, Lai Fung will cease to be a subsidiary of the Company and accordingly, the Lai Fung Group’s financial results, including its revenue, will no longer be consolidated into the Group’s consolidated financial statements.


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As shown in the unaudited pro forma financial information of the Remaining Group as set out in Appendix III to this circular, assuming the Possible Disposal had been completed on 31 July 2019, the unaudited pro forma consolidated net assets, net current assets and reserves of the Remaining Group as at 31 July 2019 would, as compared to the consolidated net assets, net current assets and reserves of the Group as at 31 July 2019, drop significantly by (i) approximately HK$14,845 million, or approximately 85.19%, to approximately HK$2,580 million; (ii) approximately HK$1,511 million, or approximately 50.13%, to approximately HK$1,504 million; and (iii) approximately HK$6,562 million, or approximately 78.56%, to approximately HK$1,791 million, respectively.

Disposal of the Group’s interest in Lai Fung Group by way of the acceptance of the LF Share Offer is therefore expected to have significant impact on the Group’s profitability, financing structure and reserves. For further details of the Company’s view on the impact of the Possible Disposal on the Remaining Group’s profitability and ability to pay dividends, please see the paragraph headed “Financial Effect of the Possible Disposal on the Group” in this section above.

Cons (3): No imminent financial needs for the proceeds from the Possible Disposal

Despite the decline in the Group’s recent financial performances as disclosed in the Company’s interim results announcement for the six months ended 31 January 2020, it is expected that, even if the LF Share Offer is not accepted by the Company and the Company does not receive the proceeds from the Possible Disposal, the Group will have sufficient working capital for its requirements for at least 12 months from the date of this circular, in the absence of any unforeseen circumstances and after taking into account (i) the internal resources of the Group; (ii) the Group’s presently available banking facilities and other borrowings; and (iii) the expected refinancing of certain bank loans and other borrowings. On this basis, it is currently expected that the business of the Group as a going concern will not be at issue even if the Possible Disposal does not proceed.

Also, as at the Latest Practicable Date, the Company has not identified any specific target of investment and/or acquisition with favourable terms and in the interests of the Company and its Shareholders as a whole that would require immediate or, in the short term, funding from proceeds from the Possible Disposal.

Accordingly, the Directors consider that the Group does not currently have imminent financial needs for the proceeds from the Possible Disposal that would justify the acceptance of the LF Share Offer by the Company in light of the other cons of the LF Share Offer discussed above.


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POSSIBLE USE OF PROCEEDS

If the Possible Disposal is approved by Independent Shareholders and Non-Connected Shareholders at the SGM and the Company has accordingly accepted the LF Share Offer (subject to the LF Offers becoming unconditional in all respects), the Remaining Group will receive gross proceeds of approximately HK$1,517.4 million from the Possible Disposal and intends to utilise such proceeds in the furtherance of the interests of the Company and its Shareholders as a whole. Since the LF Share Offer is an unsolicited one and the Possible Disposal is not actively procured by the Company, the Company had only become aware of the Possible Disposal and its potential receipt of the abovementioned gross proceeds from the Possible Disposal in February 2020. Given the relatively short timeframe between February 2020 and the publication of this circular, and the high level of uncertainties about the impact of COVID-19 on the business of the Remaining Group and the media and entertainment industry as a whole, as at the Latest Practicable Date, the Company was contemplating to utilise the proceeds from the Possible Disposal in the manner set out below, subject to the abovementioned cautious approach which the Company would continue to adopt in pursuing its business plans for developing the Remaining Group into a pure-play cinema, media and entertainment company, and more importantly, subject to the overriding principle that such use of proceeds being in the interests of the Company and its Shareholders as a whole at the relevant time of utilisation:

(i) HK$250 million (representing approximately 16.5% of the gross proceeds of the Possible Disposal) for the repayment of shareholder loans of HK$250 million granted by LSD (and through its subsidiaries) to the Remaining Group. As at the Latest Practicable Date, these shareholder loans of HK$200 million and HK$50 million are due within three months and in 2021, respectively;

(ii) HK$180 million (representing approximately 11.9% of the gross proceeds of the Possible Disposal) for repayment of bank loans;

(iii) HK$246 million (representing approximately 16.2% of the gross proceeds of the Possible Disposal) for the development and enhancement of our cinema operation. The Remaining Group intends to continue to fund the operations of its existing cinemas, upgrading the facilities of its existing cinemas and seek to acquire new cinema sites to maintain and enhance its market share at appropriate time(s), subject to the then market conditions and circumstances of the media and entertainment industry. Such continuous investment is expected to be essential to the Remaining Group’s strategy of positioning itself as one of the leading cinema operators in Hong Kong by securing cinemas sites in the relevant areas and not losing prime locations to its competitors in the long run. For the purpose of the long-term growth and development of the Remaining Group’s business, such continuous expansion is also expected to create cross-segment synergies for the Remaining Group’s film production and distribution segments since film producers consider distributors with cinema operation more favourably and the box office performance of a film being distributed is to an extent dependent on the number of cinemas it runs in.

If the Possible Disposal is not completed, it is currently expected that the Group will be capable of financing the above funding requirement of its existing cinemas with its internal resources, the Group’s presently available banking facilities and other borrowings and the expected refinancing of certain bank loans and other borrowings of the Group;


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(iv) HK$670 million (representing approximately 44.2% of the gross proceeds of the Possible Disposal) for film and TV production and distribution and media and entertainment businesses. In line with the Company’s cautious approach in developing the Remaining Group’s business, the Remaining Group intends to invest prudently in the production of films and to adopt effective risk management approaches such as using joint ventures for producing larger budget films. Subject to the then market conditions and circumstances of the film industry, the Company also intends to develop its film distribution business, which already includes an output agreement with Storyteller Distribution Co., LLC (trading as “Amblin Partners”), which is a production company headquartered in the United States, which has granted the Company, for a term of two years expiring on 31 December 2020, the exclusive distribution rights for up to six motion pictures produced by Amblin Partners in Hong Kong and Macau each year. The Remaining Group has in recent years expanded activities in production and investments in quality TV drama series in line with the continued strong demand for good programmes from internet platforms and TV stations in the PRC. A 52-episode romance drama series “New Horizon”, starring Zheng Kai and Chen Chiao-en, is in the post-production stage and projects under development include a 20-episode modern-day drama series namely “Who Sell Bricks in Hong Kong” tailor-made for ViuTV, featuring Ng Siu Hin, Fish Liew, Wu Tze Tung and Patrick Tam. The Remaining Group is in discussion with various Chinese and overseas portals and video websites for new project development. The Remaining Group believes that talent management is an instrumental part of its media and entertainment businesses and will continue to nurture new talented artistes. In October 2019, a new project called “Kre8 Music Lab” was launched to actively scout for new talented music artistes and successful candidates will be trained with a view to becoming artistes managed by the Remaining Group. Such project provided an opportunity for the Remaining Group to grow its pool of artistes organically and reduce costs associated with signing established artistes. The Remaining Group has in recent years successfully produced and promoted a large number of concerts in Hong Kong and the PRC performed by prominent local, Asian and international artistes and will continue to work with prominent local and Asian artistes for concert promotion. Also, the Remaining Group intends to continue to broaden the channels for the distribution of its music products and expects to increase its music product licensing revenue through new media distribution.


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As at the Latest Practicable Date, assuming that COVID-19 does not have an unforeseen prolonged impact on the Group and the film and TV production and distribution and media and entertainment industries, it is expected that approximately HK$670 million will be required for the further development in these areas. However, as announced by the Film Services Office (“FSO”), an organisation under the Commerce and Economic Development Bureau, for the protection of public health and filming crews, where a filming crew considers it of absolute necessity to conduct location filming involving a gathering of more than four persons, a “no-objection letter” must first be applied for and granted by the FSO, and the filming crew should also have notified and obtained the necessary consent(s) from other relevant government authorities before the location filming takes place. For the purpose of the application of the “no-objection letter”, if the public place(s) and timing(s) for the location filming would attract crowds, it should be justified to the FSO’s satisfaction that, among others, the location filming at that place/time is necessary, and a practical crowd control proposal should be submitted to the FSO for approval. According to the FSO’s website, the above measures taken by the FSO continued to be effective as at the Latest Practicable Date. The Company considers that these measures have created burdens for the Group’s film and TV productions, and given the time required for the application of the FSO’s “no-objection letter” for location filming, the schedules of the Group’s existing and proposed film and TV production projects may be substantially delayed. As at the Latest Practicable Date, it remained uncertain for how long the above measures taken by the FSO in respect of location filming will continue to be effective. In view of such uncertainties and the uncertainties on the ultimate and eventual impact of the abovementioned social and pandemic events on the Group and the film and TV production and distribution and media and entertainment industries and the difficulties for the Company to assess such impact at current stage, and given the Company’s intention is to use and allocate proceeds from the Possible Disposal to the implementation of the above development plans only if such use of proceeds is considered to be in the interests of the Company and its Shareholders as a whole at the relevant time of utilisation, the Directors consider that it would be impracticable for the Company to propose a meaningful expected timeline on the development of these projects and on the allocation of the proceeds from the Possible Disposal to these projects as at the date of this circular. If the Possible Disposal is approved by Independent Shareholders and Non-Connected Shareholders at the SGM and the Company accordingly accepts the LF Share Offer and receives the proceeds from the Possible Disposal, the Company will disclose the progress of the usage of such proceeds in its annual report; and

(v) HK$171.4 million (representing approximately 11.2% of the gross proceeds of the Possible Disposal) to maintain sufficient working capital for the operations of the Remaining Group disclosed above and for general corporate purposes.

Given the expansion and business plans as stated above, as at the Latest Practicable Date, save for the Laisun Creative Culture Subscription Agreement (details of which were disclosed in the joint announcement of LSG, LSD, the Company and Lai Fung dated 19 January 2020), the Company did not have any intention, and had not entered into any agreement, arrangement or understanding, to acquire or develop any new business or to dispose of or downsize the existing businesses or material operating assets of the Company after the Possible Disposal.


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SGM

The Notice of SGM is set out on pages SGM-1 to SGM-3 of this circular. The SGM will be held at the Meeting Rooms, Level B, Hong Kong Ocean Park Marriott Hotel, 180 Wong Chuk Hang Road, Aberdeen, Hong Kong on Wednesday, 13 May 2020 at 9:00 a.m., to consider and, if thought fit, approve (by way of separate resolutions) (a) the Possible Disposal as a very substantial disposal of the Company subject to the Independent Shareholders’ approval requirement under Chapter 14 of the Listing Rules and (b) the Possible Disposal as a connected transaction of the Company subject to the Non-Connected Shareholders’ approval requirement under Chapter 14A of the Listing Rules. A form of proxy for use at the SGM is enclosed with this circular. Such form of proxy is also published on the website of the Stock Exchange (www.hkexnews.hk) and the Company’s website (www.esun.com), respectively.

Shareholders are advised to read the Notice of SGM and if you are not able to attend the SGM or its adjournment (as the case may be) in person but wish to exercise your right as a Shareholder, please complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible, but in any event not less than 48 hours before the time fixed for holding the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy shall not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) should you so wish and in such event, the instrument appointing a proxy shall be deemed to be revoked.

Any Shareholder with a material interest in the Possible Disposal, and its/his/her close associates, shall not vote on the ordinary resolution to be proposed at the SGM to approve the Possible Disposal as a very substantial disposal under Chapter 14 of the Listing Rules. Any Shareholder who is a connected person of the Company with a material interest in the Possible Disposal, and its/his/her LR associates, shall not vote on the ordinary resolution to be proposed at the SGM to approve the Possible Disposal as a connected transaction under Chapter 14A of the Listing Rules. As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries:

(a) Transtrend, which, like the Offeror, was a wholly-owned subsidiary of LSD, was interested in 1,113,260,072 Shares (representing approximately 74.62% of the total number of issued Shares). Accordingly, Transtrend has a material interest in the Possible Disposal and will be required to abstain from voting on the resolutions to be proposed at the SGM.


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(b) Dr. Peter Lam was the ultimate controlling shareholder of LSG, being interested in 163,544,322 LSG Shares (representing approximately 42.10% of the total number of issued LSG Shares). Dr. Peter Lam was also interested in 433,737 LSD Shares (representing approximately 0.07% of the total number of issued LSD Shares), other than through his interests in LSG. LSG, a holding company of LSD, was interested in 343,593,021 LSD Shares (representing approximately 56.30% of the total number of issued LSD Shares). Other than through his interests in LSG and LSD, Dr. Peter Lam was interested in 2,794,443 Shares (representing approximately 0.19% of the total number of issued Shares). On the basis of Dr. Peter Lam’s interests in LSG, LSD and the Company referred to above, his interests in LSG and LSD are material. Accordingly, Dr. Peter Lam has a material interest in the Possible Disposal and will be required to abstain from voting on the resolutions to be proposed at the SGM.

(c) Mr. Lester Lam was interested in 12,459,208 LSG Shares (representing approximately 3.21% of the total number of issued LSG Shares) and (other than through his interests in LSG) was not interested in any LSD Shares or shares of the Offeror. Other than through his interests in LSG and LSD (indirectly through his interests in LSG), Mr. Lester Lam was interested in 2,794,443 Shares (representing approximately 0.19% of the total number of issued Shares). On the basis of Mr. Lester Lam’s interests in LSG, LSD and the Company referred to above, his interests in LSG and LSD are material. Accordingly, Mr. Lester Lam has a material interest in the Possible Disposal and will be required to abstain from voting on the resolutions to be proposed at the SGM.

(d) On the basis of the Yu Shareholders’ latest disclosures of interests in LSG, LSD, the Company and Lai Fung on or before the Latest Practicable Date, the Yu Shareholders were interested in (i) 110,838,516 LSG Shares (representing approximately 28.53% of the total number of issued LSG Shares); (ii) 126,044,310 LSD Shares (representing approximately 20.65% of the total number of issued LSD Shares) (other than through their interests in LSG); (iii) 148,982,000 Shares (representing approximately 9.99% of the total number of issued Shares) (other than through their interests in LSG and LSD); and (iv) 34,729,037 LF Shares (representing approximately 10.49% of the total number of issued LF Shares) (other than through their interests in LSG, LSD and the Company). While the Yu Shareholders are substantial shareholders of each of LSG, LSD and Lai Fung, they are not considered, for the purpose of the Listing Rules, to have a material interest in the Possible Disposal, as the Possible Disposal will not confer upon the Yu Shareholders or their respective close associates any benefit which is not available to the other Shareholders, on the bases that (a) none of the Yu Shareholders are close associates of LSG or LSD. While the Yu Shareholders are shareholders of each of LSG, LSD, the Company and Lai Fung, they are otherwise independent of each of such companies and their ultimate controlling shareholder, Dr. Peter Lam; (b) the Yu Shareholders are not directors of LSG, LSD, the Offeror, the Company, Lai Fung or any of their respective subsidiaries and do not have any representative on the board or the management team of any of LSG, LSD, the Offeror, the Company, Lai Fung or their respective subsidiaries, and are therefore not involved in, and have no influence over, the terms or conduct of the LF Offers; and (c) the position of the Yu Shareholders and the Company under the LF Share Offer are the same as that of other LF Shareholders, as they are offered the same price and terms for the acquisition of their shareholding in Lai Fung under the LF Share Offer as other LF Shareholders. Accordingly, the Yu Shareholders will not be required to abstain from voting on the resolutions to be proposed at the SGM.


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VOTING BY WAY OF POLL

In compliance with Rule 13.39(4) of the Listing Rules, save for resolutions which relate purely to a procedural or administrative matter to be voted by a show of hands, any vote of the shareholders at a general meeting must be taken by poll. Accordingly, the ordinary resolutions to be proposed at the SGM will be voted by way of a poll by the Shareholders.

Bye-law 66 of the Company’s Bye-laws provides that on a poll, every Shareholder present in person or by proxy or in the case of a member being a corporation, by its duly authorised representative, shall have one vote for every fully-paid Share of which he/she/it is the holder.

An explanation of the detailed procedures of conducting a poll will be provided to the Shareholders at the SGM. Tricor Tengis Limited, the branch share registrar of the Company in Hong Kong, will serve as the scrutineers for the vote-taking. The Company will publish an announcement on the poll results on the respective websites of the Company at www.esun.com and the Stock Exchange at www.hkexnews.hk shortly after the conclusion of the SGM pursuant to Rule 13.39(5) of the Listing Rules.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising all independent non-executive Directors, namely Dr. Ng Lai Man, Carmen (Chairperson), Messrs. Low Chee Keong, Lo Kwok Kwei, David and Alfred Donald Yap, has been established to advise and provide recommendation to the Independent Shareholders and Non-Connected Shareholders in respect of the Possible Disposal after taking into account of the advice from the Independent Financial Adviser.

The Independent Financial Adviser has been appointed to advise the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders in this regard.

Your attention is drawn to the letter from the Independent Board Committee to the Independent Shareholders and Non-Connected Shareholders set out on pages 44 and 45 of this circular and the letter from the Independent Financial Adviser to the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders which is set out on pages 46 to 100 of this circular containing their advice and recommendation to the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders regarding the terms of the Possible Disposal as well as the principal factors and reasons taken into consideration in arriving at their advice.


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RECOMMENDATION

As at the Latest Practicable Date, the Excluded Directors have material interests in the Possible Disposal on the bases set out below:

(i) Mr. FA Chew was interested in 202,422 LSG Shares (representing approximately 0.05% of the total number of issued LSG Shares), 3,819,204 LSG Options (giving him the right to subscribe for approximately 0.94% of the enlarged share capital of LSG), (other than through his interests in LSG) 400,000 LSD Shares (representing approximately 0.07% of the total number of issued LSD Shares) and 3,773,081 LSD Options (giving him the right to subscribe for approximately 0.60% of the enlarged share capital of LSD). On this basis, Mr. FA Chew has a material interest in the Possible Disposal and was required to abstain from voting (and did abstain from voting) on the Board in connection with the Possible Disposal;

(ii) Mr. Lester Lam was interested in 12,459,208 LSG Shares (representing approximately 3.21% of the total number of issued LSG Shares) and (other than through his interests in LSG) was not interested in any LSD Shares or shares of the Offeror. Other than through his interests in LSG and LSD (indirectly through his interests in LSG), Mr. Lester Lam was interested in 2,794,443 Shares (representing approximately 0.19% of the total number of issued Shares). On the basis of Mr. Lester Lam’s interests in LSG, LSD and the Company referred to above, his interests in LSG and LSD are material. Accordingly, Mr. Lester Lam has a material interest in the Possible Disposal and was required to abstain from voting (and did abstain from voting) on the Board in connection with the Possible Disposal;

(iii) Madam U was interested in 825,525 LSG Shares (representing approximately 0.21% of the total number of issued LSG Shares) and (other than through her interests in LSG) 26,919 LSD Shares (representing approximately 0.004% of the total number of issued LSD Shares). On this basis, Madam U has a material interest in the Possible Disposal and was required to abstain from voting (and did abstain from voting) on the Board in connection with the Possible Disposal;

(iv) Mr. Richard Lui was interested in 185,600 LSG Shares (representing approximately 0.05% of the total number of issued LSG Shares) and (other than through his interests in LSG) 104,000 LSD Options (giving him the right to subscribe for approximately 0.02% of the enlarged share capital of LSD). On this basis, Mr. Richard Lui has a material interest in the Possible Disposal and was required to abstain from voting (and did abstain from voting) on the Board in connection with the Possible Disposal; and

(v) Mr. Yip Chai Tuck was the chief executive officer of LSG. On this basis, Mr. Yip is regarded as having a material interest in the Possible Disposal and abstained from voting on the Board in connection with the Possible Disposal.

As the Excluded Directors, which comprise all executive Directors and the non-executive Director, abstained from voting on the Board resolutions in connection with the Possible Disposal to avoid any conflict of interests, the remaining Board members who voted on the Board resolutions in connection with the Possible Disposal comprise all the independent non-executive Directors, all of whom are members of the Independent Board Committee.


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The Independent Board Committee, after taking into account and independently assessing the pros and cons of (i) the LF Share Offer and (ii) the acceptance of it by the Group as stated in the sub-paragraph headed “Assessment of the LF Share Offer” in this section above, and the principal factors and reasons considered by the Independent Financial Adviser and its advice and conclusion as set out in the letter from the Independent Financial Adviser in this circular, considers that the cons of the LF Share Offer and the acceptance of it by the Group would outweigh its pros, and concurs with the Independent Financial Adviser that the Possible Disposal, by way of tendering acceptance of the LF Share Offer, is not in the interests of the Group and the Shareholders as a whole. While it is acknowledged that the LF Share Offer, which is being made at the LF Share Offer Price which is above the closing share price of Lai Fung of HK$8.30 as at the Latest Practicable Date, is on normal commercial terms, the LF Share Offer Price represents substantial discounts to underlying fundamental values of the LF Shares and has not reflected any premium for the controlling stake in Lai Fung that the Company holds and therefore the Independent Board Committee considers the Possible Disposal not fair and reasonable to the Company and the Shareholders as a whole. The Independent Board Committee accordingly recommends the Independent Shareholders and the Non-Connected Shareholders not to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Possible Disposal as a very substantial disposal of the Company under Chapter 14 of the Listing Rules or as a connected transaction of the Company under Chapter 14A of the Listing Rules (as the case may be). For details, please refer to the letter from the Independent Board Committee in this circular.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

The English version shall prevail in case of any discrepancy or inconsistency between this English version and its Chinese translation.

Yours faithfully, For and on behalf of the Board of eSun Holdings Limited Low Chee Keong Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Stock Code: 571)

24 April 2020

To the Independent Shareholders and the Non-Connected Shareholders

Dear Sir or Madam,






We refer to the circular of the Company dated 24 April 2020 (“Circular”) despatched to the Shareholders of which this letter forms part. Unless the context requires otherwise, terms and expressions defined or adopted in the Circular shall have the same respective meanings in this letter.

We have been appointed by the Board to form the Independent Board Committee to advise the Independent Shareholders and the Non-Connected Shareholders as to whether the Possible Disposal was entered into on normal commercial terms or better and in the ordinary and usual course of business of the Group, and whether its terms are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Company has appointed Trinity Corporate Finance Limited as the independent financial adviser to advise the Independent Board Committee and the Non-Connected Shareholders in respect of the Possible Disposal.

We wish to draw your attention to the section headed “Letter from the Board” as set out on pages 12 to 43 of the Circular and the section headed “Letter from the Independent Financial Adviser” as set out on pages 46 to 100 of the Circular.

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

– 45 –

Having taken into account the factors stated in the paragraph headed “Assessment of the LF Share Offer” in the letter from the Board in this circular, and the principal factors and reasons considered by the Independent Financial Adviser as set out in the letter from the Independent Finance Adviser in this circular, its conclusion and advice, we consider that the cons of the LF Share Offer and the acceptance of it by the Group would outweigh its pros, and concur with the opinion of the Independent Financial Adviser that the Possible Disposal, by way of tendering acceptance of the LF Share Offer, is not in the interests of the Group and the Shareholders as a whole. While it is acknowledged that the LF Share Offer, which is being made at the LF Share Offer Price which is above the closing share price of Lai Fung of HK$8.30 as at the Latest Practicable Date, is on normal commercial terms, the LF Share Offer Price represents substantial discounts to underlying fundamental values of the LF Shares and has not reflected any premium for the controlling stake in Lai Fung that the Company holds and therefore we consider the Possible Disposal not fair and reasonable to the Company and the Shareholders as a whole. Accordingly, we would recommend (a) the Independent Shareholders not to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Possible Disposal as a very substantial disposal of the Company under Chapter 14 of the Listing Rules (the text of which is contained in the Notice of SGM); and (b) the Non-Connected Shareholders not to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Possible Disposal as a connected transaction of the Company under Chapter 14A of the Listing Rules (the text of which is contained in the Notice of SGM).

Yours faithfully,Independent Board Committee

eSun Holdings Limited

Ng Lai Man, Carmen Lo Kwok Kwei, David Low Chee Keong Alfred Donald Yap (Chairperson)

Independent Non-executive Directors

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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The following is the full text of the letter of advice from Trinity Corporate Finance Limited prepared for the purpose of inclusion in this circular, setting out its advice to the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders in respect of the Possible Disposal.

Trinity Corporate Finance Limited Suite 7B, 7th Floor, Two Chinachem Plaza, 68 Connaught Road Central, Hong Kong.

24 April 2020

To the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders

Dear Sirs,






INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders in connection with the Possible Disposal, details of which are set out in the Letter from the Board (“Letter from the Board”) in the Company’s circular dated 24 April 2020 (“Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless otherwise used herein.

Reference is made to (i) the joint announcement dated 21 February 2020 jointly issued by LSG, LSD, the Offeror, the Company and Lai Fung (“Joint Announcement”), and (ii) the Composite Document dated 24 April 2020 jointly issued by or on behalf of LSD, the Offeror and Lai Fung in relation to the LF Offers.


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On 24 April 2020, HSBC, on behalf of the Offeror, a wholly-owned subsidiary of LSD, made conditional voluntary general cash offers (i) to acquire all of the issued LF Shares not already owned or agreed to be acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD and (ii) to cancel all the outstanding LF Options. For the avoidance of doubt, the LF Offer Shares include the LF Shares which are owned by the Offeror Concert Parties (other than those already owned or agreed to be acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD), including the LF Shares owned by the Company. As at the Latest Practicable Date, the Company (via its wholly-owned subsidiaries, namely Merit Worth and Silver Glory) held 168,792,467 LF Shares, representing approximately 50.99% of the total number of issued LF Shares.

As disclosed in the Joint Announcement, as at the Announcement Date the Board had not decided whether to accept the LF Share Offer. If the Company accepts the LF Share Offer in respect of all the LF Shares held by it, such acceptance would result in the Possible Disposal. As disclosed in the Letter from the Board, the Possible Disposal, if approved by the Independent Shareholders and the Non-Connected Shareholders by passing the requisite resolutions to be proposed at the SGM and subject to the LF Offers becoming unconditional in all respects, will be effected by way of Merit Worth and Silver Glory (being wholly-owned subsidiaries of the Company through which it holds LF Shares) accepting the LF Share Offer in respect of all the LF Shares respectively held by them, which comprise 168,792,467 LF Shares in aggregate, representing 50.99% of the total number of issued LF Shares as at the Latest Practicable Date. As the highest applicable percentage ratio for the Company in respect of the Possible Disposal exceeds 75%, the Possible Disposal constitutes a very substantial disposal for the Company under Chapter 14 of the Listing Rules and is subject to the reporting, announcement and the Independent Shareholders’ approval requirements under Chapter 14 of the Listing Rules. Upon Completion, Lai Fung will cease to be a subsidiary of the Company and accordingly, the Lai Fung Group’s financial results, assets, liabilities and cash flows will no longer be consolidated into the Group’s consolidated financial statements. Save for this, the Company and its remaining subsidiaries will continue to hold their respective assets and businesses.

In addition, as the Offeror is a connected person of the Company, the Possible Disposal also constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and Non-Connected Shareholders’ approval requirements under Chapter 14A of the Listing Rules. The Company will accept the LF Share Offer if each of the resolutions to be proposed at the SGM for the approval of the Possible Disposal is passed; and the Company will not accept the LF Share Offer if any of the resolutions to be proposed at the SGM for the approval of the Possible Disposal is not passed.

Subject to, among other things, fulfilment of the Conditions of the LF Share Offer and whether sufficient votes on the resolutions to be proposed at the SGM are obtained to approve the Possible Disposal, the Possible Disposal if completed will result in the Company being able to raise gross proceeds of approximately HK$1,517.4 million (“Possible Proceeds from Disposal”).


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Any Shareholder with a material interest in the Possible Disposal, and its/his/her close associates, shall not vote on the ordinary resolution to be proposed at the SGM to approve the Possible Disposal as a very substantial disposal under Chapter 14 of the Listing Rules. Any Shareholder who is a connected person of the Company with a material interest in the Possible Disposal, and its/his/her LR associates, shall not vote on the ordinary resolution to be proposed at the SGM to approve the Possible Disposal as a connected transaction under Chapter 14A of the Listing Rules. For details of the persons or entities who are required to abstain from voting on the relevant ordinary resolution(s), please refer to the Letter from the Board.

The Independent Board Committee comprising all independent non-executive Directors, namely Dr. Ng Lai Man, Carmen (Chairperson), Messrs. Low Chee Keong, Lo Kwok Kwei, David and Alfred Donald Yap, has been established to advise and provide recommendation to the Independent Shareholders and the Non-Connected Shareholders in respect of the Possible Disposal after taking into account of our advice. We, Trinity Corporate Finance Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders in this respect. To the best of the Directors’ knowledge, having made all reasonable enquiries, no member of the Independent Board Committee has any material interest in the Possible Disposal of the LF Offers.

As at the Latest Practicable Date, we did not have any relationships or interests with LSG, LSD, the Company, Lai Fung, the Offeror or any other parties that could reasonably be regarded as relevant to our independence. In particular, we had not in the last two years acted as independent financial adviser to any other transactions of LSG, LSD, the Company, Lai Fung or the Offeror. We are not associated with LSG, LSD, the Company, Lai Fung, the Offeror, or any party acting, or presumed to be acting, in concert with any of them and, accordingly, are considered eligible to give independent advice in connection with the Possible Disposal. Apart from normal professional fees paid or payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees or benefits from LSG, LSD, the Company, Lai Fung, the Offeror or any party acting, or presumed to be acting, in concert with any of them.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders, we have relied on the accuracy of the statements, information, opinions and representations contained or referred to in the Joint Announcement, Circular, the Company’s annual reports for the three financial years ended 31 July 2017, 2018 and 2019, the announcement of interim results for the six months ended 31 January 2020 of the Company, the Composite Document dated 24 April 2020 and the information and representations provided to us by the Company, its executive Directors and management of the Company (“Management”). We have no reason to believe that any information and representations relied on by us in forming our opinion, is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in the above documents or materials, which have been provided by, inter alia, the Company and its executive Directors and Management, LSG, LSD, the Offeror or Lai Fung, or any of their respective directors, and for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true as at the Latest Practicable Date, and if and when it comes to our knowledge that there are any material changes, Shareholders will be informed as soon as possible.


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All Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular relating to the Group and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular by the Group or the Directors have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular relating to the Group misleading.

We consider that we have been provided with, and we have reviewed sufficient information to reach an informed view, to justify relying on the accuracy of the information contained in the above documents or materials and to provide a reasonable basis for our opinion. We have no reason to doubt that any relevant material facts have been withheld or omitted from the information provided and referred to in the above documents or materials or the reasonableness of the opinions and representations provided to us by the Company, its executive Directors and Management. We have not, however, conducted any independent verification of the information provided, nor have we carried out any independent investigation into the business, financial conditions and affairs of the Group or Lai Fung Group or any parties involved in the LF Offers or their future prospects.

This letter is issued to the Independent Board Committee, the Independent Shareholders and the Non-Connected Shareholders solely in connection with their consideration of the Possible Disposal and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes other than our role as the Independent Financial Adviser, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion regarding the Possible Disposal, we have taken into account the following principal factors and reasons:

A. Terms of the LF Share Offer

(i) Consideration for the LF Share Offer

According to the Composite Document, the material terms of which are set out in the Letter from the Board for ease of reference only, on 24 April 2020, HSBC, on behalf of the Offeror, made the LF Share Offer in compliance with the Takeovers Code on the following basis:

For each LF Offer Share...........................................................................HK$8.99 in cash


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As stated in the Composite Document, if any dividend and/or other distribution and/or other return of capital is announced, declared or paid in respect of the LF Shares at any time after the Announcement Date, the Offeror reserves the right to reduce the LF Share Offer Price by all or any part of the amount or value of such dividend, distribution and/or, as the case may be, return of capital, in which case any reference in the Joint Announcement, the Composite Document or any other announcement or document to the LF Share Offer Price will be deemed to be a reference to the LF Share Offer Price as so reduced (and the LF Option Offer Price shall be reduced accordingly). As at the Latest Practicable Date, there was no such dividend, distribution or other return of capital.

Also, as stated in the Composite Document, the LF Share Offer Price was determined after taking into account, among other things, the historical trading prices of LF Shares and Lai Fung’s financial performance, details of which are set out in the Letter from the Board. Please refer to the sections headed “D. Assessment of the LF Share Offer”, “K. Share Price Performance and Trading Liquidity of Lai Fung” and “L. Comparable Companies Analysis of Lai Fung” below for the analysis on the terms of the Possible Disposal including detailed comparison between the LF Share Offer Price and the historical trading prices of LF Shares and the historical discounts to net asset value (“NAV”) attributable to owners per LF Share.

As at the Latest Practicable Date, there were (i) 331,033,443 LF Shares in issue, (ii) 331,015,933 LF Offer Shares and (iii) 11,124,526 LF Options (all of which vested on their respective dates of grant) entitling the LF Optionholders to subscribe for an aggregate of 11,124,526 LF Shares at an exercise price ranging from HK$6.650 to HK$13.520 per LF Share.

On the assumption that before the close of the LF Share Offer the number of LF Shares will not change (whether by way of any exercise of the LF Options or otherwise) and the number of LF Options will not change, the value of the LF Share Offer is approximately HK$2,975.8 million and the total amount required to satisfy the cancellation of all LF Options is approximately HK$3.4 million. On this basis, in aggregate, the LF Offers are valued at approximately HK$2,979.2 million.

On the assumption that before the close of the LF Share Offer no further LF Options will be granted and all of the LF Options will be exercised, Lai Fung will have to issue 11,124,526 new LF Shares, representing approximately 3.25% of the enlarged issued share capital of Lai Fung, upon such exercise of the LF Options. On this basis and on the assumption that the number of LF Shares will otherwise not change, there will be 342,140,459 LF Offer Shares (including the new LF Shares issued as a result of the exercise of the LF Options) and the value of the LF Share Offer will be approximately HK$3,075.8 million. In this case, no amount will be payable by the Offeror under the LF Option Offer.


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(ii) Conditions to the LF Share Offer

As set out in the Composite Document, the LF Share Offer is subject to the fulfilment of the following Conditions:

(a) the approval:

i. by the Independent LSD Shareholders of the LF Offers as a major acquisition of LSD; and

ii. by the Non-Connected LSD Shareholders of the making of one or more of the LF Offers to any connected person of LSD which is a connected transaction of LSD subject to the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules (if there is any such connected transaction),


(b) the approval:

i. by the Independent LSG Shareholders of the LF Offers as a major acquisition of LSG; and

ii. by the Non-Connected LSG Shareholders of the making of one or more of the LF Offers to any connected person of LSG which is a connected transaction of LSG subject to the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules (if there is any such connected transaction),


(c) the approval of the Possible Disposal:

i. by the Independent Shareholders as a very substantial disposal of the Company; and

ii. by the Non-Connected Shareholders as a connected transaction of the Company subject to the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules,



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(d) valid acceptances of the LF Share Offer being received by 4:00 p.m. on the LF Share Offer Closing Date (and not, where permitted, withdrawn) in respect of such number of LF Shares which, together with LF Shares already (directly or indirectly) held or agreed to be acquired by LSD, the Offeror or any of the other wholly-owned subsidiaries of LSD, would result in LSD, the Offeror and the other wholly-owned subsidiaries of LSD holding in aggregate more than 50% of the voting rights in Lai Fung;

(e) valid acceptances of the LF Share Offer being received within four (4) months of the posting of the Composite Document (and not, where permitted, withdrawn) in respect of such number of LF Shares which (i) is not less than 90% of the LF Offer Shares and (ii) when aggregated with the total number of the LF Disinterested Shares (if any) purchased by the Offeror and the Offeror Concert Parties during the period of four (4) months after the posting of the Composite Document, would represent not less than 90% of the LF Disinterested Shares;

(f) the LF Shares remaining listed and traded on the Main Board of the Stock Exchange up to and including the LF Share Offer Closing Date (save for any temporary suspension of trading of the LF Shares pending any announcement in connection with the LF Offers) and no indication being received on or before the LF Share Offer Closing Date from the SFC and/or the Stock Exchange to the effect that the listing of the LF Shares on the Stock Exchange is or is likely to be withdrawn or suspended;

(g) no event having occurred which would make any of the LF Offers, the acquisition of any of the LF Offer Shares or the cancellation of the LF Options under the LF Offers void, unenforceable or illegal, would prohibit the implementation of any of the LF Offers or would impose any material conditions or obligations with respect to any of the LF Offers or their implementation in accordance with their respective terms;

(h) all necessary consents (including consents from the relevant lenders) in connection with the LF Offers and/or (in the event that the Offeror were to exercise the right (if any) to acquire compulsorily those LF Offer Shares not already owned or acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD) the possible withdrawal of the listing of the LF Shares from the Stock Exchange which may be required under any existing contractual or other obligations of Lai Fung having been obtained and remaining in effect;


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(i) no government, court or governmental, quasi-governmental, statutory or regulatory body or agency in Hong Kong, the Cayman Islands or any other jurisdiction having taken or instituted any action, proceeding, suit, investigation or enquiry (or enacted, made or proposed, and there not continuing to be outstanding, any statute, regulation, demand or order) that would make any of the LF Offers or their implementation in accordance with their respective terms void, unenforceable, illegal or impracticable (or which would impose any material conditions or obligations with respect to any of the LF Offers or their implementation in accordance with their respective terms);

(j) since the Announcement Date, there having been no material adverse change in the business, assets, financial or trading position or the prospects or conditions (whether operational, legal or otherwise) of the Lai Fung Group to an extent which is material in the context of the Lai Fung Group; and

(k) there having, since the Announcement Date, not been instituted any, and there remaining no outstanding, litigation, arbitration proceedings, prosecution or other legal proceedings to which any member of the Lai Fung Group is a party (whether as plaintiff, defendant or otherwise), and no such proceedings having, since the Announcement Date, been threatened in writing against any such member (and no investigation by any government, court or governmental, quasi-governmental, statutory or regulatory body or agency in Hong Kong, the Cayman Islands or any other jurisdiction against or in respect of any such member or the business carried on by any such member having, since the Announcement Date, been threatened in writing, announced or instituted or remaining outstanding against or in respect of any such member), in each case, which is material and adverse in the context of the Lai Fung Group or in the context of the LF Offers.

The Offeror reserves the right to waive, in whole or in part, all or any of the Conditions (other than Conditions (a), (b), (c) and (d)). As disclosed in the Composite Document, on the basis of the disclosures of interests in LSD and Lai Fung as at the Composite Document Latest Practicable Date, no connected transaction of LSD fell within paragraph (ii) of Condition (a); (ii) on the basis of the disclosures of interests in LSG and Lai Fung as at the Composite Document Latest Practicable Date, the making of the LF Share Offer to the Yu Shareholders was a connected transaction of LSG falling within paragraph (ii) of Condition (b); (iii) as at the Composite Document Latest Practicable Date, the Offeror was not aware of any consent required under Condition (h) from any person who is not a lender; and (iv) as at the Composite Document Latest Practicable Date, none of the Conditions had been fulfilled. Pursuant to Note 2 to Rule 30.1 of the Takeovers Code, the Offeror should not invoke any of the Conditions so as to cause the LF Offers to lapse unless the circumstances which give rise to the right to invoke such Condition are of material significance to the Offeror in the context of the LF Offers.


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The Offeror will issue an announcement stating whether the LF Share Offer has been revised or extended, has expired or has become or been declared unconditional (and, in such case, whether as to acceptances or in all respects), by 7:00 p.m. on the LF Share Offer Closing Date in accordance with the Takeovers Code. The latest time on which the Offeror can declare the LF Share Offer unconditional as to acceptances is 7:00 p.m. on the 60th day after the posting of the Composite Document, being Tuesday, 23 June 2020 (or such later date to which the Executive may consent).

Approval of the Possible Disposal by the Independent Shareholders and the Non-Connected Shareholders at the SGM and the subsequent valid acceptance of the LF Share Offer by Merit Worth and Silver Glory, being wholly-owned subsidiaries of the Company that together hold 50.99% of the total number of issued LF Shares as at the Latest Practicable Date, will result in the satisfaction of Conditions (c) and (d) above. If the LF Offers lapse, the Possible Disposal will not be completed and the Company will continue to retain its existing indirect shareholding of 168,792,467 LF Shares (assuming that there are no other changes to the Company’s shareholding in Lai Fung from the Latest Practicable Date up to the date on which the LF Offers lapses).

The LF Share Offer is subject to the Conditions being fulfilled or waived. Accordingly, the LF Share Offer may or may not become unconditional and the Possible Disposal may or may not proceed. Shareholders and holders of options and other securities of and potential investors in LSG, LSD, the Company and Lai Fung should therefore exercise caution when dealing in the securities of LSG, LSD, the Company and Lai Fung. The Directors have also stated in the Letter from the Board that persons who are in doubt as to the action they should take should consult their stockbroker, bank manager, solicitor or other professional advisers.

(iii) Comparisons of Value

The LF Share Offer Price of HK$8.99 per LF Offer Share under the LF Share Offer represents:

(a) a premium of approximately 8.31% over the closing price of HK$8.30 per LF Share as quoted on the Stock Exchange on the Latest Practicable Date;

(b) a discount of approximately 7.61% to the closing price of HK$9.73 per LF Share as quoted on the Stock Exchange on the Last Trading Date;

(c) a discount of approximately 8.82% to the average closing price of HK$9.86 per LF Share, being the average closing price of LF Shares as quoted on the Stock Exchange for the 5 trading days immediately prior to and including the Last Trading Date;


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(d) a discount of approximately 9.38% to the average closing price of HK$9.92 per LF Share, being the average closing price of LF Shares as quoted on the Stock Exchange for the 10 trading days immediately prior to and including the Last Trading Date;

(e) a discount of approximately 6.74% to the average closing price of HK$9.64 per LF Share, being the average closing price of LF Shares as quoted on the Stock Exchange for the 30 trading days immediately prior to and including the Last Trading Date;

(f) a discount of approximately 8.92% to the average closing price of HK$9.87 per LF Share, being the average closing price of LF Shares as quoted on the Stock Exchange for the 60 trading days immediately prior to and including the Last Trading Date;

(g) a premium of approximately 3.57% over the average closing price of HK$8.68 per LF Share, being the average closing price of LF Shares as quoted on the Stock Exchange for the 180 trading days immediately prior to and including the Last Trading Date;

(h) a discount of approximately 81.41% to the audited consolidated net asset value attributable to owners per LF Share of approximately HK$48.36 as at 31 July 2019, based on the total number of issued LF Shares as at 31 July 2019;

(i) a discount of approximately 80.26% to the unaudited consolidated net asset value attributable to owners per LF Share of approximately HK$45.55 as at 31 January 2020, based on the total number of issued LF Shares as at 31 January 2020;

(j) a discount of approximately 85.13% to the Reassessed NAV per LF Share of approximately HK$60.44 as at 31 January 2020, based on the total number of issued LF Shares as at 31 January 2020; and

(k) a discount of approximately 84.96% to the Reassessed NAV per LF Share of approximately HK$59.79 as at 31 January 2020, based on the total number of issued LF Shares as at the Latest Practicable Date.


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As shown in the audited consolidated statement of financial position as at 31 July 2019 and the unaudited consolidated statement of financial position as at 31 January 2020 of Lai Fung set out in Appendix II to this Circular, a significant portion of Lai Fung’s assets consisted of property, plant and equipment, properties under development, investment properties and completed properties for sale. A valuation report on the property interests of the Lai Fung Group is set out in Appendix V to this Circular and Appendix III to the Composite Document. The value of those assets as stated in such consolidated statements of financial position or such property valuation report may or may not reflect their market value as at the date of this Circular or as at the date of the Composite Document.

Highest and Lowest Closing Prices of LF Shares

During the six-month period ended the Last Trading Date, the highest closing price of LF Shares as quoted on the Stock Exchange was HK$10.50 per LF Share on 11 February 2020 and the lowest closing price of LF Shares as quoted on the Stock Exchange was HK$6.48 per LF Share on 11 and 12 September 2019.

Settlement of Consideration

Settlement of the consideration in respect of an acceptance of the LF Offers will be made as soon as possible and in any event within seven (7) Business Days (as defined in the Takeovers Code) of (i) the date of receipt of the complete and valid acceptance or (ii) the date on which the LF Offers become or are declared unconditional in all respects, whichever is the later.

Hong Kong Stamp Duty

Seller’s ad valorem stamp duty at a rate of 0.1% of the market value of the LF Offer Shares or the consideration payable by the Offeror in respect of the relevant acceptances of the LF Share Offer, whichever is higher (rounded up to the nearest HK$1.00), will be deducted from the amount payable to the relevant holder of LF Offer Shares on acceptance of the LF Share Offer. The Offeror will bear its own portion of buyer’s ad valorem stamp duty at the rate of 0.1% of the market value of the LF Offer Shares or consideration payable by the Offeror in respect of the relevant acceptances of the LF Share Offer, whichever is higher (rounded up to the nearest HK$1.00) and will be responsible to account to the Stamp Office of Hong Kong for all the stamp duty payable for the sale and purchase of the LF Shares which are validly tendered for acceptance under the LF Share Offer.


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B. Possible Compulsory Acquisition and Withdrawal of Listing of LF Shares

Subject to compliance with the other relevant requirements under Section 88 of the Companies Law, if the Offeror, within four (4) months of the posting of the Composite Document, has received valid acceptances in respect of not less than 90% of the LF Offer Shares, the Offeror will have the right under Section 88 of the Companies Law to acquire compulsorily those LF Offer Shares not already owned or acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD. (For the avoidance of doubt, for the purposes of ascertaining whether the level of acceptances of the LF Share Offer reaches such prescribed threshold under Section 88 of the Companies Law, acceptances by the Offeror Concert Parties (other than LSD, the Offeror, the other wholly-owned subsidiaries or their respective nominees) will be included.)

Pursuant to Rule 2.11 of the Takeovers Code, except with the consent of the Executive, where the Offeror seeks to acquire or privatise Lai Fung by means of the LF Share Offer and the use of the compulsory acquisition right under the Companies Law, such right may only be exercised if, in addition to satisfying the requirements imposed by the Companies Law, acceptances of the LF Share Offer in respect of the LF Disinterested Shares and purchases of the LF Disinterested Shares made by the Offeror and the Offeror Concert Parties during the period of four (4) months after the posting of the Composite Document amount to not less than 90% of the LF Disinterested Shares.

If (a) the level of acceptances of the LF Share Offer reaches the prescribed threshold under Section 88 of the Companies Law so that the Offeror has the right to acquire compulsorily those LF Offer Shares not already owned or acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD and (b) the Offeror is permitted under Rule 2.11 of the Takeovers Code to exercise such right, the Offeror may, but is not obliged to, exercise such right. If the Offeror does exercise such right and completes the compulsory acquisition, Lai Fung will become an indirect wholly-owned subsidiary of LSD, an application will be made for the withdrawal of the listing of the LF Shares from the Stock Exchange pursuant to Rule 6.15 of the Listing Rules and a suspension of dealings in the LF Shares from the close of the LF Share Offer up to the withdrawal of listing of LF Shares from the Stock Exchange.


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Pursuant to Rule 15.6 of the Takeovers Code, where the Offeror has stated in the Composite Document its intention to avail itself of any powers of compulsory acquisition, the LF Share Offer may not remain open for acceptance for more than four (4) months from the posting of the Composite Document unless the Offeror has by that time become entitled to exercise such right of compulsory acquisition available to it under the Companies Law, in which event the Offeror must do so without delay.

Reference is made to the announcement of Lai Fung dated 18 September 2019 relating to the shortfall in its public float arising from an increase in the Yu Shareholders’ holding of LF Shares. The Yu Shareholders became substantial shareholders and therefore core connected persons of Lai Fung as a result of such increase. On the basis of the Yu Shareholders’ latest disclosures of interests in Lai Fung, the public float of Lai Fung was approximately 18.15% as at the Latest Practicable Date, which is below the minimum prescribed by Rule 8.08(1)(a) of the Listing Rules (being 25%).

In the event that the LF Share Offer becomes unconditional in all respects and the Offeror does not effect the compulsory acquisition of the remaining LF Offer Shares, whether by reason of the level of acceptances of the LF Share Offer not reaching the prescribed thresholds under the Companies Law or the Takeovers Code or otherwise, the Offeror intends to continue the listing of the LF Shares on the Stock Exchange and will take appropriate steps to ensure that any shortfall in the public float of Lai Fung as a result of the LF Offers is restored after the close of the LF Offers as long as Lai Fung remains listed on the Stock Exchange.

In the event that the LF Share Offer does not become unconditional in all respects, Lai Fung will continue to consider steps to restore its public float in accordance with the Listing Rules. Further announcement(s) will be made by Lai Fung on the restoration of public float as and when appropriate.

The Stock Exchange has stated that if, upon the close of the LF Share Offer, less than a minimum prescribed percentage applicable to Lai Fung, being 25% of the total number of issued LF Shares, are held by the public, or if the Stock Exchange believes that:

— a false market exists or may exist in the trading of the LF Shares; or

— that there are insufficient LF Shares in public hands to maintain an orderly market,

then the Stock Exchange will consider exercising its discretion to suspend dealings in the LF Shares.

The Offeror Directors have jointly and severally undertaken to the Stock Exchange that, in the event the LF Share Offer becomes unconditional in all respects and the Offeror does not effect the compulsory acquisition of the remaining LF Offer Shares, they will take appropriate steps to ensure that any shortfall in the public float of Lai Fung as a result of the LF Offers is restored after the close of the LF Offers as long as Lai Fung remains listed on the Stock Exchange.


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C. Background of the Possible Disposal and the Possible Proceeds from Disposal

On 24 April 2020, HSBC, on behalf of the Offeror, a wholly-owned subsidiary of LSD, made conditional voluntary general cash offers (i) to acquire all of the issued LF Shares not already owned or agreed to be acquired by LSD, the Offeror or the other wholly-owned subsidiaries of LSD and (ii) to cancel all the outstanding LF Options. As at the Latest Practicable Date, the Company (via its wholly-owned subsidiaries, namely Merit Worth and Silver Glory) held 168,792,467 LF Shares, representing approximately 50.99% of the total number of issued LF Shares.

As disclosed in the Letter from the Board, the Possible Disposal, if approved by the Independent Shareholders and the Non-Connected Shareholders by passing the requisite resolutions to be proposed at the SGM and subject to the LF Offers becoming unconditional in all respects, will be effected by way of Merit Worth and Silver Glory (being wholly-owned subsidiaries of the Company through which it holds LF Shares) accepting the LF Share Offer in respect of all the LF Shares respectively held by them, which comprise 168,792,467 LF Shares in aggregate, representing 50.99% of the total number of issued LF Shares as at the Latest Practicable Date.

Subject to, among other things, fulfilment of the Conditions of the LF Share Offer and whether sufficient votes on the resolutions to be proposed at the SGM are obtained to approve the Possible Disposal, the Possible Disposal if completed will result in the Company being able to raise gross proceeds of approximately HK$1,517.4 million.

D. Assessment of the LF Share Offer

The assessment of the LF Share Offer of the Directors (including members of the Independent Board Committee) as stated in the Letter from the Board and our analysis thereon is set out below:

(1) An opportunity to realise value for the LF Offer Shareholders — Neutral

The LF Share Offer offers the LF Offer Shareholders, including the Company, the opportunity to realise their investments in the LF Shares, which have consistently suffered from low levels of liquidity, particularly in light of the recent volatility in the equity market and uncertainties around the economy amid the outbreak of the novel coronavirus (COVID-19). In particular, the Directors noted (a) LF Share Offer Price being largely in line with historical trading prices of LF Shares, and (b) low trading volume and trading liquidity and uncertainties in the prospects of share price performance of LF Shares.


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Given that (i) the trading volume of LF Shares had been extremely low or almost negligible during the 12 months preceding the Last Trading Date and up to the Latest Practicable Date; and (ii) it is uncertain if the Lai Fung Group may be affected by the slowdown of the PRC property market, which may further adversely affect the price performance and trading volume of LF Shares, the Directors consider that without the LF Share Offer, there does not appear to be a sufficiently traded market in LF Shares which could allow the Company to liquidate or divest or monetise any part of its investment in Lai Fung on-market, if it so wishes, at a price with certainty and/or in reasonable volume without exerting downward pressure on the price of the LF Shares in the near term.

Our Analysis

We note that the LF Share Offer is an unsolicited one not initiated by the Company. The LF Share Offer is being made to all LF Shareholders at a price with reference to the prevailing trading price of the LF Shares on the Stock Exchange and is largely in line with the historical trading prices of LF Shares. We have performed an analysis of the historical trading volume of LF Shares in the section headed “K. Share Price Performance and Trading Liquidity of Lai Fung” below, and note that the historical trading volume of the LF Shares has been extremely low and for most of the time with zero LF Shares traded during the Review Period of Lai Fung, which may understandably make it difficult for minority shareholders of Lai Fung with a trading block of substance to liquidate or divest or monetise their investments in LF Shares on-market. We have considered the trading liquidity of the LF Shares on the Stock Exchange in assessing the fairness and reasonableness of the terms of the Possible Disposal by way of acceptance of the LF Share Offer. A major factor that would normally be taken into consideration in assessing any general offer made by any listed securities would be its trading liquidity and whether or not shareholders who are offered such general offer would be able to dispose of their shareholdings in the offeree company via alternative means at more favourable terms than those afforded to them by such general offer; and normally one of these alternative means would be on-market disposal where a reasonable market liquidity would be required to allow any ready on-market disposal. On the basis of this and given that the LF Share Offer is made at a price with reference to the prevailing trading price which would provide the LF Shareholders an exit opportunity to realise their investments in LF Shares, the LF Share Offer is in our view on normal commercial terms.

However, as set out in the section headed “L. Comparable Companies Analysis of Lai Fung” below, the implied P/B ratios of Lai Fung based on the LF Share Offer Price of (i) approximately 0.20 times, as calculated based on the LF Share Offer Price divided by Lai Fung’s net asset value per LF Share published in the announcement of interim results of Lai Fung for the six months ended 31 January 2020, and (ii) approximately 0.15 times, as calculated based on the LF Share Offer Price and Reassessed NAV, are both significantly lower than the mean of P/B ratio of the Comparable Companies as at the Latest Practicable Date of 0.56 times, by approximately 64.3% and 73.2% respectively.


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Therefore, although the LF Share Offer Price is largely in line with the historical trading prices of LF Shares and hence on normal commercial terms, on the basis that it also represents (i) a substantial discount of approximately 80.26% to the unaudited consolidated net asset value attributable to owners per LF Share as at 31 January 2020; and (ii) an even more substantial discount of approximately 84.96% to the Reassessed NAV per share of the Lai Fung Group when compared to the LF Share Offer Price based on the total number of issued LF Shares as at the Latest Practicable Date, we consider it not fair and reasonable to the Shareholders as a whole, in particular to the Company as the LF Share Offer Price does not carry any additional value that may apply to a majority stake in Lai Fung, which is the case for the Company. While the Company has had no previous plan of disposing of its shareholding interests in Lai Fung, with the LF Share Offer on hand now, it is acknowledged that by accepting the LF Share Offer, the Company will renounce its position as a majority shareholder, which theoretically allows it to direct and decide on the strategic, operational and management directions of Lai Fung through shareholder’s meetings and/or other legal remedies, which rights are not otherwise conferred upon non-controlling shareholders. In general, we consider a majority shareholder’s position in a substantive enterprise like Lai Fung should command an additional value over and above the market price generally traded on the Stock Exchange. We are advised by the Directors that it has never been the intention of the Company to dispose of or otherwise liquidate its holding in Lai Fung through the Stock Exchange. The fact that the LF Share Offer is being made on the same terms and conditions to all shareholders of Lai Fung alike, does not distinguish the additional value, as described above, of the Company’s stake as a majority shareholder from that of the other non-controlling shareholders.

Regarding the one-off exit opportunity that the LF Share Offer would otherwise afford to the Company in light of the low trading liquidity of the LF Shares on the Stock Exchange, we consider that this factor would not be relevant in the assessment of the LF Share Offer insofar as the Company’s majority stake in Lai Fung is concerned, for the reason that the majority stake is a unique block carrying an additional value as discussed above, while traded market prices of any listed securities on the Stock Exchange only reflect dealings in non-controlling interests. In summary, we consider that, although the LF Share Offer offers an immediate exit opportunity for the Company to realise its investment in LF Shares and the LF Share Offer Price is largely in line with the historical trading prices of LF Shares and hence on normal commercial terms (as explained in this sub-section above), the LF Share Offer Price however represents substantial discounts to underlying fundamental values of the LF Shares which the Company finds itself not in a compelling circumstance to liquidate its position (as explained in this sub-section above and sub-section “(4) Discounts of the LF Share Offer Price to underlying fundamental values of the LF Shares — Cons” below); therefore the opportunity for the Company to realise its investment in LF Shares through the Possible Disposal is a neutral consideration.


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(2) Provide fresh capital to the Group — Pros

On the basis of the number of LF Shares owned by the Group as at the Latest Practicable Date, if the resolutions to be proposed at the SGM for approving the Possible Disposal are passed by the Independent Shareholders and the Non-Connected Shareholders, acceptance of the LF Share Offer by the Company will (subject to the LF Offers becoming unconditional in all respects) provide the Remaining Group with gross proceeds of approximately HK$1,517.4 million.

Taking into account the cash and bank balances of the Remaining Group of approximately HK$640.1 million as at 31 January 2020, total debt of approximately HK$597.3 million as at 31 January 2020, approximately HK$262.9 million of which will be due within one year; and the capital commitment of the Remaining Group including, among others, the rent payable of over HK$200 million per annum in relation to cinema operation of the Remaining Group and the capital expenditure of approximately HK$246 million for the recently secured two cinema sites in Kai Tak and Cyberport in Hong Kong, the three potential cinema projects under discussion, and renovation of existing cinemas, the Group has been considering different ways to strengthen its financial position in order to support the continuing development of the Group’s media and entertainment business activities. In light of the recent financial market volatility and increased uncertainties over the local and global economic outlook, the Directors consider that it would be difficult to raise a meaningful amount of financing for the development of these cinema, media and entertainment operations from the equity capital market or by way of new borrowings at a reasonable cost.

Our Analysis

We note that, the size of the Possible Proceeds from Disposal is of a substantial amount of approximately HK$1,517.4 million, which is not from a fund raising exercise solicited by the Company.

We have discussed with the Company on the financing needs of the Group and understand from the Management that apart from the Lai Fung Group which is able to finance its own capital needs, the other business segments of the Group always have regular funding needs in order to finance its ongoing operations, including and not limited to substantial rental costs of the various cinema sites over the long lease periods that the Group has entered into, costs of regular upgrades of the sites, recruitment costs of additional staff, and other operating and renovation costs for cinema operation, as well as administrative and marketing expenses relating to media and entertainment and film production and distribution operations, cost of film rights, license rights and film products, cost of artiste management services and services for entertainment events provided, and cost of theatrical releasing and concessionary sales, etc.


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We are given to understand that due to the share price performance and low trading liquidity of both the Company and Lai Fung, there are limitations as to how the Company can raise capital from any straight-forward equity or quasi-equity financing, particularly with reference to the current state of the capital markets and the Company had not completed any sizable equity fund raising in recent years. In this regard, we have performed an analysis of the trading volume of the Shares in the section headed “J. Share Price Performance and Trading Liquidity of the Company” below, and based on the extremely low and for most of the time with zero Shares traded during the Review Period of the Company, we agree that it would be difficult for the Company to raise any equity or quasi-equity financing from the capital markets. In addition, we have also performed an analysis on the trading volume of LF Shares in the section headed “K. Share Price Performance and Trading Liquidity of Lai Fung” below and because of the extremely low and for most of the time with zero LF Shares traded during the Review Period of Lai Fung, it would also be difficult for the Company to raise share-backed financing with its investment in Lai Fung.

Also, debt and bank borrowings is not a preferable fund raising alternative for the Company as such would usually require share-backed financing to be secured by the Company’s shareholding in Lai Fung, which represents unfavourable valuation resulting from the share price performance and low trading liquidity of both the Company and Lai Fung. We are also given to understand from the Management that other equity fund raising alternatives such as rights issue, which may potentially dilute those Shareholders’ interests in the Company’s Shares who choose not to subscribe for the rights issue, is not a favourable alternative for the Company’s fund raising.

In the absence of feasible or preferred fund raising source, the Company has recently relied on the financial support of the LSD Group, which is the Company’s controlling shareholder owning 74.62% of the Company’s Shares as at the Latest Practicable Date. We note that, according to the annual reports for the two years ended 31 July 2019 of the Company, the Remaining Group had outstanding loans from a wholly-owned subsidiary of LSD of HK$650 million and HK$950 million as at 31 July 2018 and 31 July 2019 respectively. We also note from the announcement of interim results for the six months ended 31 January 2020 of the Company that the Remaining Group’s outstanding loans from the wholly-owned subsidiary of LSD was in the amount of HK$250 million as at 31 January 2020. According to the Company, the actual usage of the loan proceeds during the above financial years and interim period were for the refinancing of bank loan facilities, financing of the redemption of the convertible notes, development of cinema operation business, acquisition of additional interest in subsidiaries, financing of the Company’s interest (excluding Lai Fung’s interest) in certain property projects in China, repayment of loan interest expenses, as well as the financing of the general corporate requirements of the Group (excluding Lai Fung Group); and accordingly, we consider such usage of proceeds is in the interests of the Group and the Shareholders as a whole. However, in the event that the shareholder loans from LSD is terminated, or not extended or renewed, the Company may have to seek other financing in the forthcoming years in order to finance the Company’s operations and investments as well as capital expenditure plans. In light of the recent financial market volatility and increased uncertainties over the local and global economic outlook caused by the novel


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coronavirus (COVID-19), we consider that it would be difficult for the Company to raise a meaningful amount of financing for the development of its cinema, media and entertainment operations from the equity capital markets or by way of new borrowings at a reasonable cost. In the circumstances, the Possible Disposal, if proceeds, will provide the Company with fresh capital for general corporate purposes and expansion of its operations as well as repayment of shareholder loans granted by LSD, details of which are set out in section headed “E. Intended use of Possible Proceeds from Disposal” below, without any dilution effect on the Shareholders’ interests in the Company’s Shares.

(3) The future prospect of the Remaining Group as a pure-play cinema, media and entertainment company — Neutral

According to the Letter from the Board, acceptance of the LF Share Offer by the Company and the Possible Disposal will result in the Remaining Group becoming a pure-play cinema, media and entertainment company, providing a more focused overall business objective to the benefit of the Remaining Group, and providing it with the funding for and enabling the Company to concentrate its resources on the reinforcement of its industry position and the promotion of the growth and long-term development of its businesses of the development, operation of and investment in media and entertainment, music production and distribution, the investment in and production and distribution of television programmes, films and video format products and cinema operation, which is expected to be in the interests of the Company and the Shareholders as a whole in the long run.

Through its indirect non-wholly-owned subsidiary, Intercontinental Group Holdings Limited (“IGHL”), which is engaged in the operation of cinemas in Hong Kong, the distribution of films, DVDs, Blu-ray discs and video games, the provision of advertising services and the trading of merchandises and gaming products, the Group is one of the leading film and video distribution companies in Hong Kong, releasing around 30 films every year and distributing a variety of video products. It is also one of the leading multiplex cinema operators in Hong Kong, operating a total of thirteen cinemas in Hong Kong and the PRC. For the year ended 31 July 2019, the Group’s cinema operation had a market share of 20.09% of the total box office takings of Hong Kong and it was the second largest cinema operator in Hong Kong in terms of total number of cinemas, box office sales and market share according to Hong Kong Box Office Limited, an independent organisation established to report on the daily Hong Kong box office revenue, details of latest movies and box office data analysis.

In addition, through its indirect non-wholly-owned subsidiary MAGHL, the Group is involved in film production and distribution; organisation, management and production of concerts and live performances; artiste management; production and distribution of television programmes; music production and publishing; licensing of media contents and the provision of consultancy services in planning and management of cultural, entertainment and live performance projects.


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The Company is generally confident about the outlook for the media and entertainment industry and its media and entertainment businesses in the long run on the bases set out below:

(i) the Group has continuously released albums and increased its music licensing revenue and has continuously expanded its television drama production and film production business with its strong artiste management team and a sizeable number of talents, which had contributed to the modest segmental profit generated by the Group’s media and entertainment business in recent years;

(ii) the media and entertainment industry has been generally recession resistant and demand for entertainment is expected to sustain as a result of the growing middle class and rising per capita income in Hong Kong and the PRC. In this connection, the outlook for the cinema, entertainment and media industry in Hong Kong is expected to remain positive generally in the long term. The Group’s management is thus of the view that the business model of the media and entertainment businesses of the Group and the industry outlook for its operations are favourable in the long run, and will generate stable future income streams for the Company; and

(iii) the growing PRC market is believed to present significant business development and expansion opportunities for Hong Kong media and entertainment business operators including the Group.

However, the Directors acknowledged that the Group’s film production and distribution business has recorded segmental losses in the past primarily due to unsatisfactory box office performance of certain films produced and distributed by the Group, in particular certain films with substantial budgets; and the Group’s cinema operation business has also recorded segmental losses, which were mainly attributable to (i) impairment of property, plant and equipment of certain cinemas of the Group, the performance of which had not reached its expected level primarily due to keen competition from newly opened cinemas in neighbouring areas and (ii) high cinema rents as a result of other cinema operators with strong financial backings aggressively bidding for new and existing cinema sites upon expiry of their leases. Furthermore, the media and entertainment and cinema businesses of the Group had suffered from repercussions of a prolonged social unrest in Hong Kong emerging since mid-2019. The industry outlook was further clouded by the outbreak of novel coronavirus (COVID-19) since early 2020. For instance, as disclosed in the Company’s interim results announcement for the six months ended 31 January 2020, the Group recorded a decline of approximately HK$19.7 million, or approximately 10%, in its cinema turnover from approximately HK$214.3 million for the six months ended 31 January 2019 to approximately HK$194.6 million for the six months ended 31 January 2020, mainly attributable to the temporary closure of certain cinemas of the Group amid the social unrest in Hong Kong and the delay in


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release for certain blockbuster films during the Lunar New Year in January 2020 as a result of the outbreak of the novel coronavirus (COVID-19). The number of cinema goers in February 2020 and March 2020 had further dropped significantly as the general public in Hong Kong and the PRC reduced social outing drastically in response to the governments’ appeals on minimising social contact. On top of this, the Group’s cinemas had been temporarily closed from 28 March 2020 pursuant to the crowd control measures against the novel coronavirus (COVID-19) announced by the Hong Kong government. Furthermore, it is expected that the Possible Disposal may have negative impact on the Remaining Group’s profitability in the short term.

In recent years, the Group has continued to invest in its film production and distribution and cinema operation businesses with a view to further solidifying its industry positioning and to capture the opportunities of the entertainment market in Hong Kong and the PRC as they might arise, so as to enhance and expand its media and entertainment businesses in Hong Kong and the PRC. However, in view of the challenges brought about by the abovementioned social and pandemic events to the industry, the uncertainties as to the period for which the impacts of these challenges may last and the difficulty for the Company to assess such length of time and the eventual impact on the Group’s business operations and financial performance at this stage, in the short term, the Company will be cautious in pursuing business plans to accelerate growth of its fully-integrated media and entertainment platform but will stay alert and prepared to capture new opportunities when market activities return.

Our Analysis

Acceptance of the LF Share Offer by the Company and the Possible Disposal will result in the Remaining Group becoming a pure-play cinema, media and entertainment company and focusing on the businesses of the development, operation of and investment in media and entertainment, music production and distribution, the investment in and production and distribution of television programmes, films and video format products and cinema operation, of which the Company is generally confident about the outlook in the long run.

Regarding the business model of the Remaining Group after the Possible Disposal, for which the Company will become a pure-play cinema, media and entertainment company, we have conducted market research on the cinema, entertainment and media industry in Hong Kong and note a research report titled “Film Entertainment Industry in Hong Kong” issued by the Hong Kong Trade Development Council (“HKTDC”) in March 2019 that, “Hong Kong has captured a fair share of the regional market, in particular the market in mainland China” for which “Hong Kong-Mainland co-produced films boasted RMB7.3 billion in box office receipts, accounting for 13% of the Mainland’s total”. We


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also note that, according to HKTDC, for film distribution industry in Hong Kong, films were mainly released in fifty-five cinemas in Hong Kong as of October 2018, though channels of a few major cinema operators which include MCL circuit owned by the Remaining Group, and “the box office on Mainland China has become a vital market for Hong Kong movies”, for which “according to China Film Administration, the Mainland box office income grew by 9% to top RMB61 billion in 2018”.

Although the long-term outlook of the cinema, media and entertainment business shall be generally positive, we also note that the negative impact of novel coronavirus (COVID-19) on the business of the Remaining Group and the media and entertainment industry as a whole which commenced since early 2020 is significant and it is uncertain as to how long such impact may last. It is therefore reasonable that the Board will expect the Company to remain cautious about aggressively pursuing expansion plans in the near term.

Further, we are given to understand that the intended use of the Possible Proceeds from Disposal by the Remaining Group and its business plans for developing the Remaining Group into a pure-play cinema, media and entertainment company as set out in the Letter from the Board has been decided within a relatively short timeframe by the Board in response to the LF Share Offer in case the Possible Disposal is completed. In the circumstances, we consider that the said business plan for the Remaining Group is subject to high level of uncertainties, in terms of timing of implementation and possible return.

(4) Discounts of the LF Share Offer Price to underlying fundamental values of the LF Shares — Cons

The LF Share Offer Price represents (i) a discount of approximately 81.41% to the audited consolidated net asset value attributable to owners per LF Share of approximately HK$48.36 as at 31 July 2019, based on the total number of issued LF Shares and the consolidated net assets attributable to owners of Lai Fung as at 31 July 2019 and (ii) a discount of approximately 80.26% to the unaudited consolidated net asset value attributable to owners per LF Share of approximately HK$45.55 as at 31 January 2020, based on the total number of issued LF Shares and the consolidated net assets attributable to owners of Lai Fung as at 31 January 2020. The Directors are therefore of the view that the LF Share Offer Price is unattractive from the perspective of the Company.


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Our Analysis

From our analysis in the section headed “L. Comparable Companies Analysis of Lai Fung” below, the implied P/B ratios of Lai Fung of (i) approximately 0.20 times, as calculated based on the LF Share Offer Price divided by Lai Fung’s net asset value per LF Share published in the announcement of interim results of Lai Fung for the six months ended 31 January 2020, and (ii) approximately 0.15 times, as calculated based on the LF Share Offer Price and Reassessed NAV, are both significantly lower than the mean of P/B ratio of the Comparable Companies as at the Latest Practicable Date of 0.56 times, by approximately 64.3% and 73.2% respectively. The LF Share Offer Price, although largely in line with the historical trading prices of LF Shares, also represents (i) a substantial discount of approximately 80.26% to the unaudited consolidated net asset value attributable to owners per LF Share as at 31 January 2020; and (ii) an even more substantial discount of approximately 84.96% to the Reassessed NAV per share of the Lai Fung Group when compared to the LF Share Offer Price based on the total number of issued LF Shares as at the Latest Practicable Date. Also, given the Group’s interests in Lai Fung is over 50% of its issued share capital as at the Latest Practicable Date, unlike the acceptance of the LF Share Offer by other LF Shareholders, acceptance of the LF Share Offer by the Company would provide the Offeror with the controlling stake in Lai Fung, but such control premium is not reflected in the LF Share Price offered by the Offeror to acquire the Company’s entire shareholding in Lai Fung, rendering the terms of the Possible Disposal not fair and reasonable.

(5) No imminent financial needs for the Possible Proceeds from Disposal — Cons

Despite the decline in the Group’s recent financial performances as disclosed in the Company’s announcement of interim results for the six months ended 31 January 2020, it is expected that, even if the LF Share Offer is not accepted by the Company and the Company does not receive the proceeds from the Possible Disposal, the Group will have sufficient working capital for its requirements for at least 12 months from the date of this Circular, in the absence of any unforeseen circumstances and after taking into account (i) the internal resources of the Group; (ii) the Group’s presently available banking facilities and other borrowings; and (iii) the expected refinancing of certain bank loans and other borrowings. On this basis, it is currently expected that the business of the Group as a going concern will not be at issue even if the Possible Disposal does not proceed, and the Directors considered that the Group does not currently have imminent financial needs for the proceeds from the Possible Disposal that would justify the acceptance of the LF Share Offer by the Company.


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Our Analysis

We understand from the Company that, due to the uncertainties in market conditions for the cinema, media and entertainment industry in light of the impact of the novel coronavirus (COVID-19), the Company will implement its expansion plans for these businesses cautiously and the timing of implementation is not certain. Furthermore, as at the Latest Practicable Date, the Company has not identified any specific target of investment and/or acquisition with favourable terms and in the interests of the Company and its Shareholders as a whole that would require immediate or, in the short term, funding from proceeds from the Possible Disposal. On this basis, we agree that the Company does not seem to have an imminent need for capital which would otherwise require the Group to proceed with the Possible Disposal.

Apart from the above sources of working capital as disclosed in the Letter from the Board, we note that the dividends declared by Lai Fung and received by the Company for each of the two financial years ended 31 July 2017 and 2018 were approximately HK$33.1 million and HK$33.1 million, respectively. The Company had elected for scrip dividend in lieu of cash for the financial year ended 31 July 2019. We also note from the announcement of interim results for the six months ended 31 January 2020 of Lai Fung that Lai Fung recorded a loss for the period of approximately HK$570.8 million for the six months ended 31 January 2020, which in our view is a significant decline compared to a profit for the preceding period of HK$82.7 million. Hence, it is possible that future dividend distributions by Lai Fung to the Company may be uncertain or not necessarily be maintained at similar payout levels as in the historical years, especially in light of the impact of the novel coronavirus (COVID-19). However, since the Group does not currently have imminent financial need for the proceeds from the Possible Disposal, it may be beneficial for the Company to maintain its stake in Lai Fung in order to continue receiving dividends declared by Lai Fung in the long term.

(6) Significant financial effect of the Possible Disposal on the Group including substantial possible book loss — Cons

According to the Letter from the Board, upon Completion, the Group will no longer hold any interest in Lai Fung. Lai Fung will cease to be an indirect non-wholly-owned subsidiary of the Company and the Lai Fung Group’s financial results, including its revenue, will no longer be consolidated into the Group’s consolidated financial statements with effect from the date of Completion.

It is currently estimated that the Group will record an unaudited loss before taxation of approximately HK$8,000 million from the Possible Disposal, which is calculated as the difference between the gross proceeds from the Possible Disposal and the net assets of Lai Fung Group attributable to the Group in the Group’s consolidated financial statements as at 31 July 2019, after taking into account the release of exchange reserve (“Possible Book Loss”).


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Based on the unaudited pro forma financial information of the Remaining Group as set out in Appendix III to this circular, it is noted that:

(a) assuming the Possible Disposal had been completed on 1 August 2018, the unaudited pro forma consolidated loss of the Remaining Group for the year ended 31 July 2019 would be approximately HK$7,899 million. The actual loss as a result of the Possible Disposal to be recorded by the Group is subject to any changes to the carrying amount of Lai Fung Group on the date of Completion and is subject to audit by the independent auditors of the Company, and therefore may be different from the amount mentioned above. Moreover, the Group’s turnover from property development and property investment, which was contributed by the Lai Fung Group, of approximately HK$1,453 million, HK$945 million and HK$1,321 million for the years ended 31 July 2019, 2018 and 2017, respectively, represented approximately 50.05%, 43.27% and 49.35% of the Group’s total turnover of approximately HK$2,903 million, HK$2,184 million and HK$2,677 million for the years ended 31 July 2019, 2018 and 2017, respectively. As Lai Fung will cease to be a subsidiary of the Company after the Completion and accordingly, the turnover of the Lai Fung Group, among other financial results of the Lai Fung Group, will no longer be consolidated into the Group’s consolidated financial statements; and

(b) assuming the Possible Disposal had been completed on 31 July 2019, the unaudited pro forma consolidated net assets, net current assets and reserves of the Remaining Group as at 31 July 2019 would, as compared to the consolidated net assets, net current assets and reserves of the Group as at 31 July 2019, drop significantly by (i) approximately HK$14,845 million, or approximately 85.19%, to approximately HK$2,580 million; (ii) approximately HK$1,511 million, or approximately 50.13%, to approximately HK$1,504 million; and (iii) approximately HK$6,562 million, or approximately 78.56%, to approximately HK$1,791 million, respectively.

The Directors considered that the disposal of the Group’s interest in Lai Fung Group by way of the acceptance of the LF Share Offer is therefore expected to have significant impact on the Group’s profitability, financing structure and reserves.

Furthermore, under section 54 of the Companies Act 1981 of Bermuda, a company shall not declare or pay a dividend, or make a distribution out of contributed surplus, if there are reasonable grounds for believing that (a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realisable value of the company’s assets would thereby be less than its liabilities. In addition, under bye-law 138 of the Company’s Bye-laws, no dividend shall be paid or distribution made out of contributed surplus if to do so would render the Company unable to pay its liabilities as


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they become due or the realisable value of its assets would thereby become less than its liabilities. In view of the aforementioned unaudited pro forma consolidated net current assets and net assets of the Remaining Group as at 31 July 2019 of HK$1,504 million and HK$2,580 million, respectively, the Directors expected that the Remaining Group would remain legally capable of paying dividends or making distributions (if declared by the Board).

Notwithstanding the above, according to the dividend policy adopted by the Board on 22 January 2019 (“Dividend Policy”), in deciding whether to propose a dividend and in determining the dividend amount, the Board will take into account of factors such as (i) the Group’s actual and expected underlying financial performance; (ii) the Shareholders’ interests; (iii) business condition and strategies; (iv) expected working capital requirements and future business growth plans; and (v) any other factors that the Board may consider appropriate. Any declaration and payment of future dividends under the Dividend Policy will be subject to, among others, the Bye-laws of the Company and the Board’s determination that the same would be in the best interests of the Group and the Shareholders as a whole.

Our Analysis

We note that the Possible Book Loss will be incurred as a result of the indirect disposal of the property portfolio held under the Company’s listed subsidiary, Lai Fung, if and when the Company accepts the LF Share Offer and the LF Offers become unconditional. As at the Latest Practicable Date, the Company held 168,792,467 LF Shares which was valued at approximately HK$1,401 million, based on the closing price of HK$8.30 per LF Share as at such date. We are of the view that the amount of Possible Book Loss is significant due to substantial discount of the LF Share Offer Price compared to the net asset value attributable to owners per LF Share, and Shareholders should be aware of such significant Possible Book Loss which will be incurred as a result of the possible completion of the Possible Disposal. The Possible Book Loss represents over 90% of the unaudited net assets attributable to owners of the Company of approximately HK$8,614 million as at 31 January 2020 which, in our view, may take a long time for the Company to recoup this investment loss based on the business results of the Remaining Group in recent years.

We also note the above pro-forma financial impact on the Remaining Group’s profitability, turnover, assets and reserves that will be incurred as a result of the Possible Disposal and consider such unfavourable impact to be significant, given the Lai Fung Group had been a major contributor to the Group’s turnover in recent years. On this basis, we consider the Possible Disposal which will result in the financial effect as stated above is not in the interests of the Company and the Shareholders as a whole.


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According to the Letter from the Board, although the unaudited pro forma consolidated reserves of the Remaining Group as at 31 July 2019 would, as compared to the consolidated reserves of the Group as at 31 July 2019, drop significantly by approximately HK$6,562 million, or approximately 78.56%, it is expected that the Remaining Group would remain legally capable of paying dividends or making distributions (if declared by the Board). To assess whether the change in the Remaining Group’s consolidated reserves resulting from the Possible Disposal will have any direct correlation to the dividend payment ability of the Remaining Group, we have reviewed the annual reports of the Company for the last five financial years ended 31 July 2015, 2016, 2017, 2018 and 2019 and note that the Company has not declared any interim or final dividends in the past five financial years, irrespective of the different level of reserves in each of those respective years. We also note that, in deciding whether to propose a dividend and in determining the dividend amount, the Board adopted the Dividend Policy as stated above and as disclosed in the annual report of the Company for the year ended 31 July 2019, that the Board will take into account of a number of factors and also there is no assurance that a dividend will be proposed or declared in any particular amount for any specific periods. Accordingly, we consider that whether the Remaining Group’s consolidated reserves will be reduced is not the direct or only factor in deciding whether or not the Company may declare any dividends in future or the dividend amount (if declared by the Board).

E. Intended use of Possible Proceeds from Disposal

As set out in the Letter from the Board, if the Possible Disposal is approved by Independent Shareholders and Non-Connected Shareholders at the SGM and the Company has accordingly accepted the LF Share Offer (subject to the LF Offers becoming unconditional in all respects), the Remaining Group will receive gross proceeds of approximately HK$1,517.4 million from the Possible Disposal and intends to utilise such proceeds in the furtherance of the interests of the Company and its Shareholders as a whole. Since the LF Share Offer is an unsolicited one and the Possible Disposal is not actively procured by the Company, the Company had only become aware of the Possible Disposal and its potential receipt of the abovementioned gross proceeds from the Possible Disposal in February 2020. Given the relatively short timeframe between February 2020 and the publication of this Circular, and the high level of uncertainties about the impact of the novel coronavirus (COVID-19) on the business of the Remaining Group and the media and entertainment industry as a whole, as at the Latest Practicable Date, the Company was contemplating to utilise the proceeds from the Possible Disposal in the manner set out below, subject to the abovementioned cautious approach which the Company would continue to adopt in pursuing its business plans for developing the Remaining Group into a pure-play cinema, media and entertainment company, and more importantly, subject to the overriding principle that such intended use of Possible Proceeds from Disposal being in the interests of the Company and its Shareholders as a whole at the relevant time of utilisation:


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(i) HK$250 million (representing approximately 16.5% of the gross proceeds of the Possible Disposal) for the repayment of shareholder loans of HK$250 million granted by LSD (and through its subsidiaries) to the Remaining Group. As at the Latest Practicable Date, these shareholder loans of HK$200 million and HK$50 million are due within three months and in 2021, respectively;

(ii) HK$180 million (representing approximately 11.9% of the gross proceeds of the Possible Disposal) for repayment of bank loans;

(iii) HK$246 million (representing approximately 16.2% of the gross proceeds of the Possible Disposal) for the development and enhancement of the cinema operation. The Remaining Group intends to continue to fund the operations of its existing cinemas, upgrading the facilities of its existing cinemas and seek to acquire new cinema sites to maintain and enhance its market share at appropriate time(s), subject to the then market conditions and circumstances of the media and entertainment industry. Such continuous investment is expected to be essential to the Remaining Group’s strategy of positioning itself as one of the leading cinema operators in Hong Kong by securing cinemas sites in the relevant areas and not losing prime locations to its competitors in the long run. For the purpose of the long-term growth and development of the Remaining Group’s business, such continuous expansion is also expected to create cross-segment synergies for the Remaining Group’s film production and distribution segments since film producers consider distributors with cinema operation more favourably and the box office performance of a film being distributed is to an extent dependent on the number of cinemas it runs in.

If the Possible Disposal is not completed, it is currently expected that the Group will be capable of financing the above funding requirement of its existing cinemas with its internal resources, the Group’s presently available banking facilities and other borrowings and the expected refinancing of certain bank loans and other borrowings of the Group;

(iv) HK$670 million (representing approximately 44.2% of the gross proceeds of the Possible Disposal) for film and TV production and distribution and media and entertainment businesses. In line with the Company’s cautious approach in developing the Remaining Group’s business, the Remaining Group intends to invest prudently in the production of films and to adopt effective risk management approaches such as using joint ventures for producing larger budget films. Subject to the then market conditions and circumstances of the film industry, the Company also intends to develop its film distribution business, which already includes an output agreement with Storyteller Distribution Co., LLC (trading as “Amblin Partners”), which is a production company headquartered in the United States, which has granted the Company, for a term of two years expiring on 31 December 2020, the exclusive distribution rights for up to six motion pictures produced by Amblin Partners in Hong Kong and Macau each year. The Remaining Group in recent years expanded activities in production and investments in quality TV drama series in line with the continued strong demand for good programmes from internet platforms and TV stations in the PRC. A 52-episode romance drama


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series “New Horizon”, starring Zheng Kai and Chen Chiao-en, is in the post-production stage and projects under development include a 20-episode modern-day drama series namely “Who Sell Bricks in Hong Kong” tailor-made for ViuTV, featuring Ng Siu Hin, Fish Liew, Wu Tze Tung and Patrick Tam. The Remaining Group is in discussion with various Chinese and overseas portals and video websites for new project development. The Remaining Group believes that talent management is an instrumental part of its media and entertainment businesses and will continue to nurture new talented artistes. In October 2019, a new project called “Kre8 Music Lab” was launched to actively scout for new talented music artistes and successful candidates will be trained with a view to becoming artistes managed by the Remaining Group. Such project provided an opportunity for the Remaining Group to grow its pool of artistes organically and reduce costs associated with signing established artistes. The Remaining Group has in recent years successfully produced and promoted a large number of concerts in Hong Kong and the PRC performed by prominent local, Asian and international artistes and will continue to work with prominent local and Asian artistes for concert promotion. Also, the Remaining Group intends to continue to broaden the channels for the distribution of its music products and expects to increase its music product licensing revenue through new media distribution. As at the Latest Practicable Date, assuming that the novel coronavirus (COVID-19) does not have an unforeseen prolonged impact on the Group and the film and TV production and distribution and media and entertainment industries, it is expected that approximately HK$670 million will be required for the further development in these areas; and

(v) HK$171.4 million (representing approximately 11.2% of the gross proceeds of the Possible Disposal) to maintain sufficient working capital for the operations of the Remaining Group as disclosed above and for general corporate purposes.

Given the expansion and business plans as stated above, as at the Latest Practicable Date, save for the Laisun Creative Culture Subscription Agreement (details of which were disclosed in the joint announcement of LSG, LSD, the Company and Lai Fung dated 19 January 2020), the Company did not have any intention, and had not entered into any agreement, arrangement or understanding, to acquire or develop any new business or to dispose of or downsize the existing businesses or material operating assets of the Company after the Possible Disposal.

Our Analysis

We have discussed with Management regarding the above business expansion plans and agree that the Company has established a solid business platform to capture additional market share in the cinema operation business in Hong Kong, with possible expansion in China. We also note from the announcement of interim results of the Company for the six months ended 31 January 2020 the impact of the prolonged social unrest in Hong Kong since mid-2019 and the outbreak of the novel coronavirus (COVID-19) since early 2020 on the Group’s business performance, which include but are not limited to (i) the decline of approximately HK$19.7 million, or approximately 10%, in the Group’s cinema turnover from approximately HK$214.3 million for the six months ended 31 January 2019 to approximately HK$194.6 million for the


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six months ended 31 January 2020, mainly attributable to the temporary closure of certain cinemas of the Group amid the social unrest in Hong Kong and the delay in release for certain blockbuster films during the Lunar New Year in January 2020 as a result of the outbreak of the novel coronavirus (COVID-19); and (ii) the temporary closure of the Group’s cinemas from 28 March 2020 pursuant to the crowd control measures against novel coronavirus (COVID-19) announced by the Hong Kong government.

With respect to the outbreak of the novel coronavirus (COVID-19) in the first quarter of 2020, we have also discussed with Management regarding the impact or potential impact of the novel coronavirus (COVID-19) on its cinema operation and its expansion plans. We are given to understand that, although Management is unable to predict how long the disruptions caused by the novel coronavirus (COVID-19) will last and its consequences on the market environment, Management remains optimistic of the long-term potential for its cinema operation in Hong Kong and China, but due to the impact of the novel coronavirus (COVID-19), will take a cautious approach in terms of capital commitments in the short term. We consider that this is a prudent approach taken by the Company for its operations in the near term and may benefit the Company in the long run.

In addition, we have discussed with the Company on the future business plans of the Remaining Group and understand from Management that the Company always has regular funding needs in order to finance its ongoing operations, including and not limited to substantial rental costs of the various cinema sites over the long lease periods that the Group has entered into, costs of regular upgrades of the sites, recruitment costs of additional staff, and other operating and renovation costs for cinema operation, as well as administrative and marketing expenses relating to media and entertainment and film production and distribution operations, cost of film rights, license rights and film products, cost of artiste management services and services for entertainment events provided, and cost of theatrical releasing and concessionary sales, etc. Also, apart from the five new cinema sites as mentioned above, Management will continue to monitor any other opportunities for new cinema sites available on the market and will consider these new opportunities on a prudent basis as part of the long-term growth plan for the Company.

We have also reviewed the announcement of interim results for the six months ended 31 January 2020 of the Company and note from the section headed “Management Discussion and Analysis” that, the Group’s consolidated cash and bank deposits amounted to HK$3,103.2 million. We further note that although the Group has amounts due to the LSD Group and other creditors, taking into account the potential refinancing of the loans due to the LSD Group, the Company confirms that, even if the LF Share Offer is not accepted by the Company and the Company does not receive the Possible Proceeds from Disposal, the Group will still have sufficient working capital for its requirements for at least 12 months from the date of this Circular. In addition, the Group has not identified any specific target of investment and/or acquisition with favourable terms that would be required to be funded by the Possible Proceeds from Disposal, and there is no imminent financial need in the short term. To this end, if the Independent Shareholders and Non-Connected Shareholders approve the requisite resolutions to be proposed at the SGM to approve the Possible Disposal, part of the Possible Proceeds


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from Disposal may be utilised to repay the borrowings of the Group (including those owed to the LSD Group and other creditors) to reduce gearing and interest expense of the Group and part of the Possible Proceeds from Disposal will be used to finance and develop the businesses of the Remaining Group, which aligns with the future business plans of the Group as discussed above.

F. Background and Financial Performance of the Company

The Company is an exempted company incorporated in Bermuda with limited liability, the issued Shares of which are listed and traded on the Main Board of the Stock Exchange. The Company acts as an investment holding company and the principal activities of the Group include the development, operation of and investment in media and entertainment, music production and distribution, the investment in and production and distribution of television programmes, films and video format products, cinema operation and (through the Company’s interest in Lai Fung) property development for sale and property investment as well as the development and operation of and investment in cultural, leisure, entertainment and related facilities.

As at the Latest Practicable Date, LSD was interested in approximately 74.62% of the total number of issued Shares and held such interest through Transtrend, and the Company was interested in approximately 50.99% of the total number of issued LF Shares. The following Chart I sets out the simplified corporate structure chart summarising the shareholding relationship among LSG, LSD, the Offeror, the Company and Lai Fung as at the Latest Practicable Date:

Chart I: simplified corporate structure summarising the shareholding relationship among LSG, LSD, the Offeror, the Company and Lai Fung as at the Latest Practicable Date

LSG

LSD

The Offeror

eSun

Lai Fung

56.30%

100%100%

74.62%

50.99%

0.01%

Transtrend


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The Company, apart from its 50.99% shareholding in Lai Fung as shown in Chart I above, also owns 67.56% of the issued shares in MAGHL. The principal activities of Lai Fung and its subsidiaries consist of property development for sale and property investment, and development and operation of and investment in cultural, leisure, entertainment and related facilities in China. The principal activities of MAGHL and its subsidiaries include film production and distribution; organisation, management and production of concerts and live performances; artiste management; production and distribution of television programmes; music production and publishing; licensing of media contents; provision of consultancy services in planning and management of cultural, entertainment and live performance projects.

Since November 2018, IGHL has become a 95%-owned subsidiary of the Company. IGHL is one of the leading film and video distribution companies in Hong Kong, releasing around 30 films every year and distributing a variety of video products. IGHL is also one of the leading multiplex cinema operators in Hong Kong, operating a total of thirteen cinemas in Hong Kong and China as at the Latest Practicable Date.

Financial Performance of the Group

The following Table II sets out a summary of the financial information of the Company for the last three financial years ended 31 July 2017, 2018 and 2019 and the six months ended 31 January 2020, as extracted from the audited consolidated financial statements set out in the annual reports of the Company for the last three financial years ended 31 July 2017, 2018 and 2019 and the unaudited consolidated financial statements set out in the announcement of interim results for the six months ended 31 January 2020 of the Company respectively.


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Table II: summary of the financial information of the Company for the last three financial years ended 31 July 2017, 2018 and 2019 and the six months ended 31 January 2020

For the six For the six For the For the For the months months year ended year ended year ended ended ended 31 July 31 July 31 July 31 January 31 January 2017 2018 2019 2019 2020(HK$ million) (Audited) (Audited) (Audited) (Unaudited) (Unaudited)

Turnover 2,677.4 2,183.9 2,903.4 1,260.2 1,107.4Gross profit 1,081.4 1,013.4 1,374.9 567.1 545.1Profit (loss) before tax and tax indemnity 1,106.5 915.7 331.1 (358.5) (663.5)Profit (loss) for the year/period 1,027.2 673.4 18.1 (416.9) (882.5)Profit (loss) for the year/period, attributable to owners of the Company: — as reported 514.2 263.8 (77.6) (254.9) (526.6) — adjusted (note 1) 145.1 (108.2) (192.5) (136.5) (403.4)

As at As at As at As at As at 31 July 31 July 31 July 31 January 31 January 2017 2018 2019 2019 2020(HK$ million) (Audited) (Audited) (Audited) (Unaudited) (Unaudited)

Net assets attributable to owners of the Company 9,118.2 9,259.5 9,098.6 9,261.2 8,614.4Net asset value per share (note 2) 6.112 6.207 6.099 6.208 5.774Discount to net asset value (%) 84.0% 79.5% 82.3% 80.5% 81.3%

Notes:

1. Excluding revaluation gains of investment properties

2. Calculated based on the number of ordinary shares in issue as at the end of respective reporting periods

We note that no modified or qualified opinion had been given in the independent auditor’s reports issued by the Company’s independent auditors in respect of each of the three financial years ended 31 July 2017, 2018 and 2019 respectively.


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For the year ended 31 July 2019

As shown in Table II above, for the year ended 31 July 2019, the Group recorded a turnover of HK$2,903.4 million, representing an increase of approximately 32.9% from that of HK$2,183.9 million in the preceding year. The increase is primarily due to higher turnover from sale of properties of Lai Fung Group for the year ended 31 July 2019 as compared to the preceding year. The gross profit increased by approximately 35.7% to HK$1,374.9 million (2018: HK$1,013.4 million).

For the year ended 31 July 2019, net loss attributable to owners of the Company was approximately HK$77.6 million (2018: net profit of HK$263.8 million). The change from net profit attributable to owners of the Company to net loss for the year is primarily due to (i) a significant decrease in fair value gain arising from the revaluation of the Group’s investment properties and (ii) a significant decrease in the profit contribution from the property sales of Guangzhou Dolce Vita, the joint venture project with CapitaLand China Holdings Pte. Ltd. as compared to the preceding year, which is recognised as a component of “Share of profits and losses of joint ventures” in the consolidated income statement of the Group. Net loss attributable to owners of the Company for the year ended 31 July 2019 excluding the effect of property revaluations was approximately HK$192.5 million (2018: net loss of HK$108.2 million).

Equity attributable to owners of the Company as at 31 July 2019 amounted to HK$9,098.6 million (2018: HK$9,259.5 million). Net asset value per share attributable to owners of the Company decreased by 1.7% to HK$6.099 per share as at 31 July 2019 from HK$6.207 per share as at 31 July 2018.

For the six months ended 31 January 2020

As shown in Table II above, for the six months ended 31 January 2020, the Group recorded a turnover of HK$1,107.4 million, representing a decrease of 12.1% from that of HK$1,260.2 million for the same period of last year. The gross profit dropped slightly by approximately 3.9% to HK$545.1 million (2019: HK$567.1 million).

For the six months ended 31 January 2020, net loss attributable to owners of the Company was approximately HK$526.6 million (2019: net loss of HK$254.9 million). Net loss per share attributable to owners of the Company was HK$0.353 (2019: net loss of HK$0.171 per share). The substantial increase in consolidated loss for the period under review is primarily due to (i) an increase in fair value losses on investment properties of the Group; (ii) an impairment of certain property, plant and equipment; and (iii) the increased finance costs as a result of a decrease in capitalisation of finance costs in relation to certain projects, the development of which have been completed, during the period under review.


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Net loss attributable to owners of the Company for the six months ended 31 January 2020 excluding the effect of property revaluations was approximately HK$403.4 million (2019: net loss of HK$136.5 million). Net loss per share attributable to owners of the Company excluding the effect of property revaluations was HK$0.270 per share (2019: net loss of HK$0.091 per share).

Equity attributable to owners of the Company as at 31 January 2020 amounted to HK$8,614.4 million (31 July 2019: HK$9,098.6 million). Net asset value per share attributable to owners of the Company as at 31 January 2020 was HK$5.774 per share (31 July 2019: HK$6.099 per share).

Outlook of the Group’s businesses

Hong Kong entertainment industry, alongside tourism, catering and retail industries, had suffered from repercussions of a prolonged social unrest in the city emerging since mid-2019. The industry outlook was further clouded by the outbreak of the novel coronavirus (COVID-19) since early 2020. While the social unrest had led to a decline in the number tourist arrivals and, particularly, visitors from China, and in the foot traffic at shopping malls in Hong Kong, the outbreak of the novel coronavirus (COVID-19) had dealt a further blow to consumption. Both of these events were unforeseen and had, in its own ways, impacted the economy and, unavoidably, the Group’s business performance as well, during the six months ended 31 January 2020, and may have lingering effects into the rest of 2020.

In response to such unprecedented events, the Group had implemented certain measures aimed to contain the spread of the novel coronavirus (COVID-19), and to ensure the Group remains versatile. Such measures included, but are not limited to, (i) optimising costs and overheads; (ii) reducing operating hours of its cinemas in Hong Kong; and (iii) communicating closely and working amicably with its landlords with respect to rental concessions. Following the newly announced crowd control measures by the Hong Kong government on 27 March 2020, all cinemas of the Group in Hong Kong will be closed temporarily for 14 days, effective from 28 March 2020. The Group is prepared to consider and implement further short-term measures as and when needed to help reduce the risk of local community transmission.

Despite the short-term impacts brought about by the abovementioned events, the Group is committed to the long-term development of media and entertainment industry and will act cautiously to capture the opportunities of the entertainment market in Hong Kong and China.

• Film — continued drive to increase original production of films which appeal to Chinese language audiences with the current production pipeline including “I’m Living It”, a feature film produced by Cheang Pou Soi with Aaron Kwok and Miriam Yeung, “Knockout”, an action film by director Roy Chow featuring Han Geng, “The Calling of a Bus Driver”, a romance comedy film with Ivana Wong and director Patrick Kong, and “Septet: the Story of Hong Kong”, an omnibus film produced by seven Hong Kong film masters including Johnnie To, Tsui Hark, Ann Hui, Patrick Tam, Sammo Hung, Yuen Woo-Ping and the memorable Ringo Lam.


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• TV — expanded activities in production and investments in quality TV drama series in line with the continued strong demand for good programmes from internet platforms and TV stations in the PRC. A 52-episode romance drama series “New Horizon”, starring Zheng Kai and Chen Chiao-en, is in the post-production stage and projects under development include a 20-episode modern-day drama series namely “Who Sell Bricks in Hong Kong” tailor-made for ViuTV, featuring Ng Siu Hin, Fish Liew, Wu Tze Tung and Patrick Tam. The Group is in discussion with various Chinese and overseas portals and video web sites for new project development.

• Live Entertainment — successfully produced and promoted a number of concerts in Hong Kong and China performed by prominent local, Asian and international artistes. The recent “FOLLOWMi Sammi Cheng World Tour — Hong Kong 2019”, “EXO Planet#5 Tour 2019 Hong Kong” and “Along with Ekin Live Concert 2019” have earned good reputation and public recognition. The Group will continue to work with prominent local and Asian artistes for concert promotion.

• Music — as international music labels are coming to a mutually acceptable licensing model with major Chinese music portals, the long awaited pay model for digital music is taking shape. The exclusive distribution licence of our music products with Tencent Music Entertainment (Shenzhen) Co., Ltd. and Warner Music continue to provide stable income streams to the Group.

• Artiste Management — actively looking for promising talent in Greater China and business collaborations with Asian artistes with an aim to build up an artiste roster with breadth and depth. The Group is a strong believer of talent management and is of the view that such a roster will be an instrumental part of its media and entertainment businesses.

• Cinema — the Group now owns 95% equity interest in IGHL, and has become one of the leading multiplex cinema operators in Hong Kong in terms of total number of cinemas and box office revenue, according to reports of Hong Kong Box Office Limited. During the period under review, according to Hong Kong Box Office Limited, Hong Kong market recorded total box office revenue of HK$792.5 million, representing a decrease of approximately 10.0% as compared to the six months ended 31 January 2019. The decline in the Group’s box office revenue for the period under review as compared to the same period of last year was largely in line with the Hong Kong market. Such decline was mainly attributable to the temporary closure of certain cinemas amid the social unrest in Hong Kong and the delay in release for certain blockbuster films during the Lunar New Year in January 2020 as a result of the outbreak of the novel coronavirus (COVID-19). Nevertheless, the Group remains cautiously optimistic about the


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long-term potential of cinema operation in Hong Kong and China and has recently secured two new cinema sites, in Kai Tak and at Cyberport respectively. The new cinema at Cyberport is expected to open in the financial year ending 31 July 2020 and the new cinema in Kai Tak is expected to commence business in 2022. The Group intends to further expand its market share in cinema operation through improving the existing cinemas, upgrading the facilities of the existing cinemas and acquiring new cinema sites, and will closely monitor the market conditions in Hong Kong and China and continue to evaluate opportunities to further expand its footprint.

Regarding the property business undertaken by Lai Fung Group, the rental portfolio, primarily in Shanghai and Guangzhou with a total rentable gross floor area (“GFA”) of approximately 3.4 million square feet, had delivered steady performance in rental income at close to full occupancies for the key assets. Through developing the existing projects on hand in Shanghai, Guangzhou, Zhongshan and Hengqin, Lai Fung Group estimates that its rental portfolio will increase from approximately 3.4 million square feet to approximately 9.6 million square feet over the next few years. Construction work of the combined redevelopment of Shanghai Northgate Plaza I, Northgate Plaza II and Hui Gong Building includes an office tower, a shopping mall and an underground car-parking structure, and is expected to complete in the second quarter of 2022 and will add a total GFA of approximately 693,600 square feet, excluding car-parking spaces, to the rental portfolio of Lai Fung Group. Construction work of Guangzhou Haizhu Plaza commenced in the first half of 2019 and is expected to complete in the first half of 2023, providing a total rental GFA of approximately 580,800 square feet.

During the six months ended 31 January 2020, the Chinese economy was predominantly shadowed by the uncertainties around the trade disputes with the United States. Coupled with the anti-speculation measures by the government, home prices across China grew at a much slower pace than in recent years. The Lunar New Year holiday in 2020 was extended because of the outbreak of the novel coronavirus (COVID-19). Containment measures including, but not limited to, restrictions on group gatherings and public events, closure of unnecessary public communal space and amenities, designated drop-off and pick-up points for parcel and food delivery to minimise contact, quarantine controls and denial of access for certain individuals, lockdown of residential communities, etc. were imposed by local governments. As a result, factories were closed, travels were restricted, and cities were effectively in lockdown for an extended period of time. Many developers in China were faced with suspension of sales and construction. While the long-term impact of such a global pandemic remains difficult to predict, the Group remains cautiously optimistic about the future prospects of the cities in which the Group has exposure in, especially the Greater Bay Area in southern China, and continue to regard Hong Kong, where its headquarters is situated, as one of the major beneficiary cities.


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After reviewing the above historical financial performance of the Company for the last three financial years ended 31 July 2017, 2018 and 2019 and the six months ended 31 January 2020, we concur with the view of the Directors regarding the impact of novel coronavirus (COVID-19) on the businesses of the Remaining Group in the short-term which may possibly last for the year of 2020, but we also note that (i) the Group has already established a platform in cinema operation in Hong Kong, its original production of films, its production and investments in quality TV drama series and its operations in live entertainment, music and artiste management, and (ii) the property portfolio of the Lai Fung Group is of high quality in top tier cities and the Greater Bay Area, and are of the view that the long-term prospects of the Group shall remain positive despite the short-term negative impact of the novel coronavirus (COVID-19) pandemic.

G. Information on LSG, LSD and the Offeror

LSD is a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. LSD and its subsidiaries are principally engaged in property investment, property development, investment in and operation of hotels and restaurants, media and entertainment, music production and distribution, films, video format products and television programmes production and distribution, cinema operation, cultural, leisure, entertainment and related facilities and investment holding.

LSG is a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. LSG and its subsidiaries are principally engaged in property investment, property development, investment in and operation of hotels and restaurants, media and entertainment, music production and distribution, films, video format products and television programmes production and distribution, cinema operation, cultural, leisure, entertainment and related facilities and investment holding.

The Offeror is a company incorporated in the British Virgin Islands with limited liability and is a wholly-owned subsidiary of LSD. The Offeror is engaged in investment holding.

As at the Latest Practicable Date, (i) LSG was interested in approximately 56.30% of the total number of issued LSD Shares and (ii) Dr. Peter Lam was interested in approximately 42.10% of the total number of issued LSG Shares.


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H. Information on the Lai Fung Group

Lai Fung is a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. The Lai Fung Group is principally engaged in property development for sale, property investment, and development and operation of and investment in cultural, leisure, entertainment and related facilities. As at the Latest Practicable Date, Lai Fung was held as to (i) 50.99% (or 168,792,467 LF Shares) indirectly by the Company (including (a) 27.02% (or 89,457,323 LF Shares) directly by Merit Worth (a direct wholly-owned subsidiary of the Company) and (b) 23.97% (or 79,335,144 LF Shares) directly by Silver Glory (a direct wholly-owned subsidiary of Merit Worth); and (ii) 0.01% (or 17,510 LF Shares) directly by Transtrend.

The following Table III sets out a summary of the consolidated financial information of the Lai Fung Group for the three financial years ended 31 July 2017, 2018 and 2019 and for the six months ended 31 January 2019 and 2020:

Table III: summary of the consolidated financial information of the Lai Fung Group for the three financial years ended 31 July 2017, 2018 and 2019 and for the six months ended 31 January 2019 and 2020:

As at 31 July As at 31 January 2019 2018 2017 2020 2019 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) (Unaudited) (Unaudited)

Total assets 31,309,627 28,228,264 25,220,279 31,263,016 31,001,169Net assets attributable to owners of Lai Fung 15,834,007 15,502,867 14,584,111 14,918,407 15,832,181

For the financial year For the six months ended 31 July ended 31 January 2019 2018 2017 2020 2019 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) (Unaudited) (Unaudited)

Net profit (loss) before tax and tax indemnity 1,170,537 1,556,005 1,652,804 (365,378) 261,489Net profit (loss) after tax and tax indemnity 740,055 1,291,471 1,590,584 (570,790) 82,686


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As shown above, the Lai Fung Group had recorded substantial profits in the three financial years ended 31 July 2017, 2018 and 2019 and only recorded a loss for the six months ended 31 January 2020 caused by fair value loss on its investment properties. During the six months ended 31 January 2020, the China economy was predominantly shadowed by the uncertainties around the trade disputes between China and the United States. Coupled with the anti-speculation measures by the China government, home prices across China grew at a much slower pace than in recent years. The property market in China had been stalled by the recent outbreak of the novel coronavirus (COVID-19) as many developers were faced with suspension of sales and construction. While the impact of this pandemic is difficult to predict, the Company remains positive about the Lai Fung Group given its track record and quality property portfolio.

For details of the financial information of the Lai Fung Group, please refer to the financial information of the Lai Fung Group for the three years ended 31 July 2017, 2018 and 2019 and for the six months ended 31 January 2020 set out in Appendix II to this Circular.

It should be noted that in the event the Possible Disposal be approved by the Independent Shareholders and the Non-Connected Shareholders by passing the requisite resolutions to be proposed at the SGM and subject to the LF Offers becoming unconditional in all respects, the Company will cease to hold any LF Shares and the business segment of Lai Fung Group set out in this section will not form part of the Remaining Group.

I. Business Overview of the Remaining Group for the year ended 31 July 2019

The following is the business overview of the Remaining Group based on the unaudited pro-forma financial information of the Remaining Group for the year ended 31 July 2019:

(a) Media and Entertainment

For the year ended 31 July 2019, this segment recorded a turnover of HK$591.8 million and segment results increased to HK$64.2 million from that of HK$21.8 million for the year ended 31 July 2018.

Live Entertainment

The Remaining Group remains active on the live entertainment front. During the year ended 31 July 2019, the Remaining Group organised and invested in 118 shows by popular local, Asian and internationally renowned artistes, including Andy Lau, Sammi Cheng, Ekin Cheng, Ivana Wong, Grasshopper, JJ Lin, Yoga Lin, EXO, Donghae & Eunhyuk and MayDay.


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Music Production, Distribution and Publishing

For the year ended 31 July 2019, the Remaining Group released 49 albums, including titles by Sammi Cheng, Grasshopper, Remus Choy, Andy Leung, Tang Siu Hau and Feanna Wong. The Remaining Group is expected to continue to increase its music licensing revenue from the exploitation of the music library through new media distribution.

Artiste Management

The Remaining Group has a strong artiste management team and a sizeable number of talents and will continue to expand its profile and in tandem with its growing television drama production and film production business.

(b) Film and TV Programme Production and Distribution

For the year ended 31 July 2019, this segment recorded a turnover of HK$326.0 million and segment results of a loss of HK$119.6 million. During the year ended 31 July 2019, the Remaining Group released 2 films, namely Kung Fu Monster and Dead Pigs and distributed 33 films and 482 videos with high profile titles including Green Book, Hotel Mumbai, John Wick: Chapter 3 — Parabellum, BumbleBee, Captain Marvel and Venom.

(c) Cinema Operation

For the year ended 31 July 2019, this segment recorded a turnover of HK$521.3 million. As at 31 July 2019, the Remaining Group operates ten cinemas in Hong Kong and three cinemas in Mainland China. The cinema operation provides a complementary distribution channel for the Group’s film production and distribution businesses. The MCL Cheung Sha Wan Cinema, newly opened in January 2019 is the first MCL cinema in West Kowloon district. With industrial style design, the cinema has 4 houses with more than 400 seats in a stadium seating setting, giving the audience a comfortable sightline and all cinema houses are equipped with 4K projection system, Dolby 7.1 surround sound system and Bowers & Wilkins Hi-Fi grade speakers to provide a great cinematic viewing experience for the audience.


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The following Table IV sets out the details on the number of screens and seats of each existing cinema as at 31 July 2019:

Table IV: breakdown of screens and seats of each existing cinema of the Company as at 31 July 2019

Attributable interest to the Cinema Remaining Group No. of screens No. of seats (%) (Note 1) (Note 1)

Mainland China:Suzhou Grand Cinema City 100 10 1,440Guangzhou May Flower Cinema City 100 7 606Zhongshan May Flower Cinema City 100 5 905

Subtotal 22 2,951

Hong Kong:Movie Town (including MX4D theatre) 100 7 1,702Festival Grand Cinema 95 8 1,196MCL Metro City Cinema (Note 2) 95 6 694MCL Telford Cinema (including MX4D theatre) 95 6 789STAR Cinema 95 6 622Grand Kornhill Cinema (including MX4D theatre) 95 5 706MCL Cheung Sha Wan Cinema 95 4 418MCL South Horizons Cinema 95 3 555MCL Green Code Cinema 95 3 285Grand Windsor Cinema 95 3 246

Subtotal 51 7,213

Total 73 10,164

Notes:

1. On 100% basis.

2. With effect from 1 November 2018, rental spaces of one cinema house has been handed back to the landlord.

For details of the unaudited pro-forma financial information of the Remaining Group and the management discussion and analysis of the Remaining Group, please refer to Appendix III and Appendix IV to this Circular respectively.


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J. Share Price Performance and Trading Liquidity of the Company

The following Chart V sets out the movement of the daily closing prices of the Shares and daily trading volume of the Company for around 12 months preceding the Last Trading Date, i.e. from 1 February 2019, up to the Latest Practicable Date (“Review Period of the Company”):

0

200000

400000

600000

800000

1000000

1200000

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2019

/2/1

2019

/02/

2720

19/0

3/20

2019

/04/

1120

19/0

5/07

2019

/05/

2920

19/0

6/20

2019

/07/

1220

19/0

8/02

2019

/08/

2320

19/0

9/13

2019

/10/

1620

19/1

1/06

2019

/11/

2720

19/1

2/18

2020

/01/

1320

20/0

2/05

2020

/02/

2620

20/0

3/18

2020

/04/

08

HK

$

Chart V: Historical Daily Closing Share Price Performance andDaily Trading Volume of the Shares of the Company

Closing Price

Volume

Note 1

Note 2

Source: Website of the Stock Exchange (www.hkex.com.hk)

Notes:

1. Dates of profit warning announcements issued by the Company (21 March 2019, 17 October 2019 and 20 March 2020)

2. Date of Joint Announcement and Last Trading Date (21 February 2020)

As shown in Chart V above, the daily closing share price and daily trading volume of the Shares as at the Latest Practicable Date was HK$0.90 and 0 Shares respectively. During the Review Period of the Company, the lowest and highest daily closing prices of the Shares were HK$0.80 on 25 March 2020 and HK$1.32 on 16 September 2019 respectively, and the lowest and highest daily trading volumes of the Shares were 0 shares for 88 trading days during the Review Period of the Company and 1,107,000 Shares on 16 September 2019 respectively. This represents that there was no trading volume for the Shares for more than two calendar months in aggregate over the Review Period of the Company. For illustrative purposes, as shown in Chart V above, the daily closing share prices of the Shares generally traded within the band of around HK$0.90 to HK$1.20 and has been relatively stable during the Review Period of the Company, despite the extremely low or almost negligible trading volume.


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The following Table VI sets out the average daily trading volume of the Shares and the percentage of the average daily trading volume to the total issued Shares and public float of the Company respectively during the Review Period of the Company:

Table VI: average daily trading volume of the Shares and the percentage of the average daily trading volume to the total issued Shares and public float of the Company

Approximate % Approximate % of average of average daily trading daily trading volume to Average daily volume to the public trading volume the total float of Month of the Shares issued Shares the Company

From 1 April 2020 to the Latest Practicable Date 154 0% 0%March 2020 17,091 0.0011% 0.0045%February 2020 50,500 0.0034% 0.0133%January 2020 91,020 0.0061% 0.0240%December 2019 59,348 0.0040% 0.0157%November 2019 121,333 0.0081% 0.0320%October 2019 61,333 0.0041% 0.0162%September 2019 121,933 0.0082% 0.0322%August 2019 136,876 0.0092% 0.0362%July 2019 112,045 0.0075% 0.0296%June 2019 123,811 0.0083% 0.0327%May 2019 282,776 0.0190% 0.0747%April 2019 139,526 0.0094% 0.0369%March 2019 60,024 0.0040% 0.0159%February 2019 72,706 0.0049% 0.0192%


Table VI above shows that, during the Review Period of the Company, the average daily trading volume ranged from the lowest of approximately 154 Shares during the period from 1 April 2020 to the Latest Practicable Date to the highest of approximately 282,776 Shares in May 2019. The average daily trading volume has recorded no more than 91,020 Shares since October 2019 up to the Latest Practicable Date (except only for November 2019 with an average daily trading volume of 121,333 Shares) which accounted for an average daily trading volume of less than approximately 0.061% to the total issued Shares and less than approximately 0.0240% of the public float of the Company. Based on Table VI above, the historical average daily trading volume of the Shares has been extremely low or almost negligible relative to the total issued Shares and the public float of the Company over a


– 90 –

prolonged period of time which suggests that the Shares are not readily traded on a frequent basis, hence indicating that there does not appear to be a sufficiently traded market which could accommodate either equity fund raising or sell down through block trade. It has therefore been difficult for the Shareholders to liquidate or divest or monetise any meaningful positions in the Shares on-market, which may also be correlated to the difficulty of the Company to raise equity or quasi-equity financing from the capital markets.

K. Share Price Performance and Trading Liquidity of Lai Fung

The following Chart VII sets out the movement of the daily closing prices and the daily trading volume of Lai Fung for around 12 months preceding the Last Trading Date, i.e. from 1 February 2019, up to the Latest Practicable Date (“Review Period of Lai Fung”):

0

100000

200000

300000

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600000

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2

4

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8

10

12

2019

/02/

0120

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/03/

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/04/

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2019

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/06/

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/07/

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/10/

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/11/

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/01/

2420

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2/11

2020

/02/

2520

20/0

3/10

2020

/03/

2420

20/0

4/07

Chart VII: Historical Daily Closing Share Price Performance and DailyTrading Volume of LF Shares

Closing Price Offer Price Volume

Note 1

Note 2


Notes:

1. Dates of profit warning announcements issued by Lai Fung (21 March 2019, 28 June 2019 and 20 March 2020)

2. Date of Joint Announcement and Last Trading Date (21 February 2020)


– 91 –

As shown in Chart VII above, the daily closing share price and daily trading volume of the LF Shares as at the Latest Practicable Date was HK$8.30 and 0 LF Shares respectively. During the Review Period of Lai Fung, the lowest and highest daily closing prices of the LF Shares were HK$6.48 on 11 September 2019 and 12 September 2019 and HK$10.48 on 4 March 2019 respectively, and the lowest and highest daily trading volumes of the LF Shares were 0 LF Shares for 124 trading days during the Review Period of Lai Fung and 482,248 LF Shares on 11 September 2019 respectively. This represents that there was no trading volume for the LF Shares for more than four calendar months in aggregate over the Review Period of Lai Fung. The trading volume of LF Shares has been extremely low or almost negligible during the Review Period of Lai Fung. Nonetheless, as illustrated in Chart VII above, the daily closing price of LF Shares mostly traded within the band of around HK$7 to HK$10, for which the LF Share Offer Price of HK$8.99 is above the average of such band.

The following Table VIII sets out the average daily trading volume of LF Shares and the percentage of the average daily trading volume to the total issued LF Shares and public float of Lai Fung respectively during the Review Period of Lai Fung:

Table VIII: average daily trading volume of LF Shares and the percentage of the average daily trading volume to the total issued LF Shares and public float of Lai Fung

Approximate % Approximate % of average of average daily trading daily trading volume to Average daily volume to the public trading volume the total float of Month of LF Shares issued LF Shares Lai Fung

From 1 April 2020 to the Latest Practicable Date 1,265 0.0004% 0.0008%March 2020 3,896 0.0012% 0.0024%February 2020 16,061 0.0049% 0.0099%January 2020 23,813 0.0072% 0.0147%December 2019 15,199 0.0046% 0.0094%November 2019 76,931 0.0232% 0.0474%October 2019 11,475 0.0035% 0.0071%September 2019 61,967 0.0187% 0.0382%August 2019 32,391 0.0098% 0.0200%July 2019 12,659 0.0038% 0.0078%June 2019 167 0.0001% 0.0001%May 2019 8,476 0.0026% 0.0052%April 2019 12,735 0.0038% 0.0080%March 2019 39,261 0.0119% 0.0240%February 2019 65,870 0.0199% 0.0410%



– 92 –

Table VIII above shows that, during the Review Period of Lai Fung, the average daily trading volume of LF Shares ranged from the lowest of approximately 167 LF Shares in June 2019 to the highest of 76,931 LF Shares in November 2019. The average daily trading volume of LF Shares has recorded no more than 76,931 LF Shares from February 2019 up to the Latest Practicable Date which accounted for an average daily trading volume of less than approximately 0.0232% to the total issued LF Shares and less than approximately 0.0474% of the public float of Lai Fung. Based on Table VIII above, the historical average daily trading volume of LF Shares has been extremely low or almost negligible relative to the total issued LF Shares and public float of Lai Fung over a prolonged period of time which suggests that the LF Shares are not readily traded on a frequent basis, hence indicating that there does not appear to be a sufficiently traded market which could accommodate the LF Shareholders to liquidate or divest or monetise any meaningful positions in the LF Shares on-market.

L. Comparable Companies Analysis of Lai Fung

The Lai Fung Group is principally engaged in property development for sale, property investment, and development and operation of and investment in cultural, leisure, entertainment and related facilities. In order to assess whether the LF Share Offer Price is considered fair and reasonable, we have identified a list of comparable companies listed on the Main Board of the Stock Exchange (“Comparable Companies”) which are engaged in business similar to Lai Fung, with the selection criteria including: (a) being principally engaged in the business of property development and property investment with significant presence in China (as defined by 70% of revenue contribution coming from China) and (b) having net asset value attributable to shareholders between HK$10 billion to HK$20 billion as at the Latest Practicable Date, with reference to the unaudited net asset value attributable to owners of Lai Fung of approximately HK$14.9 billion as at 31 January 2020 as disclosed in the announcement of interim results of Lai Fung for the six months ended 31 January 2020. We believe the samples selected based on such criteria are fair and representative.

The following Table IX is the analysis on the list of Comparable Companies, which is an exhaustive list according to our selection criteria and research based on publicly available information to the best of our knowledge. The Comparable Companies may exhibit differences, such as, the exact location and market prospect of the business, products sold or services provided, business models, risks associated with the markets and customers, as compared with that of the Lai Fung Group, and we have not investigated into the business and operations of the Comparable Companies. We consider the price-to-book ratio an appropriate benchmark for the valuation of companies that are engaged in property development and property investment, with core value being the net asset value of the underlying assets held by the such companies; whereas other benchmark like price-to-earnings ratio may not be appropriate for valuing the Comparable Companies which may significantly vary subject to the different status of property development and time span of the property projects of each company.


– 93 –

Table IX: Comparable Companies analysis of Lai Fung

NAV (net asset value) Market attributable to capitalisation shareholders as Price-to-book Company name Principal business of as at the Latest at the latest ratio (“P/B (stock code) the Comparable Company Practicable Date year/period end ratio”) (notes 1 &3) (HK$ billion) (HK$ billion) (times) (A) (B) (A/B)

C C Land Holdings Engages in the development 6.98 17.51 0.40 Ltd. (1224) and investment of properties

Central China Real Estate Engages in the development 10.88 10.86 1.00 Ltd. (832) of properties projects for sales and rental, as well as hotel operation in China

China SCE Group Engages in property development, 13.84 19.65 0.70 Holdings Ltd. (1966) property investment and property management in China, including Beijing, Shanghai, Shenzhen, Tianjin and Xiamen

Fantasia Holdings Group Engages in the sales of properties, 8.07 15.35 0.53 Co., Ltd. (1777) including development and sales of commercial and residential properties, and leasing of commercial and residential properties

Gemdale Properties and Engages in the development of 18.93 16.82 1.13 Investment Corporation properties for sale in China and Ltd. (535) America, including residential and commercial properties, as well as property investment and management


– 94 –


Guorui Properties Ltd. Engages in the development and 6.08 14.02 0.43 (2329) sales of commercial and residential properties

Harbour Centre Engages in the acquisition, 5.70 17.08 0.33 Development Ltd. (51) development, design, sales and marketing of properties in China, and the leasing of properties in Hong Kong and China

Hon Kwok Land Engages in property businesses, 1.67 11.47 0.15 Investment Co., Ltd. including property development, (160) property leasing and investment, leasing of car parks and the provision of management services to commercial and residential properties

Jiayuan International Operates as property developer of 12.22 11.02 1.11 Group Ltd. (2768) large-scale residential complex projects and integrated commercial complex projects in Jiangsu Province, China, and engages in the provision of development services to government organizations for the development of resettlement properties and development or refurbishment of other types of properties

Liu Chong Hing Engages in property development, 2.91 12.39 0.23 Investment Ltd. (194) property investment, treasury investment, trading and manufacturing and hotel operation


– 95 –


LVGEM (China) Real Engages in the sales of properties, 11.34 14.45 0.78 Estate Investment the leasing of commercial Co. Ltd. (95) properties, office premises and car parks, and hotel operation, property management and other businesses

Polytec Asset Holdings Engages in property and 3.72 14.00 0.27 Ltd. (208) petroleum-related businesses, including the investment, trading and development of properties, among others

Ronshine China Holdings Engages in the sale of properties, 13.41 18.34 0.73 Ltd. (3301) construction contracting businesses and rental of properties

Shanghai Industrial Engages in the development of residential 3.50 13.25 0.26 Urban Development and commercial properties, Group Ltd. (563) property investment and hotel operation in China


– 96 –


Sunshine 100 China Engages in the sale of properties, 3.54 10.25 0.35 Holdings Ltd. (2608) including the development and sales of business complex products, development and sales of residential properties and land development, leasing of offices and commercial premises and the provision of property management service and hotel accommodation services

Mean (note 3) 0.56 Maximum (note 3) 1.13 Minimum 0.15

Lai Fung (1125) Engages in property development for 2.98 14.92 0.20 sale and property investment, (note 2) (note 1) (based on and development and operation of NAV per and investment in cultural, leisure, LF Share) entertainment and related facilities in China 0.15 (based on Reassessed NAV)

(note 4)



– 97 –

Notes:

(1) The NAV attributable to the respective shareholders of the Comparable Companies is extracted from their latest published annual or interim reports.

(2) The market capitalisation of Lai Fung is calculated based on the LF Share Offer Price of HK$8.99 per LF Offer Share multiplied by the number of issued LF Shares of 331,033,443 as at the Latest Practicable Date.

(3) The exchange rate adopted for RMB denominated figures is 1:1.1175.

(4) The implied P/B ratio of Lai Fung of 0.20 is calculated based on the LF Share Offer Price divided by the net asset value per LF Share published in the announcement of interim results of Lai Fung for the six months ended 31 January 2020. The P/B ratio of Lai Fung calculated based on the LF Share Offer Price and Reassessed NAV is 0.15.

As set out in the analysis on the Comparable Companies in Table IX above, the P/B ratios of the Comparable Companies ranged from approximately 0.15 times to 1.13 times, with the mean of 0.56 times. The implied P/B ratios of Lai Fung based on the LF Share Offer Price of (i) approximately 0.20 times, as calculated based on the LF Share Offer Price divided by Lai Fung’s net asset value per LF Share published in the announcement of interim results of Lai Fung for the six months ended 31 January 2020, and (ii) approximately 0.15 times, as calculated based on the LF Share Offer Price and Reassessed NAV, are both significantly lower than the mean of P/B ratio of the Comparable Companies as at the Latest Practicable Date of 0.56 times, by approximately 64.3% and 73.2% respectively; and accordingly, we are of the view that the LF Share Offer Price, although largely in line with the historical trading prices of LF Shares, is not fair and reasonable based on the above Comparable Companies analysis, and therefore not in the interests of the Group and the Shareholders as a whole.

RECOMMENDATION

We have considered the following relevant principal factors with respect to the Possible Disposal, which include:

1) we note that the LF Share Offer is an unsolicited one not initiated by the Company. The LF Share Offer is being made to all LF Shareholders at a price with reference to the prevailing trading price of the LF Shares on the Stock Exchange and is largely in line with the historical trading prices of LF Shares. We have performed an analysis of the historical trading volume of LF Shares in the above section headed “K. Share Price Performance and Trading Liquidity of Lai Fung”, and note that the historical trading volume of the LF Shares has been extremely low and for most of the time with zero LF Shares traded during the Review Period of Lai Fung, which may understandably make it difficult for minority shareholders of Lai Fung with a trading block of substance to liquidate or divest or monetise their investments in LF Shares on-market. On the basis of this and the LF Share Offer is made at a price with reference to the prevailing trading price which would provide the LF Shareholders an exit opportunity to realise their investments in LF Shares, the LF Share Offer is in our view on normal commercial terms;


– 98 –

2) notwithstanding that the LF Share Offer would afford the LF Shareholders, including the Company, an exit opportunity of their holdings in Lai Fung in one block amid the extremely low trading liquidity of the LF Shares, we consider that insofar as the Company’s majority stake in Lai Fung is concerned, the on-market liquidity of the LF Shares would be irrelevant for the reason that the Company’s majority stake in Lai Fung is a unique block carrying an additional value. Accordingly, we consider that the benefit of an immediate exit opportunity under the LF Share Offer does not outweigh the disadvantages of realising the Company’s investment in LF Shares at substantial discounts to underlying fundamental values of the LF Shares;

3) as set out in the above section headed “L. Comparable Companies Analysis of Lai Fung”, the implied P/B ratios of Lai Fung based on the LF Share Offer Price of (i) approximately 0.20 times, as calculated based on the LF Share Offer Price divided by Lai Fung’s net asset value per LF Share published in the announcement of interim results of Lai Fung for the six months ended 31 January 2020, and (ii) approximately 0.15 times, as calculated based on the LF Share Offer Price and Reassessed NAV, are both significantly lower than the mean of P/B ratio of the Comparable Companies as at the Latest Practicable Date of 0.56 times, by approximately 64.3% and 73.2% respectively. Therefore, although the LF Share Offer Price is largely in line with the historical trading prices of LF Shares and hence on normal commercial terms, on the basis that it also represents (i) a substantial discount of approximately 80.26% to the unaudited consolidated net asset value attributable to owners per LF Share as at 31 January 2020; and (ii) an even more substantial discount of approximately 84.96% to the Reassessed NAV per share of the Lai Fung Group when compared to the LF Share Offer Price based on the total number of issued LF Shares as at the Latest Practicable Date, we consider it not fair and reasonable to the Shareholders as a whole, in particular to the Company as the LF Share Offer Price does not carry any additional value that may apply to a majority stake in Lai Fung;

4) acceptance of the LF Share Offer by the Company and the Possible Disposal will result in the Remaining Group becoming a pure-play cinema, media and entertainment company and focusing on the businesses of the development, operation of and investment in media and entertainment, music production and distribution, the investment in and production and distribution of television programmes, films and video format products and cinema operation, of which the Company is generally confident about the industry outlook in the long run. Although the long-term outlook of the cinema, media and entertainment business shall be generally positive, we also note that the negative impact of novel coronavirus (COVID-19) on the business of the Remaining Group and the media and entertainment industry as a whole which commenced since early 2020 is significant and it is uncertain as to how long such impact may last. It is therefore reasonable that the Board will expect the Company to remain cautious about aggressively pursuing expansion plans in the near term. Further, we are given to understand that the intended use of the Possible Proceeds from Disposal by the Remaining Group and its business plans for developing the Remaining Group into a pure-play cinema, media and entertainment company as set out in the Letter from the Board has been decided within a relatively short timeframe by the Board in response to the LF Share Offer in case the Possible Disposal is completed. In the circumstances, we consider that the said business plan for the Remaining Group is subject to high level of uncertainties, in terms of timing of implementation and possible return;


– 99 –

5) we note that, taking into account (i) the internal resources of the Group, (ii) the Group’s presently available banking facilities and other borrowings, and (iii) the expected refinancing of certain bank loans and other borrowings, the Company confirms that, even if the LF Share Offer is not accepted by the Company and the Company does not receive the Possible Proceeds from Disposal, the Group will still have sufficient working capital for its requirements for at least 12 months from the date of this Circular. Furthermore, as at the Latest Practicable Date, the Company has not identified any specific target of investment and/or acquisition with favourable terms and in the interests of the Company and its Shareholders as a whole that would require immediate or, in the short term, funding from proceeds from the Possible Disposal. On this basis, we agree that the Company does not seem to have an imminent need for capital which would otherwise require the Group to proceed with the Possible Disposal; and

6) there will be a substantial Possible Book Loss of approximately HK$8,000 million incurred by the Company if the Possible Disposal is completed, calculated as the difference between the gross proceeds from the Possible Disposal and the audited net assets of Lai Fung Group attributable to the Group in the Group’s consolidated financial statements as at 31 July 2019, after taking into account the release of exchange reserve. The Possible Book Loss represents over 90% of the unaudited net assets attributable to owners of the Company of approximately HK$8,614 million as at 31 January 2020 which, in our view, may take a long time for the Company to recoup this investment loss based on the business results of the Remaining Group in recent years. We also note the pro-forma financial impact on the Remaining Group’s profitability, revenue, assets and liabilities that will be incurred as a result of the Possible Disposal as set out in the above section headed “D. Assessment of the LF Share Offer — (6) Significant financial effect of the Possible Disposal on the Group including substantial possible book loss — Cons” and consider such unfavourable impact to be significant, given the Lai Fung Group had been a major contributor to the Group’s revenue in recent years. On this basis, we consider the Possible Disposal which will result in the financial effect as stated above is not fair and reasonable to the Company and the Shareholders as a whole;

after assessing the above relevant principal factors and weighing the pros and cons as set out in the above section headed “D. Assessment of the LF Share Offer”, we therefore, on balance, consider that the Possible Disposal, by way of tendering acceptance of the LF Share Offer, is not in the interests of the Group and the Shareholders as a whole. While we acknowledge that the LF Share Offer, being made at the LF Share Offer Price which is above the closing share price of Lai Fung of HK$8.30 as at the Latest Practicable Date, is on normal commercial terms as explained in sub-paragraph (1) above, but given the other factors explained in sub-paragraphs (2) to (6) above, we consider the Possible Disposal not fair and reasonable to the Company and the Shareholders as a whole.


– 100 –

In summary, (a) we would advise the Independent Shareholders and the Independent Board Committee to recommend that the Independent Shareholders not to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Possible Disposal as a very substantial disposal of the Company under Chapter 14 of the Listing Rules; and (b) we would advise the Non-Connected Shareholders and the Independent Board Committee to recommend that the Non-Connected Shareholders not to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Possible Disposal as a connected transaction of the Company under Chapter 14A of the Listing Rules.

Yours faithfully, For and on behalf of Trinity Corporate Finance Limited Keith Jacobsen Joanne Pong Responsible Officer Responsible Officer

Mr. Keith Jacobsen and Ms. Joanne Pong are licensed persons registered with the Securities and Futures Commission and responsible officers of Trinity Corporate Finance Limited, which is licensed under the SFO to carry on Type 6 (advising on corporate finance) regulated activity. Mr. Keith Jacobsen and Ms. Joanne Pong have participated in the provision of independent financial advisory services for various transactions involving companies listed in Hong Kong, and have over 26 years and 18 years of experience in the corporate finance industry respectively.

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

The audited consolidated financial statements and the independent auditor’s report of the Group (i) for the year ended 31 July 2017 are disclosed on pages 77 to 212 of the annual report of the Company for the year ended 31 July 2017 published on 15 November 2017; (ii) for the year ended 31 July 2018 are disclosed on pages 85 to 220 of the annual report of the Company for the year ended 31 July 2018 published on 21 November 2018; and (iii) for the year ended 31 July 2019 are disclosed on pages 93 to 236 of the annual report of the Company for the year ended 31 July 2019 published on 20 November 2019.

The unaudited consolidated financial statements of the Group for the six months ended 31 January 2020 are disclosed on pages 1 to 17 of the announcement of interim results of the Company for the six months ended 31 January 2020 published on 27 March 2020.

The above annual reports and announcement of interim results of the Company have been published on the respective websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.esun.com).

INDEBTEDNESS

As at 29 February 2020, being the latest practicable date for ascertaining certain information relating to this indebtedness statement, the Group had outstanding consolidated total borrowings (after intra-group elimination) of approximately HK$10,537 million, comprising unsecured and unguaranteed other borrowings, including the accrued interest on borrowings from a former shareholder of the Company, of approximately HK$306 million, secured bank loans of approximately HK$3,723 million, unsecured bank loans of approximately HK$3,162 million, unsecured guaranteed notes of approximately HK$2,714 million and unsecured and unguaranteed loans from fellow subsidiaries of approximately HK$632 million.

As at 29 February 2020, the Group, as a lessee, had lease liabilities for the remainder of the relevant lease terms amounting to HK$1,100 million in aggregate (excluding contingent rental arrangement).

As at 29 February 2020, certain properties (including investment properties, serviced apartments (including related leasehold improvements) and completed properties for sale) and certain bank balances and time deposits were pledged to banks to secure bank loan facilities of the Group. Equity interests in certain subsidiaries of the Group were pledged to banks to secure certain bank loan facilities granted to the Group. In addition, the Company and certain subsidiaries of the Group have also provided corporate guarantees in favour of the banks in respect of certain bank loan facilities granted to the Group.


– I-2 –

The Group had provided guarantees to certain banks in respect of mortgage loan facilities granted by such banks to certain end-buyers of property units developed by the Group. Pursuant to the terms of the guarantees, upon default in mortgage payments by these end-buyers, the Group will be responsible to repay the outstanding mortgage loan principals together with accrued interest owed by the end-buyers in default. The Group’s obligation in relation to such guarantees has been gradually relinquished along with the settlement of the mortgage loans granted by the banks to the end-buyers. Such obligation will also be relinquished when the property ownership certificates for the relevant properties are issued and/or the end-buyers have fully repaid the mortgage loans. As at 29 February 2020, in respect of these guarantees, the contingent liabilities of the Group were estimated to be approximately HK$620 million.

The Group had provided corporate guarantees to certain banks in connection with the general banking facilities granted to the Group and the facilities were utilised by the Group to the extent of approximately HK$3 million as at 29 February 2020.

Save as aforesaid and apart from intra-group liabilities, the Group did not, as at 29 February 2020, have any material outstanding (i) debt securities, whether issued and outstanding, authorised or otherwise created but unissued, or term loans, whether guaranteed, unguaranteed, secured (whether the security is provided by the Group or by third parties) or unsecured; (ii) other borrowings or indebtedness in the nature of borrowings including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments, whether guaranteed, unguaranteed, secured or unsecured; (iii) mortgage or charges; or (iv) guarantees or other contingent liabilities.

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, save for the matters disclosed in the interim results announcement of the Company for the six months ended 31 January 2020 and this circular, as summarised below, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 July 2019, being the date to which the latest published audited financial statements of the Company were made up:

(a) the impact of the prolonged social unrest in Hong Kong since mid-2019 and the outbreak of COVID-19 since early 2020 on the Group’s business performance as disclosed in the interim results announcement of the Company for the six months ended 31 January 2020, including but not limited to (i) the decline of approximately HK$19.7 million, or approximately 10%, in the Group’s cinema turnover from approximately HK$214.3 million for the six months ended 31 January 2019 to approximately HK$194.6 million for the six months ended 31 January 2020, mainly attributable to the temporary closure of certain cinemas of the Group amid the social unrest in Hong Kong and the delay in release for certain blockbuster films during the Lunar New Year in January 2020 as a result of the outbreak of COVID-19; and (ii) the temporary closure of the Group’s cinemas for 14 days from 28 March 2020 pursuant to the crowd control measures announced by the Hong Kong government on 27 March 2020 in view of the then public health considerations brought by COVID-19. Subsequent to the publication


– I-3 –

of the interim results announcement of the Company for the six months ended 31 January 2020, the temporary closure of the Group’s cinemas had been further extended to 7 May 2020 in response to the Hong Kong government’s directions under the Prevention and Control of Disease (Requirements and Directions) (Business and Premises) Regulation (Chapter 599F of the Laws of Hong Kong) and the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (Chapter 599G of the Laws of Hong Kong) issued on 8 and 21 April 2020; and

(b) the potential financial impact of the Possible Disposal on the Group (in the event that the Possible Disposal is approved by the Independent Shareholders and the Non-Connected Shareholders at the SGM and the LF Share Offer is accepted by Merit Worth and Silver Glory in respect of all the LF Shares respectively held by them, subject to the LF Offers becoming unconditional in all respects), as disclosed in the paragraph headed “Financial Effect of the Possible Disposal on the Group” in the letter from the Board in this circular.

WORKING CAPITAL

The Directors are of the opinion that, in the absence of any unforeseen circumstances and after taking into account (i) the internal resources of the Group; (ii) the Group’s presently available banking facilities and other borrowings; (iii) the expected refinancing of certain bank loans and other borrowings; and (iv) the Completion, the Group has sufficient working capital for its requirements for at least 12 months from the date of this circular.

BUSINESS TREND AND FINANCIAL AND TRADING PROSPECTS OF THE REMAINING GROUP

After the Possible Disposal, the Remaining Group will turn into a pure-play cinema, media and entertainment company with enhanced financial resources to reinforce its industry position and accelerate growth in its businesses of the development, operation of and investment in media and entertainment, music production and distribution, the investment in and production and distribution of television programmes, films and video format products and cinema operation. Hong Kong entertainment industry had suffered from repercussions of a prolonged social unrest in the city since mid-2019. Further clouded by the outbreak of the novel coronavirus (COVID-19) since early 2020. Both of these events were unforeseen and had, in its own ways, impacted the economy and, unavoidably, business performance of the Remaining Group. Despite the short term impacts, the Group would like to reiterate its strong commitment to the long term development of media and entertainment industry.

• Film — continued drive to increase original production of films which appeal to Chinese language audiences with the current production pipeline including “I’m Living It”, a feature film produced by Cheang Pou Soi with Aaron Kwok and Miriam Yeung, “Knockout”, an action film by director Roy Chow featuring Han Geng, “The Calling of a Bus Driver”, a romance comedy film with Ivana Wong and director Patrick Kong, and “Septet: the Story of Hong Kong”, an omnibus film produced by seven Hong Kong film masters including Johnnie To, Tsui Hark, Ann Hui, Patrick Tam, Sammo Hung, Yuen Woo-Ping and the memorable Ringo Lam.


– I-4 –

• TV — expanded activities in production and investments in quality TV drama series in line with the continued strong demand for good programmes from TV stations and online video websites in the PRC. A 52-episode romance drama series “New Horizon”, starring Zheng Kai and Chen Chiao-en, is in the post-production stage and projects under development include a 20-episode modern-day drama series namely “Who Sell Bricks in Hong Kong” tailor-made for ViuTV, featuring Ng Siu Hin, Fish Liew, Wu Tze Tung and Patrick Tam. The Group is in discussion with various Chinese and overseas portals and video web sites for new project development.

• Live Entertainment — successfully produced and promoted a number of concerts in Hong Kong and the PRC performed by prominent local, Asian and international artistes. The recent shows include “FOLLOWMi Sammi Cheng World Tour — Hong Kong 2019”, “EXO Planet#5 Tour 2019 Hong Kong” and “Along with Ekin Live Concert 2019”.

• Music — as international music labels are coming to a mutually acceptable licensing model with major Chinese music portals, the long awaited pay model for digital music is taking shape. The exclusive distribution licence of music products with Tencent Music Entertainment (Shenzhen) Co., Ltd. and Warner Music continue to provide stable income streams to the Group.

• Artiste Management — actively looking for promising talent in Greater China and business collaborations with Asian artistes with an aim to build up an artiste roster with breadth and depth. The Group is a strong believer of talent management and is of the view that such a roster will be an instrumental part of its media and entertainment businesses.

• Cinema — currently operates ten cinemas in Hong Kong and three cinemas in the PRC which provides a complementary distribution channel for film production and distribution businesses of the Group. The cinema operation of the Group has been affected by the temporary closure of certain cinemas amid the social unrest in Hong Kong since mid-2019 and the delay in release for certain blockbuster films during the Lunar New Year in January 2020 as a result of the outbreak of the novel coronavirus (COVID-19). Following the crowd control measures announced by the Hong Kong government, all cinemas of the Group in Hong Kong have been closed temporarily from 28 March 2020. Nevertheless, the Group remains cautiously optimistic about the long term potential of cinema operation in Hong Kong and the PRC. MCL Cheung Sha Wan Cinema, opened in January 2019 is the first MCL cinema in West Kowloon district. The Group has recently secured two new cinema sites in Hong Kong, in Kai Tak and at Cyberport respectively. The new cinema at Cyberport is expected to open in the financial year ending 31 July 2020 and the new cinema in Kai Tak is expected to commence business in 2022. The Group intends to further expand its market share in cinema operation through improving the existing cinemas, upgrading the facilities of the existing cinemas and acquiring new cinema sites, and will closely monitor the market conditions in Hong Kong and the PRC and continue to evaluate opportunities to further expand its footprint.

APPENDIX II FINANCIAL INFORMATION OF THE LAI FUNG GROUP

– II-1 –

Set out below is the financial information of the Lai Fung Group which comprises the consolidated statements of financial position of the Lai Fung Group as at 31 July 2017, 2018 and 2019, and the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows of the Lai Fung Group for each of the years then ended, as well as the condensed consolidated statement of financial position of the Lai Fung Group as at 31 January 2020, and the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows of the Lai Fung Group for the period then ended and certain explanatory notes.

The consolidated statements of financial position of the Lai Fung Group as at 31 July 2017, 2018 and 2019 and the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows of the Lai Fung Group for each of the year then ended were extracted from the annual reports of Lai Fung for respective years. In the opinions of the independent auditor of Lai Fung as stated in the annual reports of Lai Fung, the consolidated financial statements for each of the year ended 31 July 2017, 2018 and 2019 give a true and fair view of the financial position of the Lai Fung Group and of the financial performance and cash flows of the Lai Fung Group for each of the year then ended.

The condensed consolidated statement of financial position of the Lai Fung Group as at 31 January 2020 and the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows of the Lai Fung Group for the six months ended 31 January 2020 (“2020 Financial Information”) have been reviewed by the independent auditor of the Company in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” and with reference to Practice Note 750 “Review of Financial Information under the Hong Kong Listing Rules for a Very Substantial Disposal” issued by the Hong Kong Institute of Certified Public Accountants. Based on their review, nothing has come to their attention that causes them to believe that the 2020 Financial Information of the Lai Fung Group is not prepared, in all material respects, in accordance with the basis of preparation set out in note 2 to the unaudited financial information for the six months ended 31 January 2020 of the Lai Fung Group.


– II-2 –

CONSOLIDATED INCOME STATEMENTSFor each of the years ended 31 July 2017, 31 July 2018 and 31 July 2019

CONDENSED CONSOLIDATED INCOME STATEMENTSFor the six months ended 31 January 2019 and 31 January 2020

For the six months For the year ended 31 July ended 31 January 2019 2018 2017 2020 2019 (Audited) (Audited) (Audited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

TURNOVER 1,461,249 950,822 1,326,682 599,898 571,086

Cost of sales (543,777) (271,505) (662,438) (287,849) (211,949)

Gross profit 917,472 679,317 664,244 312,049 359,137

Other income and gains 59,182 191,237 151,596 30,526 38,121Selling and marketing expenses (60,469) (41,315) (93,629) (33,010) (19,707)Administrative expenses (240,378) (312,126) (300,597) (132,522) (122,416)Other operating expenses, net (5,562) (56,084) (124,050) (39,231) (11,507)Fair value gains on cross currency swaps — — 111,657 — —Fair value gains/(losses) on investment properties 634,810 860,037 800,104 (387,598) 109,692

PROFIT/(LOSS) FROM OPERATING ACTIVITIES 1,305,055 1,321,066 1,209,325 (249,786) 353,320

Finance costs (114,287) (205,090) (166,083) (115,477) (73,549)Share of profits/(losses) of joint ventures (20,191) 440,221 609,562 (107) (18,305)Share of profits/(losses) of associates (40) (192) — (8) 23

PROFIT/(LOSS) BEFORE TAX AND TAX INDEMNITY 1,170,537 1,556,005 1,652,804 (365,378) 261,489

Tax (430,482) (357,229) (556,156) (205,412) (178,803)Tax indemnity — 92,695 493,936 — —

PROFIT/(LOSS) FOR THE YEAR/PERIOD 740,055 1,291,471 1,590,584 (570,790) 82,686

ATTRIBUTABLE TO: Owners of Lai Fung 668,556 1,180,117 1,477,452 (442,388) 69,005 Non-controlling interests 71,499 111,354 113,132 (128,402) 13,681

740,055 1,291,471 1,590,584 (570,790) 82,686


– II-3 –

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFor each of the years ended 31 July 2017, 31 July 2018 and 31 July 2019

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFor the six months ended 31 January 2019 and 31 January 2020 For the six months For the year ended 31 July ended 31 January 2019 2018 2017 2020 2019 (Audited) (Audited) (Audited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000PROFIT/(LOSS) FOR THE YEAR/PERIOD 740,055 1,291,471 1,590,584 (570,790) 82,686

OTHER COMPREHENSIVE INCOME/(EXPENSES) THAT MAY BE RECLASSIFIED TO THE INCOME STATEMENT IN SUBSEQUENT PERIODS, NET OF TAXExchange differences: Exchange differences arising on translation to the presentation currency (269,515) (208,768) (134,482) (424,811) 351,925 Reclassification adjustment upon winding-up of a subsidiary (10,134) — — — (10,134) (279,649) (208,768) (134,482) (424,811) 341,791 Share of other comprehensive income/(expenses) of joint ventures (7,165) (9,457) 2,934 — (7,165) Share of other comprehensive expenses of an associate (20) (15) — (9) (7) Cash flow hedges: Effective portion of changes in fair value of hedging instruments arising during the year/period — 161,845 (101,887) — — Reclassification adjustments for exchange gain/(loss) included in the consolidated income statement — (134,959) 69,653 — — — 26,886 (32,234) — — Release of reserve upon maturity of cross currency swaps — (35,055) — — —

(286,834) (226,409) (163,782) (424,820) 334,619

TOTAL COMPREHENSIVE INCOME/(EXPENSES) FOR THE YEAR/PERIOD 453,221 1,065,062 1,426,802 (995,610) 417,305

Attributable to: Owners of Lai Fung 391,002 964,858 1,314,396 (851,504) 392,401 Non-controlling interests 62,219 100,204 112,406 (144,106) 24,904

453,221 1,065,062 1,426,802 (995,610) 417,305


– II-4 –

CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONAs at 31 July 2017, 31 July 2018 and 31 July 2019

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 January 2020 As at As at 31 July 31 January 2019 2018 2017 2020 (Audited) (Audited) (Audited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000

NON-CURRENT ASSETSProperty, plant and equipment 3,627,227 2,409,449 1,703,731 3,632,349Prepaid land lease payments 3,951 4,183 4,397 —Right-of-use assets — — — 442,034Investment properties 20,455,200 18,207,822 16,457,221 20,447,565Properties under development 711,362 407,899 1,341,974 591,227Investments in joint ventures 1,317 1,849,437 1,387,570 1,210Investments in associates 5,804 5,932 343 1,165Derivative financial instruments 20,581 2,531 — 24,323

Total non-current assets 24,825,442 22,887,253 20,895,236 25,139,873

CURRENT ASSETSProperties under development 1,811,683 1,718,163 213,818 1,123,906Completed properties for sale 902,331 776,776 904,811 1,892,248Inventories 5,012 — — 6,667Debtors, deposits and prepayments 554,897 370,458 256,671 594,772Prepaid tax 42,031 37,687 42,844 25,086Pledged and restricted time deposits and bank balances 1,173,775 1,073,642 571,022 1,214,086Cash and cash equivalents 1,923,484 1,364,285 2,057,346 1,249,053

6,413,213 5,341,011 4,046,512 6,105,818Assets classified as held for sale 70,972 — 278,531 17,325

Total current assets 6,484,185 5,341,011 4,325,043 6,123,143

CURRENT LIABILITIESCreditors and accruals 2,062,621 1,421,643 957,047 2,193,121Contract liabilities, deposits received and deferred income 540,744 369,789 245,024 508,648Dividend payable — — — 65,499Interest-bearing bank loans 433,536 200,669 82,031 1,049,407Lease liabilities — — — 6,450Fixed rate senior notes — — 2,080,366 —Derivative financial instruments — — 208,223 —Loans from a fellow subsidiary 316,259 — — —Loans from a joint venture — 218,542 192,731 —Tax payable 155,643 112,982 104,958 192,318Other borrowings 41,440 — — 41,148

Total current liabilities 3,550,243 2,323,625 3,870,380 4,056,591

NET CURRENT ASSETS 2,933,942 3,017,386 454,663 2,066,552

TOTAL ASSETS LESS CURRENT LIABILITIES 27,759,384 25,904,639 21,349,899 27,206,425


– II-5 –

As at As at 31 July 31 January 2019 2018 2017 2020 (Audited) (Audited) (Audited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000

TOTAL ASSETS LESS CURRENT LIABILITIES 27,759,384 25,904,639 21,349,899 27,206,425

NON-CURRENT LIABILITIESLease liabilities — — — 2,742Long-term deposits received 149,213 144,235 140,240 141,609Interest-bearing bank loans 5,554,150 3,572,464 2,814,062 5,654,503Advances from a former substantial shareholder 53,006 53,719 54,143 51,933Loans from a fellow subsidiary — 248,509 218,279 382,359Loans from a joint venture — 426,156 649,779 —Guaranteed notes 2,720,857 2,725,518 — 2,703,874Derivative financial instruments — — — 3,660Deferred tax liabilities 3,100,475 2,945,714 2,704,032 3,143,768

Total non-current liabilities 11,577,701 10,116,315 6,580,535 12,084,448

16,181,683 15,788,324 14,769,364 15,121,977

EQUITYEquity attributable to owners of Lai FungIssued capital 1,636,935 1,635,221 1,628,509 1,637,483Reserves 14,197,072 13,867,646 12,955,602 13,280,924

15,834,007 15,502,867 14,584,111 14,918,407

Non-controlling interests 347,676 285,457 185,253 203,570

16,181,683 15,788,324 14,769,364 15,121,977


– II-6 –

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFor each of the years ended 31 July 2017, 31 July 2018 and 31 July 2019

Attributable to owners of Lai Fung Group

Share Asset Share Exchange Non- Issued premium revaluation option Hedge fluctuation Capital Statutory Retained controlling capital account reserve reserve reserve reserve reserve reserve earnings Sub-total interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

As at 1 August 2016 1,619,770 4,069,257 68,959 29,424 40,403 827,098 137,165 241,397 6,281,294 13,314,767 72,847 13,387,614Profit for the year — — — — — — — — 1,477,452 1,477,452 113,132 1,590,584Other comprehensive income/ (expenses)for the year, net of tax: Exchange differences arising on translation to presentation currency — — — — — (133,756) — — — (133,756) (726) (134,482) Share of other comprehensive income of joint ventures — — — — — 2,934 — — — 2,934 — 2,934 Net loss on cash flow hedges — — — — (32,234) — — — — (32,234) — (32,234)

Total comprehensive income/ (expenses) for the year, net of tax — — — — (32,234) (130,822) — — 1,477,452 1,314,396 112,406 1,426,802Issue of shares upon exercise of share options 3,000 2,361 — (1,371) — — — — — 3,990 — 3,990Release of reserve upon lapse of share options — — — (170) — — — — 170 — — —Transfer from asset revaluation reserve — — (68,959) — — — — — 68,959 — — —Transfer to statutory reserve — — — — — — — 28,208 (28,208) — — —Share of statutory reserve of joint ventures — — — — — — — 59,300 (59,300) — — —Shares issued in lieu of cash dividend 5,739 3,639 — — — — — — — 9,378 — 9,378Final 2016 dividend paid — — — — — — — — (58,420) (58,420) — (58,420)

As at 31 July 2017 1,628,509 4,075,257 — 27,883 8,169 696,276 137,165 328,905 7,681,947 14,584,111 185,253 14,769,364


– II-7 –


Share Asset Share Exchange Non- Issued premium revaluation option Hedge fluctuation Capital Statutory Retained controlling capital account reserve reserve reserve reserve reserve reserve earnings Sub-total interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

As at 1 August 2017 1,628,509 4,075,257 — 27,883 8,169 696,276 137,165 328,905 7,681,947 14,584,111 185,253 14,769,364Profit for the year — — — — — — — — 1,180,117 1,180,117 111,354 1,291,471Other comprehensive income/ (expenses) for the year, net of tax: Exchange differences arising on translation to the presentation currency — — — — — (197,618) — — — (197,618) (11,150) (208,768) Share of other comprehensive expenses of joint ventures — — — — — (9,457) — — — (9,457) — (9,457) Share of other comprehensive expenses of an associate — — — — — (15) — — — (15) — (15) Net gain on cash flow hedges — — — — 26,886 — — — — 26,886 — 26,886 Release of reserve upon maturity of cross currency swaps — — — — (35,055) — — — — (35,055) — (35,055)

Total comprehensive income/ (expenses) for the year, net of tax — — — — (8,169) (207,090) — — 1,180,117 964,858 100,204 1,065,062Issue of shares upon exercise of share options 1,100 2,033 — (625) — — — — — 2,508 — 2,508Equity-settled share option arrangement — — — 2,441 — — — — — 2,441 — 2,441Release of reserve upon lapse of share options — — — (170) — — — — 170 — — —Transfer to statutory reserve — — — — — — — 12,919 (12,919) — — —Share of statutory reserve of joint ventures — — — — — — — 31,521 (31,521) — — —Shares issued in lieu of cash dividend 5,612 8,521 — — — — — — (14,133) — — —Final 2017 dividend paid — — — — — — — — (51,051) (51,051) — (51,051)

As at 31 July 2018 1,635,221 4,085,811 — 29,529 — 489,186 137,165 373,345 8,752,610 15,502,867 285,457 15,788,324

As at 1 August 2018 1,635,221 4,085,811 — 29,529 — 489,186 137,165 373,345 8,752,610 15,502,867 285,457 15,788,324Profit for the year — — — — — — — — 668,556 668,556 71,499 740,055Other comprehensive expenses for the year, net of tax: Exchange differences arising on translation to the presentation currency — — — — — (270,369) — — — (270,369) (9,280) (279,649) Share of other comprehensive expenses of joint ventures — — — — — (7,165) — — — (7,165) — (7,165) Share of other comprehensive expenses of an associate — — — — — (20) — — — (20) — (20)

Total comprehensive income/ (expenses) for the year, net of tax — — — — — (277,554) — — 668,556 391,002 62,219 453,221Equity-settled share option arrangement — — — 2,322 — — — — — 2,322 — 2,322Transfer to statutory reserve — — — — — — — 6,114 (6,114) — — —Reserves realised upon winding-up of a joint venture — — — — — — — (136,588) 136,588 — — —Shares issued in lieu of cash dividend 1,714 1,511 — — — — — — (3,225) — — —Final 2018 dividend paid — — — — — — — — (62,184) (62,184) — (62,184)

As at 31 July 2019 1,636,935 4,087,322 — 31,851 — 211,632 137,165 242,871 9,486,231 15,834,007 347,676 16,181,683


– II-8 –

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFor the six months ended 31 January 2019 and 31 January 2020


Share Asset Share Exchange Non- Issued premium revaluation option Hedge fluctuation Capital Statutory Retained controlling capital account reserve reserve reserve reserve reserve reserve earnings Sub-Total interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

As at 1 August 2019 1,636,935 4,087,322 — 31,851 — 211,632 137,165 242,871 9,486,231 15,834,007 347,676 16,181,683Loss for the period — — — — — — — — (442,388) (442,388) (128,402) (570,790)Other comprehensive expenses for the period, net of tax: Exchange differences — — — — — (409,107) — — — (409,107) (15,704) (424,811) Share of other comprehensive expenses of an associate — — — — — (9) — — — (9) — (9)

Total comprehensive expenses for the period, net of tax — — — — — (409,116) — — (442,388) (851,504) (144,106) (995,610)Issue of shares upon exercise of share options 548 431 — (250) — — — — — 729 — 729Equity-settled share option arrangements — — — 674 — — — — — 674 — 674Transfer to statutory reserve — — — — — — — 17,166 (17,166) — — —Release of reserve upon lapse of share options — — — (227) — — — — 227 — — —Final 2019 dividend payable — — — — — — — — (65,499) (65,499) — (65,499)

As at 31 January 2020 (Unaudited) 1,637,483 4,087,753 — 32,048 — (197,484) 137,165 260,037 8,961,405 14,918,407 203,570 15,121,977

As at 1 August 2018 1,635,221 4,085,811 — 29,529 — 489,186 137,165 373,345 8,752,610 15,502,867 285,457 15,788,324Profit for the period — — — — — — — — 69,005 69,005 13,681 82,686Other comprehensive income/ (expenses) for the period, net of tax: Exchange differences — — — — — 330,568 — — — 330,568 11,223 341,791 Share of other comprehensive expenses of joint ventures — — — — — (7,165) — — — (7,165) — (7,165) Share of other comprehensive expenses of an associate — — — — — (7) — — — (7) — (7)

Total comprehensive income for the period, net of tax — — — — — 323,396 — — 69,005 392,401 24,904 417,305Equity-settled share option arrangements — — — 2,322 — — — — — 2,322 — 2,322Transfer to statutory reserve — — — — — — — 13,784 (13,784) — — —Reserves realised upon winding-up of a joint venture — — — — — — — (136,588) 136,588 — — —Final 2018 dividend payable — — — — — — — — (65,409) (65,409) — (65,409)

As at 31 January 2019 (Unaudited) 1,635,221 4,085,811 — 31,851 — 812,582 137,165 250,541 8,879,010 15,832,181 310,361 16,142,542


– II-9 –

CONSOLIDATED STATEMENTS OF CASH FLOWSFor each of the years ended 31 July 2017, 31 July 2018 and 31 July 2019

For the year ended 31 July 2019 2018 2017 (Audited) (Audited) (Audited) HK$’000 HK$’000 HK$’000

CASH FLOWS FROM OPERATING ACTIVITIESProfit before tax and tax indemnity 1,170,537 1,556,005 1,652,804Adjustments for: Fair value gains on investment properties (634,810) (860,037) (800,104) Finance costs 114,287 205,090 166,083 Share of losses/(profits) of joint ventures 20,191 (440,221) (609,562) Share of losses of associates 40 192 — Interest income (25,690) (38,887) (22,595) Depreciation 55,042 78,433 72,226 Amortisation of prepaid land lease payments 179 188 178 Foreign exchange differences, net (22,050) 31,509 58,715 Write-down of properties under development to net realisable value — 38,222 — Loss on disposal of items of property, plant and equipment 765 2,315 242 Fair value gains on cross currency swaps (18,050) (38,049) (111,657) Ineffective portion of the effective hedge recognised in profit or loss — — 7,925 Equity-settled share option expenses 2,322 2,441 — Write-down/(reversal of write-down) of completed properties for sale to net realisable value — 122 (3,829) Gain on swap of properties — (41,379) —

662,763 495,944 410,426Decrease in completed properties for sale 243,393 109,230 558,930Increase in properties under development (703,012) (537,140) (488,333)Decrease/(increase) in debtors, deposits and prepayments (172,497) (113,787) 110,397Additions to asset classified as held for sale — — (23,374)Increase in inventories (5,012) — —Increase/(decrease) in creditors and accruals, contract liabilities, short-term deposits received and deferred income 290,844 146,582 (349,418)Increase in long-term deposits received 4,978 3,995 15,851

Cash generated from operations 321,457 104,824 234,479Tax indemnity received — 92,695 493,936Mainland China taxes paid, net (194,122) (66,415) (531,455)

Net cash flows from operating activities 127,335 131,104 196,960


– II-10 –


CASH FLOWS FROM INVESTING ACTIVITIESInterest received 25,690 38,887 22,595Purchases of items of property, plant and equipment (1,155,337) (520,282) (258,799)Additions to investment properties (1,621,322) (448,080) (662,882)Repayment from/(advances to) a joint venture 216,905 (32,544) (60)A dividend received from a joint venture 1,603,755 — —Investments in associates — (314) (283)Advance to an associate — (5,482) (60)Decrease/(increase) in pledged and restricted time deposits and bank balances (113,568) (506,763) 485,327Increase in non-pledged and non-restricted time deposits with original maturity of more than three months when acquired (39,309) — —

Net cash flows used in investing activities (1,083,186) (1,474,578) (414,162)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of shares — 2,508 3,990Proceeds from issue of guaranteed notes, net of issue expenses — 2,712,758 —New bank loans, net of direct costs 4,396,807 1,071,373 483,638Repayment of bank loans (2,177,895) (184,202) (640,585)Loans from a fellow subsidiary 117,860 66,720 27,888Repayment of loans from a fellow subsidiary (48,187) (37,000) (29,000)Loans from a joint venture 462,834 — 609,490Repayment of loans from a joint venture (1,095,915) (207,929) (342,143)Increase in other borrowings 41,560 — —Increase in put option liabilities 280,532 — —Interest and bank financing charges paid (425,089) (422,111) (318,056)Dividend paid (62,184) (51,051) (49,042)Repayment of fixed rate senior notes — (2,243,270) —Net cash outflows from maturity of cross currency swaps — (45,915) —

Net cash flows from/(used in) financing activities 1,490,323 661,881 (253,820)


– II-11 –


NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 534,472 (681,593) (471,022)

Cash and cash equivalents at beginning of year 1,364,285 2,057,346 2,546,240Effect of foreign exchange rate changes, net (14,582) (11,468) (17,872)

CASH AND CASH EQUIVALENTS AT END OF YEAR 1,884,175 1,364,285 2,057,346

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTSNon-pledged and non-restricted cash and bank balances 1,238,373 1,001,253 1,776,001Non-pledged and non-restricted time deposits 685,111 363,032 281,345

Cash and cash equivalents as stated in the consolidated statement of financial position 1,923,484 1,364,285 2,057,346

Non-pledged and non-restricted time deposits with original maturity of more than three months when acquired (39,309) — —

Cash and cash equivalents as stated in the consolidated statement of cash flows 1,884,175 1,364,285 2,057,346


– II-12 –

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the six months ended 31 January 2019 and 31 January 2020

For the six months ended 31 January 2020 2019 (Unaudited) (Unaudited) HK$’000 HK$’000

NET CASH FLOWS USED IN OPERATING ACTIVITIES (298,903) (82,079)

CASH FLOWS FROM INVESTING ACTIVITIESInterest received 12,416 11,564Additions to investment properties (810,258) (903,166)Purchases of items of property, plant and equipment (184,010) (654,281)Repayment from a joint venture — 657Repayment from an associate 4,495 —Dividend received from a joint venture — 1,540,176Decrease in non-pledged and non-restricted time deposits with original maturity of more than three months when acquired 39,309 —Increase in pledged and restricted time deposits and bank balances (70,203) (74,895)

Net cash flows used in investing activities (1,008,251) (79,945)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of shares 729 —New bank loans, net of direct costs 957,545 3,549,658Repayment of bank loans (193,418) (1,974,999)Loans from fellow subsidiaries 388,359 63,762Repayment of loans from a fellow subsidiary (322,259) (48,171)Loans from a joint venture — 462,834Repayments of loans from a joint venture — (825,225)Increase in other borrowings — 41,560Increase in put option liabilities — 280,532Amount received from a potential non-controlling shareholder 110,963 —Principal portion of lease payments (2,433) —Interest and bank financing charges paid (235,828) (244,006)

Net cash flows from financing activities 703,658 1,305,945


– II-13 –

For the six months ended 31 January 2020 2019 (Unaudited) (Unaudited) HK$’000 HK$’000

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (603,496) 1,143,921

Cash and cash equivalents at beginning of period 1,884,175 1,364,285Effect of foreign exchange rate changes, net (31,626) 17,053

CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,249,053 2,525,259

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTSNon-pledged and non-restricted cash and bank balances 1,040,210 1,823,465Non-pledged and non-restricted time deposits 208,843 701,794

1,249,053 2,525,259


– II-14 –

NOTES TO THE UNAUDITED FINANCIAL INFORMATIONFor the six months ended 31 January 2020

1. GENERAL INFORMATION

Lai Fung Holdings Limited (“Lai Fung”) is a limited liability company incorporated in the Cayman Islands and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (“Stock Exchange”). The principal activities of Lai Fung and its subsidiaries (collectively referred to as the “Lai Fung Group”) consisted of property development for sale, property investment, and development and operation of and investment in cultural, leisure, entertainment and related facilities.

Upon Completion, the Company will no longer hold any interest in Lai Fung. Lai Fung will cease to be an indirect non-wholly-owned subsidiary of the Company and the financial results of Lai Fung will no longer be consolidated into the financial statements of the Company with effect from the date of Completion.

2. BASIS OF PREPARATION

The 2020 Financial Information of the Lai Fung Group has been prepared in accordance with Rule 14.68(2)(a)(i)(A) of the Rules Governing the Listing of Securities on the Stock Exchange (“Listing Rules”), and solely for the purposes of inclusion in the circular be issued by the Company in connection with the Possible Disposal. The 2020 Financial Information does not contain sufficient information to constitute a complete set of financial statements as described in Hong Kong Accounting Standard (“HKAS”) 1 Presentation of Financial Statements nor a set of condensed financial statements as defined in HKAS 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants.

The 2020 Financial Information of the Lai Fung Group has been prepared under the historical cost convention, except for completed investment properties, certain investment properties under construction and derivative financial instruments, which have been measured at fair value. Non-current asset classified as held for sale is stated at the lower of its carrying amount and fair value less costs to sell. The 2020 Financial Information of the Lai Fung Group is presented in Hong Kong dollars and all values are rounded to the nearest thousand except when otherwise indicated.

3. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies and basis of preparation adopted in the preparation of the 2020 Financial Information are consistent with those used in the Lai Fung Group’s audited consolidated financial statements for the year ended 31 July 2019. These 2020 Financial Information should be read in conjunction with the Lai Fung’s annual report for the year ended 31 July 2019.

In addition, the Lai Fung Group has adopted the following new and revised Hong Kong Financial Reporting Standards (“HKFRSs”, which also include HKASs and interpretations) for the first time for the financial period beginning on or after 1 August 2019:

Amendments to HKFRS 9 Prepayment Features with Negative CompensationHKFRS 16 LeasesAmendments to HKAS 19 Plan Amendment, Curtailment or SettlementAmendments to HKAS 28 Long-term Interests in Associates and Joint VenturesHK(IFRIC)-Int 23 Uncertainty over Income Tax TreatmentsAnnual Improvements to Amendments to HKFRS 3, HKFRS 11, HKAS 12 and HKFRSs 2015-2017 Cycle HKAS 23

Other than as explained below regarding the impact of HKFRS 16 Leases, the application of these new and revised HKFRSs has had no impact on the financial performance or financial position of the Lai Fung Group.


– II-15 –

HKFRS 16 Leases

HKFRS 16 replaces HKAS 17 Leases, HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease, HK(SIC)-Int 15 Operating Leases — Incentives and HK(SIC)-Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and leases and requires lessees to account for all leases under a single on-balance sheet model to recognise and measure right-of-use assets and liabilities, except for certain recognition exemptions. Lessor accounting under HKFRS 16 is substantially unchanged from HKAS 17. Lessors continue to classify leases as either operating or finance leases using similar principles as in HKAS 17. Therefore, HKFRS 16 did not have any financial impact on leases where the Lai Fung Group is the lessor.

The Lai Fung Group has adopted HKFRS 16 using the modified retrospective method with the date of initial application of 1 August 2019. Under this method, the standard has been applied retrospectively with the cumulative effect of initial adoption recognised as an adjustment to the opening balance of retained profits at 1 August 2019, and the comparative information for the six months ended 31 January 2019 and as at 31 July 2019 was not restated and continued to be reported under HKAS 17 and related interpretations.

New definition of a lease

Under HKFRS 16, a contract is, or contains a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset. The Lai Fung Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying HKAS 17 and HK(IFRIC)-Int 4 at the date of initial application. Contracts that were not identified as leases under HKAS 17 and HK(IFRIC)-Int 4 were not reassessed. Therefore, the definition of a lease under HKFRS 16 has been applied only to contracts entered into or changed on or after 1 August 2019.

At inception or on reassessment of a contract that contains a lease component, the Lai Fung Group allocates the consideration in the contract to each lease and non-lease component on the basis of their stand-alone prices.

As a lessee — Leases previously classified as operating leases

Nature of the effect of adoption of HKFRS 16

The Lai Fung Group has lease contracts for various items of certain office, warehouse premises and staff dormitory. As a lessee, the Lai Fung Group previously classified leases as either finance leases or operating leases based on the assessment of whether the lease transferred substantially all the rewards and risks of ownership of assets to the Lai Fung Group. Under HKFRS 16, the Lai Fung Group applies a single approach to recognise and measure right-of-use assets and lease liabilities for all leases, except for two elective exemptions for leases of low-value assets (elected on a lease-by-lease basis) and leases with a lease term of 12 months or less (“short-term leases”) (elected by class of underlying asset). The Lai Fung Group has elected not to recognise right-of-use assets and lease liabilities for (i) leases of low-value assets; and (ii) leases, that at the commencement date, have a lease term of 12 months or less. Instead, the Lai Fung Group recognises the lease payments associated with those leases as an expense on a straight-line basis over the lease term.


– II-16 –

Impact on transition

Lease liabilities at 1 August 2019 were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at 1 August 2019. The Lai Fung Group elected to present the lease liabilities separately in the condensed consolidated statement of financial position. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 August 2019 was about 5.65%.

Right-of-use assets were measured at the amount of the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to the lease recognised in the condensed consolidated statement of financial position immediately before 1 August 2019. All these assets were assessed for any impairment based on HKAS 36 on that date. In addition, land use rights previously included in property, plant and equipment and prepaid land lease payments on the condensed consolidated statement of financial position are grouped as part of the right-of-use assets with effect from 1 August 2019. The Lai Fung Group elected to present the right-of-use assets separately in the condensed consolidated statement of financial position.

For the leasehold land and buildings (that were held to earn rental income and/or for capital appreciation) previously included in investment properties and measured at fair value, the Lai Fung Group has continued to include them as investment properties at 1 August 2019. They continue to be measured at fair value applying HKAS 40.

The Lai Fung Group has used the following elective practical expedients when applying HKFRS 16 at 1 August 2019:

• Applying the short-term lease exemptions to leases with a lease term that ends within 12 months from the date of initial application.

• Using hindsight in determining the lease term where the contract contains options to extend/terminate the lease.

• Using a single discount rate to a portfolio of leases with reasonably similar characteristics.

• Excluding initial direct costs from the measurement of the right-of-use asset at the date of initial application.

The impact arising from the adoption of HKFRS 16 as at 1 August 2019 was as follows:

Increase/(decrease) (Unaudited) HK$’000

AssetsRight-of-use assets 452,808Property, plant and equipment (440,268)Prepaid land lease payments (3,951)

Increase in total assets 8,589

LiabilitiesLease liabilities 8,589

Increase in total liabilities 8,589


– II-17 –

The lease liabilities as at 1 August 2019 reconciled to the operating lease commitments as at 31 July 2019 were as follows:

(Unaudited) HK$’000

Operating lease commitments as at 31 July 2019 9,833Less: Commitments relating to short-term leases and those leases with a remaining lease term ending on or before 31 July 2020 (776)

9,057Weighted average incremental borrowing rate as at 1 August 2019 5.65%

Lease liabilities as at 1 August 2019 8,589

Summary of new accounting policies

The accounting policy for leases as disclosed in the annual financial statements for the year ended 31 July 2019 is replaced with the following new accounting policies upon adoption of HKFRS 16 from 1 August 2019:

Right-of-use assets

Right-of-use assets are recognised at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any remeasurement of lease liabilities. When the right-of-use assets relate to interests in leasehold land held as inventories, they are subsequently measured at the lower of cost and net realisable value in accordance with the Lai Fung Group’s policy for “Completed properties for sale”. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Lai Fung Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of the estimated useful life or the lease term. When a right-of-use asset meets the definition of investment property, it is included in investment properties. The corresponding right-of-use asset is initially measured at cost, and subsequently measured at fair value, in accordance with the Lai Fung Group’s policy for “Investment properties”.

Lease liabilities

Lease liabilities are recognised at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Lai Fung Group and payments of penalties for termination of a lease, if the lease term reflects the Lai Fung Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Lai Fung Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease payments resulting from a change in an index or rate), a change in the in-substance fixed lease payments or a change in assessment of an option to purchase the underlying asset.


– II-18 –

Short-term leases and leases of low-value assets

The Lai Fung Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). When the Lai Fung Group enters into a lease in respect of a low-value asset, the Lai Fung Group decides whether to capitalise the lease on a lease-by-lease basis. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

– III-1 –

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Introduction

The following is the unaudited pro forma consolidated statement of financial position as at 31 July 2019 and the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows for the year ended 31 July 2019 of the Remaining Group (the “Unaudited Pro Forma Financial Information”), which have been prepared in accordance with paragraph 29 of Chapter 4 of the Listing Rules, for the purpose of illustrating the effect of the Possible Disposal for the financial information of the Remaining Group as if the Possible Disposal had been completed on 31 July 2019 or 1 August 2018, as appropriate.

The Unaudited Pro Forma Financial Information of the Remaining Group has been prepared based on the information as set out in:

(a) the audited consolidated statement of financial position of the Group as at 31 July 2019, the audited consolidated income statement, the audited consolidated statement of comprehensive income and the audited consolidated statement of cash flows of the Group for the year ended 31 July 2019 which have been extracted from the published annual report of the Company for the year ended 31 July 2019; and

(b) after taking into account of the unaudited pro forma adjustments, which are directly attributable to the Possible Disposal and factually supportable, as described in the notes thereto to demonstrate how the Possible Disposal might have affected the historical financial information in respect of the Group as if the Possible Disposal had been completed on 31 July 2019 or 1 August 2018, as appropriate.

The Unaudited Pro Forma Financial Information of the Remaining Group should be read in conjunction with the financial information contained in this circular.

The Unaudited Pro Forma Financial Information of the Remaining Group has been prepared by the Directors of the Company for illustrative purposes only and is based on a number of assumptions, estimates, uncertainties and currently available information. Because of its hypothetical nature, the Unaudited Pro Forma Financial Information may not reflect the true picture of the financial position of the Remaining Group would have been if the Possible Disposal had been completed on 31 July 2019 or at any future date, or the financial performance or cash flows of the Remaining Group for the year ended 31 July 2019 or for any future period would have been if the Possible Disposal had been completed on 1 August 2018.


– III-2 –

1. Unaudited pro forma consolidated statement of financial position of the Remaining Group as at 31 July 2019

The Remaining The Group Pro forma adjustments Group

Reinstatement of intragroup Derecognition of balances and As at Lai Fung Group’s reversal of Total As at 31 July assets and Possible Disposal intragroup pro forma 31 July 2019 liabilities adjustment transactions adjustments 2019 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2a Note 3a Note 5

NON-CURRENT ASSETS Property, plant and equipment 4,931,149 (4,553,875) — — (4,553,875) 377,274 Properties under development 713,590 (713,590) — — (713,590) — Investment properties 20,424,800 (20,424,800) — — (20,424,800) — Film rights 24,608 — — — — 24,608 Film products 75,022 — — — — 75,022 Music catalogs 15,629 — — — — 15,629 Goodwill 82,440 — — — — 82,440 Investments in joint ventures 22,993 (1,317) — — (1,317) 21,676 Investments in associates 5,804 (5,804) 557,250 — 551,446 557,250 Financial assets at fair value through profit or loss 75,815 — — — — 75,815 Deposits, prepayments and other receivables 96,237 — — 1,337 1,337 97,574 Deferred tax assets 9,108 — — — — 9,108 Derivative financial instruments 20,581 (20,581) — — (20,581) —

Total non-current assets 26,497,776 1,336,396

CURRENT ASSETS Properties under development 1,815,822 (1,815,822) — — (1,815,822) — Completed properties for sale 966,132 (966,132) — — (966,132) — Films under production and film investments 417,242 — — — — 417,242 Inventories 19,031 (5,012) — — (5,012) 14,019 Debtors 232,507 (110,982) — — (110,982) 121,525 Financial assets at fair value through profit or loss 144,936 — — — — 144,936 Deposits, prepayments and other receivables 637,799 (443,915) — — (443,915) 193,884 Prepaid tax 42,031 (42,031) — — (42,031) — Pledged and restricted time deposits and bank balances 1,173,895 (1,173,775) — — (1,173,775) 120 Cash and cash equivalents 2,598,020 (1,923,484) 1,487,714 — (435,770) 2,162,250 Loans to an associate — — 316,259 — 316,259 316,259

8,047,415 3,370,235Assets classified as held for sale 68,186 (68,186) — — (68,186) —

Total current assets 8,115,601 3,370,235


– III-3 –


Reinstatement of intragroup Derecognition of balances and As at Lai Fung Group’s reversal of Total As at 31 July assets and Possible Disposal intragroup pro forma 31 July 2019 liabilities adjustment transactions adjustments 2019 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2a Note 3a Note 5

CURRENT LIABILITIES Creditors and accruals 2,577,378 (2,062,621) — — (2,062,621) 514,757 Deposits received, deferred income and contract liabilities 875,415 (540,744) — — (540,744) 334,671 Tax payable 170,344 (155,643) — — (155,643) 14,701 Interest-bearing bank loans 535,980 (433,536) — — (433,536) 102,444 Other borrowings 41,440 (41,440) — — (41,440) — Loans from a fellow subsidiary 900,000 — — — — 900,000 Amount due to Remaining Group in Rosy Commerce (defined in note 3a(ii)) — (316,259) 316,259 — — —

Total current liabilities 5,100,557 1,866,573

NET CURRENT ASSETS 3,015,044 1,503,662

TOTAL ASSETS LESS CURRENT LIABILITIES 29,512,820 2,840,058

NON-CURRENT LIABILITIES Long-term deposits received 147,876 (149,213) — 1,337 (147,876) — Interest-bearing bank loans 5,554,150 (5,554,150) — — (5,554,150) — Other borrowings 262,894 (53,006) — — (53,006) 209,888 Guaranteed notes 2,720,857 (2,720,857) — — (2,720,857) — Loans from a fellow subsidiary 50,000 — — — — 50,000 Deferred tax liabilities 3,351,747 (3,351,742) — — (3,351,742) 5

Total non-current liabilities 12,087,524 259,893

NET ASSETS 17,425,296 2,580,165

EQUITYEquity attributable to owners of the Company Issued capital 745,927 — — — — 745,927 Reserves 8,352,694 — (6,561,714) — (6,561,714) 1,790,980

9,098,621 2,536,907

Non-controlling interests 8,326,675 (8,283,417) — — (8,283,417) 43,258

Total equity 17,425,296 2,580,165


– III-4 –

2. Unaudited pro forma consolidated income statement of the Remaining Group for the year ended 31 July 2019


Share of profit and other comprehensive loss of associates For the year Exclusion of the Estimated loss for the year Reversal of Total For the year ended 31 July results of the in respect of the ended 31 July intragroup pro forma ended 31 July 2019 Lai Fung Group Possible Disposal 2019 transactions adjustments 2019 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2b Note 3b Note 4 Note 5

TURNOVER 2,903,362 (1,461,249) — — 8,666 (1,452,583) 1,450,779

Cost of sales (1,528,418) 557,084 — — (19) 557,065 (971,353)

Gross profit 1,374,944 479,426

Other revenue 100,932 (59,182) — — 216 (58,966) 41,966Selling and marketing expenses (91,837) 60,469 — — (33) 60,436 (31,401)Administrative expenses (588,348) 243,007 — — (1,821) 241,186 (347,162)Other operating expenses, net (490,865) 58,703 — — (7,009) 51,694 (439,171)Loss on disposal of Lai Fung Group — — (7,612,977) — — (7,612,977) (7,612,977)Fair value gains on investment properties 211,500 (211,500) — — — (211,500) —

PROFIT/(LOSS) FROM OPERATING ACTIVITIES 516,326 (7,909,319)

Finance costs (160,617) 106,974 — — — 106,974 (53,643)Share of profits and losses of joint ventures (25,424) 22,002 — — — 22,002 (3,422)Share of profits and losses of associates 787 40 — 69,137 — 69,177 69,964

PROFIT/(LOSS) BEFORE TAX 331,072 (7,896,420)

Income tax expense (312,967) 309,890 — — — 309,890 (3,077)

PROFIT/(LOSS) FOR THE YEAR 18,105 (7,899,497)

Attributable to: Owners of the Company (77,645) (224,182) (7,612,977) 69,137 — (7,768,022) (7,845,667) Non-controlling interests 95,750 (149,580) — — — (149,580) (53,830)

18,105 (7,899,497)


– III-5 –

3. Unaudited pro forma consolidated statement of comprehensive income of the Remaining Group for the year ended 31 July 2019


Share of profit and other comprehensive loss of associates For the year Exclusion of the Estimated loss for the year Reversal of Total For the year ended 31 July results of the in respect of the ended 31 July intragroup pro forma ended 31 July 2019 Lai Fung Group Possible Disposal 2019 transactions adjustments 2019 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2b Note 3b Note 4 Note 5

PROFIT/(LOSS) FOR THE YEAR 18,105 (373,762) (7,612,977) 69,137 — (7,917,602) (7,899,497)

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX

Items that may be subsequently reclassified to the income statement: Exchange realignment on translation of foreign operations (277,434) 276,860 — — — 276,860 (574) Share of other comprehensive income/(loss) of joint ventures 10,912 (10,622) — — — (10,622) 290 Share of other comprehensive loss of associates (20) 20 — (8,829) — (8,809) (8,829) Release of exchange reserve upon winding-up and disposal of subsidiaries (10,636) 10,621 880,063 — — 890,684 880,048

OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR, NET OF TAX (277,178) 870,935

TOTAL COMPREHENSIVE LOSS FOR THE YEAR (259,073) (7,028,562)

Attributable to: Owners of the Company (222,600) (80,252) (6,732,914) 60,308 — (6,752,858) (6,975,458) Non-controlling interests (36,473) (16,631) — — — (16,631) (53,104)

(259,073) (7,028,562)


– III-6 –

4. Unaudited pro forma consolidated statement of cash flows of the Remaining Group for the year ended 31 July 2019


Share of profit of Estimated loss associates Reinstatement of For the year Exclusion of and net proceeds for the year intragroup Total For the year ended 31 July cash flows of in respect of the ended 31 July balances pro forma ended 31 July 2019 Lai Fung Group Possible Disposal 2019 and transactions adjustments 2019 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2b Note 3b Note 4 Note 5

CASH FLOWS FROM OPERATING ACTIVITIESProfit/(loss) before tax 331,072 (683,652) (7,612,977) 69,137 — (8,227,492) (7,896,420)Adjustments for: Fair value gains on investment properties (211,500) 211,500 — — — 211,500 — Fair value gains on cross currency swaps (18,050) 18,050 — — — 18,050 — Fair value losses on financial assets at fair value through profit or loss 12,758 — — — — — 12,758 Finance costs 160,617 (106,974) — — — (106,974) 53,643 Share of profits and losses of joint ventures 25,424 (22,002) — — — (22,002) 3,422 Share of profits and losses of associates (787) (40) — (69,137) — (69,177) (69,964) Interest income (29,586) 25,690 — — — 25,690 (3,896) Loss on disposal of items of property, plant and equipment 817 (765) — — — (765) 52 Gain on disposal of subsidiaries (4,720) — — — — — (4,720) Loss on disposal of subsidiaries — — 7,612,977 — — 7,612,977 7,612,977 Gain on disposal of an associate (19,705) — — — — — (19,705) Depreciation 164,807 (93,672) — — — (93,672) 71,135 Amortisation of film rights 6,357 — — — — — 6,357 Amortisation of film products 69,019 — — — — — 69,019 Amortisation of music catalogs 2,870 — — — — — 2,870 Amortisation of other intangible assets 586 — — — — — 586 Write-off of items of property, plant and equipment 653 — — — — — 653 Impairment of property, plant and equipment 40,850 — — — — — 40,850 Impairment of films under production 64,310 — — — — — 64,310 Write-back of impairment of music catalogs (8,842) — — — — — (8,842) Write-back of impairment of film rights (18,000) — — — — — (18,000) Impairment of debtors 693 — — — — — 693 Impairment of advances and other receivables 22,209 — — — — — 22,209 Write-back of impairment of advances and other receivables (567) — — — — — (567) Impairment of amounts due from joint ventures 1,763 — — — — — 1,763 Impairment of inventories 2,480 — — — — — 2,480 Equity-settled share option expenses 2,322 (2,322) — — — (2,322) — Foreign exchange differences, net 5,812 4,731 — — — 4,731 10,543

603,662 (45,794)


– III-7 –



Increase in properties under development (703,012) 703,012 — — — 703,012 —Decrease in completed properties for sale 256,700 (256,700) — — — (256,700) —Decrease in inventories 363 5,012 — — — 5,012 5,375Additions of films under production and film investments (245,585) — — — — — (245,585)Additions of film products, net (2) — — — — — (2)Decrease in film products 150,913 — — — — — 150,913Additions of film rights (1,760) — — — — — (1,760)Increase in debtors (51,601) 17,301 — — — 17,301 (34,300)Increase in deposits, prepayments and other receivables (213,803) 155,196 — — (1,337) 153,859 (59,944)Increase in long-term deposits received 4,996 (4,996) — — 1,337 (3,659) 1,337Increase in creditors and accruals 151,693 (120,231) — — — (120,231) 31,462Increase in deposits received, deferred income and contract liabilities 216,928 (170,613) — — — (170,613) 46,315

Cash generated from/(used in) operations 169,492 (151,983)

Hong Kong profits tax paid, net (872) — — — — — (872)Mainland China taxes paid, net (197,496) 194,122 — — — 194,122 (3,374)

Net cash flows used in operating activities (28,876) (156,229)

CASH FLOWS FROM INVESTING ACTIVITIESInterest received 29,586 (25,690) — — — (25,690) 3,896Additions of investment properties (1,621,322) 1,621,322 — — — 1,621,322 —Dividend income from joint ventures 1,604,755 (1,603,755) — — — (1,603,755) 1,000Dividend income from an associate 3,300 — — — — — 3,300Dividend income from Lai Fung — — — — 33,097 33,097 33,097Proceeds from disposal of items of property, plant and equipment 56 — — — — — 56Purchases of items of property, plant and equipment (1,232,875) 1,155,337 — — — 1,155,337 (77,538)Capital contributions to joint ventures (2,500) — — — — — (2,500)Advances to joint ventures (8,026) — — — — — (8,026)Advances to associates (68) — — — (117,860) (117,860) (117,928)Repayment from joint ventures 217,013 (216,905) — — — (216,905) 108Repayment from associates 4,353 — — — 48,187 48,187 52,540Disposal of an associate 23,800 — — — — — 23,800Disposal of subsidiaries (5,372) — 123,429 — — 123,429 118,057Refund of partial capital of financial assets at fair value through profit or loss 492 — — — — — 492Purchase of financial assets at fair value through profit or loss (9,426) — — — — — (9,426)Increase in pledged and restricted time deposits and bank balances (100,133) 100,133 — — — 100,133 —Increase in non-pledged and non-restricted time deposits with original maturity of more than three months when acquired (39,309) 39,309 — — — 39,309 —

Net cash flows generated from/(used in) investing activities (1,135,676) 20,928


– III-8 –



CASH FLOWS FROM FINANCING ACTIVITIESNew bank loans, net of direct costs 4,410,207 (4,396,807) — — — (4,396,807) 13,400Repayment of bank loans (2,236,895) 2,177,895 — — — 2,177,895 (59,000)Loans from a joint venture 462,834 (462,834) — — — (462,834) —Loans from a fellow subsidiary 300,000 — — — — — 300,000Loans from Remaining Group to Rosy Commerce — (117,860) — — 117,860 — —Repayments of loans from a joint venture (1,095,915) 1,095,915 — — — 1,095,915 —Repayments of loans from Remaining Group to Rosy Commerce — 48,187 — — (48,187) — —Increase in other borrowings 41,560 (41,560) — — — (41,560) —Increase in put option liabilities 280,532 (280,532) — — — (280,532) —Interest and bank financing charges paid (430,153) 425,089 — — — 425,089 (5,064)Interest paid to a fellow subsidiary (40,940) — — — — — (40,940)Capital contributions from non-controlling shareholders of a subsidiary 858 — — — — — 858Acquisition of additional interests in subsidiaries (37,500) — — — — — (37,500)Dividend paid to non-controlling shareholders of subsidiaries (29,087) 29,087 — — — 29,087 —Dividend income from Lai Fung Group — 33,097 — — (33,097) — —

Net cash flows generated from financing activities 1,625,501 171,754

NET INCREASE IN CASH AND CASH EQUIVALENTS 460,949 36,453

Cash and cash equivalents at beginning of year 2,136,039 — — — — — 2,136,039Effect of foreign exchange rate changes, net (38,277) 28,035 — — — 28,035 (10,242)

CASH AND CASH EQUIVALENTS AT END OF YEAR 2,558,711 2,162,250

Cash and cash equivalents as stated in the unaudited pro forma consolidated statement of financial position 2,598,020 (1,923,484) 1,487,714 — — (435,770) 2,162,250

Non-pledged and non-restricted time deposits with original maturity of more than three months when acquired (39,309) 39,309 — — — 39,309 —

Cash and cash equivalents as stated in the unaudited pro forma consolidated statement of cash flows 2,558,711 2,162,250


– III-9 –

Notes to the Pro Forma Financial Information of the Remaining Group

(1) The financial information of the Group is extracted from the audited consolidated statement of financial position as at 31 July 2019 and the audited consolidated income statement, the audited consolidated statement of comprehensive income and the audited consolidated statement of cash flows for the year ended 31 July 2019, as set out in the Company’s published annual report for the year ended 31 July 2019.

(2a) The adjustment represents the derecognition of assets and liabilities of the Lai Fung Group and the derecognition of non-controlling interest on these assets and liabilities as at 31 July 2019, after the fair value adjustments, assuming the Possible Disposal had taken place on 31 July 2019. The financial information of the Lai Fung Group is set out in Appendix II to this circular.

(2b) The adjustment represents the exclusion of the financial performance and the cash flows of the Lai Fung Group for the year ended 31 July 2019, after the fair value adjustments, assuming the Possible Disposal had taken place on 1 August 2018.

(3a) The calculation of the estimated loss on the Possible Disposal as if the Possible Disposal had been completed on 31 July 2019 is as follows:

Notes HK$’000

Estimated gross proceeds (i) 1,487,714Less: Carrying amount of net assets of Lai Fung Group after fair value adjustments attributable to the owners of the Company as at 31 July 2019 (8,606,678)Less: Release of exchange reserve deficit of Lai Fung Group attributable to the owners of the Company (1,006,337)Add: Recognition of investments in associates (ii) 557,250

Estimated loss on the Possible Disposal (7,568,051)

Notes:

(i) For the purpose of this unaudited pro forma consolidated statement of financial position as if the Possible Disposal had taken place on 31 July 2019, the number of LF Shares to be disposed of by the Group being used in the calculation of the estimated gross proceeds is 165,485,406 (i.e. the number of LF Shares held by the Group on 31 July 2019). As at the Latest Practicable Date, the Group held 168,792,467 LF Shares. Therefore, the actual gross proceeds and the actual loss as a result of the Possible Disposal to be recorded by the Group may be different from the amounts mentioned above.


– III-10 –

(ii) Subsequent to 31 July 2019, the Group disposed of 20% equity interest in Rosy Commerce Holdings Limited (“Rosy Commerce”, together with its subsidiaries, “Rosy Commerce Group”) to LSD in September 2019. However, for the purpose of this unaudited pro forma consolidated statement of financial position as if the Possible Disposal had taken place on 31 July 2019, the fair value of the 20% equity interest in Rosy Commerce Group of approximately HK$557,250,000 is reflected as “Investments in associates” being held by the Group. The 80% equity interest in Rosy Commerce Group held by Lai Fung was indirectly disposed of in the Possible Disposal. The fair value of the 20% equity interests in Rosy Commerce Group is made with reference to the recent transaction, i.e. the consideration for the sale of the 20% equity interest in the Rosy Commerce Group under the sale and purchase agreement dated 23 July 2019 entered into between Sunny Horizon Investments Limited (a wholly-owned subsidiary of the Company) and LSD. Details can be referred to the circular of the Company dated 30 August 2019.

In addition, the loans from the Remaining Group to Rosy Commerce Group of approximately HK$316,259,000 which has been previously eliminated at the Group level is now reinstated.

(3b) The calculation of the estimated loss on the Possible Disposal as if the Possible Disposal had been completed on 1 August 2018 is as follows:

Notes HK$’000

Estimated gross proceeds (i) 1,487,714Less: Carrying amount of net assets of Lai Fung Group after fair value adjustments attributable to the owners of the Company as at 31 July 2018 (8,567,781)Less: Release of exchange reserve deficit of Lai Fung Group attributable to the owners of the Company (880,063)Add: Recognition of investments in associates (ii) 347,153

Estimated loss on the Possible Disposal (7,612,977)

Net cash inflow arising on the Possible Disposal:

Estimated gross proceeds (i) 1,487,714Less: Cash and cash equivalents of Lai Fung Group as at 1 August 2018 (1,364,285)

123,429

Notes:

(i) For the purpose of this unaudited pro forma consolidated income statement, unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows as if the Possible Disposal had taken place on 1 August 2018, the number of LF Shares to be disposed of by the Group being used in the calculation of the estimated gross proceeds is 165,485,406 (i.e. the number of LF Shares held by the Group on 1 August 2018). As at the Latest Practicable Date, the Group held 168,792,467 LF Shares. Therefore, the actual gross proceeds and the actual loss as a result of the Possible Disposal to be recorded by the Group may be different from the amounts mentioned above.


– III-11 –

(ii) For the calculation of the impact of the Possible Disposal as if the Possible Disposal had taken place on 1 August 2018, the fair value of the 20% equity interest in the Rosy Commerce Group of approximately HK$347,153,000 is reflected as “Investments in associates” being held by the Group. The 80% equity interest in Rosy Commerce Group held by Lai Fung was indirectly disposed of in the Possible Disposal. The fair value of 20% equity interests in Rosy Commerce Group was estimated based on the fair value of the identifiable assets and liabilities of the Rosy Commerce Group of approximately HK$6,987,800,000 and HK$5,252,035,000, respectively, as at 1 August 2018. The identifiable assets of the Rosy Commerce Group as at 1 August 2018 mainly included investment properties under construction, properties under development, construction in progress and current assets. The fair value of investment properties under construction, properties under development and certain construction in progress of approximately HK$5,528,000,000 was estimated by the independent professional valuer, Knight Frank Petty Limited. The corresponding deferred tax impact arising from the difference between fair value and book value of approximately HK$1,367,805,000 was also taken into account. For the remaining identifiable assets and liabilities of approximately HK$1,459,800,000 and HK$3,884,230,000, respectively, their carrying amounts as at 1 August 2018 were considered as their fair values.

(4) The adjustment represents the share of profits and other comprehensive loss of the associates (i.e. the 20% equity interest in Rosy Commerce) for the year ended 31 July 2019, as if the Possible Disposal had taken place on 1 August 2018.

(5) The adjustment represents the reinstatement of intra-group balances, which have been eliminated at the Group level, and the reversal of the elimination of intra-group transactions between the Lai Fung Group and the Remaining Group when preparing the unaudited pro forma financial information of the Remaining Group.

(6) No adjustment has been made to reflect the transaction costs of the Possible Disposal since the Directors considered that the amount involved will not be significant to the loss on the Possible Disposal. The total transaction costs, including legal, accounting and other professional parties are estimated to be approximately HK$7 million.

(7) Apart from the Possible Disposal, no other adjustments have been made to the unaudited pro forma financial information of the Remaining Group to reflect any trading results or other transactions of the Group, including but not limited to the effect of the major disposal and connected transaction involving the disposal of 20% equity interest in Rosy Commerce to LSD as set out in the circular of the Company dated 30 August 2019, entered into subsequent to 31 July 2019.

(8) The pro forma adjustments in the unaudited pro forma financial information of the Remaining Group are not expected to have a continuing effect on the Remaining Group.


– III-12 –

The following is the text of a report, prepared for the sole purpose of inclusion in this circular from the independent reporting accountant, Ernst & Young, Certified Public Accountants.

B. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION

22/F, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong

To the Directors of eSun Holdings Limited

We have completed our assurance engagement to report on the compilation of pro forma financial information of eSun 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 pro forma financial information (the “Pro Forma Financial Information”) consists of the unaudited pro forma consolidated statement of financial position as at 31 July 2019, and the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income, and the unaudited pro forma consolidated statement of cash flows for the year ended 31 July 2019, and related notes as set out in Appendix III of the circular dated 24 April 2020 issued by the Company (the “Circular”). The applicable criteria on the basis of which the Directors have compiled the Pro Forma Financial Information are described in Appendix III of the Circular.

The Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the possible disposal of 50.99% shareholding interest in Lai Fung Holdings Limited (“Lai Fung”) pursuant to the potential acceptance of the conditional voluntary general cash offer by The Hongkong Shanghai Banking Corporation Limited on behalf of Holy Unicorn Limited to acquire all of the issued shares of Lai Fung (the “Possible Disposal”) on the Group’s financial position as at 31 July 2019 as if the Possible Disposal had taken place at 31 July 2019, and the Group’s financial performance and cash flows for the year ended 31 July 2019 as if the Possible Disposal had taken place at 1 August 2018. As part of this process, information about the Group’s financial position, financial performance and cash flows has been extracted by the Directors from the Group’s financial statements for the year ended 31 July 2019, on which an annual report has been published.

Directors’ responsibility for the Pro Forma Financial Information

The Directors are responsible for compiling the 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 (“AG”) 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).


– III-13 –

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 behaviour.

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, 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 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 Pro Forma Financial Information beyond that owed 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 Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For 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 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 Pro Forma Financial Information.

The purpose of the Pro Forma Financial Information included in the Circular is solely to illustrate the impact of the Possible Disposal on unadjusted financial information of the Group as if the Possible Disposal 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 Possible Disposal would have been as presented.

A reasonable assurance engagement to report on whether the 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 Directors in the compilation of the Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the Possible Disposal, and to obtain sufficient appropriate evidence about whether:


– III-14 –

• the related pro forma adjustments give appropriate effect to those criteria; and

• the 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 Possible Disposal in respect of which the Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Pro Forma Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

(a) the Pro Forma Financial Information has been properly compiled on the basis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purpose of the Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & YoungCertified Public AccountantsHong Kong

24 April 2020

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

– IV-1 –

Upon Completion, the Company will no longer hold any interest in Lai Fung. Lai Fung will cease to be an indirect non-wholly-owned subsidiary of the Company and the financial results of Lai Fung will no longer be consolidated into the financial statements of the Company with effect from the date of Completion. Set out below is the management discussion and analyses of the Remaining Group for the years ended 31 July 2017, 2018 and 2019 and for the six months ended 31 January 2020.

FOR THE yEAR ENDED 31 JULy 2017

Media and Entertainment

For the year ended 31 July 2017, this segment recorded a turnover of HK$448.4 million and segment results increased from a profit of HK$16.5 million to a profit of HK$25.5 million.

Live Entertainment

The Remaining Group remains highly active on the live entertainment front. During the year ended 31 July 2017, the Remaining Group organised and invested in 168 shows by popular local, Asian and internationally renowned artistes, including Chan Po Chu and Mui Suet See, Sammi Cheng, Ivana Wong and Hins Cheung, Grasshopper, EXO, MayDay, Rene Liu, Tsai Chin, Ronald Cheng, Della, Yoga Lin and Lee Teuk@Super Junior.


For the year ended 31 July 2017, the Remaining Group released 30 albums, including titles by Sammi Cheng, Ivana Wong, C AllStar, Jan Lamb, Tang Siu Hau and Leslie Cheung. The Remaining Group is expected to continue to increase its music licensing revenue from the exploitation of the music library through new media distribution.

Artiste Management

The Remaining Group has a strong artiste management team and a sizeable number of talents and will continue to expand its profile and in tandem with our growing television drama production and film production business. The Remaining Group is actively looking for new talent in Mainland China and further co-operation with Asian artistes.

Film and TV Programme Production and Distribution

For the year ended 31 July 2017, this segment recorded a turnover of HK$418.5 million and segment results of a loss of HK$126.2 million. During the year ended 31 July 2017, the Remaining Group released a total of 6 films, namely Line Walker, Love Off The Cuff, Wine War, God of War, The House That Never Dies II and The Founding of An Army and distributed 31 films and 488 videos with high profile titles including Doraemon: New Nobita and the Birth of Japan, John Wick: Chapter Two, Ghost In The Shell, Baywatch, xXx: Reactivated, Captain America: Civil War and Beauty & The Beast (2017).


– IV-2 –

Cinema Operation

For the year ended 31 July 2017, this segment recorded a turnover of HK$419.3 million. As at 31 July 2017, the Remaining Group operates four cinemas in Mainland China and eight cinemas in Hong Kong as well as one joint venture cinema in Hong Kong. Our new cinema, MCL Green Code Cinema in Fanling, Hong Kong was opened on 21 January 2017. The Grand Kornhill Cinema in Kornhill Plaza, Hong Kong was re-opened on 1 April 2017 after renovation and is the first cinema in Hong Kong installed with a MX4D theatre providing the most advanced 4D movie experience. The MCL Telford Cinema has just completed its renovation in mid October 2017, with the success of the MX4D theatre in Grand Kornhill Cinema, MCL Telford Cinema has also installed with a MX4D theatre. The Remaining Group also secured one cinema project in Suzhou of Mainland China, which is expected to commence business in the financial year ended 31 July 2018. The cinema operation provides a complementary distribution channel for the Remaining Group’s film production and distribution businesses.

Details on the number of screens and seats of each cinema as at 19 October 2017 are as follows:

Attributable interest to the No. of No. ofCinema Remaining Group screens seats (%) (Note) (Note)

Mainland ChinaGuangzhou May Flower Cinema City 100 7 606Zhongshan May Flower Cinema City 100 5 905MCL Cinema City in Shekou 85 5 629MCL Cinema City in Luohu 85 5 529

Subtotal 22 2,669

Hong KongFestival Grand Cinema 85 8 1,196MCL Metro City Cinema 85 7 957MCL Telford Cinema (including MX4D theatre) 85 6 789STAR Cinema 85 6 622Grand Kornhill Cinema (including MX4D theatre) 85 5 706MCL South Horizons Cinema 85 3 555MCL Green Code Cinema 85 3 285Grand Windsor Cinema 85 3 246The Grand Cinema 25.5 12 1,566

Subtotal 53 6,922

Total 75 9,591

Note: On 100% basis


– IV-3 –

LIQUIDITY, FINANCIAL RESOURCES, CHARGE ON ASSETS AND GEARING

Cash and Bank Balances

As at 31 July 2017, cash and bank balances held by the Remaining Group amounted to HK$676.2 million of which around 45.2% was denominated in HKD and USD currencies, and around 53.4% was denominated in RMB. Cash and bank balances held by the Remaining Group excluding cash and bank balances held by MAGHL as at 31 July 2017 was HK$273.8 million. As HKD is pegged to USD, the Remaining Group considers that the corresponding exposure to USD exchange rate fluctuation is nominal. The conversion of RMB denominated cash and bank balances into foreign currencies and the remittance of such foreign currencies denominated balances out of Mainland China are subject to the relevant rules and regulations of foreign exchanges control promulgated by the government authorities concerned. The Remaining Group does not have any derivative financial instruments or hedging instruments outstanding.

Borrowings

As at 31 July 2017, the Remaining Group had outstanding consolidated total borrowings (after intra-group elimination) in the amount of HK$652.2 million. The borrowings of the Remaining Group (other than MAGHL) and MAGHL, are as follows:

The Remaining Group (other than MAGHL)

As at 31 July 2017, the Remaining Group had bank loans of HK$271.4 million. The maturity profile of the Remaining Group’s bank loans is spread with HK$179.4 million repayable within one year, HK$34.8 million repayable in the second year and HK$57.2 million repayable in the third years. All bank loans are on floating rate basis and are denominated in HKD.

In addition, there existed unsecured other borrowings due to the late Mr. Lim Por Yen in the principal amount of HK$113.0 million which is interest-bearing at the HSBC prime rate per annum. The Remaining Group’s recorded interest accruals were HK$85.5 million for the said unsecured other borrowings as at 31 July 2017. At the request of the Remaining Group, the executor of Mr. Lim Por Yen’s estate confirmed that no demand for the repayment of the outstanding other borrowings or the related interest would be made within one year from 31 July 2017.


– IV-4 –

MAGHL

As at 31 July 2017, MAGHL has unsecured and unguaranteed 3-year zero coupon TFN Convertible Notes with an aggregate outstanding principal amount of approximately HK$130.0 million issued to a subscriber. As at 31 July 2017, MAGHL has unsecured and unguaranteed 3-year zero coupon Specific Mandate Convertible Notes with an aggregate outstanding principal amount of HK$166.8 million, comprising approximately HK$100.0 million and approximately HK$66.8 million issued to the Remaining Group and other subscribers, respectively. Unless previously converted, redeemed, purchased or cancelled in accordance with the terms and conditions of the TFN Convertible Notes and the Specific Mandate Convertible Notes, they will be redeemed by MAGHL on the maturity dates of 13 May 2018 and 3 July 2018, respectively, at the principal amount outstanding. For accounting purpose, after deducting the equity portion of the convertible notes from the principal amount, the carrying amount of the TFN Convertible Notes as recorded in the Remaining Group was HK$121.1 million and the resultant carrying amount of the Specific Mandate Convertible Notes as recorded in the Remaining Group was HK$61.2 million as at 31 July 2017 after adjusting for (i) accrued interest and (ii) intra-group elimination.

Charge on Assets and Gearing

Bank balances of the Remaining Group of approximately HK$0.1 million have been pledged to secure a banking facility of the Remaining Group.

In addition, as at 31 July 2017, a revolving loan facility in the amount of HK$600.0 million was granted by a bank to the Remaining Group. The said loan facility is secured by the charge over securities accounts and share mortgage of the ordinary shares of Lai Fung and certain ordinary shares of MAGHL held by the Remaining Group (other than Lai Fung and MAGHL). The Remaining Group has utilised the said loan facility for an amount of HK$150.0 million as at 31 July 2017. As at 31 July 2017, guaranteed general banking facilities in the amount of HK$214.0 million were granted by certain banks to the Remaining Group. The said guaranteed general banking facilities (other than a term loan) are subject to annual review by the banks for renewal and the Remaining Group had utilised letter of credit and letter of guarantee facilities, term loan and revolving loans for a total amount of HK$130.6 million as at 31 July 2017. As such, the Remaining Group has the undrawn facilities of HK$533.4 million as at 31 July 2017.

As at 31 July 2017, the consolidated net assets attributable to the owners of the Remaining Group amounted to HK$1,015.4 million. Taking into account the amount of cash being held as at the end of the reporting period, the available banking facilities, expected refinancing of certain bank loans and the recurring cash flows from the Remaining Group’s operating activities, the Remaining Group believes that it would have sufficient liquidity for its present requirements to finance its existing operations and projects underway.


– IV-5 –

CONTINGENT LIABILITIES

As at 31 July 2017, the Remaining Group provided corporate guarantee to certain banks in connection with 20% of the banking facilities granted to the Rosy Commerce Holdings Limited and its subsidiaries (“Rosy Commerce Group”) in proportion to 20% interest directly held by the Remaining Group. The Remaining Group’s share of such banking facilities utilised by the Rosy Commerce Group amounted to approximately HK$177.6 million as at 31 July 2017.

The Remaining Group had provided corporate guarantees to certain banks in connection with the banking facilities granted to certain subsidiaries and the respective letter of credit and letter of guarantee facilities of approximately HK$6.6 million were utilised as at 31 July 2017.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 July 2017, the Remaining Group employed a total of around 720 employees. The Remaining Group recognises the importance of maintaining a stable staff force in its continued success. Under the Remaining Group’s existing policies, employee pay rates are maintained at competitive levels whilst promotion and salary increments are assessed on a performance-related basis. Discretionary bonuses are granted to employees based on their merit and in accordance with industry practice. Other benefits including share option scheme, mandatory provident fund scheme, free hospitalisation insurance plan, subsidised medical care and sponsorship for external education and training programmes are offered to eligible employees.


BUSINESS OVERVIEW


For the year ended 31 July 2018, this segment recorded a turnover of HK$428.2 million and segment results decreased to HK$21.8 million from that of HK$25.5 million for the year ended 31 July 2017.

Live Entertainment

The Remaining Group remains highly active on the live entertainment front. During the year ended 31 July 2018, the Remaining Group organised and invested in 138 shows by popular local, Asian and internationally renowned artistes, including Miriam Yeung, Grasshopper, C AllStar, at17, Ivana Wong and Hins Cheung, Liza Wang, Vivian Chow, Wanna One, MayDay and Rene Liu.


– IV-6 –


For the year ended 31 July 2018, the Remaining Group released 53 albums, including titles by Sammi Cheng, Miriam Yeung, William So, C AllStar, Tang Siu Hau, at17, Cherry Ngan and Michael Lai. The Remaining Group is expected to continue to increase its music licensing revenue from the exploitation of the music library through new media distribution.

Artiste Management

The Remaining Group has a strong artiste management team and a sizeable number of talents and will continue to expand its profile and in tandem with our growing television drama production and film production business.


For the year ended 31 July 2018, this segment recorded a turnover of HK$342.7 million and segment results of a loss of HK$258.7 million.

During the year ended 31 July 2018, the Remaining Group released a total of 5 films, including Legend of the Naga Pearls, The Adventurers, Manhunt and Girls vs Gangsters and distributed 39 films and 480 videos with high profile titles including Memoirs of a Murderer, The Post, Uncle Drew, Black Panther, Coco, Thor: Ragnarok and Star Wars: The Last Jedi.

Cinema Operation

For the year ended 31 July 2018, this segment recorded a turnover of HK$409.0 million. As at 31 July 2018, the Remaining Group operates nine cinemas in Hong Kong and three cinemas in Mainland China as well as one joint venture cinema in Hong Kong. The MCL Telford Cinema in Kowloon Bay, Hong Kong was re-opened in December 2017 after renovation with advanced cinema technology and the introduction of House FX Theater and MX4D Motion Theater. During the year ended 31 July 2018, the Remaining Group opened two new cinemas, one in Shatin, Hong Kong and the other one in Suzhou, Mainland China. The cinema in New Town Plaza in Shatin, Hong Kong named “Movie Town” is the largest cinema in the New Territories with more than 1,700 seats in seven houses and introduced the latest revolutionary cinema technologies to the town including the HK-first Samsung “Onyx Cinema LED” and RealD Cinema, plus the HK-exclusive MX4D motion theatre and House FX. The Remaining Group has chosen Ufun Suzhou Shopping Mall to establish its first “GRAND Cinema” flagship site in Mainland China. The Grand Cinema City in Suzhou has ten houses which are all equipped with 3D digital projection and Dolby Surround sound systems, providing a total of 1,440 seats. Two of the houses are in China Giant Screen formats, each also with the most advanced Dolby Atmos sound system, giant screen of 18.6m wide and 10.5m tall and dual-digital projection systems. The Remaining Group also secured one cinema project in Hong Kong, which is expected to commence business in the financial year ending 31 July 2019. The cinema operation provides a complementary distribution channel for the Remaining Group’s film production and distribution businesses.


– IV-7 –

Details on the number of screens and seats of each cinema as at 31 July 2018 are as follows:

Attributable interest to the No. of No. ofCinema Remaining Group screens seats (%) (Note 1) (Note 1)

Mainland ChinaSuzhou Grand Cinema City 100 10 1,440Guangzhou May Flower Cinema City 100 7 606Zhongshan May Flower Cinema City 100 5 905

Subtotal 22 2,951

Hong KongMovie Town (including MX4D theatre) 100 7 1,702Festival Grand Cinema 85 8 1,196MCL Metro City Cinema (Note 2) 85 7 957MCL Telford Cinema (including MX4D theatre) 85 6 789STAR Cinema 85 6 622Grand Kornhill Cinema (including MX4D theatre) 85 5 706MCL South Horizons Cinema 85 3 555MCL Green Code Cinema 85 3 285Grand Windsor Cinema 85 3 246The Grand Cinema 25.5 12 1,566

Subtotal 60 8,624

Total 82 11,575

Notes:

1. On 100% basis



– IV-8 –




Borrowings

As at 31 July 2018, the Remaining Group had outstanding consolidated total borrowings (after intra-group elimination) in the amount of HK$1,001.9 million. The borrowings of the Remaining Group (other than MAGHL) and MAGHL, are as follows:


As at 31 July 2018, the Remaining Group had guaranteed general banking facilities granted by certain banks. As at 31 July 2018, the Remaining Group had outstanding bank loans of HK$147.8 million and utilised letter of credit and letter of guarantee facilities of HK$5.9 million. All bank loans are repayable within one year and are on floating rate basis and are denominated in HKD.

Apart from the bank loans, the Remaining Group had an outstanding loan of HK$450.0 million from Hibright Limited (“Hibright”), which is a wholly-owned subsidiary of LSD. The loan is on floating rate basis, denominated in HKD and is repayable in the second year. The Remaining Group has the undrawn facilities of HK$302.8 million as at 31 July 2018. In addition, there existed unsecured other borrowings due to the late Mr. Lim Por Yen in the principal amount of HK$113.0 million which is interest-bearing at the HSBC prime rate per annum. The Remaining Group’s recorded interest accruals were HK$91.1 million for the said unsecured other borrowings as at 31 July 2018. At the request of the Remaining Group, the executor of Mr. Lim Por Yen’s estate confirmed that no demand for the repayment of the outstanding other borrowings or the related interest would be made within one year from 31 July 2018.


– IV-9 –

MAGHL

During the year ended 31 July 2018, TFN Convertible Notes with principal amount of HK$130.0 million and Specific Mandate Convertible Notes with an aggregate principal amount of HK$166.8 million (including a principal amount of HK$100.0 million issued to the Remaining Group) were redeemed upon maturity on 14 May 2018 and 3 July 2018 respectively. As at 31 July 2018, MAGHL has unsecured and interest-bearing loans from Hibright and the Company of HK$200.0 million and HK$100.0 million respectively. The loans are on floating rate basis, denominated in HKD and are repayable in the second year.



As at 31 July 2018, the consolidated net assets attributable to the owners of the Remaining Group amounted to HK$691.7 million. The gearing ratio, being net debt (total borrowings of HK$1,001.9 million less pledged and restricted bank balances of HK$0.1 million and cash and cash equivalents of HK$771.8 million) to net assets attributable to the owners of the Remaining Group was approximately 33.3%. Taking into account the amount of cash being held as at the end of the reporting period, the available loan facility and the banking facilities, certain bank loans and the recurring cash flows from the Remaining Group’s operating activities, the Remaining Group believes that it would have sufficient liquidity for its present requirements to finance its existing operations and projects underway.


As at 31 July 2018, the Remaining Group provided corporate guarantee to certain banks in connection with 20% of the banking facilities granted to the Rosy Commerce Group in proportion to 20% interest directly held by the Remaining Group. The Remaining Group’s share of such banking facilities utilised by the Rosy Commerce Group amounted to approximately HK$317.1 million as at 31 July 2018.

The Remaining Group had provided corporate guarantees to certain banks in connection with the banking facilities granted to certain subsidiaries and the respective letter of credit and letter of guarantee facilities of approximately HK$5.6 million were utilised.




– IV-10 –


BUSINESS OVERVIEW


For the year ended 31 July 2019, this segment recorded a turnover of HK$591.8 million and segment results increased to HK$64.2 million from that of HK$21.8 million for the year ended 31 July 2018.

Live Entertainment

The Remaining Group remains active on the live entertainment front. During the year ended 31 July 2019, the Remaining Group organised and invested in 118 shows by popular local, Asian and internationally renowned artistes, including Andy Lau, Sammi Cheng, Ekin Cheng, Ivana Wong, Grasshopper, JJ Lin, Yoga Lin, EXO, Donghae & Eunhyuk and MayDay.


For the year ended 31 July 2019, the Remaining Group released 49 albums, including titles by Sammi Cheng, Grasshopper, Remus Choy, Andy Leung, Tang Siu Hau and Feanna Wong. The Remaining Group is expected to continue to increase its music licensing revenue from the exploitation of the music library through new media distribution.

Artiste Management



For the year ended 31 July 2019, this segment recorded a turnover of HK$326.0 million and segment results of a loss of HK$119.6 million. During the year ended 31 July 2019, the Remaining Group released 2 films, namely Kung Fu Monster and Dead Pigs and distributed 33 films and 482 videos with high profile titles including Green Book, Hotel Mumbai, John Wick: Chapter 3 – Parabellum, BumbleBee, Captain Marvel and Venom.


– IV-11 –

Cinema Operation

For the year ended 31 July 2019, this segment recorded a turnover of HK$521.8 million. As at 31 July 2019, the Remaining Group operates ten cinemas in Hong Kong and three cinemas in Mainland China. The cinema operation provides a complementary distribution channel for the Remaining Group’s film production and distribution businesses. The MCL Cheung Sha Wan Cinema, newly opened in January 2019 is the first MCL cinema in West Kowloon district. With industrial style design, the cinema has 4 houses with more than 400 seats in a stadium seating setting, giving the audience a comfortable sightline and all cinema houses are equipped with 4K projection system, Dolby 7.1 surround sound system and Bowers & Wilkins Hi-Fi grade speakers to provide a great cinematic viewing experience for the audience.

Details on the number of screens and seats of each cinema as at 31 July 2019 are as follows:

Attributable interest to the No. of No. ofCinema Remaining Group screens seats (%) (Note 1) (Note 1)


Subtotal 22 2,951

Hong KongMovie Town (including MX4D theatre) 100 7 1,702Festival Grand Cinema 95 8 1,196MCL Metro City Cinema (Note 2) 95 6 694MCL Telford Cinema (including MX4D theatre) 95 6 789STAR Cinema 95 6 622Grand Kornhill Cinema (including MX4D theatre) 95 5 706MCL Cheung Sha Wan Cinema 95 4 418MCL South Horizons Cinema 95 3 555MCL Green Code Cinema 95 3 285Grand Windsor Cinema 95 3 246

Subtotal 51 7,213

Total 73 10,164

Notes:

1. On 100% basis



– IV-12 –




Borrowings

As at 31 July 2019, the Remaining Group had outstanding consolidated total borrowings (after intra-group elimination) in the amount of HK$1,262.3 million. The borrowings of the Remaining Group (other than MAGHL) and MAGHL, are as follows:


As at 31 July 2019, the Remaining Group had guaranteed general banking facilities granted by certain banks. As at 31 July 2019, the Remaining Group had outstanding bank loans of HK$102.4 million and utilised letter of credit and letter of guarantee facilities of HK$4.9 million. All bank loans are repayable within one year and are on floating rate basis and are denominated in HKD. Apart from the bank loans, the Remaining Group had outstanding loans of HK$750.0 million from Hibright. The loans are on floating rate basis, denominated in HKD with HK$700.0 million repayable within one year and HK$50.0 million repayable in the second year. The Remaining Group has the undrawn facilities of HK$170.1 million as at 31 July 2019. In addition, there existed unsecured other borrowings due to the late Mr. Lim Por Yen in the principal amount of HK$113.0 million which is interest-bearing at the HSBC prime rate per annum. The Remaining Group’s recorded interest accruals were HK$96.9 million for the said unsecured other borrowings as at 31 July 2019. At the request of the Remaining Group, the executor of Mr. Lim Por Yen’s estate confirmed that no demand for the repayment of the outstanding other borrowings or the related interest would be made within one year from 31 July 2019.


– IV-13 –

MAGHL

As at 31 July 2019, MAGHL has unsecured and interest-bearing loans from Hibright and the Company of HK$200.0 million and HK$100.0 million respectively. The loans are on floating rate basis, denominated in HKD and are repayable within one year.



As at 31 July 2019, the consolidated net assets attributable to the owners of the Remaining Group amounted to HK$491.9 million. The gearing ratio, being net debt (total borrowings of HK$1,262.3 million less pledged and restricted bank balances of HK$0.1 million and cash and cash equivalents of HK$674.5 million) to net assets attributable to the owners of the Remaining Group was approximately 119.5%. Taking into account the amount of cash being held as at the end of the reporting period, the available loan and banking facilities, certain bank loans, the expected refinancing of certain loans and the recurring cash flows from the Remaining Group’s operating activities, the Remaining Group believes that it would have sufficient liquidity for its present requirements to finance its existing operations and projects underway.


As at 31 July 2019, the Remaining Group provided corporate guarantee to certain banks in connection with 20% of the banking facilities granted to the Rosy Commerce Group in proportion to 20% interest directly held by the Remaining Group. The Remaining Group’s share of such banking facilities utilised by the Rosy Commerce Group amounted to approximately HK$502.5 million as at 31 July 2019.

The Remaining Group had also provided corporate guarantees to certain banks in connection with the banking facilities granted to certain subsidiaries and the respective letter of credit and letter of guarantee facilities of approximately HK$4.9 million were utilised.




– IV-14 –

FOR THE SIx mONTHS ENDED 31 JANUARy 2020

BUSINESS OVERVIEW


For the six months ended 31 January 2020, this segment recorded a turnover of HK$202.8 million and segment results decreased slightly to HK$20.5 million from that of HK$26.3 million for the six months ended 31 January 2019.

Live Entertainment

For the six months ended 31 January 2020, the Remaining Group organised and invested in 39 shows by popular local, Asian and internationally renowned artistes, including EXO, Ivana Wong, Miriam Yeung and Jan Lamb.


For the six months ended 31 January 2020, the Remaining Group released 12 albums, including titles by Sammi Cheng, Tang Siu Hau, Jay Fung, Chan Kin On and Nowhere Boys. The Remaining Group is expected to continue to increase its music licensing revenue from the exploitation of the music library through new media distribution.

Artiste Management



For the six months ended 31 January 2020, this segment recorded a turnover of HK$111.4 million and segment results of a loss of HK$6.6 million

For the six months ended 31 January 2020, a total of 4 films produced/invested by the Remaining Group was theatrically released, namely Bodies at Rest, Fagara, The Climbers and A Witness Out of the Blue. The Remaining Group also distributed 17 films and 179 videos with high profile titles including 1917, Gemini Man, Men in Black: International, Avengers: Endgame, Spider-Man: Far From Home, Fast & Furious Presents: Hobbs & Shaw, The Lion King, Toy Story 4 and John Wick: Chapter 3-Parabellum.


– IV-15 –

Cinema Operation

For the six months ended 31 January 2020, this segment recorded a turnover of HK$194.8 million and segment results of a loss of HK$152.9 million. The substantial increase in segmental losses of the cinema operation of the Remaining Group is primarily due to impairment of property, plant and equipment of certain cinemas, the performance of which was not as expected during the period under review. As at 31 January 2020, the Remaining Group operates ten cinemas in Hong Kong and three cinemas in Mainland China.

Details on the number of screens and seats of each cinema are as follows:

Attributable interest to the No. of No. ofCinema Remaining Group screens seats (%) (Note) (Note)


Subtotal 22 2,951

Hong KongMovie Town (including MX4D theatre) 100 7 1,702Festival Grand Cinema 95 8 1,196MCL Metro City Cinema 95 6 694MCL Telford Cinema (including MX4D theatre) 95 6 789STAR Cinema 95 6 622Grand Kornhill Cinema (including MX4D theatre) 95 5 706MCL Cheung Sha Wan Cinema 95 4 418MCL South Horizons Cinema 95 3 555MCL Green Code Cinema 95 3 285Grand Windsor Cinema 95 3 246

Subtotal 51 7,213

Total 73 10,164

Note: On 100% basis


– IV-16 –



As at 31 January 2020, cash and bank balances held by the Remaining Group amounted to HK$640.1 million of which around 63.1% was denominated in HKD and USD currencies, and around 33.0% was denominated in RMB. Cash and bank balances held by the Remaining Group excluding cash and bank balances held by MAGHL as at 31 January 2020 was HK$380.4 million. As HKD is pegged to USD, the Remaining Group considers that the corresponding exposure to USD exchange rate fluctuation is nominal. The conversion of RMB denominated cash and bank balances into foreign currencies and the remittance of such foreign currencies denominated balances out of Mainland China are subject to the relevant rules and regulations of foreign exchanges control promulgated by the government authorities concerned. The Remaining Group does not have any derivative financial instruments or hedging instruments outstanding.

Borrowings

As at 31 January 2020, the Remaining Group had outstanding consolidated total borrowings (after intra-group elimination) in the amount of HK$597.3 million. The borrowings of the Remaining Group (other than MAGHL) and MAGHL, are as follows:


As at 31 January 2020, the Remaining Group had guaranteed general banking facilities granted by certain banks. As at 31 January 2020, the Remaining Group had outstanding bank loans of HK$134.5 million and utilised letter of credit and letter of guarantee facilities of HK$1.9 million. The maturity profile of the Remaining Group’s bank loans is spread with HK$62.9 million repayable within one year, HK$17.9 million repayable in the second year and HK$53.7 million repayable in the third year. All bank loans are on floating rate basis and are denominated in HKD. Apart from the bank loans, the Remaining Group had outstanding loans of HK$50.0 million from Hibright. The loans are on floating rate basis, denominated in HKD and repayable in the second year. The Remaining Group has the undrawn facilities of HK$218.1 million as at 31 January 2020. In addition, there existed unsecured other borrowings due to the late Mr. Lim Por Yen in the principal amount of HK$113.0 million which is interest-bearing at the HSBC prime rate per annum. The Remaining Group’s recorded interest accruals were HK$99.8 million for the said unsecured other borrowings as at 31 January 2020. At the request of the Remaining Group, the executor of Mr. Lim Por Yen’s estate confirmed that no demand for the repayment of the outstanding other borrowings or the related interest would be made within one year from 31 January 2020.


– IV-17 –

MAGHL

As at 31 January 2020, MAGHL has unsecured and interest-bearing loans from Hibright and the Company of HK$200.0 million and HK$132.0 million respectively. The maturity profile of the loans is spread with HK$300.0 million repayable within one year and HK$32.0 million repayable in the third year. The loans are on floating rate basis and denominated in HKD.



As at 31 January 2020, the consolidated net assets attributable to the owners of the Remaining Group amounted to HK$524.5 million. Taking into account the amount of cash being held as at the end of the reporting period, the available loan and banking facilities, certain bank loans, the expected refinancing of certain loans and the recurring cash flows from the Remaining Group’s operating activities, the Remaining Group believes that it would have sufficient liquidity for its present requirements to finance its existing operations and projects underway.


The Remaining Group had provided corporate guarantees to certain banks in connection with the banking facilities granted to certain subsidiaries and the respective letter of credit and letter of guarantee facilities of approximately HK$1.9 million were utilised as at 31 January 2020.


As at 31 January 2020, the Remaining Group employed a total of around 590 employees. The Remaining Group recognises the importance of maintaining a stable staff force in its continued success. Under the Remaining Group’s existing policies, employee pay rates are maintained at competitive levels whilst promotion and salary increments are assessed on a performance-related basis. Discretionary bonuses are granted to employees based on their merit and in accordance with industry practice. Other benefits including share option scheme, mandatory provident fund scheme, free hospitalisation insurance plan, subsidised medical care and sponsorship for external education and training programmes are offered to eligible employees.

– V-1 –

APPENDIX V VALUATION REPORT OF THE LAI FUNG GROUP

The following is the full text of the letter and valuation report prepared for the purpose of incorporation into the Composite Document, the circular of LSG dated 24 April 2020, the circular of LSD dated 24 April 2020 and this circular received from Knight Frank Petty Limited, an independent valuer, in connection with the valuation as at 31 January 2020 of the market values of the property interests of Lai Fung, its subsidiaries and associated companies which it has a direct or indirect interest of 30% or more of the voting rights.

Knight Frank 4/F Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

T +852 2840 1177 F +852 2840 0600 www.knightfrank.com.hk

Board of DirectorsLai Sun Garment (International) Limited11th FloorLai Sun Commercial Centre680 Cheung Sha Wan RoadHong Kong

Board of DirectorsLai Sun Development Company Limited11th FloorLai Sun Commercial Centre680 Cheung Sha Wan RoadHong Kong

Board of DirectorsHoly Unicorn Limited11th FloorLai Sun Commercial Centre680 Cheung Sha Wan RoadHong Kong

– V-2 –


Board of DirectorseSun Holdings Limited11th FloorLai Sun Commercial Centre680 Cheung Sha Wan RoadHong Kong

Board of DirectorsLai Fung Holdings Limited11th FloorLai Sun Commercial Centre680 Cheung Sha Wan RoadHong Kong

24 April 2020

Dear Sirs

Various Property Interests in the People’s Republic of China and Hong Kong

In accordance with your instructions for us to value the property interests held by Lai Fung Holdings Limited (the “Company”) or its subsidiaries, associates or joint ventures (hereinafter together referred to as the “Group”) in the People’s Republic of China (the “PRC”) and Hong Kong, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the property interests as at 31 January 2020.

Basis of Valuation

Our valuation is our opinion of the market values of the property interests, which we would define as intended to mean “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.”

Market value is understood as the value of an asset or liability estimated without regard to costs of sale or purchase (or transaction), and without offset for any associated taxes or potential taxes.

Market value is also the best price reasonably obtainable by the seller and the most advantageous price reasonably obtainable by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of value available only to a specific owner or purchaser.

– V-3 –


In preparing our valuation report, we have complied with “The HKIS Valuation Standards 2017” published by the Hong Kong Institute of Surveyors, all requirements contained in the provision of Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited and Rule 11 of the Code on Takeovers and Mergers published by the Securities and Futures Commission.

Valuation Methodology

In forming our opinion of the values of the property interests in Groups I and III which are held by the Group in the PRC for investment purpose and held by the Group in the PRC respectively, we have valued the properties by using “Income Approach — term and reversion method” by capitalization the net incomes shown on the tenancy schedules handed to us by the Group and made provisions for reversionary income potential. We have also made reference to sales evidence as available in the market.

We have valued the property interests in Groups II and V which are held by the Group in the PRC for sale purpose and held by the Group in Hong Kong for owner occupation purpose respectively by using Market Approach with reference to market comparable transactions/information and assumed sale of property interests with the benefit of vacant possession.

In valuing property interests in Group IV which are held under development by the Group in the PRC, we have valued the property interests on the basis that the properties will be developed and completed in accordance with the Group’s latest development proposals provided to us. We have assumed that approvals for the proposals have been obtained without any onerous condition which would affect the values of the property interests. In arriving at our opinion of values, we have made reference to comparable transactions/information in the locality and also taken into account the construction costs that will be expended to reflect the quality of the completed developments.

Due to the specific purpose for which the buildings and structures of property no 20 (Lionsgate portion) which is held by the Group in the PRC have been designed, there is no readily identifiable market comparable, we have thus valued it by Cost Approach with reference to the depreciated replacement cost. Depreciated replacement cost is defined as “the current cost of replacing an asset with its modern equivalent asset less deduction for physical deterioration and all relevant forms of obsolescence and optimization.” It is based on an estimate of the market value of the land in its existing use, plus the current cost of replacement of the improvements less allowance for physical deterioration and all relevant forms of obsolescence and optimization. In arriving at the value of the land portion, reference has been made to the sales evidence as available in the locality. The depreciated replacement cost of the property is subject to adequate potential profitability* of the business. It is assumed that the replacing of the property will be in compliance with the relevant laws and regulations and completed in timely fashion. In our valuation, it applies to the whole of the complex or development as a unique interest, and no piecemeal transactions of the complex or development is assumed.

* The assumption of adequate potential profitability of the business is the underlying assumption for application of the depreciated replacement cost while it is considered that depreciated replacement cost of a property could represent the market value of the property valued under the condition that the business conducting inside the property is profitable so that depreciated replacement cost of the property could prudently represent the market value of the property. Otherwise, without this assumption, adopting depreciated replacement cost of the property to represent market value of the property would be in doubt since business conducting inside the property is not having adequate potential profitability.

– V-4 –


Title Documents and Encumbrances

We have caused land search to be made at the Land Registry for the Hong Kong property valued and have been provided by the Group with extracts of title documents relating to the property interests in the PRC. However, we have not inspected the original documents to ascertain any amendments which may not appear on the copies handed to us by the Group. In the course of our valuation, we have relied on the information given by the Group and its PRC legal advisers, Allbright Law Offices, and Guangda Law Firm in April 2020, regarding the title and other legal matters relating to the properties in the PRC.

No allowance has been made in our report for any charges, mortgages or amounts owing on the property interests nor for any expenses or taxation which may be incurred in affecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

Source of Information

We have relied to a considerable extent on the information given by the Group and the legal opinion of the Group’s PRC legal advisers. We have no reason to doubt the truth and accuracy of the information provided to us by the Group and/or its PRC legal advisers which is material to the valuation. We have accepted advice given by the Group on such matters as planning approvals or statutory notices, easements, tenure, completion date of buildings, particulars of occupancy, tenancy summaries, joint-venture agreements, development schemes, construction costs, sites and floor areas. Dimension, measurements and areas included in the valuation report attached are based on information provided to us and are therefore only approximations. We have not been able to carry out on-site measurements to verify the correctness of sites and floor areas of the properties. We have exercised our due diligence in verifying the provided sites and floor areas by checking against the relevant documents provided. Meanwhile, for remaining portion of the properties without relevant supporting documents, we have further assumed that the sites and floor areas shown on the documents handed to us are correct. We were also advised by the Group that no material facts have been omitted from the information provided.

Inspection and Structural Condition

We have inspected the exterior and, where possible, the interior of the properties. The inspection was carried out by our Ocean Ruan, Moira Zhou and Beny Chan in February 2020. During our inspections, we noted that the properties appeared to be in a generally reasonable state of repair commensurate with their ages and uses. However, we have not carried out investigations on site to determine the suitability of the ground conditions and the services, etc for any future development. Our valuations are prepared on the assumption that these aspects are satisfactory. Moreover, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects, nor were any tests carried out to any of the services.

– V-5 –


Identity of Property to be valued

We exercised reasonable care and skill to ensure that the properties, identified by the property addresses in your instructions, are the properties inspected by us and contained within our valuation report.

Environmental Issues

We are not environmental specialists and therefore we have not carried out any scientific investigations of sites or buildings to establish the existence or otherwise of any environmental contamination, nor have we undertaken searches of public archives to seek evidence of past activities that might identify potential for contamination. In the absence of appropriate investigations and where there is no apparent reason to suspect potential for contamination, our valuations are prepared on the assumption that the properties are unaffected. Where contamination is suspected or confirmed, but adequate investigation has not been carried out and made available to us, then the valuations will be qualified.

Compliance with Relevant Ordinances and Regulations

We have assumed that the properties have been constructed, occupied and used in full compliance with, and without contravention of any ordinances, statutory requirement and notices except only where otherwise stated. We have further assumed that, for any use of the properties upon which this report is based, any and all required licences, permits, certificates, consents, approvals and authorisation have been obtained, except only where otherwise stated.

Remarks

In our valuation, we have prepared the valuation based on information and data available to us as at the valuation date. While the market is influenced by various policies and regulations, increasing complexity in international trade tensions, the recent regional health issue of outbreak of Novel Coronavirus is expected to bring additional fluctuations to the real estate market. It must be recognised that the regional health problem, change in policy direction, mortgage requirements and international trade tensions could have immediate and sweeping impact on the real estate market apart from typical market variations. It should therefore be noted that any market violation, policy, geographical or other unexpected circumstances after the valuation date may affect the values of the properties.

According to the information provided by the Group, the potential tax liability which would arise on the disposal of property interest of Group V in Hong Kong is mainly stamp duty, normally borne by the purchaser and property interests of Groups I, II, III and IV in the PRC are mainly PRC land appreciation tax (at progressive rates from 30% to 60% on the appreciation amount) and PRC corporate income tax (at 25% on the gain).

– V-6 –


Risk Factor

The current market is influenced by various policies and regulations, increasing complexity in international trade tensions and the recent regional health issue of outbreak of Novel Coronavirus. There may be a difference, be it material or not, between our estimation of market value based on the current market and the actual transaction price which will be affected by many other factors such as the above-mentioned.

Currency

Unless otherwise stated, all sums stated in our valuation reports are in Hong Kong dollars. The exchange rate adopted for conversion is HK$1 = RMB0.8993 as at the date of valuation.

Our summary of values and valuation reports are attached.

Yours faithfullyFor and on behalf ofKnight Frank Petty Limited

Clement W M Leung Thomas H M LamMFin MCIREA MHKIS MRICS RPS (GP) MCIREA FRICS FHKIS RPS (GP)RICS Registered Valuer RICS Registered ValuerExecutive Director, Head of China Valuation Executive Director, Head of Valuation & Advisory & Advisory

Notes: Clement Leung is a qualified valuer who has 27 years of experiences in property valuation and consultancy services in the PRC and Hong Kong.

Thomas Lam is a qualified valuer who has 20 years of extensive experiences in market research, valuation and consultancy in the PRC, Hong Kong, Macao and the Asia Pacific region.

– V-7 –


SUMMARY OF VALUES

Market value Market value in in existing state existing state Interest attributable to as at attributable the Group as at Property 31 January 2020 to the Group 31 January 2020

Group I — Property interests held by the Group in the PRC for investment purpose

1. Hong Kong Plaza HK$7,013,000,000 100% HK$7,013,000,000 282 & 283 Huaihaizhong Road Huangpu District, Shanghai The PRC (portion owned by Shanghai Li Xing Real Estate Development Co Ltd)

2. Various serviced apartment units in HK$1,193,000,000 100% HK$1,193,000,000 North Tower Hong Kong Plaza 282 Huaihaizhong Road Huangpu District, Shanghai The PRC (portion owned by Good Strategy Ltd)

3. B3 Hui Yi Garden HK$41,700,000 100% HK$41,700,000 No 18 of Alley 905, Huashan Road Xuhui District, Shanghai The PRC

4. Commercial portion of Regents Park HK$233,200,000 95% HK$221,540,000 88 Huichuan Road Changning District, Shanghai The PRC

5. Various portions of HK$1,102,500,000 100% HK$1,102,500,000 Shanghai May Flower Plaza the junction of Da Tong Road and Zhi Jiang Xi Road, Sujiaxiang Jing’an District, Shanghai The PRC

– V-8 –



6. May Flower Plaza HK$2,057,000,000 100% HK$2,057,000,000 68 Zhongshanwu Road Yuexiu District, Guangzhou Guangdong Province The PRC

7. Commercial portion of West Point HK$329,000,000 100% HK$329,000,000 the junction of Zhongshan Qi Road and Guangfu Road Liwan District, Guangzhou Guangdong Province The PRC

8. Commercial portion of HK$123,300,000 100% HK$123,300,000 Stage I of Palm Spring Caihong Planning Area Western District, Zhongshan Guangdong Province The PRC

9. Lai Fung Tower HK$3,034,500,000 100% HK$3,034,500,000 787 Dongfeng East Road Yuexiu District, Guangzhou Guangdong Province The PRC

10. Various portions located at HK$3,802,900,000 80% HK$3,042,320,000 the east side of Yiwener Road south side of Caihong Road west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area Zhuhai, Guangdong Province The PRC

Sub-total: HK$18,930,100,000 HK$18,157,860,000

– V-9 –



Group II — Property interests held by the Group in the PRC for sale purpose

11. Unsold car parking spaces of HK$164,800,000 95% HK$156,560,000 Regents Park 88 Huichuan Road Changning District, Shanghai The PRC

12. Unsold car parking spaces of HK$152,800,000 100% HK$152,800,000 Shanghai May Flower Plaza the junction of Da Tong Road and Zhi Jiang Xi Road, Sujiaxiang Jing’an District, Shanghai The PRC

13. Unsold car parking spaces of HK$83,900,000 100% HK$83,900,000 West Point the junction of Zhongshan Qi Road and Guangfu Road Liwan District, Guangzhou Guangdong Province The PRC

14. Unsold car parking spaces of HK$9,400,000 100% HK$9,400,000 King’s Park Nos 558-596/1006-1044 Donghua Dong Road Yuexiu District, Guangzhou Guangdong Province The PRC

15. Various portions of Stage I and HK$805,600,000 100% HK$805,600,000 II of Palm Spring Caihong Planning Area Western District, Zhongshan Guangdong Province The PRC

– V-10 –



16. Unsold car parking spaces of HK$9,700,000 50% HK$4,850,000 Dolce Vita (Xunfeng Yujinsha Yuan) Jinshazhou, Heng Sha Baiyun District, Guangzhou Guangdong Province The PRC

17. Unsold car parking spaces of HK$13,200,000 100% HK$13,200,000 Phase V of Eastern Place 787 Dongfeng East Road Yuexiu District, Guangzhou Guangdong Province The PRC

18. Unsold villa (cultural studios) HK$668,600,000 80% HK$534,880,000 located at the east side of Yiwener Road south side of Caihong Road west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area Zhuhai, Guangdong Province The PRC

19. Various portions of a residential HK$1,109,700,000 100% HK$1,109,700,000 development located at Wuliqiao Road 104 Jie Fang Huangpu District, Shanghai The PRC

Sub-total: HK$3,017,700,000 HK$2,870,890,000

– V-11 –



Group III — Property interests held by the Group in the PRC

20. Various portions located at the HK$519,800,000 80% HK$415,840,000 east side of Yiwener Road south side of Caihong Road west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area Zhuhai, Guangdong Province The PRC

21. Commercial portion of Eastern Place HK$50,600,000 100% HK$50,600,000 787 Dongfeng East Road Yuexiu District, Guangzhou Guangdong Province The PRC

Sub-total: HK$570,400,000 HK$466,440,000

Group IV — Property interests held under development by the Group in the PRC

22. A commercial development HK$2,005,500,000 100% HK$2,005,500,000 located at Tian Mu Road West and Da Tong Road Jing’an District, Shanghai The PRC

23. Haizhu Plaza HK$1,103,000,000 100% HK$1,103,000,000 Chang Di Main Road Yuexiu District, Guangzhou Guangdong Province The PRC

24. Phases 2-2 and 2-4 of Palm Spring HK$2,286,300,000 100% HK$2,286,300,000 Caihong Planning Area Western District, Zhongshan Guangdong Province The PRC

– V-12 –



25. Various portions located at the HK$2,999,300,000 80% HK$2,399,440,000 east side of Yiwener Road south side of Caihong Road west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area Zhuhai, Guangdong Province The PRC

26. Two parcels of land located at the HK$1,346,000,000 100% HK$1,346,000,000 east side of Yiwener Road south side of Xiangjiang Road west side of Yiwenyi Road and north side of Zhishui Road Hengqin New Area Zhuhai, Guangdong Province The PRC

Sub-total: HK$9,740,100,000 HK$9,140,240,000

Group V — Property interest held by the Group in Hong Kong for owner occupation purpose

27. 20th Floor of May Tower II and HK$100,000,000 100% HK$100,000,000 Car Parking Space No 57 on Ground Floor of May Towers I and II Nos 5 and 7 May Road Mid-Levels Hong Kong

Sub-total: HK$100,000,000 HK$100,000,000

Grand Total: HK$32,358,300,000 HK$30,735,430,000

– V-13 –


VALUATION REPORT

Group I — Property interests held by the Group in the PRC for investment purpose

Property

1 Hong Kong Plaza 282 & 283 Huaihaizhong Road Huangpu District Shanghai The PRC (portion owned by Shanghai Li Xing Real Estate Development Co Ltd)

Description and tenure

Hong Kong Plaza is a composite development comprising a 32-storey office tower (known as South Tower) and a 32-storey serviced apartment tower (known as North Tower), each surmounting a 7-level (including 3 basement levels) commercial/car parking podium. The North Tower and South Tower are connected together by a flyover. The property was completed in October 1997 and refurbished in 2011.

The property comprises various portions of Hong Kong Plaza owned by Shanghai Li Xing Real Estate Development Co Ltd with the gross floor areas as follows:

ApproximateSouth Tower Gross Floor AreaUse Floor sq m sq ft

Commercial B1 3,275.25 35,255 1 4,174.85 44,938 2 4,098.90 44,120 3 4,702.15 50,614 4 4,812.51 51,802Office 6-38 33,639.52 362,096

Total: 54,703.18 588,825

Particulars of occupancy

According to the information provided, office and commercial portion of the property with a total gross floor area of approximately 28,233 sq m and a total leasable area of approximately 22,396 sq m respectively is let under various tenancies yielding a total monthly rental of approximately RMB21,450,000 with the last tenancy expiring on 30 June 2027 whilst the remaining portion of the property is vacant or for owner-occupied.

In addition, the whole serviced apartment portion (including the subject serviced apartment portion and that stated in property no. 2 in this report) of the development is let under various short term tenancies and managed by Ascott Property Management (Shanghai) Co., Ltd. yielding an annual gross income of approximately RMB102,200,000.

Market Value inexisting state as at

31 January 2020

HK$7,013,000,000(HONG KONG

DOLLARSSEVEN BILLION AND THIRTEEN

MILLION ONLY)

(Portion A:HK$6,179,000,000

Portion B:HK$834,000,000)

(100% interestattributable

to the Group:HK$7,013,000,000)

(please seenotes 6 and 7)

– V-14 –


Property Description and tenure

ApproximateNorth Tower Gross Floor AreaUse Floor sq m sq ft

Commercial B1 2,958.93 31,850 1 3,952.47 42,544 2 3,970.76 42,741 3 4,636.30 49,905 4 4,622.00 49,751Commercial/ Club House/ Restaurant 6-7 2,314.46 24,913Serviced Apartment 8-38 13,332.28 143,509

Total: 35,787.20 385,213

The property also comprises a total of 350 car parking spaces in B1 to B3 levels of the podium and various advertising boards.

The land use rights of the property have been granted for a term from 16 September 1992 to 15 September 2042.



31 January 2020

– V-15 –


Notes:

1. Pursuant to two State-owned Land Use Right Certificates Nos 001161 and 001162 both issued by the Shanghai Real Estate Administration Bureau and dated 17 July 1995, the titles to the property with a total site area of 14,645 sq m are both held by Shanghai Li Xing Real Estate Development Co Ltd (“Shanghai Li Xing”), a 100% owned subsidiary of the Company, for a common term commencing from 16 September 1992 to 15 September 2042 for commercial and office uses.

2. Pursuant to five Real Estate Title Certificates Nos Hu Fang Di Shi Zi (1998) Di 002601, Hu Fang Di Shi Zi (2001) Di 007656, Hu Fang Di Lu Zi (2008) Di 002196, Hu Fang Di Lu Zi (2011) Di 000751 and Hu (2017) Huang Zi 001203 all issued by the Shanghai Real Estate Administration Bureau dated 25 June 1998, 10 October 2001, 31 August 2008, 29 March 2011 and 14 February 2017 respectively, the title to portion of the property with respective gross floor area of 69,731.66 sq m, 1,211.83 sq m, 130.91 sq m, 130.91 sq m and 130.91 sq m is held by Shanghai Li Xing for composite use (refer to whole South Tower of the property including basement). As advised by the Company, portion of the property under title certificate No. Hu Fang Di Shi Zi (1998) Di 002601 has been sold.

3. Pursuant to the Shanghai Certificate of Real Estate Ownership No Hu Fang Di Lu Zi (2011) Di 000021 issued by the Shanghai Planning, Land and Resources Administration Bureau dated 4 January 2011, the title to portion of the property with a total gross floor area of 44,132.55 sq m is held by Shanghai Li Xing for office, residential, commercial and others uses (refer to North Tower of the property including basement).

4. Pursuant to twenty three Shanghai Certificates of Real Estate Ownership all issued by the Shanghai Planning, Land and Resources Administration Bureau, the title to portion of the property with a total gross floor area of 2,192.45 sq m is held by Shanghai Li Xing for apartment use (refer to North Tower of the property). The details of which are listed as follows:

Certificate No Tower Unit Use Gross Floor Area

1. Hu Fang Di Lu Zi (2008) Di 002406 North 2612 Apartment 64.92 sq m2. Hu Fang Di Lu Zi (2009) Di 003023 North 2807 Apartment 127.41 sq m3. Hu Fang Di Lu Zi (2009) Di 003102 North 2805 Apartment 97.33 sq m4. Hu Fang Di Lu Zi (2009) Di 004295 North 2512 Apartment 64.92 sq m5. Hu Fang Di Lu Zi (2009) Di 004300 North 2804 Apartment 98.39 sq m6. Hu Fang Di Lu Zi (2009) Di 004466 North 3107 Apartment 127.41 sq m7. Hu Fang Di Lu Zi (2010) Di 000094 North 2810 Apartment 133.96 sq m8. Hu Fang Di Lu Zi (2010) Di 000479 North 2205 Apartment 95.45 sq m9. Hu Fang Di Lu Zi (2010) Di 000489 North 2306 Apartment 131.19 sq m10. Hu Fang Di Lu Zi (2010) Di 000574 North 2501 Apartment 64.92 sq m11. Hu Fang Di Lu Zi (2010) Di 000609 North 2811 Apartment 116.25 sq m12. Hu Fang Di Lu Zi (2010) Di 000675 North 2604 Apartment 98.39 sq m13. Hu Fang Di Lu Zi (2010) Di 000797 North 2209 Apartment 95.21 sq m14. Hu Fang Di Lu Zi (2010) Di 001134 North 2505 Apartment 97.33 sq m15. Hu Fang Di Lu Zi (2010) Di 001310 North 2212 Apartment 62.93 sq m16. Hu Fang Di Lu Zi (2010) Di 001348 North 2608 Apartment 97.33 sq m17. Hu Fang Di Lu Zi (2010) Di 001349 North 2812 Apartment 64.92 sq m18. Hu Fang Di Lu Zi (2010) Di 001350 North 2801 Apartment 64.92 sq m19. Hu Fang Di Lu Zi (2010) Di 002334 North 2705 Apartment 97.33 sq m20. Hu Fang Di Huang Zi (2012) Di 052466 North 2202 Apartment 99.71 sq m21. Hu Fang Di Huang Zi (2013) Di 052704 North 2304 Apartment 98.39 sq m22. Hu Fang Di Huang Zi (2014) Di 051673 North 2504 Apartment 98.39 sq m23. Hu Fang Di Huang Zi (2016) Di 052998 North 2208 Apartment 95.45 sq m

Total: 2,192.45 sq m

– V-16 –


5. Pursuant to the Business Licence with Unified Social Credit No 913100006072415998 dated 15 November 2018, Shanghai Li Xing was established with an operation period from 28 April 1993 to 27 April 2043.

6. Pursuant to the management agreement entered into between Shanghai Li Xing and Ascott Property Management (Shanghai) Co., Ltd. (“Ascott”) on 5 May 2009, Ascott agreed to provide certain management services to Shanghai Li Xing in relation to units of serviced apartments owned by the Group. The salient conditions stipulated in the management agreement are, inter-alia, listed as follows:

(i) Term : an initial term of 10 years commencing from the date when the official operations and leasing activity of the serviced apartments commence and renewable for two successive terms of five years at the option of Ascott and subject to the agreement of Shanghai Li Xing

(ii) Base management fee : 2% of total revenue + X% of gross operating profit (“GOP”) (X=4 if GOP margin is less than 50%; X=5 if GOP margin is less than 55% but more than or equal to 50%; X=5.5 if GOP margin is less than 60% but more than or equal to 55%; and X=6 if GOP margin is more than or equal to 60%)

(iii) Other service fee : — RMB160 per serviced apartment unit per month for provision of computer modular programs for use in connection with the management and operation of a serviced apartment

— RMB2,000,000 per annum adjusted annually from year 3 onwards in accordance with the Singapore Consumer Price Index subject to a cap of RMB2,500,000 per annum for global marketing services and use of the intellectual property rights of Ascott Group

In the course of our valuation, we have taken into account of the above-mentioned management agreement.

7. According to the Group’s specific terms of instruction to provide the breakdown of the market value of property, they are listed as follows:

Market value in existing state as atPortion Property 31 January 2020

A. Commercial and office portion in South Tower, HK$6,179,000,000 Commercial portion in North Tower, 350 car parking spaces in B1 to B3 levels of the podium and advertising boards

B. Club house, restaurant and serviced apartment portion HK$834,000,000 in 6/F to 38/F of North Tower

HK$7,013,000,000

8. We have been provided with the Group’s PRC legal adviser’s opinion, which inter-alia, contains the following:

(i) Shanghai Li Xing legally owns the building ownership of the property;

(ii) Portion of the property is subject to a mortgage and the mortgage is valid and enforceable;

(iii) Shanghai Li Xing can sell, lease, transfer or re-mortgage the property according to the relevant laws and regulations and subject to approval from the mortgagee; and

(iv) Except for the mortgage mentioned in note (8) (ii), the property is free from encumbrances.

– V-17 –


Property

2 Various servicedapartment unitsin North TowerHong Kong Plaza282 Huaihaizhong RoadHuangpu DistrictShanghaiThe PRC(portion owned by Good Strategy Ltd)

(please see note 2 for details)


Hong Kong Plaza is a composite development comprising a 32-storey office tower (known as South Tower) and a 32-storey serviced apartment tower (known as North Tower), surmounting a common 7-level (including 3 basement levels) commercial/car parking podium. The North Tower and South Tower are connected together by a flyover. The property was completed in October 1997 and refurbished in 2011.

The property comprises various serviced apartment units in the North Tower of Hong Kong Plaza owned by Good Strategy Ltd with a total gross floor area of approximately 19,672.77 sq m (211,758 sq ft). The grossfloor area of each unit ranges from 60.70 sq m (653 sq ft) to 276.98 sq m (2,981 sq ft).

The land use rights of the property have been granted for a term commencing from 3 January 2000 to 15 September 2042.


The whole serviced apartment portion (including the subject property and the serviced apartment portion stated in property no. 1 in this report) of the development is let under various short term tenancies and managed by Ascott Property Management (Shanghai) Co., Ltd. yielding an annual gross income of approximately RMB102,200,000.


31 January 2020

HK$1,193,000,000(HONG KONG

DOLLARSONE BILLION

ONE HUNDRED AND NINETY

THREE MILLION ONLY)



(please see note 3)

– V-18 –


Notes:

1. Pursuant to 181 Real Estate Title Certificates Nos Hu Fang Di Shi Zi (2000) Di 000372-000395, 000410-000451, 000454-000458, 000485-000507, 000510-000569, 000572-000597 and 000640 all issued by the Shanghai Real Estate and Land Administration Bureau, the property with a total gross floor area of approximately 19,672.77 sq m is held by Good Strategy Limited, a 100% owned subsidiary of the Company, for composite use.

2. The property comprises Unit Nos 1 to 13 on each of 15th to 21st floors and Unit Nos 1 to 6 on each of 34th to 36th floors, Unit Nos 3, 6, 7 and 10 on 22nd floor, Unit Nos 3, 7, 10 and 11 on 23rd floor, Unit Nos 3, 6, 7 and 11 on 25th floor, Unit Nos 2, 3, 6, 7, 10 and 11 on 26th floor, Unit Nos 2, 3, 6, 7, 10 and 11 on 27th floor, Unit Nos 2, 3, and 6 on 28th floor, Unit Nos 2, 3, 6, 7, 10 and 11 on 29th floor, Unit Nos 2, 3, 6 and 11 on 30th floor, Unit Nos 2, 3, 4, 6, 9, 10, 11 and 12 on 31st floor, Unit Nos 1, 2, 3, 4, 8, 10, 11 and 12 on 32nd floor and Unit Nos 1, 2, 3, 4, 9, 10, 11 and 12 on 33rd floor.

3. Pursuant to the management agreement entered into between Shanghai Li Xing Real Estate Development Co Ltd (“Shanghai Li Xing”) and Ascott Property Management (Shanghai) Co., Ltd. (“Ascott”) on 5 May 2009, Ascott agreed to provide certain management services to Shanghai Li Xing in relation to units of serviced apartments owned by the Group. The salient conditions stipulated in the management agreement are, inter-alia, listed as follows:

(i) Term : an initial term of 10 years commencing from the date when the official operations and leasing activity of the serviced apartments commence and renewable for two successive terms of five years at the option of Ascott and subject to the agreement of Shanghai Li Xing

(ii) Base management fee : 2% of total revenue + X% of gross operating profit (“GOP”) (X=4 if GOP margin is less than 50%; X=5 if GOP margin is less than 55% but more than or equal to 50%; X=5.5 if GOP margin is less than 60% but more than or equal to 55%; and X=6 if GOP margin is more than or equal to 60%)

(iii) Other service fee : — RMB160 per serviced apartment unit per month for provision of computer modular programs for use in connection with the management and operation of a serviced apartment

— RMB2,000,000 per annum adjusted annually from year 3 onwards in accordance with the Singapore Consumer Price Index subject to a cap of RMB2,500,000 per annum for global marketing services and use of the intellectual property rights of Ascott Group

In the course of our valuation, we have taken into account of the above-mentioned management agreement.


(i) Good Strategy Limited legally owns the building ownership of the property;

(ii) The property is subject to a mortgage and the mortgage is valid and enforceable;

(iii) Good Strategy Limited can sell, lease, transfer or re-mortgage the property according to the relevant laws and regulations and subject to approval from the mortgagee; and


– V-19 –


Property

3 B3 Hui Yi Garden No 18 of Alley 905 Huashan Road Xuhui District Shanghai The PRC


The property comprises a 3-storey detached house, a garden and a car parking lot all standing on a levelled site with an area of 415.98 sq m (4,478 sq ft).

The 3-storey detached house is of brick/reinforced concrete structure completed in 1993 with a total gross floor area of approximately 317.80 sq m (3,421 sq ft) and the site area of the garden is approximately 179 sq m (1,927 sq ft).

The land use rights of the property have been granted for an unspecified term (please see note 2 below for details).


As advised, the property is currently vacant.


31 January 2020

HK$41,700,000(HONG KONG

DOLLARSFORTY ONE

MILLION AND SEVEN

HUNDRED THOUSAND

ONLY)


to the Group:HK$41,700,000)

(please see note 2)

Notes:

1. Pursuant to the Real Estate Title Certificate No Hu Fang Di Shi Zi (2002) Di 010907 dated 30 October 2002 issued by the Shanghai Real Estate and Land Resources Administration Bureau, the title to the land with a common area of approximately 415.98 sq m and the 3-storey building with a gross floor area of approximately 317.80 sq m is vested in Canvex Limited, a 100% owned subsidiary of the Company, for residential use for an unspecified term.

2. As advised by the Company, land use rights of the property will be granted for a land use rights term of 70 years for residential use subject to a land premium of approximately RMB6,360,000 and we have deducted the aforesaid land premium in the course of our valuation.


(i) Canvex Limited legally owns the building ownership of the property;

(ii) The land use rights term of the property will be changed to a maximum of 70 years after paying a land premium according to the Notice on the issue of land premium about land use rights transfer of garden terrace and non-domestic housing and confirmation from Canvex Limited;

(iii) Canvex Limited can sell, lease, transfer or mortgage the property according to the relevant laws and regulations; and

(iv) The property is free from mortgage and other encumbrances.

– V-20 –


Property

4 Commercial portion of Regents Park 88 Huichuan Road Changning District Shanghai The PRC


Regents Park (the “Development”) is a large-scale residential/commercial composite development developed in two phases.

The property comprises commercial portion of the Development with a total gross floor area of approximately 7,623.79 sq m (82,062 sq ft) completed in 2006.

The land use rights of the Development have been granted for a term of 70 years commencing from 4 May 1996 for residential use.


According to the information provided, the property is fully leased subject to various tenancies yielding a total monthly rental of approximately RMB1,580,000 with last tenancy expiring on 15 March 2027.


31 January 2020


DOLLARSTWO HUNDRED THIRTY THREE MILLION AND

TWO HUNDRED THOUSAND

ONLY)



Notes:

1. Pursuant to the Shanghai Real Estate Title Certificate No Hu Fang Di Chang Zi (2006) Di 010832 issued by the Shanghai Housing and Land Resources Administration Bureau dated 10 June 2006, the title to the Development (Phase I and basement car park) with a total gross floor area of 114,009.40 sq m is held by Shanghai Wa Yee Real Estate Development Co., Limited (“Shanghai Wa Yee”), a 95% owned subsidiary of the Company, for a land use rights term of 70 years from 4 May 1996 to 3 May 2066 for residential use. As advised by the Company, portion of the property under this Title Certificate has been sold.

2. Pursuant to the Business Licence with Unified Social Credit No 9131000060737771XE dated 3 June 2016, Shanghai Wa Yee was established with an operation period from 3 September 1997 to 19 August 2067.


(i) Shanghai Wa Yee legally owns the building ownership of the property;

(ii) Shanghai Wa Yee can sell, lease, transfer or mortgage the property according to the relevant laws and regulations; and

(iii) The property is free from mortgage and other encumbrances.

– V-21 –


Property

5 Various portions of Shanghai May Flower Plaza the junction of Da Tong Road and Zhi Jiang Xi Road Sujiaxiang Jing’an District Shanghai The PRC


Shanghai May Flower Plaza (the “Development”) is a composite development with residential and office apartment towers erected on a commercial podium. The Development also comprises a 3-storey basement for car park use.

The property comprises commercial portion and 239 office apartment units in Tower 4 of the Development with a total gross floor area of approximately 29,757.87 sq m (320,314 sq ft) and 13,363.58 sq m (143,846 sq ft) respectively completed in 2011 with gross floor areas as follows:

Approximate Gross Floor AreaUse/Level sq m sq ft

Commercial (Basement 1) 11,961.06 128,749Commercial (Level 1) 6,413.88 69,039Commercial (Level 2) 7,260.09 78,148Commercial (Level 3) 1,541.54 16,593Commercial (Level 4) 1,639.54 17,648Commercial (Level 5) 941.76 10,137Office apartment 13,363.58 143,846

Total: 43,121.45 464,160

The land use rights of the Development have been granted for terms of 70 years for residential use, 40 years for commercial use and 50 years for office use commencing from 5 February 2007.


According to the information provided, commercial portion of the property with a total leasable area of approximately 24,158 sq m is let under various tenancies yielding a total monthly rental of approximately RMB2,110,000 with last tenancy expiring on 30 June 2034 whilst the remaining commercial portion of the property is vacant or owner-occupied.

The office apartment portion of the property is currently operated as serviced apartment.


31 January 2020

HK$1,102,500,000(HONG KONG

DOLLARSONE BILLION

ONE HUNDRED TWO MILLION

AND FIVE HUNDRED

THOUSANDONLY)



(please see note 6)

– V-22 –


Notes:

1. Pursuant to the Shanghai Certificate of Real Estate Ownership Hu Fang Di Zha Zi No (2007) 017286 issued by the Shanghai Housing and Land Resources Administration Bureau dated 12 November 2007, the land use rights of the Development, having a site area of 19,742 sq m, is vested in Shanghai Hu Xin Real Estate Development Co., Ltd (“Shanghai Hu Xin”), a 100% owned subsidiary of the Company, for land use rights terms of 70 years for residential use, 40 years for commercial use and 50 years for office use commencing from 5 February 2007.

2. Pursuant to the Shanghai Certificate of Real Estate Ownership No Hu Fang Di Zha Zi (2012) Di 006136 issued by the Shanghai Planning, Land and Resources Administration Bureau dated 30 June 2012, the title to the Development with a total gross floor area of 137,129.94 sq m is held by Shanghai Hu Xin.

3. Pursuant to the Business Licence with Unified Social Credit No 91310000607350656K dated 4 March 2016, Shanghai Hu Xin was established with an operation period from 23 April 1995 to 22 April 2065.

4. Pursuant to the Construction Work Completion Recording Certificate No 2011SH0470 dated 13 December 2011, the construction work of the Development with a total gross floor area of 147,923 sq m was completed and recorded.


Market value in existing state as atPortion 31 January 2020

Commercial portion HK$627,000,000

Office apartment units HK$475,500,000

HK$1,102,500,000

6. As per your specific terms of instruction, we have valued the office apartment portion of the property on vacant possession basis.


(i) Shanghai Hu Xin legally owns the building ownership of the property;

(ii) Shanghai Hu Xin can sell, lease, transfer or mortgage the property according to the relevant laws and regulations; and


– V-23 –


Property

6 May Flower Plaza 68 Zhongshanwu Road Yuexiu District Guangzhou Guangdong Province The PRC


May Flower Plaza is erected on an irregular-shaped site with an area of approximately 3,912.27 sq m (42,112 sq ft).

The property comprises the whole of May Flower Plaza including a 13-storey office and commercial tower erected over four basement levels completed in 2005 with approximate gross floor areas (excluding public ancillary facilities area of about 1,037.04 sq m) as follows:

Approximate Gross Floor AreaUse Floor sq m sq ft

Car park B4 3,864.36 41,596Car park B3 3,677.21 39,581Retail/Car park B2 3,430.32 36,924Retail/Car park B1 2,544.93 27,394Retail L1 2,288.92 24,638Retail L2 4,245.21 45,695Retail L3 4,103.83 44,174Retail L4 3,978.91 42,829Retail L5 3,406.65 36,669Cinema L6 3,310.88 35,638Cinema/Office L7 1,732.81 18,652Retail L8 3,363.03 36,200Retail L9 2,140.67 23,042Office L10 2,079.35 22,382Office L11 1,760.05 18,945Office L12 1,769.96 19,052Office L13 1,769.96 19,052

Total: 49,467.05 532,463

The basement level 3 of the property accommodate a total of approximately 136 car parking spaces and the property also comprises various advertising boards.

The land use rights of the property have been granted for terms of 40 years for commercial use and 50 years for other uses commencing from 14 October 1997.


According to the information provided, office and retail portion of the property (including cinema) with a total gross floor area of approximately 39,307 sq m is subject to various tenancies yielding a total monthly rental of approximately RMB7,160,000 with last tenancy expiring on 31 October 2030 whilst the remaining portion of the property is vacant or owner-occupied.


31 January 2020

HK$2,057,000,000(HONG KONG

DOLLARSTWO BILLION

AND FIFTY SEVEN MILLION

ONLY)



– V-24 –


Notes:

1. Pursuant to nineteen Guangzhou Real Estate Title Certificates all issued by the Guangzhou Land Resources and Real Estate Administration Bureau in 2016, the title to the property with a total gross floor area of approximately 49,467.05 sq m is vested in Guangzhou Jieli Real Estate Co Ltd (“Guangzhou Jieli”), a 100% owned subsidiary of the Company. Details of which are as follows:

Certificate No Level Use Gross Floor Area (sq m)

1. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Basement 4 Car park 3,864.36 Di 002434862. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Basement 3 Car park 3,677.21 Di 002435053. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Basement 2 Commercial and catering 2,707.16 Di 002434884. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Basement 2 Car park 723.16 Di 002434895. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Basement 1 Commercial and catering 1,927.46 Di 002434906. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Basement 1 Car park 617.47 Di 002434917. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 1 Commercial 2,288.92 Di 002434928. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 2 Commercial and catering 4,245.21 Di 002434939. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 3 Commercial and catering 4,103.83 Di 0024349410. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 4 Commercial 3,978.91 Di 0024350311. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 5 Catering 3,406.65 Di 0024349512. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 6 Cinema 3,310.88 Di 0024349613. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 7 Cinema 1,732.81 Di 0024349714. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 8 Catering 3,363.03 Di 0024349815. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 9 Catering 2,140.67 Di 0024348716. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 10 Office 2,079.35 Di 0024349917. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 11 Office 1,760.05 Di 0024350018. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 12 Office 1,769.96 Di 0024350119. Yue (2016) Guangzhou Shi Bu Dong Chan Quan Level 13 Office 1,769.96 Di 00243502

Total: 49,467.05

2. Pursuant to the State-owned Land Use Rights Certificate No Sui Fu Guo Yong (1997) Zi Di Te 028 issued by the People’s Government of Guangzhou dated 14 October 1997, the title to the land with a site area of approximately 5,782 sq m is held by Guangzhou Jieli for land use rights terms of 70 years for residential use, 40 years for commercial uses and 50 years for other uses.

3. Pursuant to the Business Licence No Wai S0102014023301 dated 11 July 2016, Guangzhou Jieli was established with an operation period from 31 December 1993 to 31 December 2033.

– V-25 –



(i) Guangzhou Jieli legally owns the property;

(ii) The property is subject to a mortgage and the mortgage is valid and enforceable;

(iii) Guangzhou Jieli can sell, lease or transfer the property according to the relevant laws and regulations and subject to approval from the mortgagee; and


– V-26 –


Property

7 Commercial portion of West Point the junction of Zhongshan Qi Road and Guangfu Road Liwan District Guangzhou Guangdong Province The PRC


West Point (the “Development”) is a composite development comprising a residential tower and an office tower both erected on a 4-level commercial podium and a 2-level basement car park completed in about 2010.

The property comprises commercial portion on Level 1 to 4 of the Development having a total gross floor area of approximately 16,940.18 sq m (182,344 sq ft) with gross floor areas as follows:

Approximate Gross Floor AreaUse Level sq m sq ft

Retail Level 1 3,158.96 34,003Retail Level 2 4,384.20 47,192Retail Level 3 4,546.58 48,939Retail Level 4 3,886.49 41,834

Sub-total: 15,976.23 171,968

Clubhouse and kiosk 963.95 10,376

Total: 16,940.18 182,344

The land use rights of the Development have been granted for terms of 70 years for residential use, 40 years for commercial, tourism and entertainment uses and 50 years for other use.


According to the information provided, the property with a total gross floor area of approximately 16,781 sq m is subject to various tenancies yielding a total monthly rental of approximately RMB1,290,000 with last tenancy expiring on 30 April 2024 whilst the remaining portion of the property is vacant.


31 January 2020


DOLLARSTHREE

HUNDRED AND TWENTY NINE

MILLION ONLY)



– V-27 –


Notes:

1. Pursuant to seven Guangzhou Real Estate Title Certificates Nos Yue Fang Di Quan Zheng Sui Zi Di 0120285921 to 0120285927 all issued by the Guangzhou Land Resources and Real Estate Administration Bureau dated 11 November 2011, the title to the property with a total gross floor area of approximately 16,940.18 sq m is vested in Guangzhou Honghui Real Estate Development Co., Ltd. (“Guangzhou Honghui”), a 100% owned subsidiary of the Company.

2. Pursuant to the State-owned Land Use Rights Certificate No Sui Guo Yong (2005) Di 348 issued by the People’s Government of Guangzhou dated 11 January 2006, the title to the property with a site area of approximately 6,003 sq m is held by Guangzhou Honghui for land use rights terms of 70 years for residential use, 40 years for commercial, tourism and entertainment uses and 50 years for other use.

3. Pursuant to the Business Licence with Unified Social Credit No 91440101618416067K dated 14 November 2017, Guangzhou Honghui was established with an operation period from 11 February 1993 to 11 February 2022.


(i) Guangzhou Honghui legally owns the property;

(ii) Guangzhou Honghui can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-28 –


Property

8 Commercial portion of Stage I of Palm Spring Caihong Planning Area Western District Zhongshan Guangdong Province The PRC


Palm Spring (the “Development”) is a large-scale residential development having a total site area of approximately 236,649.80 sq m (2,547,298 sq ft).

The Development is planned to be developed by various stages with a total gross floor area of approximately 564,388 sq m (6,075,072 sq ft).

The property comprises various units on Levels 1 to 3 of commercial centre of Stage I of the Development with a total gross floor area of 13,694.52 sq m (147,408 sq ft) completed in 2012 and the gross floor area breakdowns are as follows:

Approximate Gross Floor AreaUse sq m sq ft

Commercial (Level 1) 3,391.74 36,509Commercial (Level 2) 6,080.56 65,451Commercial (Level 3) 4,222.22 45,448

Total: 13,694.52 147,408

The land use rights of the property have been granted for various terms with the last term expiring on 30 March 2075 for commercial/residential uses.


According to the information provided, the property with a total gross floor area of approximately 11,406 sq m is leased subject to various tenancies yielding a total monthly rental of approximately RMB300,000 with last tenancy expiring on 31 October 2030 whilst the remaining portion of the property is vacant.


31 January 2020


DOLLARSONE HUNDRED

TWENTY THREE MILLION

AND THREE HUNDRED

THOUSAND ONLY)



– V-29 –


Notes:

1. Pursuant to twenty seven State-owned Land Use Rights Certificates Nos Zhong Fu Guo Yong (2013) Di 2000884, 2000885, 2000898 to 2000904 and 2000936 to 2000953 all issued by the People’s Government of Zhongshan dated 22 October 2013 and 5 November 2013, the title to the land portion of the property with a site area of approximately 22,824.96 sq m is held by 中山市寶麗房地產發展有限公司 (Zhongshan Bao Li Properties Development Co. Ltd.) (“Zhongshan Bao Li”), a 100% owned subsidiary of the Company for various terms expiring on 17 May 2074 and 30 March 2075 respectively for commercial/residential uses.

2. Pursuant to twenty seven Real Estate Title Certificates Nos Yue Fang Di Quan Zhong Fu Zi Di 0113018459, 0113018470, 0113019022, 0113019029, 0113019037, 0113019041, 0113019048, 0113019053, 0113019061, 0113021648, 0113021665, 0113021669, 0113021670, 0113021673, 0113021676, 0113021679, 0113021681, 0113021686, 0113021690, 0113021694, 0113021696, 0113021699, 0113021707, 0113021710, 0113021712, 0113021714 and 0113021739 all issued by the Zhongshan State Land and Resources Bureau dated 22 October 2013 and 5 November 2013, the title to the commercial portion of the Development with a total gross floor area of 16,825.23 sq m is vested in Zhongshan Bao Li.

3. Pursuant to the Business Licence with Unified Social Credit No 914420007480421393 dated 5 November 2015, Zhongshan Bao Li was established with an operation period from 17 April 2003 to 16 April 2053.


(i) Zhongshan Bao Li legally owns the property;

(ii) Zhongshan Bao Li can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-30 –


Property

9 Lai Fung Tower 787 Dongfeng East Road Yuexiu District Guangzhou Guangdong Province The PRC


Eastern Place is a large-scale commercial/residential composite development developed by phases.

The property comprises the whole of Lai Fung Tower in Phase V of Eastern Place with a total gross floor area of approximately 68,572.39 sq m (738,113 sq ft) completed in 2015 and 313 basement car parking spaces (including 216 mechanical car parking spaces). Gross floor areas are as follows:

Approximate Gross Floor AreaUse Level sq m sq ft

Retail L1 3,447.17 37,105Retail L2 2,371.19 25,524Retail L3&4 4,613.83 49,663Office L5-38 58,140.20 625,821

Total: 68,572.39 738,113

The land use rights of the property have been granted for terms of 70 years for residential use, 40 years for commercial, tourism and entertainment uses and 50 years for other use.


According to the information provided, the property with a total gross floor area of approximately 64,456 sq m is let under various tenancies yielding a total monthly rental of approximately RMB8,020,000 with last tenancy expiring on 14 January 2027 whilst the remaining portion of the property is vacant or owner-occupied.


31 January 2020

HK$3,034,500,000(HONG KONG

DOLLARSTHREE BILLION

THIRTY FOUR MILLION AND

FIVE HUNDRED THOUSAND

ONLY)



– V-31 –


Notes:

1. Pursuant to the State-owned Land Use Rights Certificate No Sui Fu Guo Yong (2003) Di 309 issued by the People’s Government of Guangzhou dated 30 October 2003, the title to the land portion of the subject development with an area of approximately 17,293.00 sq m is held by Guangzhou Grand Wealth Properties Ltd (“Guangzhou Grand Wealth”), a 100% owned subsidiary of the Company, for land use rights terms of 70 years for residential use, 40 years for commercial, tourism and entertainment uses and 50 years for other use.

2. Pursuant to the Guangzhou Real Estate Title Certificate No Yue (2018) Guangzhou Shi Bu Dong Chan Quan Di 00162708 dated 5 November 2018, the title to portion of the property with a gross floor area of approximately 2,312.26 sq m is vested in Guangzhou Grand Wealth.

3. Pursuant to 145 Real Estate Title Certificates, the title to portion of the property with a total gross floor area of 66,260.13 sq m is vested in Guangzhou Grand Wealth.

4. Pursuant to 310 Real Estate Title Certificates, the title to 310 car parking spaces of the property is vested in Guangzhou Grand Wealth.

5. Pursuant to the Business Licence with Unified Social Credit No 91440101618425764J dated 4 June 2019, Guangzhou Grand Wealth was established with an operation period from 15 June 1994 to 15 June 2021.


(i) Guangzhou Grand Wealth legally owns the property;

(ii) Portion of the property is subject to a mortgage and the mortgage is valid and enforceable;

(iii) Guangzhou Grand Wealth should hold the retail portion with a total gross floor area of 2,312.26 sq m and 216 mechanical car parking spaces of the property and has the right to lease such portions and to grant the lessee to sublease;

(iv) Save as abovementioned, Guangzhou Grand Wealth can sell, lease or transfer the property according to the relevant laws and regulations and subject to approval from the mortgagee; and

(v) Except for the mortgage mentioned in note (6) (ii), the property is free from encumbrances.

– V-32 –


Property

10 Various portions located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area Zhuhai Guangdong Province The PRC


The development comprises two parcels of adjacent land located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road in Hengqin New Area of Zhuhai. The total site area is approximately 130,173.16 sq m.

The development is located at Hengqin New Area which is situated at the southern part of Zhuhai. The locality is planned to be tourist and leisure area. It takes about 30 minutes to drive to city centre of Zhuhai.

The development is planned to be developed into a comprehensive development including commercial, office, hotel, cultural development with a total plot ratio gross floor area of approximately 260,289.94 sq m (2,801,761 sq ft).

The property comprises a 4-storey shopping mall, hotel and three cultural halls of the development with a total gross floor area of approximately 118,620.57 sq m (1,276,832 sq ft) completed in about 2019 and the gross floor area breakdowns are as follows:


Shopping mall 48,877.43 526,117Hotel 55,254.20 594,756Cultural hall (multi-purpose) 3,720.00 40,042Cultural hall (wedding) 617.00 6,641Cultural hall (other) 10,151.94 109,276

Total: 118,620.57 1,276,832

The property also comprises 291 above ground car parking spaces and 1,553 basement car parking spaces.

The land use rights of the development have been granted for terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013.


According to the information provided, retail portion of the property with a total leasable area of approximately 16,239 sq m is let under various tenancies yielding a total monthly base rental of approximately RMB550,000 with last tenancy expiring on 30 December 2034.

Hotel portion of the property is currently under operation whilst the remaining portion of the property is vacant.


31 January 2020

HK$3,802,900,000(HONG KONG

DOLLARSTHREE

BILLION EIGHTHUNDRED TWO

MILLION ANDNINE HUNDRED

THOUSANDONLY)



– V-33 –


Notes:

1. Pursuant to two Guangdong Province Real Estate Title Certificates Nos Yue Fang Di Quan Zheng Zhu Zi Di 0100244267 and 0100244268 both issued by the Zhuhai Real Estate Registration Centre dated 27 May 2014, the title to the development, having a total site area of 130,173.16 sq m, is held by 珠海橫琴麗新文創天地有限公司 (Zhuhai Hengqin Laisun Creative Cultural City Co., Ltd.) (“珠海橫琴”), an 80% indirectly owned subsidiary of the Company and 20% indirectly owned subsidiary of Lai Sun Development Company Limited for land use rights terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013.

2. Pursuant to an agreement entered into between 珠海大橫琴置業有限公司 (Zhuhai Da Hengqin Real Estate Co., Ltd) (the “Investor”), 珠海橫琴 and Winfield Concept Limited (“Winfield”), an 80% indirectly owned subsidiary of the Company and 20% indirectly owned subsidiary of Lai Sun Development Company Limited on 19 January 2020, the Investor has agreed to make a total capital contribution of approximately RMB948.4 million in 珠海橫琴. Upon completion of the registration of change in the equity interest held by Winfield and the Investor in 珠海橫琴, 珠海橫琴 will be held as to approximately 83.32% by Winfield and approximately 16.68% by the Investor. The salient conditions stipulated in the agreement are, inter-alia, as follows:

(i) investment period will be thirty years from the issue date of the new business licence of 珠海橫琴 upon completion of the subscription.

(ii) the dividend distribution will be made out of distributable profits of 珠海橫琴 generated from the operations in respect of the self-owned portion only (as agreed between the Investor, 珠海橫琴 and Winfield) to the Investor and Winfield at a 30:70 ratio. The dividend distribution paid to the Investor in each financial year shall be not less than 0.5% per annum of its capital injection to 珠海橫琴 during the investment period.

(iii) the Investor has been granted the put option (but not an obligation) to require 珠海橫琴 or Winfield to acquire all equity interest held by the Investor in 珠海橫琴.

(iv) before the expiration of the investment period, 珠海橫琴 and/or Winfield have/has the right to (but not an obligation) to acquire the Investor’s equity interest in 珠海橫琴.

3. Pursuant to the Construction Land Use Planning Permit No Zhu Heng Xin Gui Tu (Di Gui) (2014) 13 issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau dated 11 March 2014, the development with a total site area of 130,137.16 sq m was permitted to be developed.

4. Pursuant to three Construction Engineering Planning Permits Nos Zhu Heng Xin Gui Tu (Jian) (2019) 028, 029 and 030 all issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau dated 11 April 2019, portion of the development with a total gross floor area of 349,107.95 sq m is permitted to be constructed.

5. Pursuant to three Construction Work Commencing Permits Nos 440410201611180101, 440410201611170101 and 440405201609300301 all issued by Zhuhai Hengqin New District Management Committee — Construction and Environmental Bureau in 2019, construction works of portion of the development with a total gross floor area of 349,107.95 sq m is permitted to be commenced.


Market value in existing state as atProperty 31 January 2020

Shopping mall, three cultural halls and 291 above ground car parking spaces and 1,553 basement car parking spaces HK$1,770,400,000

Hotel HK$2,032,500,000

HK$3,802,900,000

7. As advised by the Group, the property is under the sale restriction as mentioned in note (2) (x) of property no.25 as at the date of valuation. However, the sale restriction portion is not fixed and may be changed from time to time as long as the total countable plot ratio gross floor area under sale restriction is not less than 50% of that of the development.

– V-34 –



(i) 珠海橫琴 legally owns the land use rights of the property;

(ii) As mentioned in note (2) (x) of property no. 25, 50% of the total countable plot ratio gross floor area of the development is restricted for sale at the moment. 珠海橫琴 should hold such portion and has the right to lease such portion and to grant the lessee to sublease;

(iii) After fulfilling relevant conditions for uplifting the sales restrictions as mentioned in note (8) (ii), 珠海橫琴 can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-35 –


Group II — Property interests held by the Group in the PRC for sale purpose

Property

11 Unsold car parking spaces of Regents Park 88 Huichuan Road Changning District Shanghai The PRC


Regents Park (the “Development”) is a large-scale residential/commercial composite development developed in two phases.

The property comprises 247 basement car parking spaces with a total gross floor area of approximately 7,960.81 sq m (85,690 sq ft) completed in 2006.

The land use rights of the Development have been granted for a term of 70 years commencing from 4 May 1996 for residential use.


As advised, the property is currently let on monthly basis.


31 January 2020

HK$164,800,000 (HONG KONG

DOLLARSONE HUNDRED

SIXTY FOUR MILLION AND

EIGHT HUNDRED

THOUSAND ONLY)



(please see note 3)

Notes:

1. Pursuant to the Shanghai Real Estate Title Certificate No Hu Fang Di Chang Zi (2009) Di 003008 issued by the Shanghai Housing and Land Resources Administration Bureau dated 20 March 2009, the title to the property (406 basement car park) with a total gross floor area of 13,085.38 sq m is held by Shanghai Wa Yee Real Estate Development Co., Limited (“Shanghai Wa Yee”), a 95% owned subsidiary of the Company for a land use rights term of 70 years from 4 May 1996 to 3 May 2066 for residential use.

2. Pursuant to the Business Licence with Unified Social Credit No 9131000060737771XE dated 3 June 2016, Shanghai Wa Yee was established with an operation period from 3 September 1997 to 19 August 2067.

3. As advised by the Company, 3 car parking spaces of the property have been sold at a total consideration of approximately RMB1,800,000 prior to the date of valuation. As advised by the Company, title to the sold portions are held by Shanghai Wa Yee as at the valuation date and being duly reflected on relevant Shanghai Wa Yee’s financial statements. Consequently, we have included the sold portions in the valuation. The main reason for such situation to arise is due to the fact that transactions of the sold portions have not yet been completed and/or transferred to the purchasers. We have also made reference to the contracted consideration in the course of our valuation.


(i) Shanghai Wa Yee legally owns the property;

(ii) Except for the sold portion as mentioned in note (3), Shanghai Wa Yee can sell, lease, transfer or mortgage the property according to the relevant laws and regulations; and


– V-36 –


Property

12 Unsold car parking spaces of Shanghai May Flower Plaza the junction of Da Tong Road and Zhi Jiang Xi Road Sujiaxiang Jing’an District Shanghai The PRC


Shanghai May Flower Plaza (the “Development”) is a composite development with residential and office apartment towers erected on a commercial podium. The Development also comprises a 3-storey basement for car park use.

The property comprises 458 basement car parking spaces of the Development completed in 2011.

The land use rights of the Development have been granted for terms of 70 years for residential use, 40 years for commercial use and 50 years for office use commencing from 5 February 2007.


As advised, the property is currently subject to various licences with terms ranging from one month to one year.


31 January 2020


DOLLARSONE HUNDRED

FIFTY TWO MILLION

AND EIGHT HUNDRED

THOUSAND ONLY)



Notes:

1. Pursuant to the Shanghai Certificate of Real Estate Ownership No Hu Fang Di Zha Zi (2012) Di 006136 issued by the Shanghai Planning, Land and Resources Administration Bureau dated 30 June 2012, the title to the Development with a total gross floor area of 137,129.94 sq m is held by Shanghai Hu Xin Real Estate Development Co., Ltd (“Shanghai Hu Xin”), a 100% owned subsidiary of the Company.

2. Pursuant to the Shanghai Certificate of Real Estate Ownership Hu Fang Di Zha Zi (2007) Di 017286 issued by the Shanghai Housing and Land Resources Administration Bureau dated 12 November 2007, the land use rights of the Development, having a site area of 19,742 sq m, is vested in Shanghai Hu Xin for land use rights terms of 70 years for residential use, 40 years for commercial use and 50 years for office use commencing from 5 February 2007.

3. Pursuant to the Business Licence with Unified Social Credit No 91310000607350656K dated 4 March 2016, Shanghai Hu Xin was established with an operation period from 23 April 1995 to 22 April 2065.

4. Pursuant to the Construction Work Completion Recording Certificate No 2011SH0470 dated 13 December 2011, construction work of the Development with a total gross floor area of 147,923 sq m is completed and recorded.


(i) Shanghai Hu Xin legally owns the property;

(ii) Shanghai Hu Xin can sell, lease, transfer or mortgage the property according to the relevant laws and regulations; and


– V-37 –


Property

13 Unsold car parking spaces of West Point the junction of Zhongshan Qi Road and Guangfu Road Liwan District Guangzhou Guangdong Province The PRC


West Point (the “Development”) is a composite development comprising a residential tower and an office tower both erected on a 4-level commercial podium and a 2-level basement car park completed in about 2010.

The property comprises 121 basement car parking spaces of the Development.



As advised, the property is currently let on hourly basis.


31 January 2020


DOLLARSEIGHTY THREE

MILLION AND NINE HUNDRED

THOUSAND ONLY)



Notes:

1. Pursuant to 121 Guangzhou Real Estate Title Certificates issued in 2011, the title to the property is held by Guangzhou Honghui Real Estate Development Co., Ltd. (“Guangzhou Honghui”), a 100% owned subsidiary of the Company for car park use.

2. Pursuant to the State-owned Land Use Rights Certificate No Sui Guo Yong (2005) Di 348 issued by the People’s Government of Guangzhou dated 11 January 2006, the title to the Development with a site area of approximately 6,003 sq m is held by Guangzhou Honghui for land use rights terms of 70 years for residential use, 40 years for commercial, tourism and entertainment uses and 50 years for other use.

3. Pursuant to the Business Licence with Unified Social Credit No 91440101618416067K dated 14 November 2017, Guangzhou Honghui was established with an operation period from 11 February 1993 to 11 February 2022.


(i) Guangzhou Honghui legally owns the property;

(ii) Guangzhou Honghui can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-38 –


Property

14 Unsold car parking spaces of King’s Park Nos 558-596/ 1006-1044 Donghua Dong Road Yuexiu District Guangzhou Guangdong Province The PRC


King’s Park (the “Development”) is a residential development erected on a roughly rectangular-shaped site with a site area of approximately 2,405.00sq m (25,887 sq ft).

The property comprises 13 basement car parking spaces of the Development completed in 2013.

The land use rights of the Development have been granted for terms of 70 years for residential use, 40 years for commercial, tourism and entertainment uses and 50 years for composite and other uses.




31 January 2020


DOLLARSNINE MILLION

AND FOUR HUNDRED

THOUSAND ONLY)



(please see note 4)

Notes:

1. Pursuant to the State-owned Land Use Rights Certificate No Sui Fu Guo Yong (2012) Di 01100013 issued by the People’s Government of Guangzhou dated 6 April 2012, the title to the land, having a site area of 2,405 sq m, is held by Guangzhou Gentle Real Estate Co Ltd (“Guangzhou Gentle”), a 100% owned subsidiary of the Company, for land use rights terms of 70 years for residential use, 40 years for commercial, tourism & entertainment uses and 50 years for other use.

2. Pursuant to thirteen Guangzhou Real Estate Title Certificates, the title to the property is vested in Guangzhou Gentle.

3. Pursuant to the Business Licence No Wai S0102014021483 dated 12 July 2016, Guangzhou Gentle was established with an operation period from 15 June 2007 to 15 June 2027.

4. As advised by the Company, a car parking space of the property have been sold at a consideration of approximately RMB666,400 prior to the date of valuation. As advised by the Company, title to the sold portion is held by Guangzhou Gentle as at the valuation date and being duly reflected on relevant Guangzhou Gentle’s financial statements. Consequently, we have included the sold portion in the valuation. The main reason for such situation to arise is due to the fact that transaction of the sold portion has not yet been completed and/or transferred to the purchaser. We have also made reference to the contracted consideration in the course of our valuation.


(i) Guangzhou Gentle legally owns the property;

(ii) Except for the sold portion as mentioned in note (4), Guangzhou Gentle can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-39 –


Property

15 Various portions of Stage I and II of Palm Spring Caihong Planning Area Western District Zhongshan Guangdong Province The PRC


Palm Spring (the “Development”) is a large-scale residential development having a total site area of approximately 236,649.80 sq m (2,547,298 sq ft).


The property comprises various unsold residential units, club house and commercial centre of Stage I and II of the Development with a total gross floor area of 29,346.23 sq m (315,883 sq ft) completed in 2012 and 2017 respectively. The area details are listed as follows:


Residential (apartment) 11,552.66 124,353Residential (terrace house) 12,695.90 136,659Club house 1,966.96 21,172Commercial centre 3,130.71 33,699

Total: 29,346.23 315,883

In addition, the property also comprises 1,215 basement car parking spaces of the Development. (As advised by the Company, 230 basement car parking spaces among the 1,215 car parking spaces cannot be sold and will be leased on long-term basis).

The land use rights of the property have been granted for various terms with the last term expiring on 30 March 2075 for commercial/residential uses.


According to the information provided, the property is either vacant or owner-occupied.


31 January 2020


DOLLARSEIGHT

HUNDRED FIVE MILLION AND SIX HUNDRED

THOUSAND ONLY)



(please see note 16)

– V-40 –


Notes:

1. Pursuant to the State-owned Land Use Rights Certificate No Zhong Fu Guo Yong Zhong Fu Guo Yong (2011) Di 2000745 issued by the People’s Government of Zhongshan, the title to portion of the Development with a site area of approximately 16,608.00 sq m is held by 中山市寶麗房地產發展有限公司 (Zhongshan Bao Li Properties Development Co. Ltd.) (“Zhongshan Bao Li”), a 100% owned subsidiary of the Company for various terms expiring on 30 March 2075 and 23 October 2073 respectively for commercial/residential uses.

2. Pursuant to twenty seven State-owned Land Use Rights Certificates Nos Zhong Fu Guo Yong (2013) Di 2000884, 2000885, 2000898 to 2000904 and 2000936 to 2000953 all issued by the People’s Government of Zhongshan dated 22 October 2013 and 5 November 2013, the title to the land portion of the property with a site area of approximately 22,824.96 sq m is held by Zhongshan Bao Li for various terms expiring on 17 May 2074 and 30 March 2075 respectively for commercial/residential uses.

3. Pursuant to the Real Estate Title Certificate No Yue (2017) Zhongshan Shi Bu Dong Chan Quan Di 0294136, the title to the club house portion of the Development with a total gross floor area of 1,966.96 sq m is vested in Zhongshan Bao Li.

4. Pursuant to twenty seven Real Estate Title Certificates Nos Yue Fang Di Quan Zhong Fu Zi Di 0113018459, 0113018470, 0113019022, 0113019029, 0113019037, 0113019041, 0113019048, 0113019053, 0113019061, 0113021648, 0113021665, 0113021669, 0113021670, 0113021673, 0113021676, 0113021679, 0113021681, 0113021686, 0113021690, 0113021694, 0113021696, 0113021699, 0113021707, 0113021710, 0113021712, 0113021714 and 0113021739 all issued by the Zhongshan State Land and Resources Bureau dated 22 October 2013 and 5 November 2013, the title to commercial portion of the Development with a total gross floor area of 16,825.23 sq m is vested in Zhongshan Bao Li.

5. Pursuant to two Real Estate Title Certificates Nos Yue (2017) Zhongshan Shi Bu Dong Chan Quan Di 0294133 and 0294136, the title to the residential (apartment) portion of the Development with a total gross floor area of 25,635.74 sq m is vested in Zhongshan Bao Li.

6. Pursuant to thirteen Real Estate Title Certificates, the title to residential (terrace house) portion of the Development with a total gross floor area of 12,660.04 sq m is vested in Zhongshan Bao Li.

7. Pursuant to two Real Estate Title Proof Nos 2013-011237 and 2013-011239, the title to the residential (terrace house) portion of the Development with a total gross floor area of 792.11 sq m is vested in Zhongshan Bao Li.

8. Pursuant to the Real Estate Title Proof No 2013-011052 dated 27 August 2013, the title to the Development (Tower 8) with a total gross floor area of approximately 9,169.60 sq m is vested in Zhongshan Bao Li.

9. Pursuant to two Real Estate Title Certificates Nos Yue (2017) Zhongshan Shi Bu Dong Chan Quan Di 0294244 and 0090718, the title to 896 car parking spaces of the Development is vested in Zhongshan Bao Li.

10. Pursuant to the Real Estate Title Proof No 2013-011235, the title to 29 car parking spaces of the Development is vested in Zhongshan Bao Li.


12. Pursuant to the Construction Work Completion Recording No Zhong Jian Yan Zi 2017 Nian Di 720 and 1121 dated 17 March 2017 and 25 April 2017 issued by the Zhongshan Housing and Urban and Rural Construction Bureau, the construction work of portion of the Development with a total gross floor area of 175,327.06 sq m is completed and recorded.

13. Pursuant to two Zhongshan Commodity Housing Pre-sale Permits Nos Zhong Jian Fang (Yu) Zi Di 2011346 and 2011445 both issued by the Zhongshan Housing and Urban and Rural Construction Bureau, pre-sale of portion of the Development with a total gross floor area of 46,807.03 sq m is permitted.

14. Pursuant to four Zhongshan Commodity Housing Pre-sale Permits Nos Zhong Jian Fang (Yu) Zi Di 2011269, 2012024, 2012023 and 2012029 all issued by the Zhongshan Housing and Urban and Rural Construction Bureau, pre-sale of portion of the Development with a total gross floor area of 27,756.91 sq m is permitted.

15. Pursuant to four Zhongshan Commodity Housing Pre-sale Permits Nos Zhong Jian Fang (Yu) Zi Di 2015103, 2015115, 2015119 and 2016181 all issued by the Zhongshan Housing and Urban and Rural Construction Bureau, pre-sale of portion of the Development with a total gross floor area of 107,887.80 sq m is permitted.

– V-41 –


16. As advised by the Company, residential (apartment) portion and residential (terrace house) portion of the property with a total gross floor area of 1,814.59 sq m and 592.59 sq m have been sold at a total consideration of RMB27,659,862 and RMB18,042,857 respectively prior to the date of valuation. As advised by the Company, title to the sold portions are held by Zhongshan Bao Li as at the valuation date and being duly reflected on relevant Zhongshan Bao Li’s financial statements. Consequently, we have included the sold portions in the valuation. The main reason for such situation to arise is due to the fact that transactions of the sold portions have not yet been completed and/or transferred to the purchasers. We have also made reference to the contracted consideration in the course of our valuation.



Residential HK$774,400,000(apartment, terrace house, club house and car parking spaces)

Commercial centre HK$31,200,000

HK$805,600,000



(ii) Except for the sold portion as mentioned in note (16), Zhongshan Bao Li can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-42 –


Property

16 Unsold car parking spaces of Dolce Vita (Xunfeng Yujinsha Yuan) Jinshazhou Heng Sha Baiyun District Guangzhou Guangdong Province The PRC


Dolce Vita (the “Development”) is a residential development developed in five phases.

The property comprises 35 car parking spaces of the Development completed in 2014 to 2017.

The land use rights of the Development have been granted for terms of 70 years for residential use, 40 years for commercial, tourist and entertainment uses and 50 years for other use commencing from 14 October 2008.


31 January 2020


DOLLARSNINE MILLION

AND SEVEN HUNDRED

THOUSAND ONLY)





Notes:

1. Pursuant to the State-owned Land Use Rights Certificate No Sui Fu Guo Yong (2008) Di 01100190 issued by the People’s Government of Guangzhou dated 17 October 2008, the title to the land, having a site area of 226,912.48 sq m, is held by Guangzhou Beautiwin Real Estate Development Co., Ltd. (“Guangzhou Beautiwin”, a 95% owned subsidiary of Beautiwin Limited (“Beautiwin”, a 50% owned joint venture of the Company)) for land use rights terms of 70 years for residential use, 40 years for commercial, tourist and entertainment uses and 50 years for other use commencing from 14 October 2008.

2. Pursuant to thirty five Guangzhou Real Estate Title Certificates all issued by the Guangzhou Land Resources and Real Estate Administration Bureau, the title to the car park potion of the property is vested in Beautiwin.


(i) Beautiwin legally owns the property;

(ii) Beautiwin can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-43 –


Property

17 Unsold car parking spaces of Phase V of Eastern Place 787 Dongfeng East Road Yuexiu District Guangzhou Guangdong Province The PRC


Eastern Place (the “Development”) is a large-scale commercial/residential composite development developed by phases.

The property comprises 13 basement car parking spaces of Phase V of the Development completed in 2015.



31 January 2020


DOLLARSTHIRTEEN

MILLION AND TWO HUNDRED

THOUSAND ONLY)




The property is currently vacant.

Notes:

1. Pursuant to the State-owned Land Use Rights Certificate No Sui Fu Guo Yong (2003) Di 309 issued by the People’s Government of Guangzhou dated 30 October 2003, the title to the land portion of the subject development with an area of approximately 17,293.00 sq m is held by Guangzhou Grand Wealth Properties Ltd (“Guangzhou Grand Wealth”), a 100% owned subsidiary of the Company, for land use rights terms of 70 years for residential use, 40 years for commercial, tourism and entertainment uses and 50 years for other use.

2. Pursuant to twelve Real Estate Title Certificates, the title to the property is vested in Guangzhou Grand Wealth.




(ii) Guangzhou Grand Wealth can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-44 –


Property

18 Unsold villa (cultural studios) located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area Zhuhai Guangdong Province The PRC





The property comprises unsold villa (cultural studios) of the development with a total gross floor area of 14,020.40 sq m (150,916 sq ft) completed in 2018.

The land use rights of the property have been granted for terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013.


31 January 2020


DOLLARSSIX HUNDRED

SIXTY EIGHT MILLION AND SIX HUNDRED

THOUSAND ONLY)



(please see note 6)



– V-45 –


Notes:



3. Pursuant to the Construction Engineering Planning Permit No Zhu Heng Xin Gui Tu (Jian) (2016) 008 issued by Zhuhai Hengqin New District Management Committee — Land & Planning Bureau in 2016, portion of the development with a total gross floor area of 35,508.99 sq m is permitted to be constructed.

4. Pursuant to the Construction Work Commencing Permit No 440405201605240101 issued by Zhuhai Hengqin New District Management Committee — Construction and Environmental Bureau in 2016, construction works of portion of the development with a total gross floor area of 35,508.99 sq m (above ground: 18,704.56 sq m and below ground: 16,804.43 sq m) is permitted to be commenced.

5. Pursuant to the Zhuhai Commodity Housing Pre-sale Permit No HQS2017009 dated 7 December 2017, pre-sale of portion of the development with a total gross floor area of 18,342.35 sq m was permitted.

6. As advised by the Company, portion of the property with a total gross floor area of 3,434.38 sq m have been sold at a total consideration of RMB147,144,600 prior to the date of valuation. As advised by the Company, title to the sold portions are held by 珠海橫琴 as at the valuation date and being duly reflected on relevant 珠海橫琴’s financial statements. Consequently, we have included the sold portions in the valuation. The main reason for such situation to arise is due to the fact that transactions of the sold portions have not yet been completed and/or transferred to the purchasers. We have also made reference to the contracted consideration in the course of our valuation.



(ii) Except for the sold portion as mentioned in note (6), 珠海橫琴 can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-46 –


Property

19 Various portions of a residential development located at Wuliqiao Road 104 Jie Fang Huangpu District Shanghai The PRC


The property comprises various portions of a residential development located at Wuliqiao Road in Huangpu District of Shanghai with a site area of approximately 6,885.20 sq m.

The property comprises various residential units, club house and basement car parks with a total gross floor area of approximately 11,937.92 sq m (128,500 sq ft) completed in 2019. The area details are as follows:


Residential 6,583.32 70,863Residential (basement) 649.70 6,993Club house (basement) 248.97 2,680Car park (basement) 4,455.93 47,964

Total: 11,937.92 128,500

The land use rights of the property have been granted for a term of 70 years for residential use expiring on 24 March 2085.




31 January 2020

HK$1,109,700,000(HONG KONG

DOLLARSONE BILLION

ONE HUNDRED NINE MILLION

AND SEVEN HUNDRED

THOUSAND ONLY)



– V-47 –


Notes:

1. Pursuant to the Shanghai Certificate of Real Estate Ownership Hu Fang Di Huang Zi (2015) Di 053145 issued by the Shanghai Housing and Land Resources Administration Bureau dated 23 September 2015, the land use rights of the property, having a site area of 6,885.2 sq m, is held by 上海麗星房地產發展有限公司 (Shanghai Li Xing Property Development Co. Ltd) (“上海麗星”), a 100% owned subsidiary of the Company, for a land use rights term of 70 years for residential use commencing from 25 March 2015 and expiring on 24 March 2085.

2. Pursuant to the Business Licence with Unified Social Credit No 913100003105637739 dated 9 November 2015, 上海麗星 was established with an operation period from 16 September 2014 to 15 September 2064.

3. Pursuant to the Construction Land Use Planning Permit No Hu Gui De (2015) EA31000020154388 issued by the Shanghai Planning and Land Resources Administration Bureau dated 23 April 2015, the development with a total site area of 6,885.20 sq m was permitted to be developed.

4. Pursuant to the Construction Engineering Planning Permit No Hu Jing Jian (2017) FA31000020174306 issued by the Shanghai Planning and Land Administration Bureau dated 31 March 2017, piling work of the development was permitted to be constructed.

5. Pursuant to the Construction Engineering Planning Permit No Hu Jing Jian (2017) FA31000020174766 issued by the Shanghai Planning and Land Administration Bureau dated 24 July 2017, the development of with a total gross floor area of 15,798.04 sq m was permitted to be constructed.

6. Pursuant to the Construction Work Commencement Permit No 1601HP0003D01 issued by the Shanghai Housing and Rural & Urban Construction Management Committee dated 14 April 2017, piling work of the development was permitted to be commenced.

7. Pursuant to the Construction Work Commencement Permit No 1601HP0003D02 issued by the Shanghai Housing and Rural & Urban Construction Management Committee dated 16 August 2017, construction work of the development with a total gross floor area of 15,798.04 sq m was permitted to be commenced.

8. Pursuant to the Construction Work Comprehensive Completion Recording Notice No LS190500498YS001 dated 12 August 2019, construction work of the development with a total gross floor area of 15,741.6 sq m was completed and recorded.


(i) 上海麗星 legally owns the building ownership and construction works of the property;

(ii) The land use rights of the property is subject to a mortgage and the mortgage is valid and enforceable;

(iii) 上海麗星 can sell, lease or transfer the land use rights and construction works of the property according to the relevant laws and regulations and subject to approval from the mortgagee; and


– V-48 –


Property

20 Various portions located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area Zhuhai Guangdong Province The PRC





The property comprises various portions of the development including cultural attractions (Lionsgate and National Geographic) with a total gross floor area of approximately 27,247.50 sq m (293,292 sq ft) completed in 2019 and the gross floor area breakdowns are as follows:


Cultural attractions 22,566.50 242,906 (Lionsgate)Cultural attractions (National Geographic) 4,681.00 50,386

Total: 27,247.50 293,292

The land use rights of the development have been granted for terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013.


According to the information provided, Lionsgate portion of the property is leased under a tenancy for ten years expiring on 30 July 2029 subject to turnover rent whilst National Geographic portion of the property is leased under a tenancy for ten years yielding a monthly rental of approximately RMB297,000 expiring on 8 September 2029.


31 January 2020


DOLLARSFIVE HUNDRED

NINETEENMILLION

AND EIGHTHUNDRED

THOUSANDONLY)



(please see note 6)

Group III — Property interests held by the Group in the PRC

– V-49 –


Notes:


2. Pursuant to an agreement entered into between 珠海大橫琴置業有限公司 (Zhuhai Da Hengqin Real Estate Co., Ltd) (the “Investor”), 珠海橫琴 and Winfield Concept Limited (“Winfield”), an 80% indirectly owned subsidiary of the Company and 20% indirectly owned subsidiary of Lai Sun Development Company Limited on 19 January 2020, the Investor has agreed to make a total capital contribution of approximately RMB948.4 million in 珠海橫琴. Upon completion of the registration of change in the equity interest held by Winfield and the Investor in 珠海橫琴, 珠海橫琴 will be held as to approximately 83.32% by Winfield and approximately 16.68% by the Investor. The salient conditions stipulated in the agreement are, inter-alia, as follows:


(ii) the dividend distribution will be made out of distributable profits of 珠海橫琴 generated from the operations in respect of the self-owned portion only (as agreed between the Investor, 珠海橫琴 and Winfield) to the Investor and Winfield at a 30:70 ratio. The dividend distribution paid to the Investor in each financial year shall be not less than 0.5% per annum of its capital injection to 珠海橫琴 during the investment period.

(iii) the Investor has been granted the put option (but not an obligation) to require 珠海橫琴 or Winfield to acquire all equity interest held by the Investor in 珠海橫琴.

(iv) before the expiration of the investment period, 珠海橫琴 and/or Winfield have/has the right to (but not an obligation) to acquire the Investor’s equity interest in 珠海橫琴.


4. Pursuant to two Construction Engineering Planning Permits Nos Zhu Heng Xin Gui Tu (Jian) (2019) 028 and 030 both issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau dated 11 April 2019, portion of the development with a total gross floor area of 258,618.12 sq m is permitted to be constructed.

5. Pursuant to two Construction Work Commencing Permits Nos 440410201611180101 and 440405201609300301 both issued by Zhuhai Hengqin New District Management Committee — Construction and Environmental Bureau in 2019, construction works of portion of the development with a total gross floor area of 258,618.12 sq m is permitted to be commenced.

6. Due to the specific purpose for which the buildings and structures of portion of the property (Lionsgate) have been designed, there is no readily identifiable market comparable, we have thus valued it by Cost Approach with reference to the depreciated replacement cost. Depreciated replacement cost is defined as “the current cost of replacing an asset with its modern equivalent asset less deduction for physical deterioration and all relevant forms of obsolescence and optimization.” It is based on an estimate of the market value of the land in its existing use, plus the current cost of replacement of the improvements less allowance for physical deterioration and all relevant forms of obsolescence and optimization. In arriving at the value of the land portion, reference has been made to the sales evidence as available in the locality. The depreciated replacement cost of the property is subject to adequate potential profitability* of the business. It is assumed that the replacing of the property will be in compliance with the relevant laws and regulations and completed in timely fashion. In our valuation, it applies to the whole of the complex or development as a unique interest, and no piecemeal transactions of the complex or development is assumed.

* The assumption of adequate potential profitability of the business is the underlying assumption for application of the depreciated replacement cost while it is considered that depreciated replacement cost of a property could represent the market value of the property valued under the condition that the business conducting inside the property is profitable so that depreciated replacement cost of the property could prudently represent the market value of the property. Otherwise, without this assumption, adopting depreciated replacement cost of the property to represent market value of the property would be in doubt since business conducting inside the property is not having adequate potential profitability.

– V-50 –


7. As advised by the Group, the property is under the sale restriction as mentioned in note (2) (x) of property no.25 as at the date of valuation. However, the sale restriction portion is not fixed and may be changed from time to time as long as the total countable plot ratio gross floor area under sale restriction is not less than 50% of that of the development.



(ii) As mentioned in note (2) (x) of property no. 25, 50% of the total countable plot ratio gross floor area of the development is restricted for sale at the moment. 珠海橫琴 should hold such portion and has the right to lease such portion and to grant the lessee to sublease;



– V-51 –


Property

21 Commercial portion of Eastern Place 787 Dongfeng East Road Yuexiu District Guangzhou Guangdong Province The PRC


Eastern Place (the “Development”) is a large-scale commercial/residential composite development developed by phases.

The property comprises a 3-level commercial block of the Development with a total gross floor area of 4,042 sq m (43,508 sq ft) completed in 2000. Details of gross floor area breakdown are as follows:

Approximate Gross Floor AreaUse Floor sq m sq ft

Retail 1 235 2,529Retail 2 552 5,942Office 2 874 9,408Club house 1-2 2,358 25,381Others 1-3 23 248

Total: 4,042 43,508

The land use rights of the property have been granted for a term of 50 years commencing from 30 September 1997 for composite use.


According to the information provided, portion of the property with a total gross floor area of approximately 787 sq m is let under various tenancies yielding a total monthly rental of approximately RMB88,000 with last tenancy expiring on 31 August 2022 whilst the remaining portion of the property is vacant or owner-occupied.


31 January 2020


DOLLARSFIFTY MILLION

AND SIX HUNDRED

THOUSAND ONLY)



Notes:

1. Pursuant to the Guangzhou Real Estate Title Proof No A0001036 issued by the Guangzhou Land Resources and Real Estate Administration Bureau dated 8 June 2007, the title of the Development (club house and basement car park portion) with a total gross floor area of 12,369.26 sq m is vested in Guangzhou Grand Wealth Properties Ltd (“Guangzhou Grand Wealth”), a 100% owned subsidiary of the Company, for a term of 50 years commencing from 30 September 1997 for composite use.




(ii) According to registration of transfer of community club house in the minutes about the transfer of club house (2007) No. 2 issued by the Guangzhou Real Estate Transaction Registration Centre dated 1 November 2007, the property can be sold provided that, inter-alia, 1) prior to title transfer, there is a 15-day public notice within the Development; 2) no individual owners of the Development raise objection in the period of 15-day public notice; and 3) the nature of the property for club house use would not change;

(iii) Save as abovementioned, Guangzhou Grand Wealth can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-52 –


Group IV — Property interests held under development by the Group in the PRC

Property

22 A commercial development located at Tian Mu Road West and Da Tong Road Jing’an District Shanghai The PRC


The property comprises a parcel of land with a site area of 9,961 sq m (107,220 sq ft).

The property is planned to be developed into a 33-storey office building erected upon a 3-level commercial podium and three levels of car park basement with a total gross floor area of approximately 100,255 sq m (1,079,145 sq ft). The area details are listed as follows:


Office 55,688 599,426Office (transfer to government) 5,392 58,039Retail 8,749 94,174Other 6,636 71,430Car park (basement) 23,790 256,076

Total: 100,255 1,079,145

The land use rights of the property have been granted for terms of 40 years and 50 years from 30 September 2016 for commercial use and office use respectively.


Superstructure works of the property is currently under construction and scheduled to be completed in third quarter of 2022.


31 January 2020

HK$2,005,500,000(HONG KONG

DOLLARSTWO BILLION FIVE MILLION

AND FIVE HUNDRED

THOUSAND ONLY)



(please see notes1, 9 and 10)

– V-53 –


Notes:

1. Pursuant to the Contract for Grant of Shanghai State-owned Construction Land Use Rights No Hu Jing Gui Tu (2016) Chu Rang He Tong Bu Zi Di 15 (the “Land Grant Contract”) entered into between the Shanghai Jing’an Planning, Land and Resources Administrative Bureau (“Party A”), Shanghai Hankey Real Estate Development Co Ltd (“Shanghai Hankey”) and Shanghai Zhabei Plaza Real Estate Development Co. Ltd (“Shanghai Zhabei”), wholly owned subsidiaries of the Company (collectively referred to as “Party B”) dated 30 September 2016, Party A agreed to grant the land use rights of a parcel of land to Party B. The said contract contains, inter-alia, the following salient conditions:

(i) Total site area : 9,961.30 sq m

(ii) Use : Commercial and office

(iii) Land use term : 40 years for commercial use and 50 years for office use commencing from 30 September 2016

(iv) Plot ratio : 7.1 (above ground)

(v) Total gross floor area : 70,557 sq m (above ground) (commercial gross floor area ≤ 20% and office gross floor area ≥ 80%) and 23,790 sq m (below ground)

(vi) Building height : Not exceeding 180 m

(vii) Green area ratio : Not less than 20% of site area

(viii) Land grant fee : RMB91,114,703.98

(ix) Interest : Shanghai Hankey: 46% Shanghai Zhabei: 54%

(x) Building covenant : Construction works should be commenced on or before 30 September 2017 and construction works should be completed on or before 29 September 2021

(xi) Remarks: : — portion of the office portion of the property with a total gross floor area of 5,392 sq m will be transferred to the government at nil consideration upon completion.

— office and commercial portion of the property must be held by Party B for self-operation not less than 20 years from the date of real estate title registration.

— 150 basement car parking spaces of the property, upon completion, will be used by the government at nil rent.

2. Pursuant to the Real Estate Certificate No Hu (2017) Jing Zi Bu Dong Chan Quan Di 016752 issued by the Shanghai Real Estate Registration Bureau dated 25 September 2017, the land use rights of a site with site area of approximately 9,961 sq m have been granted to Shanghai Hankey and Shanghai Zhabei for a term of 40 years for commercial use and 50 years for office use commencing from 30 September 2016. The office and commercial portion of the property must be held by the Party B for self-operation not less than 20 years from the date of real estate title registration.

3. Pursuant to the Business Licences with Unified Social Credit Nos 91310000607242356N and 91310000607323391M dated 27 July 2017 and 6 August 2018, Shanghai Hankey and Shanghai Zhabei were established with an operation periods from 25 October 1993 to 24 October 2066 and from 12 September 1994 to 11 September 2067, respectively.

4. Pursuant to the Construction Land Use Planning Permit No Hu Jing De (2016) EA31010620165117 issued by the Shanghai Planning and Land Resources Administration Bureau dated 1 December 2016, the proposed development of the property with a total gross floor area of 70,557 sq m was permitted to be developed.

5. Pursuant to the Construction Engineering Planning Permit No Hu Jing Jian (2017) FA31010620174768 issued by the Shanghai Jing’an District Planning and Land Administration Bureau dated 27 July 2017, the proposed development of the property was permitted to be constructed.

– V-54 –


6. Pursuant to the Construction Engineering Planning Permit No Hu Jing Jian (2018) FA31010620187793 issued by the Shanghai Jing’an District Planning and Land Administration Bureau dated 3 November 2018, the proposed development of the property with a total gross floor area of 100,255 sq m was permitted to be constructed.

7. Pursuant to the Construction Work Commencement Permit No 1702JA0113D01 issued by the Shanghai Jing’an District Construction and Management Committee dated 26 September 2017, piling work of the proposed development of the property was permitted to be commenced.

8. Pursuant to the Construction Work Commencement Permit No 1702JA0113D02 issued by the Shanghai Jing’an District Construction and Management Committee dated 24 January 2019, construction work of the proposed development of the property with a total gross floor area of 100,255 sq m was permitted to be commenced.

9. According to note 1 (xi) as mentioned above, portion of the office portion of the property with a total gross floor area of 5,392 sq m will be transferred to the government at nil consideration upon completion. In addition, 150 basement car parking spaces of the property, upon completion, will be used by the government at nil rent. In the course of our valuation, we have not opined any market value to such portions.

10. As advised by the Company, the construction cost incurred, outstanding construction costs (including professional fees) and outstanding ancillary facilities cost of the property were approximately RMB354,400,000, RMB789,700,000 and RMB80,200,000 respectively as at the date of valuation. Accordingly, we have taken into account the said costs in our valuation. In our opinion, the gross development value of the proposed developments of the property, assuming it were complete as at the valuation date, was estimated approximately as RMB3,097,000,000.


(i) Shanghai Hankey and Shanghai Zhabei legally own the land use rights and construction works of the property;

(ii) The land use rights of the property is subject to a mortgage and the mortgage is valid and enforceable;

(iii) Shanghai Hankey and Shanghai Zhabei can transfer, lease or mortgage the land use rights and construction works of the property according to the relevant laws and regulations and subject to approval from the mortgagee and compliance of the Contract for Grant of Shanghai State-owned Construction Land Use Right as mentioned in note (1);

(iv) According to the Contract for Grant of Shanghai State-owned Construction Land Use Rights as mentioned in note (1), there will be a monetary penalty of 0.1% of the land grant fee per day if the construction works of the property cannot be completed on or before 29 September 2021. However, Shanghai Hankey and Shanghai Zhabei can from time to time apply for postponement of the construction works completion in avoidance of the monetary penalty; and

(v) Except for the mortgage mentioned in note (11) (ii), the property is free from encumbrances.

– V-55 –


Property

23 Haizhu Plaza Chang Di Main Road Yuexiu District Guangzhou Guangdong Province The PRC


The property comprises an irregular-shaped site with a site area of approximately 8,427 sq m (90,708 sq ft).

The property is planned to be developed into a commercial development with approximate gross floor areas listed as follows:


Office 44,283 476,662Retail 9,677 104,163Historical building 1,990 21,421Car park 15,846 170,566Others 2,040 21,959

Total: 73,836 794,771

The land use rights of the property have been granted for terms of 40 years for commercial, tourism and entertainment uses and 50 years for other use.


Foundation works of the property is currently under construction and scheduled to be completed in second quarter of 2023.


31 January 2020

HK$1,103,000,000(HONG KONG

DOLLARSONE BILLION

ONE HUNDRED AND THREE

MILLION ONLY)



(please see note 6)

Notes:

1. Pursuant to the Contract for Grant of State-owned Land Use Rights No Sui Guo Di Chu He (97) 155 entered into between Guangzhou State Land Bureau (“Party A”) and Guangzhou Guang Bird Property Development Ltd (“Guangzhou Guang Bird”), a 100% owned subsidiary of the Company (“Party B”) dated 29 April 1997, Party A agreed to grant the land use rights of a parcel of land to Party B. The said contract contains, inter-alia, the following salient conditions:

(i) Site area : 8,427 sq m

(ii) Use : Commercial

(iii) Land use term : 40 years for commercial, tourism and entertainment uses and 50 years for others use

(iv) Plot ratio : 12.46

(v) Total gross floor area : 104,500 sq m (6,650 sq m for commercial use, 96,650 sq m for office use and 1,200 sq m for club house)

(vi) Maximum/average height : 38 storeys

(vii) Land grant fee : RMB56,108,811

– V-56 –


2. Pursuant to the Business Licence No Wai S0102014005781 dated 8 July 2016, Guangzhou Guang Bird was established with an operation period from 18 September 1993 to 18 September 2023.

3. Pursuant to the Construction Land Use Planning Permit No Sui Gui Tu Gian Yong Zi (2006) Di 170 issued by the Guangzhou State Land Resources and Housing Administration Bureau dated 2 June 2006, the property with a site area of approximately 8,427 sq m was permitted to be developed from June 2006 to June 2008.

4. Pursuant to a letter for extension of construction period issued by the Guangzhou State Land Resources and Planning Committee dated 19 April 2018, commencement date and completion date for the construction works of the property (as mentioned in note 3) were permitted to extend to 19 April 2019 and 19 April 2021 respectively.

5. Pursuant to the Construction Engineering Planning Permit No Sui Guo Tu Gui Hua Jian Zheng (2019) 372 issued by the Guangzhou State Land Resources and Planning Committee dated 23 January 2019, portion of the property with a total gross floor area of 56,517.6 sq m (above ground) and 13,997.3 sq m (below ground) is permitted to be constructed.

6. As advised by the Company, the construction cost incurred, outstanding construction cost (including professional fees) and outstanding relocation cost, demolition cost and ancillary facilities cost of the property were approximately RMB38,700,000, RMB709,800,000 and RMB89,800,000 respectively as at the date of valuation. Accordingly, we have taken into account the said costs in our valuation. In our opinion, the gross development value of the proposed developments of the property, assuming it were complete as at the valuation date, was estimated approximately as RMB2,417,000,000.


(i) The Contract for Grant of State-owned Land Use Rights and the Construction Land Use Planning Permit are legal and valid;

(ii) Guangzhou Guang Bird legally owns the land use rights of the property;

(iii) Guangzhou Guang Bird can obtain the Real Estate Certificate for the land use rights of the property within 30 days after application to relevant authority and Guangzhou Guang Bird has no legal obstacles in obtaining the Real Estate Certificate;

(iv) Guangzhou Guang Bird can apply for the postponement of the construction works completion provided that there is no situation of non-permitted pending construction works. No penalty would arise under the aforesaid circumstance;

(v) After obtaining the Real Estate Certificate, Guangzhou Guang Bird can sell, lease or transfer the land use rights of the property according to relevant laws and regulations; and

(vi) The property is free from mortgage and other encumbrances.

– V-57 –


Property

24 Phases 2-2 and 2-4 of Palm Spring Caihong Planning Area Western District Zhongshan Guangdong Province The PRC


Palm Spring (the “Development”) is a large-scale residential development comprising four roughly rectangular-shaped sites (namely plot A, B, C and D) with a total area of approximately 236,649.80 sq m (2,547,298 sq ft).


The property comprises phases 2-2 and 2-4 of the Development with a proposed total gross floor area of 272,347 sq m (2,931,543 sq ft). The area details are listed as follows:

Phase 2-2


Residential (apartment) 137,639 1,481,546Commercial 8,782 94,530Others 2,949 31,743Car park (basement) 44,936 483,691

Total: 194,306 2,091,510

Phase 2-4


Residential (apartment) 45,162 486,124Commercial* 14,530 156,401Others 1,330 14,316Car park (basement)* 17,019 183,192

Total: 78,041 840,033

* The gross floor area of commercial and car park (basement) portions of Phase 2-4 of the Development as mentioned above includes ancillary facilities of 11,096 sq m and 3,997 sq m respectively.

The land use rights of the property have been granted for a term expiring on 30 March 2075 for commercial/residential uses.


Superstructure works of the property is currently completed whilst the remaining construction works is scheduled to be completed in third quarter of 2020 to second quarter of 2021.


31 January 2020

HK$2,286,300,000(HONG KONG

DOLLARSTWO BILLION

TWO HUNDRED EIGHTY SIX

MILLION AND THREE

HUNDRED THOUSAND

ONLY)



(please see notes8 to 10)

– V-58 –


Notes:

1. Pursuant to two State-owned Land Use Rights Certificates Nos Zhong Fu Guo Yong (2005) Di 200204 and Zhong Fu Guo Yong (2011) Di 2000311 both issued by the People’s Government of Zhongshan, the title to portion of the Development with a site area of approximately 55,434.0 sq m and 31,614.9 sq m respectively are held by 中山市寶麗房地產發展有限公司 (Zhongshan Bao Li Properties Development Co. Ltd.) (“Zhongshan Bao Li”), a 100% owned subsidiary of the Company for a common term expiring on 30 March 2075 for commercial/residential uses.


3. Pursuant to the Construction Land Use Planning Permit No De Zi Di 281222010030037(Bu) issued by the Zhongshan Planning Bureau dated 7 April 2010, portion of the Development with a site area of approximately 181,095.20 sq m was permitted to be developed.

4. Pursuant to two Construction Engineering Planning Permits Nos Jian Zi Di 281212017010039 and 281212017010038 both issued by the Zhongshan Urban and Rural Planning Bureau dated 19 June 2017, portion of the Development with a total gross floor area of approximately 272,347.90 sq m is permitted to be constructed.

5. Pursuant to two Construction Work Commencing Permits Nos 442000201712012201 and 442000201712051801 both issued by the Zhongshan Housing, Urban and Rural Construction Bureau dated 1 December 2017 and 5 December 2017 respectively, construction works of portion of the property with a total gross floor area of 272,347.90 sq m is permitted to be commenced, with respective contract dates of 809 days and 1214 days. As advised by the Company, the expiry dates for the construction works as stipulated in the aforesaid permits are 18 February 2020 and 2 April 2021 respectively.

6. Pursuant to the Zhongshan Commodity Housing Pre-sale Permit No Zhong Jian Fang (Yu) Zi Di 2019335 issued by the Zhongshan Housing and Urban and Rural Construction Bureau dated 17 September 2019, pre-sale of portion of the property with a total gross floor area of 24,350.73 sq m is permitted.

7. Pursuant to the Zhongshan Commodity Housing Pre-sale Permit No Zhong Jian Fang (Yu) Zi Di 2019452 issued by the Zhongshan Housing and Urban and Rural Construction Bureau dated 12 December 2019, pre-sale of portion of the property with a total gross floor area of 23,807.97 sq m is permitted.

8. The gross floor area of commercial and car park (basement) portions of Phase 2-4 of the Development as mentioned above includes ancillary facilities of 11,096 sq m and 3,997 sq m respectively. As advised by the Company, the aforesaid portions will be transferred to the government at nil consideration upon completion. Therefore, we have assigned no commercial value to these portions in the course of our valuation.

9. As advised by the Company, residential portion of Phase 2-4 of the Development with a total gross floor area of approximately 2,117 sq m have been pre-sold at a total consideration of RMB30,207,032 prior to the date of valuation. As advised by the Company, title to the pre-sold portions are held by Zhongshan Bao Li as at the valuation date and being duly reflected on relevant Zhongshan Bao Li’s financial statements. Consequently, we have included the pre-sold portions in the valuation. The main reason for such situation to arise is due to the fact that transactions of the pre-sold portions have not yet been completed and/or transferred to the purchasers. We have also made reference to the contracted consideration in the course of our valuation.

10. As advised by the Company, the construction cost incurred and outstanding construction cost (including professional fee) of the proposed development of the property were approximately RMB554,300,000 and RMB715,800,000 respectively as at the date of valuation. Accordingly, we have taken into account the said costs in our valuation. In our opinion, the gross development value of the proposed developments of the property, assuming it were complete as at the valuation date, was estimated approximately as RMB3,395,000,000.



(ii) Zhongshan Bao Li can apply for the postponement of the construction works completion provided that there is no situation of non-permitted pending construction works. No penalty would arise under the aforesaid circumstance;

(iii) Zhongshan Bao Li can sell, lease or transfer the property according to the relevant laws and regulations; and


– V-59 –


Property

25 Various portions located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road

Hengqin New Area

Zhuhai Guangdong

Province The PRC





The property comprises various portions of the development including office, serviced apartment (cultural workshops) and villa (cultural studios) with a total gross floor area of approximately 96,995.26 sq m (1,044,057 sq ft) and the area details are listed as follows:


Office 50,447.75 543,020Serviced apartment (cultural workshops) 40,136.12 432,025Villa (cultural studios) 4,410.55 47,475

Sub-total: 94,994.42 1,022,520

Car park (below ground) 2,000.84 21,537

Total: 96,995.26 1,044,057

The land use rights of the property have been granted for terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013.


The construction works of the property have been completed.


31 January 2020

HK$2,999,300,000(HONG KONG

DOLLARSTWO BILLION

NINE HUNDRED NINETY NINE

MILLION AND THREE

HUNDRED THOUSAND

ONLY)



(please see notes13 and 14)

– V-60 –


Notes:

1. Pursuant to two Guangdong Province Real Estate Title Certificates Nos Yue Fang Di Quan Zheng Zhu Zi Di 0100244267 and 0100244268 both issued by the Zhuhai Real Estate Registration Centre dated 27 May 2014, the title to the development, having a total site area of 130,173.16 sq m, is held by 珠海橫琴麗新文創天地有限公司 (Zhuhai Hengqin Laisun Creative Cultural City Co., Ltd.) (“珠海橫琴”), an 80% indirectly owned subsidiary of the Company and 20% indirectly owned subsidiary of Lai Sun Development Company Limited (“LSD”) for land use rights terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013.

2. Pursuant to the Contract for Grant of State-owned Construction Land Use Rights No. 440401-2013-000023 (the “Land Grant Contract”) entered into between the Land and Resources Bureau of Zhuhai (“Party A”) and Winfield Concept Limited (永輝基業有限公司 ) (“Party B”) dated 27 September 2013, Party A agreed to grant the land use rights of two parcels of land to Party B. The said contract contains, inter-alia, the following salient conditions:

(i) Total site area : 130,173.16 sq m (Land parcel 1: 93,137.04 sq m, Land parcel 2: 37,036.12 sq m)

(ii) Use : Cultural/creative and commercial/servicing

(iii) Land use term : 50 years for cultural and creative uses and 40 years for commercial, office and hotel uses

(iv) Plot ratio : Not exceeding 2.0

(v) Total gross floor area : Not exceeding 260,346.32 sq m (Land parcel 1: 186,274.08 sq m, Land parcel 2: 74,072.24 sq m)

(vi) Building height : Not exceeding 100 m

(vii) Green area ratio : Not less than 30% of site area

(viii) Land grant fee : RMB523,296,103.2

(ix) Building covenant : Construction works should be commenced within twelve months since the handover of the land and construction works should be completed within forty-eight months since the handover of the land

(x) Remarks : — Gross floor areas allocation for commercial use and hotel and office uses should not be greater than 10% and 20% respectively whilst that for cultural use should not be less than 70%.

— Saleable gross floor area is restricted to 50% of total countable plot ratio gross floor area of the development.

3. Advised by the Company, Party B is an 80% indirectly owned subsidiary of the Company and 20% indirectly owned subsidiary of LSD.

4. Pursuant to the amendment of the Land Grant Contract in February 2014, the grantee of the two parcels of land was changed from Party B to 珠海橫琴. Party B has established 珠海橫琴 with Business Licence No 440003490000497 dated 3 January 2014 and 珠海橫琴 has obtained two Guangdong Province Real Estate Title Certificates as mentioned in note 1.

– V-61 –


5. Pursuant to an agreement entered into between 珠海大橫琴置業有限公司 (Zhuhai Da Hengqin Real Estate Co., Ltd) (the “Investor”), 珠海橫琴 and Party B on 19 January 2020, the Investor has agreed to make a total capital contribution of approximately RMB948.4 million in 珠海橫琴. Upon completion of the registration of change in the equity interest held by Party B and the Investor in 珠海橫琴, 珠海橫琴 will be held as to approximately 83.32% by Party B and approximately 16.68% by the Investor. The salient conditions stipulated in the agreement are, inter-alia, as follows:


(ii) the dividend distribution will be made out of distributable profits of 珠海橫琴 generated from the operations in respect of the self-owned portion only (as agreed between the Investor, 珠海橫琴 and Winfield) to the Investor and Party B at a 30:70 ratio. The dividend distribution paid to the Investor in each financial year shall be not less than 0.5% per annum of its capital injection to 珠海橫琴 during the investment period.

(iii) the Investor has been granted the put option (but not an obligation) to require 珠海橫琴 or Party B to acquire all equity interest held by the Investor in 珠海橫琴.

(iv) before the expiration of the investment period, 珠海橫琴 and/or Party B have/has the right to (but not an obligation) to acquire the Investor’s equity interest in 珠海橫琴.


7. Pursuant to the Construction Engineering Planning Permit No Zhu Heng Xin Gui Tu (Jian) (2016) 009 issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau in 2016, portion of the development with a total gross floor area of 8,623.48 sq m is permitted to be constructed.

8. Pursuant to the Construction Engineering Planning Permit No Zhu Heng Xin Gui Tu (Jian) (2019) 028 issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau dated 11 April 2019, portion of the development with a total gross floor area of 159,839.87 sq m is permitted to be constructed.

9. Pursuant to the Construction Work Commencing Permit No 440410201611180101 issued by Zhuhai Hengqin New District Management Committee — Construction and Environmental Bureau in 2019, construction works of portion of the development with a total gross floor area of 159,839.87 sq m is permitted to be commenced.

10. Pursuant to the Construction Work Commencing Permit No 440405201803090101 dated 4 September 2018 issued by Zhuhai Hengqin New District Management Committee — Construction and Environmental Bureau, construction works of portion of the development with a total gross floor area of 8,623.48 sq m is permitted to be commenced.

11. Pursuant to the Zhuhai Commodity Housing Pre-sale Permit No HQS2017009-1 dated 1 July 2019, pre-sale of portion of the development with a total gross floor area of 4,410.55 sq m was permitted.

12. Pursuant to the Zhuhai Commodity Housing Pre-sale Permit No HQS20190012 dated 9 December 2019, pre-sale of portion of the development with a total gross floor area of 78,251.53 sq m was permitted.

13. As advised by the Company, serviced apartment (cultural workshops) portion of the property with a total gross floor area of approximately 2,950 sq m have been pre-sold at a total consideration of RMB97,581,000 prior to the date of valuation. As advised by the Company, title to the pre-sold portions are held by 珠海橫琴 as at the valuation date and being duly reflected on relevant 珠海橫琴’s financial statements. Consequently, we have included the pre-sold portions in the valuation. The main reason for such situation to arise is due to the fact that transactions of the pre-sold portions have not yet been completed and/or transferred to the purchasers. We have also made reference to the contracted consideration in the course of our valuation.

14. As advised by the Company, the construction cost incurred and outstanding construction cost (including professional fee) of the proposed development of the property were approximately RMB1,122,500,000 and RMB289,200,000 respectively as at the date of valuation. Accordingly, we have taken into account the said costs in our valuation. In our opinion, the gross development value of the proposed developments of the property, assuming it were complete as at the valuation date, was estimated approximately as RMB3,093,000,000.

– V-62 –




Office HK$1,624,600,000

Serviced apartment (cultural workshops) and villa (cultural studios) HK$1,374,700,000

HK$2,999,300,000

16. According to the information provided by the Company, although the property has been completed as at the valuation date, completion certificate has not yet been obtained. As advised, the property is thus classified as “property under development” for the purpose in aligning with the classification of the Company’s financial statement based on relevant accounting policy.



(ii) As mentioned in note (2) (x), 50% of the total countable plot ratio gross floor area of the development is restricted for sale at the moment. 珠海橫琴 should hold such portion and has the right to lease such portion and to grant the lessee to sublease;



– V-63 –


Property

26 Two parcels of land located at the east side of Yiwener Road, south side of Xiangjiang Road, west side of Yiwenyi Road and north side of Zhishui Road Hengqin New Area Zhuhai Guangdong Province The PRC


The property comprises two parcels of adjacent land located at the east side of Yiwener Road, south side of Xiangjiang Road, west side of Yiwenyi Road and north side of Zhishui Road in Hengqin New Area of Zhuhai. The total site area is approximately 143,768.37 sq m.

The property is located at Hengqin New Area which is situated at the southern part of Zhuhai. The locality is planned to be tourist and leisure area. It takes about 30 minutes to drive to city centre of Zhuhai.

The property is planned to be developed into a comprehensive development including commercial, retail, school, cultural facilities with a total plot ratio gross floor area of approximately 287,536.74 sq m (3,095,045 sq ft).

The land use rights of the property have been granted for terms expiring on 28 December 2058 for retail, commercial, business and finance uses and 28 December 2068 for cultural facilities uses.


Superstructure works of school portion of the property is currently completed whilst foundation works of the remaining portion of property is currently under construction and scheduled to be completed in fourth quarter of 2023.


31 January 2020

HK$1,346,000,000(HONG KONG

DOLLARSONE BILLION

THREE HUNDRED AND

FORTY SIX MILLION ONLY)



(please seenote 12)

– V-64 –


Notes:

1. Pursuant to two Real Estate Title Certificates Nos Yue (2019) Zhuhai Shi Bu Dong Chan Quan Di 0031510 and 0031511 both issued by the Zhuhai City State Land Bureau dated 8 April 2019, the title to the property, having a total site area of 143,768.37 sq m, is held by 珠海橫琴麗新創新方發展有限公司 (Zhuhai Hengqin Laisun Novotown Development Co., Ltd.) (“創新方發展”), a 100% owned subsidiary of the Company for land use rights terms expiring on 28 December 2058 for retail, commercial, business and finance uses and 28 December 2068 for cultural facilities uses.

2. Pursuant to the Contract for Grant of State-owned Construction Land Use Rights No. 440401-2018-000041 (the “Land Grant Contract”) entered into between the Land and Resources Bureau of Zhuhai (“Party A”) and Supreme Motion Limited (“Party B”) dated 29 December 2018, Party A agreed to grant the land use rights of two parcels of land to Party B. The said contract contains, inter-alia, the following salient conditions:

(i) Total site area : 143,768.37 sq m (Land parcel 1: 56,132.69 sq m, Land parcel 2: 87,635.68 sq m)

(ii) Use : Cultural facilities, retail, commercial, business and finance

(iii) Land use term : 50 years for cultural facilities uses and 40 years for retail, commercial, business and finance uses

(iv) Total plot ratio : Not exceeding 287,536.74 sq m (Land parcel 1: 112,265.38 sqm, Land parcel 2: gross floor area 175,271.36 sq m)

(v) Building height : Land parcel 1: Not exceeding 80 m, Land parcel 2: Not exceeding 100 m

(vi) Green area ratio : Not less than 30% of site area

(vii) Land grant fee : RMB761,972,361

(viii) Building covenant : Construction works should be commenced before 29 December 2019 and construction works should be completed before 29 December 2023

(ix) Remarks : Saleable gross floor area is restricted to 50% of total plot ratio gross floor area of the property.

3. Pursuant to the Business Licence with Unified Social Credit No 91440400MA52Q4U87Q dated 2 January 2019, 創新方發展 was established with an operation period of 50 years.

4. Pursuant to the amendment contract to the Land Grant Contract dated 31 January 2020, the grantee of the two parcels of land as mentioned in note 2 was changed from Party B to 創新方發展 .

5. Pursuant to the Construction Land Use Planning Permit No Zhu Heng Xin Gui Tu (Di Gui) (2019) 005 issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau dated 18 February 2019, the property with a total site area of 143,768.37 sq m was permitted to be developed.

6. Pursuant to the Construction Engineering Planning Permit No Zhu Heng Xin Gui Tu (Jian) (2019) 024 issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau dated 12 December 2019, miscellaneous works of the property is permitted to be constructed.

7. Pursuant to the Construction Engineering Planning Permit No Zhu Heng Xin Gui Tu (Jian) (2020) 003 issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau dated 3 January 2020, portion of the property with a total gross floor area of 16,114.37 sq m is permitted to be constructed.

8. Pursuant to three Construction Engineering Planning Permits Nos Zhu Heng Xin Gui Tu (Jian) (2020) 012, 013 and 014 all issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau dated 5 March 2020, portion of the property (school) with a total gross floor area of 57,693.19 sq m is permitted to be constructed.

9. Pursuant to two Construction Work Commencing Permits Nos 440405201905310101-HQHK and 440405201909200101-HQHK both issued by Zhuhai Hengqin New District Management Committee – Construction and Environmental Bureau dated 11 March 2020, piling work of portion of the property is permitted to be commenced.

10. Pursuant to three Construction Work Commencing Permits Nos 440405201909120101-HQHK, 440405201909120102-HQHK and 440405202003200101-HQHK all issued by Zhuhai Hengqin New District Management Committee – Construction and Environmental Bureau dated 20 March 2020, construction works of portion of the property (school) with a total gross floor area of 57,693.19 sq m is permitted to be commenced.

11. Pursuant to the Construction Work Commencing Permit No 440405202003100101-HQHK issued by Zhuhai Hengqin New District Management Committee – Construction and Environmental Bureau dated 10 March 2020, construction works of a road of the property is permitted to be commenced.

12. As advised by the Company, the construction cost incurred (including professional fee) of the property was approximately RMB319,500,000 as at the date of valuation. Accordingly, we have taken into account the said cost in our valuation. In our opinion, the gross development value of the proposed developments of the property, assuming a total construction cost (including professional fee) of approximately RMB3,734,000,000 and it were complete as at the valuation date, was estimated approximately as RMB7,274,000,000.

– V-65 –



(i) 創新方發展 legally owns the land use rights of the property;

(ii) As mentioned in note (2) (ix), 50% of the total plot ratio gross floor area of the property is restricted for sale at the moment. 創新方發展 should hold such portion and has the right to lease such portion and to grant the lessee to sublease;

(iii) The land use rights of the property is subject to a mortgage and the mortgage is valid and enforceable;

(iv) After fulfilling relevant conditions for uplifting the sales restrictions as mentioned in note (13) (ii), 創新方發展 can sell, lease or transfer the property according to the relevant laws and regulations and subject to approval from the mortgagee; and

(v) Except for the mortgage mentioned in note (13) (iii), the property is free from encumbrances.

– V-66 –


Notes:

1. The registered owner of the property is South Hill Limited, a 100% owned subsidiary of the Company.

2. The property lies within an area zoned “Residential (Group B)” under Mid-Levels West Outline Zoning Plan No S/H11/15 as at the date of valuation.

3. The property was subject to the following encumbrances:

(i) Occupation Permit vide memorial no UB5225592 dated 12 March 1992.

(ii) Deed of Mutual Covenant and Management Agreement in favour of Kerry Real Estate Agency Limited “The Manager” vide memorial no UB5247138 dated 30 March 1992.

(iii) Permission Letter with plan (Re from District Lands Officer, Hong Kong West and South) vide memorial no 08042101880013 dated 19 March 2008.

Group V — Property interest held by the Group in Hong Kong for owner occupation purpose

Property

27 20th Floor of May Tower II and Car Parking Space No 57 on Ground Floor of May Towers I and II Nos 5 and 7 May Road Mid-Levels Hong Kong

35/2,480th shares of and in Inland Lot No 1772 and the Extension thereto


May Tower II is a 26-storey centrally air-conditioned apartment building surmounting a 3-storey carparking/recreational podium completed in 1992.

The property comprises an apartment unit within May Tower II with a gross floor area of approximately 315.22 sq m (3,393 sq ft). The property also comprises a covered car parking space on Ground Floor.

The property is held from the Government under a Government Lease and Conditions of Extension No 6018 for a term of 75 years commencing from 8 April 1907 renewable for a further term of 75 years. The Government Rent payable for the whole lot and the Extension is HK$140,400 per annum.


As advised, the property is currently owner-occupied.


31 January 2020


DOLLARSONE HUNDRED

MILLION ONLY)



APPENDIX VI GENERAL INFORMATION

– VI-1 –

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 Company. 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. DISCLOSURES OF DIRECTORS’ AND CHIEF ExECUTIVE’S INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the shares, 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 (a) 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, if any, which they were taken or deemed to have under such provisions of the SFO); or (b) recorded in the register required to be kept by the Company pursuant to section 352 of the SFO (“Register of Directors and Chief Executive”); or (c) notified to the Company and the Stock Exchange pursuant to the Code of Practice for Securities Transactions by Directors and Designated Employees adopted by the Company (“Securities Code”) on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers contained in Appendix 10 to the Listing Rules; or (d) as known by the Directors were disclosed as follows:

(I) Interests in the Company

Long positions in the Shares and underlying Shares

Number of underlying Number of Shares Shares Approximate %

Personal Corporate Personal of total issuedName of Director Capacity interests interests interests Total Shares (Note)

Mr. Lester Lam Beneficial 2,794,443 Nil Nil 2,794,443 0.19% owner

Note: The total number of issued Shares as at the Latest Practicable Date (1,491,854,598 Shares) has been used in the calculation of the approximate percentage.


– VI-2 –

(II) Interests in Associated Corporations

(i) LSG

Long positions in LSG Shares and underlying LSG Shares

Number of Number of underlying LSG Shares LSG Shares Approximate %

Personal Corporate Personal of total issued Name of Directors Capacity interests interests interests Total LSG Shares (Note 1) (Note 2)

Mr. Lester Lam Beneficial owner 12,459,208 Nil 7,571,626 20,030,834 5.16%

Mr. FA Chew Beneficial owner Nil 202,422 3,819,204 4,021,626 1.04% and owner of (Note 3)

controlled corporations

Mr. Richard Lui Beneficial owner 185,600 Nil Nil 185,600 0.05%

Madam U Beneficial owner 825,525 Nil Nil 825,525 0.21%

Notes:

1. These interests in underlying LSG Shares represent the interests in share options granted to the Directors under the share option schemes of LSG, particulars of which are as follows:

Number of underlying LSG Shares Exercise comprised in price per Name of Directors Date of grant share options Exercise period LSG Share (dd/mm/yyyy) (dd/mm/yyyy) (HK$)

Mr. Lester Lam 18/01/2013 3,752,422 18/01/2013 – 17/01/2023 6.05 19/06/2017 3,819,204 19/06/2017 – 18/06/2027 15.00

Mr. FA Chew 19/06/2017 3,819,204 19/06/2017 – 18/06/2027 15.00

2. The total number of issued LSG Shares as at the Latest Practicable Date (388,482,959 LSG Shares) has been used in the calculation of the approximate percentage.

3. Mr. FA Chew was deemed to be interested in the 202,422 LSG Shares owned by The Orchid Growers Association Limited by virtue of his 100% shareholding interest in the said company.


– VI-3 –

(ii) LSD

Long positions in LSD Shares and underlying LSD Shares

Number of Number of underlying LSD LSD Shares Shares Approximate %

Personal Corporate Personal of total issuedName of Directors Capacity interests interests interests Total LSD Shares (Note 1) (Note 2)

Mr. Lester Lam Beneficial owner Nil Nil 4,173,081 4,173,081 0.68%

Mr. FA Chew Beneficial owner and Nil 400,000 3,773,081 4,173,081 0.68% owner of controlled (Note 3)

corporations

Mr. Richard Lui Beneficial owner Nil Nil 104,000 104,000 0.02%

Madam U Beneficial owner 26,919 Nil Nil 26,919 0.01%

Notes:

1. These interests in underlying LSD Shares represent the interests in share options granted to the Directors under a share option scheme of LSD, particulars of which are as follows:

Number of underlying LSD Shares Exercise comprised in price per Name of Directors Date of grant share options Exercise period LSD Share (dd/mm/yyyy) (dd/mm/yyyy) (HK$)

Mr. FA Chew 05/06/2012 3,773,081 05/06/2012 – 04/06/2022 5.35

Mr. Lester Lam 18/01/2013 4,173,081 18/01/2013 – 17/01/2023 16.10

Mr. Richard Lui 18/01/2013 104,000 18/01/2013 – 17/01/2023 16.10

2. The total number of issued LSD Shares as at the Latest Practicable Date (610,268,025 LSD Shares) has been used in the calculation of the approximate percentage.

3. Mr. FA Chew was deemed to be interested in the 400,000 LSD Shares owned by The Orchid Growers Association Limited by virtue of his 100% shareholding interest in the said company.


– VI-4 –

(iii) Lai Fung

Long positions in LF Shares and underlying LF Shares

Number of Number of underlying LF Shares LF Shares Approximate %

Personal Corporate Personal of total issuedName of Directors Capacity interests interests interests Total LF Shares (Note 1) (Note 2)

Mr. Lester Lam Beneficial owner Nil Nil 3,219,182 3,219,182 0.97%

Mr. FA Chew Beneficial owner Nil 709,591 900,000 1,609,591 0.49% and owner of (Note 3)

controlled corporations

Notes:

1. These interests in underlying LF Shares represent the interests in share options granted to the Directors under the LF Share Option Schemes, particulars of which are as follows:

Number of underlying LF Shares Exercise comprised in price per Name of Directors Date of grant share options Exercise period LF Share (dd/mm/yyyy) (dd/mm/yyyy) (HK$)

Mr. Lester Lam 18/01/2013 3,219,182 18/01/2013 – 17/01/2023 11.40

Mr. FA Chew 12/06/2012 900,000* 12/06/2012 – 11/06/2022 6.65

* A share option comprising a total of 109,591 underlying LF Shares had been exercised by Mr. FA Chew on 6 August 2019. Thus, a total number of share options of Mr. FA Chew were decreased from 1,009,591 underlying LF Shares to 900,000 underlying LF Shares.

2. The total number of issued LF Shares as at the Latest Practicable Date (331,033,443 LF Shares) has been used in the calculation of the approximate percentage.

3. Mr. FA Chew was deemed to be interested in the 709,591 LF Shares owned by The Orchid Growers Association Limited by virtue of his 100% shareholding interest in the said company.


– VI-5 –

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and the chief executive of the Company and their respective close associates had, or was deemed to have, any interest in the long and short positions in the shares, underlying shares and/or debentures of the Company or any of its associated corporations, which was required to be notified to the Company and the Stock Exchange under the SFO, or recorded in the Register of Directors and Chief Executive, or notified to the Company and the Stock Exchange under the Securities Code or otherwise known by the Directors.

Save as disclosed below (and their respective interests disclosed above), as at the Latest Practicable Date, there was no Director who is a director or employee of a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

1. Mr. FA Chew (an executive Director) is also an executive director of each of LSG, LSD and Lai Fung;

2. Mr. Lester Lam (an executive Director) is also an executive director of each of LSG, LSD and Lai Fung;

3. Mr. Yip Chai Tuck (“Mr. CT Yip”, an executive Director) is also the chief executive officer of LSG and an executive director of MAGHL; and

4. Madam U (a non-executive Director) is also an executive director of each of LSG and Lai Fung as well as a non-executive director of LSD.

Directors’ rights to acquire shares or debentures

Save as otherwise disclosed in this circular, as at the Latest Practicable Date, none of the Company or its subsidiaries was a party to any arrangement that would enable the Directors to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other body corporate, and none of the Directors or any of their spouses or children under the age of 18 were granted any right to subscribe for the equity or debt securities of the Company or any other body corporate or exercised any such right.

3. DIRECTORS’ SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which will not expire or be determinable by the relevant member of the Group within one year without payment of compensation (other than statutory compensation).


– VI-6 –

4. LITIGATION

As at the Latest Practicable Date, none of the members of the Group was engaged in any litigation, arbitration or claim of material importance, and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened by or against any member of the Group.

5. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

As at the Latest Practicable Date, the following Directors were considered to have interests in businesses which compete or may compete, either directly or indirectly, with the businesses of the Group pursuant to the Listing Rules:

Four executive Directors, namely Messrs. Richard Lui, FA Chew, Lester Lam and CT Yip as well as Madam U, a non-executive Director (together, “Interested Directors”), held shareholding interests and/or other interests and/or directorships in companies/entities engaged in the businesses of media and entertainment and/or property development and investment and/or development and operation of and investment in cultural, leisure, entertainment and related facilities in Hong Kong and/or the PRC.

However, the Board is independent from the boards of directors/governing committees of the aforesaid companies/entities and none of the Interested Directors can personally control the Board. Further, each of the Interested Directors is fully aware of, and has been discharging, his/her fiduciary duty to the Company and has acted and will continue to act in the best interest of the Company and the Shareholders as a whole. Therefore, the Group is capable of carrying on its businesses independently of, and at arm’s length from, the businesses of such companies/entities.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and their respective close associates had any interest in a business which competes or may compete with the businesses of the Group (which would be required to be disclosed under Rule 8.10 of the Listing Rules as if each of them was treated as a controlling shareholder of the Company).

6. DIRECTORS’ INTERESTS IN ASSETS AND CONTRACTS OF THE GROUP

As at the Latest Practicable Date:

(a) none of the Directors had any interest, direct or indirect, in any assets which had been, since 31 July 2019 (being the date to which the latest published audited consolidated financial statements of the Company were made up), acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group; and

(b) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group subsisting at such date and which was significant in relation to the businesses of the Group.


– VI-7 –

7. EXPERTS’ QUALIFICATION AND CONSENTS

The following are the qualifications of the experts who have been named in this circular and whose advices or opinions are contained in this circular:

Name Qualification

Ernst & Young Certified public accountants

Knight Frank Petty Limited Professional Valuers

Trinity Corporate Finance Limited A licensed corporation to carry on Type 6 (advising on corporate finance) regulated activity as defined under the SFO

As at the Latest Practicable Date, none of above experts had:

(a) any shareholding, direct or indirect, in any member of the Group or any right or option, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group; and

(b) any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group since 31 July 2019, being the date to which the latest published audited consolidated financial statements of the Company were made up.

The above experts have given and have not withdrawn their written consents to the issue of this circular with the inclusion therein of their letters, reports or opinions and references to their names in the form and context in which they respectively appear.

8. MATERIAL CONTRACTS

The following material contracts (not being contracts entered into in the ordinary course of business) had been entered into by the Group within the two years immediately preceding the Latest Practicable Date:

(a) a loan agreement dated 29 June 2018 entered into between the Company (as lender) and MAGHL (as borrower) in respect of a term loan facility in the amount of HK$100,000,000 provided by the Company to MAGHL;

(b) a preferred stock purchase agreement entered into by Nice Sound Limited (“Nice Sound”, an indirect wholly-owned subsidiary of the Company) on 29 June 2018 and Stampede Entertainment, Inc. (“Stampede”) in respect of the subscription by Nice Sound of 333,161 Series A-2 preferred stock of Stampede at a consideration of US$1,999,998.80;


– VI-8 –

(c) a loan agreement entered into between the Company (as borrower) and Hibright Limited (“Hibright”, a wholly-owned subsidiary of LSD) (as lender) on 27 July 2018 (as supplemented) in respect of the term loan facility in the principal amount of up to HK$700,000,000 to be granted by Hibright to the Company;

(d) a share sale and purchase agreement entered into between the Company (as buyer) and Lai’s Holdings Limited (as seller) on 28 November 2018, pursuant to which the Company purchased 5,000 shares in Intercontinental Group Holdings Limited (“IGHL”) (representing 10% of the total issued shares of IGHL) at a total consideration of HK$37,500,000;

(e) 國有建設用地使用權出讓合同 (the state-owned construction land use rights grant contract*) dated 29 December 2018 (“Land Use Rights Grant Contract”) in respect of two parcels of land located at 中國廣東省珠海市橫琴新區藝文二道東側、香江路南側、藝文一道西側、智水路北側 (east side of Yiwener Road, south side of Xiangjiang Road, west side of Yiwenyi Road and north side of Zhishui Road, Hengqin New Area, Zhuhai City, Guangdong Province of the PRC*) with a total site area of 143,768.37 square metres and a maximum plot ratio of 2 times (“Land”) entered into between The Land and Resources Bureau of Zhuhai (“Zhuhai Land Bureau”) and Supreme Motion Limited (卓動有限公司) (“Supreme Motion”, an indirect wholly-owned subsidiary of Lai Fung), at a land use right transfer price of approximately RMB762 million;

(f) an agreement dated 31 December 2018 made among Rosy Commerce Holdings Limited (業佳控股有限公司) (“Rosy Commerce”, a then company owned by the Company and Lai Fung as to 20% and 80%, respectively), China Cinda (HK) Asset Management Co., Limited (中國信達(香港)資產管理有限公司 (“Cinda Investor”, an indirect wholly-owned subsidiary of China Cinda Asset Management Co., Ltd. (中國信達資產管理股份有限公司), a joint stock company incorporated in the PRC and whose shares and preference shares are listed on the Main Board of the Stock Exchange (Stock Code: 1359; Preference Shares Stock Code: 4607)) and Glorious Stand Limited (榮立有限公司) (“Glorious Stand”, a wholly-owned subsidiary of Rosy Commerce), in relation to the sale and purchase and subscription of shares in Glorious Stand (“GSL Investment Agreement”), whereby:

(1) Rosy Commerce agreed to subscribe for 9 new shares in Glorious Stand at the aggregate subscription price of US$9;

(2) the Cinda Investor agreed to acquire 3 shares in Glorious Stand from Rosy Commerce at the USD equivalent of approximately RMB7 million;

(3) the Cinda Investor agreed to subscribe for 27 new shares in Glorious Stand at the aggregate subscription price of the USD equivalent of approximately RMB50 million; and

(4) Rosy Commerce agreed to subscribe for 63 new shares in Glorious Stand at the aggregate subscription price of US$63;


– VI-9 –

(g) an agreement dated 31 December 2018 made among Rosy Commerce, the Cinda Investor and Harmonic Run Limited (和運有限公司) (“Harmonic Run”, a wholly-owned subsidiary of Rosy Commerce) in relation to the subscription of shares in Harmonic Run (“HRL Investment Agreement”), whereby:

(1) the Cinda Investor agreed to subscribe for 30 new shares in Harmonic Run at the aggregate subscription price of the USD equivalent of RMB186 million; and

(2) Rosy Commerce agreed to subscribe for 69 new shares in Harmonic Run at the aggregate subscription price of the USD equivalent of approximately RMB314 million;

(h) a shareholders’ agreement dated 25 January 2019 entered into among Rosy Commerce, the Cinda Investor, Glorious Stand, Lai Fung and the Company in relation to Glorious Stand upon completion of the GSL Investment Agreement;

(i) a shareholders’ agreement dated 25 January 2019 entered into among Rosy Commerce, the Cinda Investor, Harmonic Run, Lai Fung and the Company in relation to Harmonic Run upon completion of the HRL Investment Agreement;

(j) an amendment contract to the Land Use Rights Grant Contract dated 31 January 2019 for the change of the grantee of the land use rights of the Land from Supreme Motion to 珠海橫琴麗新創新方發展有限公司 (“Project Company”, a company established as a wholly-foreign-owned enterprise in the PRC and a direct wholly-owned subsidiary of Supreme Motion) entered into among Project Company, Supreme Motion and Zhuhai Land Bureau;

(k) the 2019 supplemental deed dated 8 March 2019 executed by Lai Fung in favour of LSG, LSD, the late Mr. Lim Por Yen, Dr. Peter Lam and Dr. Lam Kin Ming in relation to certain amendments to certain undertakings in the spin-off agreement entered into between LSD and Lai Fung, the deed of undertaking executed by LSD in favour of Lai Fung and the non-compete agreement entered into between LSG, Lai Fung, Dr. Peter Lam, Dr. Lam Kin Ming and the late Mr. Lim Por Yen;

(l) a loan agreement entered into between the Company (as borrower) and Hibright (as lender) on 22 July 2019 in respect of the term loan facility in the principal amount of HK$200,000,000 to be granted by Hibright to the Company;


– VI-10 –

(m) the share sale and purchase agreement dated 23 July 2019 (as amended) and entered into between Sunny Horizon Investments Limited (as seller) and LSD (as buyer) in relation to the sale and purchase of 20 shares of US$1.00 each in the share capital of Rosy Commerce on 1 November 2019, representing 20% of the total issued share capital of Rosy Commerce and the counter guarantee dated 23 July 2019 (as amended) executed by LSD in favour of the Company;

(n) a loan agreement entered into between the Company (as lender) and MAGHL (as borrower) on 1 November 2019 in respect of a term loan facility for the amount of HK$50,000,000 provided by the Company to MAGHL; and

(o) Laisun Creative Culture Subscription Agreement.

9. GENERAL

(a) The address of the registered office of the Company is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The head office and principal place of business of the Company is 11th Floor, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon, Hong Kong.

(b) The company secretary of the Company is Ms. Wong Lai Chun, who is an associate member of The Hong Kong Institute of Chartered Secretaries and The Chartered Governance Institute (formerly known as The Institute of Chartered Secretaries and Administrators) in the United Kingdom.

(c) The share registrar and transfer office of the Company in Bermuda is MUFG Fund Services (Bermuda) Limited at 4th Floor North Cedar House, 41 Cedar Avenue, Hamilton HM 12, Bermuda.

(d) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

(e) In case of inconsistency, the English text of this circular shall prevail over the Chinese text.


– VI-11 –

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at 11th Floor, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon, Hong Kong during normal business hours (i.e. from 9:30 a.m. to 12:30 p.m. and from 2:30 p.m. to 5:30 p.m.) on any weekday (excluding any Saturdays, Sundays and public holidays) unless (i) a tropical cyclone warning signal number 8 or above is hoisted; or (ii) a black rainstorm warning signal is issued, from the date of this circular up to and including the date falling fourteen (14) days:

(a) the Memorandum of Association and Bye-laws of the Company;

(b) the letter from the Independent Financial Adviser to the Independent Board Committee, Independent Shareholders and Non-Connected Shareholders, the text of which is set out on pages 46 to 100 of this circular;

(c) the annual reports of the Group for the three years ended 31 July 2019, 2018 and 2017, respectively and the announcement of interim results of the Company for the six months ended 31 January 2020;

(d) the report on the review of interim condensed consolidated financial statements of the Lai Fung Group from Ernst & Young;

(e) the assurance report on the compilation of pro forma financial information of the Remaining Group from Ernst & Young, the text of which is set out in Appendix III to this circular;

(f) the Valuation Report of Lai Fung prepared by Knight Frank Petty Limited, the text of which is set out in Appendix V to this circular;

(g) the written consents referred to under the paragraph headed “Experts’ Qualification and Consents” above;

(h) the material contracts referred to under the paragraph headed “Material Contracts” above;

(i) the circular of the Company on a major disposal and connected transaction in relation to a sale and purchase agreement in relation to 20% interest in Rosy Commerce dated 30 August 2019;

(j) the Composite Document; and

(k) this circular.

NOTICE OF SGM

– SGM-1 –


(Stock Code: 571)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT a special general meeting (“SGM”) of the members (“Members”) of eSun Holdings Limited (“Company”) will be held at the Meeting Rooms, Level B, Hong Kong Ocean Park Marriott Hotel, 180 Wong Chuk Hang Road, Aberdeen, Hong Kong on Wednesday, 13 May 2020 at 9:00 a.m. for the purpose of considering and, if thought fit, with or without amendments, passing the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “THAT the Possible Disposal (as more particularly described in the circular of the Company dated 24 April 2020 (“Circular”)) as a very substantial disposal of the Company, all actions taken (or to be taken) by the Company in relation thereto and all other matters contemplated thereunder be and are hereby approved (terms defined in the Circular having the same meanings when used in this resolution).”

2. “THAT the Possible Disposal (as more particularly described in the Circular) as a connected transaction of the Company, all actions taken (or to be taken) by the Company in relation thereto and all other matters contemplated thereunder be and are hereby approved (terms defined in the Circular having the same meanings when used in this resolution).”

By order of the board of directors of eSun Holdings Limited Wong Lai Chun Company Secretary

Hong Kong, 24 April 2020

Registered Office: Head Office and Principal Place of Business:Clarendon House 11th Floor2 Church Street Lai Sun Commercial CentreHamilton HM 11 680 Cheung Sha Wan RoadBermuda Kowloon, Hong Kong

NOTICE OF SGM

– SGM-2 –

Notes:

(1) A Member entitled to attend and vote at the SGM convened by the above notice (“Notice”) or its adjourned meeting (as the case may be) is entitled to appoint one (or, if he/she/it holds two or more shares of the Company (“Shares”), more than one) proxy to attend the SGM and, on a poll, vote on his/her/its behalf in accordance with the Bye-laws of the Company. A proxy need not be a Member. A form of proxy for use at the SGM or its adjournment (as the case may be) is enclosed with this Notice and is also available on the respective websites of the Company and The Stock Exchange of Hong Kong Limited (“Stock Exchange”).

(2) To be valid, a form of proxy, duly signed and completed together with the power of attorney or other authority (if any) under which it is signed (or a notarially certified copy thereof), must be lodged with Tricor Tengis Limited, the branch share registrar of the Company in Hong Kong (“Registrar”), at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the SGM or its adjourned meeting (as the case may be) and in default, the proxy will not be treated as valid. Completion and return of the form of proxy shall not preclude Members from attending in person and voting at the SGM or its adjourned meeting (as the case may be) should they so wish. In that event, the said form(s) of proxy shall be deemed to be revoked.

The contact phone number of the Registrar is (852) 2980 1333.

(3) To ascertain the entitlements to attend and vote at the SGM, Members must lodge the relevant transfer document(s) and share certificate(s) at the office of the Registrar no later than 4:30 p.m. on Thursday, 7 May 2020 for registration.

(4) Where there are joint registered holders of any Shares, any one of such joint holders may attend and vote at the SGM or its adjourned meeting (as the case may be), either in person or by proxy, in respect of such Shares as if he/she/it were solely entitled thereto. However, if more than one of such joint holders are present at the SGM or its adjourned meeting (as the case may be) personally or by proxy, then one of such holders so present whose name stands first in the Register/Branch Register of Members of the Company in respect of such Shares shall alone be entitled to vote in respect thereof.

(5) In compliance with Rule 13.39(4) of the Rules Governing the Listing of Securities on the Stock Exchange, voting on all resolutions proposed in the Notice shall be decided by way of a poll at the SGM.

(6) If a tropical cyclone warning signal No. 8 or above is hoisted or a “black” rainstorm warning signal is in force at any time after 7:00 a.m. on the date of the SGM, the SGM will be postponed. The Company will post an announcement on the respective websites of the Company (www.esun.com) and the Stock Exchange (www.hkexnews.hk) to notify Members of the date, time and venue of the rescheduled SGM.

If a tropical cyclone warning signal No. 8 or above or a “black” rainstorm warning signal is lowered or cancelled at or before 7:00 a.m. on the date of the SGM and where conditions permit, the SGM will be held as scheduled. The SGM will be held as scheduled when an amber or red rainstorm warning signal is in force.

Having considered their own situations, Members should decide on their own whether they would attend the SGM under a bad weather condition and if they do so, they are advised to exercise care and caution.

(7) Members are advised to read the circular of the Company dated 24 April 2020 (“Circular”) which contains information concerning the resolutions to be proposed in the SGM.

NOTICE OF SGM

– SGM-3 –

(8) Considering the outbreak of the novel coronavirus (COVID-19), certain measures will be implemented at the SGM with a view to addressing the risk to attendees of infection, including the following:

(a) all attendees will be required to undergo body temperature check;

(b) all attendees will be required to complete a health declaration form (a copy of the form is enclosed with the Circular), which may be used for contact tracing, if required;

(c) any attendees who are subject to health quarantine prescribed by the Government of the HKSAR will not be admitted to the venue of the SGM;

(d) all attendees will be required to wear surgical face masks throughout the SGM;

(e) each attendee will be assigned a designated seat at the time of registration to ensure social distancing;

(f) any person who does not comply with the measures above may be denied entry into, or be required to leave, the venue of the SGM; and

(g) no refreshments or beverages will be provided, and there will be no corporate gifts.

(9) The Company reminds Shareholders that they should carefully consider the risks of attending the SGM, taking into account their own personal circumstances. The Company would like to remind Shareholders that physical attendance in person at the SGM is not necessary for the purpose of exercising their voting rights and strongly recommends that Shareholders appoint the Chairman of the SGM as their proxy and submit their form of proxy as early as possible. In light of the risks posed by the COVID-19 pandemic, the Company strongly encourages Shareholders NOT to attend the SGM in person.

(10) The Company will keep the evolving COVID-19 situation under review and may implement additional measures (which it will announce closer to the date of the SGM).