QIAN FENG FABRIC TECH LIMITED (Company Registration No ) (Incorporated in Bermuda)

Transcription

1 QIAN FENG FABRIC TECH LIMITED (Company Registration No ) (Incorporated in Bermuda) Directors: Registered Office: Lin Daoqin (Executive Chairman & CEO) Clarendon House Su Chi-ho (Executive Director & Chief Operating Officer) 2 Church Street Liu Xiujin (Executive Director & Chief Administration and Hamilton HM 11 Human Resources Officer) Bermuda Teo Moh Gin (Independent Director) Soh Chun Bin (Independent Director) Lin Guohua (Non-Executive Director) 13 April 2010 To: The Shareholders of the Qian Feng Fabric Tech Limited Dear Sir/Madam, RENEWAL OF SHARE BUYBACK MANDATE 1. BACKGROUND 1.1 We refer to (a) the draft notice of the 2010 Annual General Meeting ( AGM ) of the Shareholders of Qian Feng Fabric Tech Limited ( Company ) dated 13 April 2010 ( Notice of AGM ), accompanying the Annual Report 2009 of the Company, convening the AGM to be held on 29 April 2010; and Ordinary Resolution No. 9 under the heading Special Business set out in the Notice of AGM. 1.2 The purpose of this letter is to provide the Shareholders with information relating to the abovementioned proposal to be tabled at the AGM. 1.3 At the Special General Meeting ( SGM ) of the Company held on 29 April 2009, Shareholders had approved the grant of a mandate ( Share Buyback Mandate ) to enable the Company to purchase or otherwise acquire the issued ordinary shares in the capital of the Company ( Shares ). The rationale for, the authority and limitations on, and the financial effects of, the Share Buyback Mandate were set out in the Company s circular to Shareholders dated 11 April The Share Buyback Mandate will expire on the date of the forthcoming AGM, being 29 April The Directors propose that the Share Buyback Mandate be renewed at the forthcoming AGM. 1.5 The SGX-ST assumes no responsibility for the correctness of any statements made, reports contained or opinions expressed in this letter. 1.6 In this Letter to the Shareholders, the following definitions have the following meanings unless otherwise stated: Act : The Companies Act (Chapter 50) of Singapore, as amended, modified or supplemented from time to time Bermuda Companies : The Companies Act 1981 of Bermuda, as amended or modified Act from time to time 1

2 Board or Board of : The board of directors of the Company Directors Bye-Laws : The bye-laws of the Company as amended, supplemented or modified from time to time CDP : The Central Depository (Pte) Limited Company : Qian Feng Fabric Tech Limited Depositors : The term Depositors shall have the meaning ascribed to it by section 130A of the Act Director : A director for the time being of the Company EPS : Earnings per Share FY or Financial Year : Financial year ended 31 December Group : The Company and its subsidiaries Latest Practicable : 9 April 2010 being the latest practicable date prior to the printing Date of this Circular Listing Manual : The listing manual of the SGX-ST Listing Rules : Rules of the Listing Manual, as amended or modified from time to time Market Day : A day on which the SGX-ST is open for trading of securities Maximum Price : Shall have the meaning ascribed to it in Section 3.4 at page 6 of this Circular NTA : Net tangible assets Relevant Period : Assuming the renewal of the Share Buyback Mandate is approved, the period commencing from the date the SGM was held and expiring on the date of the next AGM (or the date on which the next AGM is required by law to be held, whichever is the earlier), unless prior thereto, share buybacks are carried out to the full extent mandated or the Share Buyback Mandate is revoked or varied by the Company in a general meeting. RMB : Renminbi, the lawful currency of the People s Republic of China SGM : The special general meeting of the Shareholders SGX-ST : Singapore Exchange Securities Trading Limited Share Buyback : The mandate approved by the Shareholders of the Company at Mandate the SGM held on 28 April 2009 to authorize the Directors to purchase or otherwise acquire its Shares. Shares : Ordinary shares in the capital of the Company Shareholders : Registered holders of the Shares 2

3 Substantial : A person who has an interest of 5.0% or more of the total issued Shareholder share capital of the Company S$, SGD or $ : Singapore dollars and cents respectively, the lawful currency of and cents the Republic of Singapore Take-over Code : The Singapore Code on Take-overs and Mergers, as amended and modified from time to time USD : American dollars, the lawful currency of the U.S.A. % : Percentage and per centum The terms Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Act. Any reference in this Circular to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any word defined under the Act, the Bermuda Companies Act or any statutory modification thereof and used in this Circular shall have the meaning assigned to it under the said Act or the Bermuda Companies Act. Words importing the singular number shall include the plural number where the context admits and vice versa. Words importing the masculine gender shall include the feminine gender where the context admits. Reference to persons shall, where applicable, include corporations.any reference to a time of a day in this Circular is a reference to Singapore time. 2. THE PROPOSED RENEWAL OF THE SHARE BUYBACK MANDATE 2.1 Rationale The Directors constantly seek to increase Shareholders value and to improve, inter alia, the return on equity of the Group. A share buyback at the appropriate price level is one of the ways through which the return on equity of the Group may be enhanced. Share buybacks provide the Company with a mechanism to facilitate the return of surplus cash over and above its ordinary capital requirements in an expedient, effective and cost-efficient manner. It will also provide the Directors with greater flexibility over the Company s share capital structure with a view to enhancing the EPS and/or NTA per Share. The Directors further believe that share buybacks by the Company will help mitigate short-term market volatility, offset the effects of short-term speculation and bolster shareholder confidence. In addition, subject to the Bermuda Companies Act, the Share Buyback Mandate may be used to purchase existing Shares which may then be held in treasury, and the Company may deal with such treasury shares in such manner as may be permitted under the Act. If and when circumstances permit, the Directors will decide whether to effect the share purchases via market purchases or off-market purchases, after taking into account the amount of surplus cash available, the prevailing market conditions and the most cost-effective and efficient approach. The Directors will only carry out the share buybacks as and when they consider it to be in the best interest of the Company; and in circumstances that they believe would not result in a material adverse effect on the liquidity and/or the orderly trading of the Shares and/or the financial position of the Group. 3

4 2.2 Mandate Approval is being sought from Shareholders at the AGM for the renewal of the Share Buyback Mandate for the purchase or acquisition by the Company of its issued Shares. If approved, the renewal of the Share Buyback Mandate will take effect from the date of the AGM and the Share Buyback Mandate will continue in force up to the conclusion of the next AGM or the date on which the next AGM is required by law to be held, unless prior thereto, share buybacks are carried out to the full extent mandated or the Share Buyback Mandate is revoked or varied by the Company in a general meeting. It is presently intended that the Share Buyback Mandate will be put to Shareholders for renewal at each subsequent AGM. 3. THE TERMS OF THE SHARE BUYBACK MANDATE The authority and limitations placed on the share buyback by the Company under the Share Buyback Mandate, if renewed at the AGM, are the same as previously by the Shareholders at the SGM on 28 April 2009 and are summarised as follows:- 3.1 Maximum number of Shares Only Shares which are issued and fully paid-up may be purchased or acquired by the Company. The total number of Shares that may be purchased or acquired by the Company is limited to that number of Shares representing not more than 10% of the issued ordinary share capital of the Company as at the date of the SGM at which the Share Buyback Mandate is approved ( Approval Date ), unless the Company has effected a reduction of the share capital of the Company in accordance with the applicable provisions of the Bermuda Companies Act, at any time during the Relevant Period, in which event the issued ordinary share capital of the Company shall be taken to be the amount of the issued ordinary share capital of the Company as altered (excluding any treasury shares that may be held by the Company from time to time). For illustrative purposes, on the basis of the existing issued and paid-up capital of the Company as at the Latest Practicable Date of approximately USD$24,500,107 comprising 490,002,148 Shares, and assuming that no further Shares are issued on or prior to the SGM, not more than 49,000,214 Shares (representing 10% of the issued ordinary share capital of the Company as at that date) may be purchased or acquired by the Company pursuant to the Share Buyback Mandate. 3.2 Duration of authority Purchases or acquisitions of Shares may be made, at any time and from time to time, on and from the Approval Date, up to the earlier of: (a) (c) the conclusion of the next AGM or the date on which the next AGM is required by law to be held; the date on which the share buybacks are carried out to the full extent mandated; or the date on which the authority contained in the Share Buyback Mandate is varied or revoked by Shareholders in a general meeting. 3.3 Manner of purchases or acquisitions of Shares Purchases of Shares may be made by way of: (a) on-market purchases, transacted through any electronic trading system for the automatic matching of orders designated and approved by SGX-ST for transactions on SGX-ST or through one or more duly licensed stockbrokers appointed by the Company for the purpose ( Market Purchase ); and/or off-market purchases (if effected otherwise than on the SGX-ST) in accordance with an equal access scheme as may be determined or formulated by the Directors as they may consider fit, which scheme shall satisfy all the conditions prescribed by the Companies Act and the Listing Rules ( Off-Market Purchase ). 4

5 The Directors may impose such terms and conditions which are consistent with the Share Buyback Mandate, the Listing Rules and the Act, as they consider fit in the interests of the Company in connection with or in relation to an equal access scheme or schemes. Under the Act, an equal access scheme must satisfy all the following conditions: (a) (c) offers for the purchase or acquisition of issued shares shall be made to every person who holds issued Shares to purchase or acquire the same percentage of their issued Shares; all of those persons shall be given a reasonable opportunity to accept the offers made to them; and the terms of all the offers are the same, except that there shall be disregarded: (i) (ii) (iii) differences in consideration attributable to the fact that offers may relate to Shares with different accrued dividend entitlements; (if applicable) differences in consideration attributable to the fact that offers relate to Shares with different amounts remaining unpaid; and differences in the offers introduced solely to ensure that each person is left with a whole number of Shares. Listing Manual provides that, in making an Off-Market Purchase, the Company must issue an offer document to all Shareholders which must contain at least the following information: (a) (c) the terms and conditions of the offer; the period and procedures for acceptances; the reasons for the proposed share buyback; (d) (e) (f) (g) the consequences, if any, of share buybacks by the Company that will arise under the Takeover Code or other applicable take-over rules; whether the share buyback, if made, could affect the listing of the Shares on the SGX-ST; details of any share buyback made by the Company in the previous twelve (12) months (whether Market Purchases or Off-Market Purchases in accordance to an equal access scheme), giving the total number of Shares purchased, the purchase price per Share or the highest and lowest prices paid for the purchases, where relevant, and the total consideration paid for the purchases; and whether the Shares purchased by the Company will be cancelled or kept as treasury shares. 3.4 Maximum Purchase Price The purchase price per Share (excluding brokerage, stamp duties, applicable goods and services tax and other related expenses) to be paid for the Shares will be determined by the Directors. However, the purchase price to be paid for a Share as determined by the Directors must not exceed: (a) in the case of a Market Purchase, one hundred and five per cent. (105%) of the Average Closing Price (as defined hereinafter); and in the case of an Off-Market Purchase pursuant to an equal access scheme, one hundred and twenty per cent. (120%) of the Highest Last Dealt Price (as defined hereinafter), (the Maximum Price ) in either case, excluding related expenses of the purchase. 5

6 For the above purposes: Average Closing Price means the average of the closing market prices of a Share over the last five (5) Market Days, on which transactions in the Shares were recorded, preceding the day of the Market Purchase, and deemed to be adjusted for any corporate action that occurs after the last five (5) Market Day period; Highest Last Dealt Price means the highest price transacted for a Share as recorded on the Market Day on which there were trades in the Shares immediately preceding the day of the making of the offer pursuant to the Off-Market Purchase; and day of the making of the offer means the day on which the Company announces its intention to make an offer for the purchase of Shares from Shareholders, stating the purchase price (which shall not be more than the Maximum Price calculated on the foregoing basis) for each Share and the relevant terms of the equal access scheme for effecting the Off-Market Purchase. 4. STATUS OF PURCHASED SHARES 4.1 Cancellation Under Bermuda law, a share purchased or acquired by a Bermuda company is treated as cancelled immediately on purchase or acquisition (and all rights and privileges attached to the share will expire on such cancellation) unless the company is authorised by its memorandum of association or bye-laws to purchase or acquire its own shares to be held as treasury shares and such shares are purchased to be held as treasury shares. If the purchased or acquired shares are cancelled, the amount of the company s issued share capital, but not its authorised share capital, shall be diminished by the nominal value of those shares. Under the Company s current Bye-Laws, the Company is permitted to hold purchased Shares as treasury shares. 4.2 Treasury Shares Under the Bermuda Companies Act, a company may, if authorised by its memorandum of association or bye-laws, purchase its own shares to be held as treasury shares. Any or all of the shares so purchased may be cancelled (in which event, the company s issued, but not its authorised, capital will be diminished accordingly by the nominal value of those shares) or may be held as treasury shares or may be disposed or transferred by the company for cash or other consideration. Under the laws of Bermuda, if a company holds shares as treasury shares, the company shall be entered in the register of members as the member holding the shares but the company is not permitted to exercise any rights in respect of those shares (including any right to attend and vote at meetings) and no dividend or other distribution (whether in cash or otherwise) shall be paid or made to the company in respect of such shares. No acquisition by a company of its own shares regardless whether to be held as treasury shares or to be cancelled may be effected if, on the date on which the acquisition is to be effected, there are reasonable grounds for believing that the company is, or after the acquisition would be, unable to pay its liabilities as they become due. Additionally, a company may not acquire its own shares to be held as treasury shares if, as a result of the acquisition, all of the company s issued shares, other than the shares to be held as treasury shares, would be non-voting shares. A company that acquires its own shares to be held as treasury shares may: (a) (c) hold all or any of the shares; dispose of or transfer all or any of the shares for cash or other consideration; or cancel all or any of the shares. 6

7 Under the Listing Manual, immediate announcement must be made of any sale, transfer, cancellation and/or use of treasury shares (in each case, the usage ). Such announcement must include details such as the date of the usage, the purpose of the usage, the number of treasury shares comprised in the usage, the number of treasury shares before and after the usage, and the percentage of the number of treasury shares comprised in the usage against the total number of issued shares (of the same class as the treasury shares) which are listed on the SGX-ST before and after the usage. 5. SOURCE OF FUNDS FOR SHARE BUYBACK The Company may only apply funds for the purchase or acquisition of the Shares as provided in the Bye-Laws and in accordance with the applicable laws in Singapore and Bermuda. The Company may not purchase its Shares for a consideration other than in cash or, in the case of a Market Purchase, for settlement otherwise than in accordance with the trading rules of the SGX- ST. The Bermuda Companies Act permits the Company to purchase or acquire its own Shares out of capital paid up on the purchased Shares, or from funds of the Company which would otherwise be available for dividend or distribution, or out of the proceeds of a fresh issue of shares made for the purpose of the purchase, and the premium payable on the purchase (i.e. the amount paid in excess of the nominal value of the Shares to be purchased) must be provided for out of the funds of the Company which would otherwise be available for dividend or distribution, or out of the Company s share premium account before the Shares are purchased. The Bermuda Companies Act provides that any amount due to a shareholder on a purchase by a company of its own shares may (i) be paid in cash; (ii) be satisfied by the transfer of any part of the undertaking or property of the company having the same value; or (iii) be satisfied partly under (i) and partly under (ii). Notwithstanding the foregoing, the Company intends that any amount due to a shareholder on a purchase by the Company of its own shares will be paid in cash. Any purchase by a company of its own shares may be authorised by its board of directors or otherwise by or in accordance with the provisions of its bye-laws. Apart from using its internal sources of funds, the Company may obtain or incur borrowings to finance its purchase or acquisition of Shares. 6. FINANCIAL EFFECTS The financial effects on the Company and the Group arising from purchases or acquisition of Shares which may be made pursuant to the Share Buyback Mandate will depend on, inter alia, the number of Shares purchased or acquired, the price paid for such Shares and whether the Shares purchased or acquired are held in treasury or cancelled. 6.1 Purchase or Acquisition out of Capital or Profits Where the consideration paid by the Company for the purchase or acquisition of Shares is made out of profits, such consideration (after deducting related brokerage, goods and services tax, stamp duties and clearance fees) will correspondingly reduce the amount available for the distribution of cash dividends by the Company. Where the consideration paid by the Company for the purchase or acquisition of Shares is made out of capital, the consideration (after deducting related brokerage, goods and services tax, stamp duties and clearance fees) will not reduce the amount available for the distribution of cash dividends by the Company. 6.2 Information as at the Latest Practicable Date As at the Latest Practicable Date, the issued capital of the Company comprised 490,002,148 Shares. 7

8 6.3 Illustrative Financial Effects There are eight possible scenarios of purchase or acquisition of Shares by the Company pursuant to the Share Buyback Mandate based on the following assumptions: (a) the Maximum Price paid per Share purchased or acquired is as stated in paragraph 3.4 above; (c) (d) (e) (f) the Company has 490,002,148 Shares as at the Latest Practicable Date, and assuming that no further shares are issued or repurchased, and no Shares are held by the Company as treasury shares on or prior to the SGM; the purchase of Shares is financed entirely by the internal resources of the Company; the maximum number of Shares that can be purchased or acquired is 49,000,214 (being ten per cent (10%) of the Company s total issued shares capital as at the Latest Practicable Date). However, having regard to the cash and bank balances of the Company as at 31 December 2009 approximately RMB284,490,000 and the source of funds for the purchase and acquisition of Shares is solely from internal resources of the Company, the maximum number of Shares to be purchased or acquired will be limited to the number of Shares that can be acquired with RMB284,490,000 and the Maximum Price; the transaction costs incurred for the purchase of acquisition of Shares pursuant to the Share Buyback Mandate is insignificant and have been ignored for the purpose of computing the financial effects,; and The foreign exchange rate between SGD and RMB as at the Latest Practicable Date is SGD1 : RMB Eight possible scenarios of purchase or acquisition of Shares by the Company pursuant to the Share Buyback Mandate Purchase out of capital Scenario 1A 1B 1C 1D Out of Capital Capital Capital Capital Type Market Market Off-Market Off-Market Held as Held as Status of Shares bought back treasury shares Cancelled treasury shares Cancelled Maximum Price per Share S$0.084 S$0.084 S$0.096 S$0.096 Maximum number of Shares to be purchased or acquired 49,000,214 49,000,214 49,000,214 49,000,214 Equivalent % of issued shares 10% 10% 10% 10% Total funds required (RMB) 20,031,836 20,031,836 22,893,527 22,893,527 Notes: (1) Assuming the Average Closing Price for last five (5) Market Days and the last deal price equals to S$0.08. (2) The foreign exchange rate between SGD and RMB as at the Latest Practicable Date is SGD1 : RMB

9 Purchase out of retained earnings Scenario 2A 2B 2C 2D Out of Retained Retained Retained Retained earning earning earning earning Type Market Market Off-Market Off-Market Held as Cancelled Held as Cancelled Status of Shares bought back treasury shares treasury shares Maximum Price per Share S$0.084 S$0.084 S$0.096 S$0.096 Maximum number of Shares to be purchased or acquired 49,000,214 49,000,214 49,000,214 49,000,214 Equivalent % of issued shares 10% 10% 10% 10% Total funds required (RMB) 20,031,836 20,031,836 22,893,527 22,893,527 Notes: (1) Assuming the Average Closing Price for last five (5) Market Days and the last deal price equals to S$0.08. (2) The foreign exchange rate between SGD and RMB as at the Latest Practicable Date is SGD1 : RMB On the above assumptions, the impact of the purchase of Shares by the Company undertaken in accordance with the Share Buyback Mandate on the Company s and the Group s audited financial statements for Financial Year 2009 is as follows: FY 2009 Scenario 1A 1B 1C 1D Before share After share buyback buyback RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Share Capital and premium 237, , , , ,289 Retained earnings 180, , , , ,229 Other reserves (20,099) (20,099) (20,099) (20,099) (20,099) Treasury shares (20,032) (22,894) Total Shareholders fund 397, , , , ,419 Net assets (1) 397, , , , ,419 Current assets 334, , , , ,809 Current Liabilities 41,420 41,420 41,420 41,420 41,420 Total Borrowings 11,024 11,024 11,024 11,024 11,024 Number of shares in issue ( 000) (excluding treasury shares) (2) 490, , , , ,002 Number of treasury Shares ( 000) 49,000 49,000 Net profit attributable to Shareholders of the Company 44,709 44,709 44,709 44,709 44,709 Financial Ratios Net assets per share (RMB cents) (4) EPS (RMB cents) (3) Gearing (Times) (5) Current Ratio (Times) (6)

10 Scenario 2A 2B 2C 2D Before FY 2009 share After share buyback buyback RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Share Capital and premium 237, , , , ,183 Retained earnings 180, , , , ,335 Other reserves (20,099) (20,099) (20,099) (20,099) (20,099) Treasury shares (20,032) (22,894) Total Shareholders fund 397, , , , ,419 Net assets (1) 397, , , , ,419 Current assets 334, , , , ,809 Current Liabilities 41,420 41,420 41,420 41,420 41,420 Total Borrowings 11,024 11,024 11,024 11,024 11,024 Number of shares in issue ( 000) (excluding treasury shares) (2) 490, , , , ,002 Number of treasury Shares ( 000) 49,000 49,000 Net profit attributable to Shareholders of the Company 44,709 44,709 44,709 44,709 44,709 Financial Ratios Net assets per share (RMB cents) (4) EPS (RMB cents) (3) Gearing (Times) (5) Current Ratio (Times) (6) Notes: (1) Net assets equal to Shareholders funds. (2) Based on the number of issued Shares at the Latest Practicable Date and adjusted for the effect of the share buyback. (3) For illustration purposes, EPS is computed based on actual number of issued Shares less treasury shares instead of weighted average number of shares. (4) For illustration purposes, net assets per share is computed based on actual number of issued Shares less treasury shares. (5) Gearing equals total borrowings divided by shareholders funds. (6) Current ratio equals current assets divided by current liabilities. (7) Exchange rate for RMB/SGD is : 1 for illustration purposes. Shareholders should note that the financial effects set out above are based on the abovementioned assumptions and are purely for illustrative purposes only. Although the Share Buyback Mandate would authorise the Company to purchase or acquire up to 10% of the issued Shares, the Company may not necessarily purchase or acquire or be able to purchase or acquire the entire 10% of the issued Shares. In addition, the Company may cancel all or part of the Shares purchased or hold all or part of the Shares purchased in treasury. The above analysis is based on historical figures for the Financial Year 2009 and is not necessary representative of the Company s or the Group s future financial performance. 10

11 7. LISTING RULES 7.1 The Listing Rules provide that a listed company shall report all purchases or acquisitions of its Shares to SGX-ST not later than 9.00 a.m.: (i) (ii) in the case of a Market Purchase, on the market day following the day of purchase or acquisition of any of its Shares; and in the case of an Off-Market Purchase under an equal access scheme, on the second market day after the close of acceptances of the offer. Such announcement must include details of the total number of Shares purchased and the purchase price per Share or the highest and lowest prices paid for such Shares, as applicable. 7.2 While the Listing Rules do not expressly prohibit any buyback of shares by a listed company of its own shares during any particular time or times, because the listed company would be regarded as an insider in relation to any proposed purchase of its issued shares, the Company will not undertake any share buyback pursuant to the Share Buyback Mandate as the case may be, at any time after any matter or development of a price sensitive nature has occurred or has been the subject of a decision until such price sensitive information has been publicly announced. In particular, in line with the best practices guide on securities dealings issued by SGX-ST, the Company will not purchase or acquire any shares pursuant to the Share Buyback Mandate as the case may be, during the period commencing two (2) weeks immediately preceding the announcement of the Company s financial statements for each of the first three quarters of its financial year and one (1) month immediately preceding the announcement of the Company s financial statements of its full-year and ending on the date of the announcement of the relevant results. 7.3 The Listing Manual requires a listed company to ensure that at least 10% of the total number of issued shares (excluding preference shares, convertible equity securities and treasury shares) in a class that is listed must be held by public shareholders. As at the Latest Practicable Date, approximately 30.33% of the issued Shares are held by public Shareholders. Accordingly, the Company is of the view that there is a sufficient number of the issued Shares held by public Shareholders which would permit the Company to undertake purchases or acquisitions of its Shares through Market Purchases up to the full 10% limit pursuant to the Share Buyback Mandate without affecting the listing status of the Shares on the SGX-ST, and that the number of Shares remaining in the hands of the public will not fall to such a level as to cause market illiquidity or to affect orderly trading. 8. TAX IMPLICATIONS Shareholders who are in doubt as to their respective tax positions or any tax implications, or who may be subject to tax in a jurisdiction outside Singapore, should consult their own professional advisers. 9. TAKE-OVER OBLIGATIONS Appendix 2 of the Take-over Code contains the Share Buyback Guidance Note applicable as at the Latest Practicable Date. The take-over implications arising from any purchase or acquisition by the Company of its Shares are set out below: 9.1 Obligation to make a Take-over Offer If, as a result of any purchase or acquisition by the Company of its Shares, a Shareholder s proportionate interest in the voting capital of the Company increases, such increase will be treated as an acquisition for the purposes of Rule 14 of the Take-over Code. If such increase results in a change of effective control, or, as a result of such increase, a Shareholder or group of Shareholders acting in concert obtains or consolidates effective control of the Company, such Shareholder or group of Shareholders acting in concert could become obliged to make a mandatory take-over offer for the Company under Rule 14 of the Take-over Code. 11

12 9.2 Persons Acting in Concert Under the Take-over Code, persons acting in concert comprise individuals or companies who, pursuant to an agreement or understanding (whether formal or informal), cooperate, through the acquisition by any of them of shares in a company, to obtain or consolidate effective control of that company. Unless the contrary is established, the following persons will, inter alia, be presumed to be acting in concert: (a) (c) (d) (e) (f) (g) (h) a company with any of its directors (together with their close relatives, related trusts as well as companies controlled by any of the directors, their close relatives and related trusts); a company with its parent company, subsidiaries, its fellow subsidiaries, any associated companies of the above companies, and any company whose associated companies include any of the above companies. For this purpose, a company is an associated company of another company if the second company owns or controls at least 20% but not more than 50% of the voting rights of the first-mentioned company; a company with any of its pension funds and employee share schemes; a person with any investment company, unit trust or other fund in respect of the investment account which such person manages on a discretionary basis; a financial or other professional adviser, with its clients in respect of the shareholdings of the adviser and the persons controlling, controlled by or under the same control as the adviser and all the funds which the adviser manages on a discretionary basis, where the shareholding of the adviser and any of those funds in the client total 10% or more of the client s equity share capital; directors of a company, together with their close relatives, related trusts and companies controlled by any of them, which is subject to an offer where they have reason to believe a bona fide offer for their company may be imminent; partners; and an individual, his close relatives, his related trusts, and any person who is accustomed to act according to the instructions and companies controlled by any of the above. The circumstances under which Shareholders of the Company (including Directors of the Company) and persons acting in concert with them respectively will incur an obligation to make a take-over offer under Rule 14 after a purchase or acquisition of Shares by the Company are set out in Appendix 2 of the Take-over Code. 9.3 Effect of Rule 14 and Appendix 2 of the Take-over Code In general terms, the effect of Rule 14 and Appendix 2 is that, unless exempted, Directors of the Company and persons acting in concert with them will incur an obligation to make a take-over offer for the Company under Rule 14 if, as a result of the Company purchasing or acquiring its Shares, the voting rights of such Directors and their concert parties would increase to 30% or more, or if the voting rights of such Directors and their concert parties fall between 30% and 50% of the Company s voting rights, the voting rights of such Directors and their concert parties would increase by more than 1% in any period of six (6) months. Under Appendix 2, a Shareholder not acting in concert with the Directors of the Company will not be required to make a take-over offer under Rule 14 if, as a result of the Company purchasing or acquiring its Shares, the voting rights of such Shareholder in the Company would increase to 30% or more, or, if such Shareholder holds between 30% and 50% of the Company s voting rights, the voting rights of such Shareholder would increase by more than 1% in any period of six (6) months. Such Shareholder need not abstain from voting in respect of the resolution authorising the Share Buyback Mandate. 12

13 However, Shareholders will be subject to the provisions of Rule 14 if they acquire Shares after the Company s share buyback. For this purpose, an increase in the percentage of voting rights as a result of the share buyback will be taken into account in determining whether a Shareholder and persons acting in concert with him have increased their voting rights by more than 1% in any period of six (6) months. Shareholders (including Directors) and their concert parties who hold more than 50% of the Company s voting rights are under no obligation to make a take-over offer if the voting rights of such Shareholders and their concert parties were to increase as a result of the Company purchasing or acquiring Shares. At the Latest Practicable Date, based on the register of Directors and Substantial Shareholders shareholdings maintained by the Company, the shareholdings of the Directors and Substantial Shareholders before and after the renewal of the Share Buyback Mandate (assuming (a) the Company purchased at maximum 49,000,214 Shares, being 10% of the total number of shares in issue, and there was no change in the number of Shares held or deemed to be held by the Directors and Substantial Shareholders) were/would be as follows: Before Purchase After Purchase Total Total Direct Deemed Interest Direct Deemed Interest Directors Interest interest (%) Interest Interest (%) Lin Daoqin (1)(4) 14,400, ,310, % 14,400, ,310, % Su Chi-ho (2) 287,910, % 287,910, % Lin Xiujin (1)(4) 14,400, ,310, % 14,400, ,310, % Soh Chun Bin 200, % 200, % Teo Moh Gin 100, % 100, % Lin Guohua Substantial Shareholders (other than Directors) Qian Feng Group Limited (1)(2)(3)(4) 287,910, % 287,910, % TS Marine Group S.A. (5) 24,450, , % 24,450, , % Patrick Tan Choon Hock (6) 200,000 24,450, % 200,000 24,450, % Notes: (1) Mr Lin Daoqin and Mdm Lin Xiujin are deemed interested in the Shares held by Qian Feng Group Limited (see Note (3) below) and the Shares held by each other. Mr Lin Daoqin and Mdm Lin Xiujin are spouses. (2) Mr Su Chi-ho is deemed interested in the Shares held by Qian Feng Group Limited (see Note (3) below). (3) Qian Feng Group Limited is an investment holding company incorporated in the BVI and is held by Mr Lin Daoqin (60.0%), Mr Su Chi-ho (10.0%) and Mdm Lin Xiujin (30.0%). (4) The Shares held by Lin Daoqin, Lin Xiujin and Qian Feng Group Limited are registered in the name of HL Bank Nominees (Singapore) Pte Ltd. (5) Mr Patrick Tan Choon Hock is deemed to have an interest in the 24,450,000 shares held by TS Marine Group S.A.. Mr Patrick Tan Choon Hock s spouse, Mdm Serene Lee Siew Kin, is the sole shareholder and a director of TS Marine Group S.A.. 13

14 As each of Mr Lin Daoqin, Mr Su Chi-ho and Mdm Lin Xiujin already have a shareholding interest of more than 50% in the Company, the increase in their shareholdings in the event the Company purchases the maximum number of Shares permissible under the Share Buyback Mandate will not require any of them to make a general offer under Rule 14 of the Take-over Code. At the Latest Practicable Date, none of the Directors would become obligated to make a mandatory offer in the event that the Company purchased at maximum 10% of the issued Shares under the Share Purchase Mandate. The Directors are not aware of any fact(s) or factor(s) which suggest or imply that any particular person(s) and/or Shareholder(s) are, or may be regarded as, parties acting in concert such that their respective interests in the Shares should or ought to be consolidated, and consequences under the Take-over Code would ensue as a result of share buyback by the Company pursuant to Share Buyback Mandate. Shareholders are advised to consult their professional advisers and/or the relevant authorities at the earliest opportunity as to whether they would incur any obligation to make a take-over offer as a result of any purchase or acquisition of Shares by the Company pursuant to the Share Buyback Mandate. 10. SHARES PURCHASED BY THE COMPANY The Company has not purchased any of its Shares in the twelve (12) months preceding the date of this Letter. 11. INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS The interests of Directors and Substantial Shareholders of our Company as at the Latest Practicable Date, as recorded in our Company s Register of Directors Shareholdings and the Register of Substantial Shareholders respectively, were as follows: Directors Direct Interest Deemed Interest No. of Shares % No. of Shares % Lin Daoqin (1)(4) 14,400, ,310, Su Chi-ho (2) 287,910, Lin Xiujin (1)(4) 14,400, ,310, Soh Chun Bin 200, Teo Moh Gin 100, Lin Guohua Substantial Shareholders (other than Directors) Qian Feng Group Limited (1)(2)(3)(4) 287,910, TS Marine Group S.A. 24,450, , Patrick Tan Choon Hock (5) 200, ,450, Notes: (1) Mr Lin Daoqin and Mdm Lin Xiujin are deemed interested in the Shares held by Qian Feng Group Limited (see Note (3) below) and the Shares held by each other. Mr Lin Daoqin and Mdm Lin Xiujin are spouses. (2) Mr Su Chi-ho is deemed interested in the Shares held by Qian Feng Group Limited (see Note (3) below). (3) Qian Feng Group Limited is an investment holding company incorporated in the BVI and is held by Mr Lin Daoqin (60.0%), Mr Su Chi-ho (10.0%) and Mdm Lin Xiujin (30.0%). 14

15 (4) The Shares held by Lin Daoqin, Lin Xiujin and Qian Feng Group Limited are registered in the name of HL Bank Nominees (Singapore) Pte Ltd. (5) Mr Patrick Tan Choon Hock is deemed to have an interest in the 24,450,000 shares held by TS Marine Group S.A.. Mr Patrick Tan Choon Hock s spouse, Mdm Serene Lee Siew Kin, is the sole shareholder and a director of TS Marine Group S.A DIRECTORS RECOMMENDATION The Directors are of the opinion that the renewal of the Share Buyback Mandate is in the best interest of the Company. The Directors accordingly recommend that Shareholders vote in favour of the Ordinary Resolution No. 9 relating to the renewal of the Share Buyback Mandate. 13. DIRECTORS RESPONSIBILITY STATEMENT The Directors collectively and individually accept responsibility for the accuracy of the information given in this Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and opinions expressed in this Circular are fair and accurate and that there are no material facts the omission of which would make any statement in this Circular misleading. Yours faithfully Lin Daoqin Chairman For and on behalf of the Board QIAN FENG FABRIC TECH LIMITED 15