Changhong Jiahua Holdings Limited ( 長虹佳華控股有限公司 ) (Incorporated in Bermuda with limited liability) (Stock Code: 8016)

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountants or other professional adviser. If you have sold or transferred all your shares in Changhong Jiahua Holdings Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser and transferee. 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. Characteristics of The Growth Enterprise Market of The Stock Exchange of Hong Kong Limited. GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors. Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM. LR20.67(4), LR19.63(2)(b) LR2.19, LR20.68(1) LR2.20 Changhong Jiahua Holdings Limited ( 長虹佳華控股有限公司 ) (Incorporated in Bermuda with limited liability) (Stock Code: 8016) LR17.52A MAJOR AND CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE FINANCIAL SERVICES AGREEMENT BETWEEN CHANGHONG IT INFORMATION PRODUCTS CO., LTD AND SICHUAN CHANGHONG GROUP FINANCE CO., LTD AND NOTICE OF SPECIAL GENERAL MEETING Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders REORIENT Financial Markets Limited A letter from the Board is set out on pages 4 to 12 of this circular. A letter from the Independent Board Committee is set out on pages 13 to 14 of this circular. A letter from the Independent Financial Adviser is set out on pages 15 to 29 of this circular. A notice convening the SGM to be held at Unit 3701, 37/F, West Tower, Shun Tak Centre, Connaught Road Central, Hong Kong on Friday, 15 May 2015 at 11:00 a.m. is set out on pages 39 to 40 of this circular. A form of proxy for use at the SGM, together with the reply slip, is enclosed with this circular. A form of proxy for the SGM is enclosed with this circular. Whether or not you intend to attend the SGM, you are requested to complete and return the form of proxy in accordance with the instructions printed on it. The form of proxy should be returned to the Hong Kong share registrar of the Company, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for the SGM or any adjournment thereof. If you intend to attend the SGM in person or by proxy, you are required to complete and return the reply slip to the share registrar of the Company, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, on or before 4:30 p.m., 12 May Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish. Date: 28 April 2015

2 CONTENT Page DEFINITIONS LETTER FROM THE BOARD Introduction Financial Services Agreement SGM Recommendations Additional Information LETTER FROM THE INDEPENDENT BOARD COMMITTEE LETTER FROM INDEPENDENT FINANCIAL ADVISER APPENDIX I FINANCIAL INFORMATION OF THE GROUP APPENDIX II GENERAL INFORMATION NOTICE OF SGM i -

3 DEFINITIONS In this circular, the following expressions have the following meanings unless the context otherwise requires: associates Board CBRC Changhong Finance Changhong (Hong Kong) Fit Generation Changhong IT Company Director(s) Financial Services Financial Services Agreement GEM GEM Listing Rules has the meaning ascribed thereto in the GEM Listing Rules the board of Directors China Banking Regulatory Commission Sichuan Changhong Group Finance Co., Ltd, a company established in the PRC and owned as to 50% by Sichuan Changhong, and 50% by Sichuan Changhong Electric Changhong (Hong Kong) Trading Limited, a wholly-owned subsidiary of Sichuan Changhong Electric. As at the Latest Practicable Date, 16,000,000 Shares were held by Changhong (Hong Kong) Fit Generation Holding Limited, a wholly-owned subsidiary of Changhong (Hong Kong). As at the Latest Practicable Date, 897,000,000 Shares were held by Fit Generation Changhong IT Information Products Co., Ltd, a company established under the laws of the PRC and a wholly-owned subsidiary of the Company Changhong Jiahua Holdings Limited, a company incorporated in Bermuda with limited liability, the Shares of which are listed on the GEM director(s) of the Company the financial services to be provided by Changhong Finance to Changhong IT pursuant to the Financial Services Agreement, including (i) deposit services; (ii) loan services; and (iii) settlement services the financial services agreement entered into on 26 March 2015 by Changhong IT and Changhong Finance pursuant to which Changhong Finance agreed to provide certain Financial Services to Changhong IT the Growth Enterprise Market of the Stock Exchange Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited - 1 -

4 DEFINITIONS Group Hong Kong HK$ Independent Board Committee Independent Financial Adviser or REORIENT Independent Shareholders Latest Practicable Date PBOC PRC RMB SFO the Company and its subsidiaries the Hong Kong Special Administrative Region of the PRC Hong Kong dollars, the lawful currency of Hong Kong an independent committee of the Board comprising of all the independent non-executive Directors, namely Mr. Jonathan Chan Ming Sun, Mr. Robert Ip Chun Chung, Mr. Sun Dongfeng and Mr. Cheng Yuk Kin REORIENT Financial Markets Limited, the independent financial adviser to the Independent Board Committee and the independent Shareholders, a corporation licensed under the SFO to carry out type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) activities the Shareholders other than those with material interest in the Financial Services Agreement who are required to abstain from voting under the GEM Listing Rules to approve the transactions under the Financial Services Agreement 24 April 2015, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion herein the People s Bank of China, the central bank of the PRC the People s Republic of China Renminbi, the lawful currency of the PRC the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) SGM the special general meeting of the Company to be held at 11:00 a.m. on Friday, 15 May 2015 at Unit 3701, 37/F, West Tower, Shun Tak Centre, Connaught Road Central, Hong Kong, or any adjournment thereof Shareholder(s) Shares holder(s) of the Shares shares of HK$0.025 each of the Company - 2 -

5 DEFINITIONS Sichuan Changhong Sichuan Changhong Electric Stock Exchange Supervisor(s) Sichuan Changhong Electric Co., Limited, a company established under the laws of the PRC with limited liability, the issued A- shares of which are listed on the Shanghai Stock Exchange (stock code: SH) and owns, together with its wholly-owned subsidiaries, 69.32% of the Company Sichuan Changhong Electronics Group Co., Ltd., a company established under the laws of the PRC and which holds approximately 23.19% of the equity interest of Sichuan Changhong as at the date of this announcement The Stock Exchange of Hong Kong Limited supervisor(s) of the Company - 3 -

6 LETTER FROM THE BOARD Changhong Jiahua Holdings Limited ( 長虹佳華控股有限公司 ) (Incorporated in Bermuda with limited liability) (Stock Code: 8016) Executive Directors: Mr. Zhao Yong Mr. Zhu Jianqiu Mr. Yu Xiao Mr. Tang Yun Mr. Wu Xiangtao Ms. Shi Ping Independent Non-Executive Directors: Mr. Jonathan Chan Ming Sun Mr. Robert Ip Chun Chung Mr. Sun Dongfeng Mr. Cheng Yuk Kin Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda Head office and principal place of business in Hong Kong: Unit 3701, 37/F West Tower Shun Tak Centre Connaught Road Central LR17.52A 28 April 2015 To the Shareholders Dear Sir or Madam, MAJOR AND CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE FINANCIAL SERVICES AGREEMENT BETWEEN CHANGHONG IT INFORMATION PRODUCTS CO., LTD AND SICHUAN CHANGHONG GROUP FINANCE CO., LTD AND NOTICE OF SPECIAL GENERAL MEETING LR20.68(3) INTRODUCTION Reference is made to the announcement of the Company dated 26 March 2015 in relation to the Financial Services Agreement. LR20.68(2) The purpose of this circular is to provide you with, among other things, (i) further details of the Financial Services Agreement and the Financial Services contemplated thereunder and the proposed annual caps for the relevant Financial Services for the three years ending 31 December 2017; (ii) the - 4 -

7 LETTER FROM THE BOARD recommendation from the Independent Board Committee in respect of the Financial Services Agreement; and (iii) the advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Financial Services Agreement. FINANCIAL SERVICES AGREEMENT On 26 March 2015, the Financial Services Agreement was entered into between Changhong IT and Changhong Finance, pursuant to which Changhong Finance agreed to provide Financial Services to Changhong IT in accordance with the terms and conditions of the Financial Services Agreement. LR20.68(2), LR19.60(1), LR19.63(1), LR19.63(2)(a) Particulars of the Financial Services Agreement are as follows: Date: 26 March 2015 LR19.58(4) Parties: Changhong IT, a wholly-owned subsidiary of the Company Changhong Finance Term: Nature of transactions: Effectiveness Pricing and Payment terms: A fixed term from the date of the Financial Services Agreement and ending on 31 December 2017 (both dates inclusive) Provision of Financial Services, including but not limited to, (i) deposit services; (ii) loan services; and (iii) settlement services If approval of the Independent Shareholders is required under the GEM Listing Rules, the Financial Services Agreement will only become effective upon obtaining such approval. In relation to the deposit services pursuant to the Financial Services Agreement, the interest rate applicable to any deposits make available by Changhong IT to Changhong Finance will be determined in the ordinary course of business and shall not be less than (i) the minimum interest rate prescribed by PBOC at such relevant time, which is 0.35% per annum as at the Latest Practicable Date; and (ii) the interest rate available to Changhong IT from other major commercial banks in the PRC independent to Changhong IT in respect of the same type of deposits. The Group is at its own discretion to elect the amount of deposit to be deposited with Changhong Finance it requires. Funds to be deposited by the Group under the Financial Services Agreement are from the internal resources of the Group

8 LETTER FROM THE BOARD In relation to the loan services pursuant to the Financial Services Agreement, the interest rate of the loans to be granted by Changhong Finance to Changhong IT will be determined in the ordinary course of business and shall not be higher than (i) the maximum interest rate prescribed by PBOC at such relevant time, which is 5.35% per annum as at the Latest Practicable Date; and (ii) the interest rate charged against Changhong IT by other major commercial banks in the PRC independent to Changhong IT in respect of the same type of loans. In relation to the settlement services pursuant to the Financial Services Agreement, the settlement service fees to be charged by Changhong Finance will be determined in the ordinary course of business and shall not exceed the fees charged by other settlement services providers independent to Changhong IT in respect of the same type of settlement services. PROPOSED ANNUAL CAPS AND BASIS OF DETERMINATION FOR ANNUAL CAPS LR20.67(3) The proposed annual caps for the periods ending 31 December 2015, 2016 and 2017 for each of (i) deposit services; (ii) loan services; and (iii) settlement services are determined with reference to their respective market rates. Changhong IT will continue to observe the rates from other similar service providers to ensure that the services provided pursuant to the Financial Services Agreement is fair and reasonable and in the interests of its Shareholders as a whole and that the fair market principles for the Company using such financial services is maintained. The annual caps for each of (i) deposit services; (ii) loan services; and (iii) settlement services under the Financial Services Agreement are set forth as below: Deposit Services LR20.68(5), LR19.58(5) The annual caps for the deposit services pursuant to the Financial Services Agreement are as follows: Annual cap for the year ending 31 December 2015 Annual cap for the year ending 31 December 2016 Annual cap for the year ending 31 December 2017 (RMB 000 per day) (RMB 000 per day) (RMB 000 per day) Maximum daily outstanding balance of deposits to be deposited by Changhong IT with Changhong Finance (including interest accrued and handling fees thereon) 500, , ,

9 LETTER FROM THE BOARD The above annual caps are subject to the conditions that (i) the total deposit amount deposited by Changhong IT not exceeding 30% of the total deposit amount taken by Changhong Finance; and (ii) the total deposits by Changhong IT with Changhong Finance not exceeding the maximum amount of credit line to be provided by Changhong Finance to Changhong IT (including loans, guarantees and acceptances issued). The annual caps for the deposit amount was determined based on arm s length negotiation between the parties to the Financial Services Agreement, taking into account the effectiveness and reasonableness of the financial management of Changhong IT and Changhong Finance. The annual caps for the deposit amount were determined based on the maximum amount of credit line available by Changhong Finance to Changhong IT. Changhong IT and Changhong Finance should jointly cooperate in monitoring the compliance of the proposed annual caps. LR 19.58(6) Loan Services The annual caps for the loans services pursuant to the Financial Services Agreement are as follows: LR20.68(5) Annual cap for the year ending 31 December 2015 Annual cap for the year ending 31 December 2016 Annual cap for the year ending 31 December 2017 (RMB 000) (RMB 000) (RMB 000) Maximum daily outstanding balance of loans to be granted by Changhong Finance to Changhong IT (including interest accrued and handling fees thereon) 500, , ,000 The annual cap for the loans amount to be provided by Changhong Finance to Changhong IT pursuant to the Financial Services Agreement are determined with reference to the expected business development needs and the increasing funding requirement in light of the business demand of Changhong IT, taking into account of the source of funding required that is necessary for Changhong IT s operations and expected growth. Changhong IT should assist Changhong Finance in monitoring the implementation of the maximum outstanding balance

10 LETTER FROM THE BOARD Settlement Services The annual caps for the settlement services pursuant to the Financial Services Agreement are as follows: LR20.68(5) Annual cap for the year ending 31 December 2015 Annual cap for the year ending 31 December 2016 Annual cap for the year ending 31 December 2017 (RMB 000) (RMB 000) (RMB 000) Maximum service fees for the settlement services to be provided by Changhong Finance to Changhong IT 5,000 5,000 5,000 The annual cap for the service fees for the settlement services to be provided by Changhong Finance to Changhong IT pursuant to the Financial Services Agreement is determined with reference to the expected settlement fees that will be derived from the maximum expected deposit and loan services required by Changhong IT from Changhong Finance. REASONS FOR AND BENEFITS OF ENTERING INTO THE FINANCIAL SERVICES AGREEMENT LR20.67(1) Changhong Finance is a non-bank financial institution established in the PRC on 23 August 2013 and approved by CBRC on 20 August 2013 to provide a range of financial services including but not limited to depository, loan, settlement, bill discounting, guarantees and other financial services approved by the CBRC. The standing of Changhong Finance as a financial institution in the PRC is subject to annual review by the CBRC and the relevant regulations in the PRC, and its pricing policies and the operation of which are subject to guidelines issued by CBRC. Accordingly, despite that Changhong Finance is not a licensed bank in the PRC, it is a regulated financial institution subject to compliance of the relevant regulations in the PRC. Based on the foregoing, the Directors are of the view that the interests of the shareholders will not be hindered as a result of the deposit arrangement with Changhong Finance under the Financial Services Agreement. The deposit interest rates and the lending rates offered by Changhong Finance to Changhong IT will be equal to or more favorable to Changhong IT than those offered by independent commercial banks in the PRC to Changhong IT for comparable deposits or, as the case may be, loans. The Financial Services Agreement is therefore expected not only to provide Changhong IT with new means of financing but also to improve the efficiency of the use of its funds through higher interest income and lower costs of financing. Changhong IT is also expected to be in a better position to manage the security of its funds since it is not considered to be exposed to any significant capital risk. Further, by entering into the Financial Services Agreement, the Group could increase its fund utilisation efficiency and reduce the need to rely on third party financing, which will in turn help the Group to achieve a lower cost of funding and maximise cost and operational efficiencies. On the other hand, benefited from the cooperation with Changhong Finance pursuant to the entering of the Financial Services Agreement, the Group could also enhance its bargaining power with other financial institutions

11 LETTER FROM THE BOARD The Financial Services Agreement does not preclude Changhong IT from using the services of other financial institutions. Changhong IT still has the right to select any other major and independent PRC commercial banks as its financial services providers as it, from time to time, thinks fit and appropriate for the benefit of Changhong IT. Accordingly, Changhong IT will potentially be able to enjoy with potentially better interest rates than those available from other major financial institutions in the PRC pursuant to the arrangement under the Financial Services Agreement, and therefore in a better position to manage the security of its funds under such arrangement. INTERNAL CONTROL Subject to the general pricing principle and payment terms disclosed above, the pricing policy will be supervised and monitored by the relevant personnel of the Group in charge to ensure the Financial Services Agreement is conducted on normal commercial terms and will not be prejudicial to the interests of the Company and its Shareholders as a whole. The relevant personnel of the Group will also conduct regular checks twice a year to review and assess whether the transactions contemplated under the Financial Services Agreement are conducted in accordance with the terms of each of the Financial Services Agreement and in accordance with the aforesaid pricing policy. Further, the Group s treasury group will contact commercial banks in the PRC to obtain interest rate quotes and compare the quotes with those offered by Changhong Finance. The rates and the decision of making any deposits with Changhong Finance will also be reviewed and approved by the chief financial officer of Changhong IT. The Company will also engage its auditors to conduct an annual review of the transactions thereunder the Financial Services Agreement. IMPLICATIONS UNDER THE GEM LISTING RULES Changhong Finance is a company owned as to 50% by Sichuan Changhong, the controlling shareholder of the Company and 50% by Sichuan Changhong Electric, a company which holds approximately 23.19% of the equity interest of Sichuan Changhong. Accordingly, Changhong Finance is an associate of a connected person of the Company for the purpose of Chapter 20 of the GEM Listing Rules, and accordingly the transactions contemplated under the Financial Services Agreement constitute continuing connected transactions of the Company for the purpose of the GEM Listing Rules. As the highest of the applicable percentage ratios of the proposed annual caps in respect of the deposit services under the Financial Services Agreement exceed 5% on an annual basis, the deposit services under the Financial Services Agreement and the proposed annual caps are subject to the reporting, annual review, announcement and Independent Shareholders approval requirements under Chapter 20 of the GEM Listing Rules. In addition, as the relevant percentage ratios in respect of the provision of the deposit services under the Financial Services Agreement exceed 25% but are less than 100%, the provision of the deposit services also constitutes major transactions for the Company under Chapter 19 of the GEM Listing Rules and are subject to the reporting, announcement and Shareholders approval requirements under Chapter 19 of the GEM Listing Rules. The loan services under the Financial Services Agreement will constitute financial assistance provided by a connected person. As such loan services will be provided on normal commercial terms or on terms which are more favorable to Changhong IT and will not be secured by the assets of the Group, the loan services under the Financial Services Agreement are exempt from announcement, reporting, annual review and independent shareholders approval requirements under Chapter 20 of the GEM Listing Rules

12 LETTER FROM THE BOARD As the highest of the applicable percentage ratios of the proposed annual caps in respect of each of the settlement services and other services under the Financial Services Agreement is more than 0.1% but less than 5%, the settlement services are exempt from independent shareholders approval requirements but subject to announcement, reporting and annual review requirements under Chapter 20 of the GEM Listing Rules. In the event that Changhong Finance provides any further financial services to Changhong IT under the Financial Services Agreement, the Company will determine the percentage ratios and re-comply with the announcement, reporting, annual review and independent shareholders approval requirements under Chapter 20 of the GEM Listing Rules if and to the extent that such requirement apply. OTHERS Mr. Zhao Yong is a director of both Sichuan Changhong and Sichuan Changhong Electric, the two shareholders of Changhong Finance. Mr. Yu Xiao is a director of Changhong Finance. Mr. Tang Yun is a director of a company which is 60% owned by Sichuan Changhong Electric. Further, Mr. Wu Xiangtao is a director of the wholly-owned subsidiary of Sichuan Changhong. Accordingly, each of Mr. Zhao Yong, Mr. Yu Xiao, Mr. Tang Yun and Mr. Wu Xiangtao, each being an executive Director, is considered to be interested in the transactions contemplated under each of the Financial Services Agreement. Each of Mr. Zhao Yong, Mr. Yu Xiao, Mr. Tang Yun and Mr. Wu Xiangtao therefore has abstained from voting for the Board resolution to approve the Financial Services Agreement and the transactions contemplated thereunder. INFORMATION ON THE RELEVANT PARTIES LR20.68(11), LR20.68(12), LR19.63(2)(d) LR19.58(3) LR20.68(3) The Company has been listed on GEM since 24 January The Group is principally engaged in the distribution of IT consumer products and corporate products. Changhong IT is a wholly-owned subsidiary of the Company. It is principally engaged in the distribution of IT consumer products (including personal computers, digital products and IT accessories) and IT corporate products (including storage products, minicomputers, network products, PC servers, IBMS products and UC&CC products) in the PRC. Changhong Finance is a company owned as to 50% by Sichuan Changhong, the controlling shareholder of the Company and 50% by Sichuan Changhong Electric, a company which holds approximately 23.19% of the equity interest of Sichuan Changhong. It has strong financial strength and experience in providing financial services. Changhong Finance has obtained the relevant financial license in the PRC on 20 August 2013, pursuant to which it is permitted to provide range of financial services including but not limited to depository, loan, settlement, bill discounting, guarantees and other financial services approved by the CBRC

13 LETTER FROM THE BOARD SGM The SGM will be held at 11:00 a.m. on Friday, 15 May 2015 at Unit 3701, 37/F, West Tower, Shun Tak Centre, Connaught Road Central, Hong Kong for the purpose of allowing the Independent Shareholders to consider and, if thought fit, approve the Financial Services Agreement and the Financial Services contemplated thereunder together with the proposed annual caps for the Financial Services contemplated thereunder for the three years ending 31 December 2015, 2016 and In accordance with the GEM Listing Rules, Sichuan Changhong Electric, Changhong (Hong Kong) and Fit Generation, being connected persons of the Company and having material interest (which are different from those of the Independent Shareholders) in the Financial Services Agreement, will abstain from voting at the SGM for the relevant resolution. As at the Latest Practicable Date, each of Sichuan Changhong Electric, Changhong (Hong Kong) and Fit Generation held as to 95,368,000 Shares, 16,000,000 Shares and 897,000,000 Shares, respectively, representing an aggregate of 1,008,368,000 Shares and approximately 69.32% of the issued share capital of the Company. LR2.28(1), LR20.68(4), LR20.68(11), LR20.68(12), LR19.63(2)(d) A notice of the SGM is set out on page 39 to 40 of this circular. The SGM will be held at Unit 3701, 37/F, West Tower, Shun Tak Centre, Connaught Road Central, Hong Kong on Friday, 15 May 2015 at 11:00 a.m. A reply slip and a form of proxy for use at the SGM are enclosed with this circular. Whether or not you intend to attend the SGM, you are requested to complete and return the form of proxy to the Hong Kong share registrar of the Company, Hong Kong Registrars Limited, 17M Floor, Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for the SGM or any adjournment thereof. If you intend to attend the SGM, you are required to complete and return the reply slip to the Hong Kong share registrar of the Company, 17M Floor, Hopewell Centre, 183 Queen s Road East, Wanchai, Hong Kong on or before 4:30 p.m., 12 May Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish. Pursuant to Rule 17.47(4) of the GEM Listing Rules, the votes of the Shareholders at the SGM shall be taken by poll except where the chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. An announcement of the poll results will be made by the Company after the SGM in the manner prescribed under Rule 17.47(5) of the Listing Rules and will be published on the websites of the Company and the Stock Exchange thereafter. RECOMMENDATIONS Your attention is drawn to the letter from the Independent Board Committee set out on pages 13 to 14 of this circular and the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders set out on pages 15 to 29 of this circular in connection with the transactions contemplated under the Financial Services Agreement, the proposed annual caps of the Financial Services contemplated thereunder and the principal factors and reasons considered by the Independent Financial Adviser in arriving at such advice. LR6A

14 LETTER FROM THE BOARD The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that (i) the transactions contemplated under the Financial Services Agreement are in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole; (ii) the terms of the Financial Services Agreement are normal commercial terms and are fairly and reasonably determined; and (iii) the proposed annual caps for the deposits, loan and settlement services under the Financial Services Agreement for the three years ending 31 December 2015, 2016 and 2017 are determined based on the reasonable estimation and after due and careful consideration and that it is fair and reasonable for the management of the Company to make reference to the aforesaid factors as the bases to determine such caps. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favor of the resolution to approve the Financial Services Agreement and the transactions contemplated under such agreements (including the proposed annual caps of the deposit, loan and settlement services thereunder) at the SGM. LR19.58(9) ADDITIONAL INFORMATION Your attention is also drawn to (i) the letter from the Independent Board Committee, (ii) the letter from the Independent Financial Adviser; and (iii) the additional information set out in the appendix to this circular. By Order of the Board Changhong Jiahua Holdings Limited Zhao Yong Chairman

15 LETTER FROM THE INDEPENDENT BOARD COMMITTEE Changhong Jiahua Holdings Limited ( 長虹佳華控股有限公司 ) (Incorporated in Bermuda with limited liability) (Stock Code: 8016) LR20.68(6), LR20.41, LR20.43, A1B1 LR17.52A 28 April 2015 To the Independent Shareholders Dear Sir or Madam, MAJOR AND CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE FINANCIAL SERVICES AGREEMENT BETWEEN CHANGHONG IT INFORMATION PRODUCTS CO., LTD AND SICHUAN CHANGHONG GROUP FINANCE CO., LTD LR20.68(3) We refer to the circular issued by the Company to its Shareholders dated 28 April 2015 (the Circular ) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires. We have been appointed by the Board to advise the Independent Shareholders as to whether the Financial Services Agreement was entered into in the ordinary and usual course of business of the Group on normal commercial terms, and the terms of the Financial Services Agreement and the proposed annual caps under such agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. REORIENT has been appointed to act as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Financial Services Agreement. The text of the letter of advice from the Independent Financial Adviser containing their recommendations and the principal factors they have taken into account in arriving at their recommendations are set out from pages 15 to 29 of the Circular. LR19.58(9), LR19.63(2)(c) LR6A.37 Having considered the terms of the Financial Services Agreement and the advice of the Independent Financial Adviser, we are of the opinion that (i) the Financial Services Agreement are in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole; (ii) the terms of the Financial Services Agreement are normal commercial terms and are fairly and reasonably determined; and (iii) the proposed annual caps for the Financial Services under the Financial Services Agreement for the three years ending 31 December 2015, 2016 and 2017 are determined based on the reasonable estimation and after due and careful consideration. We therefore recommend the Independent

16 LETTER FROM THE INDEPENDENT BOARD COMMITTEE Shareholders to vote in favor of the relevant resolution to be proposed at the SGM to approve the Financial Services Agreement and the transactions contemplated under the Financial Services Agreement (including the proposed annual caps for the Financial Services thereunder). Yours faithfully, For and on behalf of the Independent Board Committee Jonathan Chan Ming Sun Robert Ip Chun Chung Sun Dongfeng Cheng Yuk Kin Independent nonexecutive Directors Independent nonexecutive Directors Independent nonexecutive Directors Independent nonexecutive Directors

17 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER The following is the text of a letter of advice from REORIENT Financial Markets Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, for the purpose of incorporation into this circular. 11/F Far East Finance Centre 16 Harcourt Road, Admiralty Hong Kong 28 April 2015 The Independent Board Committee and the Independent Shareholders Changhong Jiahua Holdings Limited Dear Sirs, INTRODUCTION CONTINUING CONNECTED TRANSACTIONS FINANCIAL SERVICES AGREEMENT BETWEEN CHANGHONG IT INFORMATION PRODUCTS CO., LTD AND SICHUAN CHANGHONG GROUP FINANCE CO., LTD We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in connection with the deposit services under the Financial Services Agreement (the Deposit Services ) and the proposed annual caps in respect of the Deposit Services for the three years ending 31 December 2017 (the Proposed Annual Caps ), details of which are set out in the circular of the Company dated 28 April 2015 (the Circular ) of which this letter forms part. Capitalised terms used in this letter have the same meanings as defined in the Circular, unless the context requires otherwise. As at the Latest Practicable Date, Changhong Finance is a company owned as to 50% by Sichuan Changhong, the controlling Shareholder and 50% by Sichuan Changhong Electric, a company which holds approximately 23.19% of the equity interest of Sichuan Changhong. Accordingly, Changhong Finance is an associate of a connected person of the Company under the GEM Listing Rules. As the highest of the applicable percentage ratios of the Proposed Annual Caps exceeds 5%, the Deposit Services constitute nonexempt continuing connected transactions for the Company under Chapter 20 of the GEM Listing Rules. The Deposit Services and the Proposed Annual Caps are subject to approval by the Independent Shareholders at general meeting by way of poll

18 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER The Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Jonathan Chan Ming Sun, Mr. Robert Ip Chun Chung, Mr. Sun Dongfeng and Mr. Cheng Yuk Kin, has been established to give advice and recommendation to the Independent Shareholders in relation to the Deposit Services and the Proposed Annual Caps. REORIENT Financial Markets Limited has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders as to (i) whether the terms of the Deposit Services and the Proposed Annual Caps are fair and reasonable and whether the Deposit Services are on normal commercial terms, in the ordinary and usual course of business of the Company and in the interests of the Company and the Shareholders as a whole; and (ii) whether to vote for or against the Deposit Services and the Proposed Annual Caps. In formulating our opinion, we have relied upon the information, facts and representations contained in the Announcement, the Circular and those supplied or made by the Directors and management of and advisers to the Company to us. We have assumed that all such information, facts and representations were true and accurate in all respects at the time they were supplied or made and continue to be true and accurate at the date of the Circular and can be relied upon. We have no reason to doubt the truth, accuracy and completeness of such information and representations and have confirmed with the Directors and management of the Company that no material facts have been withheld or omitted from such information and representations. We have taken all reasonable and necessary steps to comply with the requirements set out in Rule of the GEM Listing Rules. We consider that we have been provided with sufficient information to enable us to reach an informed view. We have not, however, conducted any independent verification of such information or any independent in-depth investigation into the business, affairs, financial position or prospects of the Group nor have we carried out any in-depth research on the Group, Changhong Finance and their respective associates. During the past two years, we acted as the independent financial adviser of the Company in respect of the other two transactions providing our independent view to the Company s independent board committee and the independent shareholders. Apart from normal professional fees for our services to the Company in connection with the engagements described above, no other arrangement exists whereby we will receive any fees and/or benefits from the Group. As at the Latest Practicable Date, we are not aware of any relationships or interests between us and the Company or its substantial Shareholders, Directors or chief executive, or any of their respective associates. We are independent under Rule of the GEM Listing Rules to act as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in connection with the Deposit Services and the Proposed Annual Caps. PRINCIPAL FACTORS CONSIDERED In formulating our opinion on the Deposit Services and the Proposed Annual Caps, we have taken into consideration the following principal factors:

19 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER Information on the Group The Group is principally engaged in the distribution of IT consumer products and corporate products in the PRC ( IT Business ). We understand from the Company that other than the IT Business, which is the main income stream of the Group, the Group also generates revenue from the distribution of consumer electronic products and related parts and components. We set out below a summary of the financials of the Group s (i) unaudited results for the 3 months ended 31 March 2015 and 31 March 2014 prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRS ) extracted from the 2105 first quarterly results announcement for the period ended 31 March 2015 of the Company dated 17 April 2015 (the 2015 First Quarter Results ); (ii) audited results for year ended 31 December 2014 prepared in accordance with HKFRS extracted from the annual report of the Company for the year ended 31 December 2014 (the 2014 Annual Report ); and (iii) audited results for the two years ended 31 December 2012 and 2013 prepared in accordance with HKFRS extracted from the annual report of the Company for the year ended 31 December 2013 (the 2013 Annual Report ): 3 months ended 31 March months ended 31 March 2014 Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) (Unaudited) (Audited) (Audited) (Audited) (Restated) Turnover 3,900,394 4,452,460 18,152,710 18,343,541 14,928,822 Cost of sales (3,724,930) (4,258,759) (17,388,303) (17,566,550) (14,322,736) Gross profit 175, , , , ,086 Gross profit margin 4.50% 4.35% 4.21% 4.24% 4.06% Profit before tax 65,083 80, , , ,304 Profit for the period/year 48,263 60, , , ,040 Net profit margin 1.24% 1.36% 1.06% 1.08% 1.16% Profit for the year attributable to: Owners of the Company 48,263 54, , , ,728 Non-controlling interests 6,157 8,186 19,408 18,312 On 28 March 2012, the Company entered into an acquisition agreement to acquire a 90% equity interest in Changhong IT from Fit Generation (the First Acquisition ). The First Acquisition was completed on 22 January For the purpose of the Group s consolidated financial statements, the First Acquisition is regarded as a business combination under common control since 20 March 2012 and the Group has adopted merger accounting for common control combinations in respect of the First Acquisition. We are given to understand that this means it is assumed that the Group had owned the 90% interest in Changhong IT since 20 March 2012 which, as per the Company s accounting policies for the purposes of preparing the Group s financial statements after completion of the First Acquisition, was the date when Sichuan Changhong obtained control over the Board and thus the date when the Company and Changhong IT became under the common control of Sichuan Changhong. The Group s income statement for the year

20 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ended 31 December 2013 reflects the full year results of Changhong IT in 2013; whilst the Group s restated comparable income statement for the year ended 31 December 2012 reflecting the results of Changhong IT from 20 March 2012 to 31 December On 5 June 2014, the Group completed the acquisition of the remaining 10% shareholding in Changhong IT (the Second Acquisition ) and Changhong IT became a wholly-owned subsidiary of the Group. After the completion of the Second Acquisition, 100% of the profit and loss from Changhong IT have been consolidated to the accounts of the Company without any share of non-controlling interests. This led to a reduction in the amount of profit attributable to non-controlling interests of the year ended 31 December As set out in the 2015 First Quarter Results, turnover and net profit of the Group decreased by approximately 12.40% and 20.21%, respectively for the 3 months ended 31 March 2015 as compared with those for the 3 months ended 31 March We understand from the Company that the decrease in both turnover and net profit were due to the difficult environment in the PRC with weaker domestic demand for the 3 months ended 31 March 2015 as compared with that for the 3 months ended 31 March Gross profit margin for the Group for the 3 months ended 31 March 2015 and 31 March 2014 amounted to approximately 4.50% and 4.35%, respectively. We understand from the Company that the Group focused on cost control for the 3 months ended 31 March 2015 and maintained a stable level of gross margin. While the gross profit margin of the Group increased for the 3 months ended 31 March 2015, net profit margin for the Group for the 3 months ended 31 March 2015 decreased to approximately 1.24% for the 3 months ended 31 March 2015 from approximately 1.36% for the 3 months ended 31 March We understand from the Company that the decrease was mainly due to the increase in distribution and selling expenses of approximately 9.43% for the 3 months ended 31 March 2015 as compared with that for the 3 months ended 31 March As Changhong IT became a wholly-owned subsidiary of the Group, there was no profit attributable to non-controlling interests for the period ended 31 March

21 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER We set out below the breakdown of turnover for the (i) period ended 31 March 2015 as extracted from the 2015 First Quarter Results; (ii) year ended 2014 as extracted from the 2014 Annual Report; and (iii) two years ended 31 December 2013 as extracted from the 2013 Annual Report: 3 months end 31 March 2015 % to total Year ended 31 December 2014 % to total Year ended 31 December 2013 % to total Year ended 31 December 2012 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) (Audited) (Audited) (Audited) (Restated) % to total IT Business: IT consumer products 2,605, ,138, ,168, ,452, IT corporate products 1,090, ,268, ,588, ,596, ,695, ,407, ,756, ,049, Consumer electronic products 84, , ,313, ,462, Others 120, , , , Total 3,900, ,152, ,343, ,928, Changhong IT has become the most significant operating subsidiary of the Group since completion of the First Acquisition. For the three years ended 31 December 2014 and three months ended 31 March 2015, the scale of the consumer electronic product business was diminishing. For the year ended 31 December 2012, 2013 and 2014 and three months ended 31 March 2015, turnover generated from the IT Business represented approximately 74.0%, 85.9%, 95.9% and 94.8% of the total turnover of the Group respectively. We understand from the Company that the Group s IT Business were all derived from Changhong IT. As at 31 March 2015 and 31 December 2014, the Group s net debts (which include the Group s total interest-bearing borrowings less cash) amounted to approximately HK$600 million and HK$415 million, respectively. As at 31 March 2015 and 31 December 2014, the net debts of Changhong IT (which include Changhong IT s total interest-bearing borrowings less cash) amounted to approximately RMB484 million and RMB335 million, respectively. Information on Changhong IT Changhong IT is a wholly-owned subsidiary of the Company. It is principally engaged in the distribution of IT consumer products (including personal computers, digital products and IT accessories) and IT corporate products (including storage products, minicomputers, network products, computer server, intelligent building management system products and unified communication & contact center products) in the PRC

22 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER We set out below a summary of Changhong IT s consolidated results for the year ended 31 December 2014 prepared in accordance with PRC GAAP extracted from the audited financial statements of Changhong IT for the year ended 31 December 2014 (the Changhong IT 2014 Financial Statements ) and the two years ended 31 December 2013 prepared in accordance with PRC GAAP extracted from the audited financial statements of Changhong IT for the year ended 31 December 2013 (the Changhong IT 2013 Financial Statements ): Year ended 31 December 2014 Year-on-year change Year ended 31 December 2013 Year-on-year change Year ended 31 December 2012 RMB 000 HK$ 000 RMB 000 HK$ 000 RMB 000 HK$ 000 Turnover 13,915,671 17,394, % 12,787,960 15,984, % 11,958,042 14,947,552 Cost of sales 13,703,398 17,129, % 12,601,344 15,751, % 11,721,741 14,652,176 Gross profit 212, , % 186, , % 236, ,376 Gross profit margin 1.53% 1.46% 1.98% Profit before tax 220, , % 201, , % 249, ,976 Profit for the year 156, , % 154, , % 184, ,780 Net profit margin 1.12% 1.21% 1.54% Assumes an exchange rate of HK$:RMB is 1:0.8 Turnover for the year ended 31 December 2014 increased by approximately 8.9% as compared with that for the year ended 31 December 2013, whilst profit for the year only increased by approximately 1.0% for the year ended 31 December 2014 as compared with that for the year ended 31 December. For the year ended 31 December 2014, gross profit margin and net profit margin remained stable as compared with that for the year ended 31 December The Company advised us that they took initiatives to expand the scope of cooperation with core suppliers in order to maintain its market share and resulted in an increase in both the turnover and profit before taxation for the year ended 31 December For the year ended 31 December 2013, turnover increased by approximately 6.9% as compared with that for the year ended 31 December 2012, whilst profit for the year decreased by approximately 16.1% for the year ended 31 December 2013 as compared with that for the year ended 31 December The Company confirmed that the decrease in gross profit for the year ended 31 December 2013 was mainly due to the increase in management and finance cost for the year ended 31 December Whilst Changhong IT s profits decreased in 2013 as compared with that in 2012, the Group (as a whole) recorded a growth in net profits. We understand that this is mainly a result that the Group s consolidated financial statements for the year ended 31 December 2012 only consolidated the results of Changhong IT starting from 20 March As set out in the 2014 Annual Report, in the next few years, the Company expects that the macro economy of the PRC would remain weak and downturn pressure would climb up. While the overall growth of the IT industry may slow down, the Company believes that great business potentials still exist in niche fields of the IT market like big data and cloud computing. With the significant changes in the existing industry landscape and business mode driven by new technologies of cloud computing, big data and mobile