BUILD KING HOLDINGS LIMITED (Incorporated in Bermuda with limited liability) (Stock Code: 00240)

Transcription

1 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, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Build King Holdings Limited (the Company ), you should at once hand this circular with the enclosed form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the 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. BUILD KING HOLDINGS LIMITED (Incorporated in Bermuda with limited liability) (Stock Code: 00240) CONNECTED TRANSACTION AND NOTICE OF SPECIAL GENERAL MEETING Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders A letter from the Board (as defined herein) is set out on pages 4 to 11 of this circular. A letter of advice from the Independent Financial Adviser (as defined herein) to the Independent Board Committee (as defined herein) and the Independent Shareholders (as defined herein) is set out on pages 14 to 25 of this circular. A letter from the Independent Board Committee is set out on pages 12 to 13 of this circular. A notice convening the special general meeting of Build King Holdings Limited to be held at Unit 1103, 11th Floor, East Ocean Centre, 98 Granville Road, Tsimshatsui, Kowloon, Hong Kong on Tuesday, 11 April 2017 at 10:00 a.m. is set out on Appendix II to this circular. Whether or not you intend to attend such meeting, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar of the Company in Hong Kong, Tricor Progressive Limited, at Level 22, Hopewell Centre, 183 Queen s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the meeting or any adjourned meeting if they so wish. 22 March 2017

2 CONTENTS Page DEFINITIONS LETTER FROM THE BOARD LETTER FROM THE INDEPENDENT BOARD COMMITTEE LETTER FROM THE INDEPENDENT FINANCIAL ADVISER APPENDIX I GENERAL INFORMATION APPENDIX II NOTICE OF SPECIAL GENERAL MEETING i

3 DEFINITIONS In this circular, the following expressions have the following meanings unless the context requires otherwise: Announcement the announcement of the Company dated 14 March 2017 Articles of Agreement the Articles of Agreement between Build King Construction and Power Truth Development dated 14 March 2017 associate(s) has the meaning ascribed thereto under the Listing Rules Board the board of Directors Build King Construction Build King Construction Limited, a company incorporated in the United Kingdom with limited liability and a wholly-owned subsidiary of the Company Company Build King Holdings Limited, a company incorporated in Bermuda with limited liability whose shares are listed on the Main Board of the Stock Exchange (Stock Code: 240) Directors the directors of the Company Group the Company and its subsidiaries HK$ Hong Kong dollar(s), the lawful currency of Hong Kong Hong Kong Hong Kong Special Administrative Region of the PRC Independent Board Committee the committee of the Company comprising independent non-executive Directors, namely Mr. Ho Tai Wai, David and Mrs. Ling Lee Ching Man, Eleanor, established to make recommendation to the Independent Shareholders in respect of the terms of the Articles of Agreement Independent Financial Adviser or Veda Capital Veda Capital Limited, a licensed corporation permitted to carry out type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Articles of Agreement 1

4 DEFINITIONS Independent Shareholders Shareholders other than Wai Kee and its associates (as defined in the Listing Rules) Latest Practicable Date 17 March 2017, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular Listing Rules the Rules Governing the Listing of Securities on the Stock Exchange Mr. Zen Mr. Zen Wei Peu, Derek, the Chairman and an executive Director of the Company Power Truth Development Power Truth Development Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of Road King PRC the People s Republic of China, which shall for the purposes of this circular does not include Hong Kong, the Macau Special Administrative Region of the PRC or Taiwan Project the residential development project at Lot No in Demarcation District No. 103, Au Tau, Yuen Long, New Territories, Hong Kong Road King Road King Infrastructure Limited, a company incorporated in Bermuda with limited liability whose shares are listed on the Main Board of the Stock Exchange (Stock Code: 1098) and an associate of Wai Kee Road King Group Road King and its subsidiaries 2

5 DEFINITIONS SFO the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong SGM the special general meeting of the Company to be convened on Tuesday, 11 April 2017 at 10:00 a.m. for the purpose of considering, and if thought fit, approving the terms of the Articles of Agreement Shares ordinary share(s) of HK$0.10 each in the share capital of the Company Shareholders the shareholders of the Company Stock Exchange The Stock Exchange of Hong Kong Limited Wai Kee Wai Kee Holdings Limited, a holding company of the Company incorporated in Bermuda with limited liability whose shares are listed on the Main Board of the Stock Exchange (Stock Code: 610) % per cent. 3

6 LETTER FROM THE BOARD BUILD KING HOLDINGS LIMITED (Incorporated in Bermuda with limited liability) (Stock Code: 00240) Executive Directors: Mr. Zen Wei Peu, Derek (Chairman, Chief Executive Officer and Managing Director) Mr. Chang Kam Chuen, Desmond Non-executive Directors: Mr. David Howard Gem Mr. Chan Chi Hung, Anthony Independent Non-executive Directors: Dr. Chow Ming Kuen, Joseph Mr. Ho Tai Wai, David Mrs. Ling Lee Ching Man, Eleanor Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda Principal Place of Business in Hong Kong: Units A, 6th Floor Tower B, Manulife Financial Centre 223 Wai Yip Street Kwun Tong, Kowloon Hong Kong 22 March 2017 To the Shareholders Dear Sir or Madam, CONNECTED TRANSACTION AND NOTICE OF SPECIAL GENERAL MEETING INTRODUCTION Reference is made to the Announcement in which the Company announced that Build King Construction, a wholly-owned subsidiary of the Company, had entered into the Articles of Agreement with Power Truth Development, a wholly-owned subsidiary of Road King, pursuant to which Power Truth Development had appointed Build King Construction as a contractor to perform site formation and substructure works under the Project. 4

7 LETTER FROM THE BOARD The purpose of this circular is to provide you with, among other things, (i) further details of the Articles of Agreement; (ii) a letter from the Independent Board Committee containing its recommendations to the Independent Shareholders; (iii) the letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders in connection thereto; and (iv) the notice of the SGM. Background The Company is an investment holding company and its group companies are principally engaged in the undertaking of construction projects in Hong Kong, the PRC and the Middle East and are also engaged in environmental and waste management and marine engineering. Wai Kee (the holding company of the Company) is an investment holding company and is principally engaged in construction, toll road, property development, construction materials and quarrying. In August 2016, Road King Group, for the first time, acquired a piece of land in Yuen Long District, Hong Kong with a total planned construction floor area of approximately 34,000 sqm. for residential development at a total consideration of approximately HK$988.9 million. Road King Group then provided the scope of works and invited the Group to submit a quotation for the execution and completion of the site formation and substructure works under the Project. THE ARTICLES OF AGREEMENT The principal terms of the Articles of Agreement are set out below: Date: 14 March 2017 Parties: Build King Construction, a wholly-owned subsidiary of the Company Power Truth Development, a wholly-owned subsidiary of Road King and an associate of Wai Kee Scope of works: Build King Construction is required to undertake, including but without limitation, the following work (subject to any variations authorised by Power Truth Development) for the Project: 1. site formation works within the site area including hoarding and/or fencing, land survey, earthworks and site levelling; 5

8 LETTER FROM THE BOARD 2. substructure works including piling works and underground drainage works; and 3. miscellaneous works such as taking out and maintaining insurance, site cleaning and tidiness, temporary utilities works and systems, provision of site security and temporary site accommodation. Term: The term of the Articles of Agreement is 20 calendar months from the commencement date of work. The commencement date of work shall be subject to notice of commencement given by Power Truth Development. In any event, the commencement date will be within this year. Price and basis of pricing: Subject to adjustments in respect of any authorised variations to specific construction works as stated in the Articles of Agreement, the maximum price is expected to be approximately HK$149.4 million. As the price includes all contingent and/or provisional contract amounts which may or may not materialise, the actual revenue to be derived from the Articles of Agreement by the Group may equal to or fall short of the price. Monthly payments under the Articles of Agreement are to be made by Power Truth Development to Build King Construction based on the progress of works properly executed as certified by the quantity surveyor appointed by the Power Truth Development and subject to retention of 5% of price as stipulated in the conditions of the Articles of Agreement. 6

9 LETTER FROM THE BOARD The price submitted by the Group is determined with reference to (i) the size of the construction site, which is approximately the same size of the land in Yuen Long; (ii) the current estimated cost of the construction works assessed by our internal tendering team, including but not limited to the estimated costs of labour and professional staff, subcontractors fees, temporary and permanent materials, plant and equipment required to undertake the works, the estimated costs of provision, servicing and removal of the temporary site accommodation and other costs such as insurance costs; (iii) the complexity, the method and program to be used for the construction works; (iv) the risks and benefits in performing the Articles of Agreement; and (v) the overall profit margin that could be achieved for other recent similar projects undertaken by the Group for independent third party employers. As the scope of work for different projects are rarely identical, in determining the price under the Articles of Agreement, the Group has considered, when pricing each component task comprised in the scope of work, pricing adopted for similar work for independent third party employers. From amongst tenders submitted by the Group since 1 January 2016, 7 tenders to a total of 6 independent third party employers included each component task in the scope of work. In determining the gross profit margin under the Articles of Agreement, the Group has considered 5 additional tenders submitted by the Group since November 2015 on top of the 7 tenders mentioned above. The estimated gross profit margins of those tenders ranged from approximately 4% to 10% and the gross profit margin under the Articles of Agreement is within such range. Conditions Precedent: The obligations of the parties under the Articles of Agreement shall be conditional upon the approval by the Independent Shareholders of the transactions contemplated under the Articles of Agreement pursuant to the Listing Rules having been obtained. 7

10 LETTER FROM THE BOARD Performance Bond: Performance of Build King Construction s obligations under the Articles of Agreement is secured by a surety bond issued for a sum not greater than 5% of the price. Others: The parties will enter into a detailed building contract in the form set out in the Hong Kong Special Administrative Region Standard Form of Building Contract Private Edition (2005 Edition), which is widely used in the industry. It will contain details of the transaction including but not limited to the rights and obligations of the parties, payment of contract sum, completion, rectification of defects and indemnities to Power Truth Development. The terms of the detailed building contract shall not conflict with the general principles set out in the Articles of Agreement. Should there be any conflict, the parties shall discuss and agree such adjustments to the detailed building contract so that the general principles in the Articles of Agreement should prevail. INFORMATION ON THE PARTIES The Company is an investment holding company. The principal activities of the Company and its subsidiaries are the undertaking of construction projects in Hong Kong, the PRC and the Middle East and environmental and waste management and marine engineering. Build King Construction, as a wholly-owned subsidiary of the Company, is a company incorporated under the laws of the United Kingdom with limited liability. It is principally engaged in undertaking all types of construction works in the private and public sectors in Hong Kong. Road King is an investment holding company. The principal activities of Road King and its subsidiaries, including Power Truth Development, are investment in development, operation and management of toll roads, expressways and property development projects in the PRC. Wai Kee (the holding company of the Company) is an investment holding company and is principally engaged in construction, toll road, property development, construction materials and quarrying. The Company is a non-wholly owned subsidiary of Wai Kee and Power Truth Development is an associate of Wai Kee. 8

11 LETTER FROM THE BOARD REASONS FOR THE CONNECTED TRANSACTION The Group has vast experience and track record of carrying out the construction works required under the Articles of Agreement. As the activities under the Articles of Agreement form an integral part of the core business of the Group, the Directors consider that the opportunity to engage in such activities by utilising its existing strengths on normal commercial terms can contribute to the financial performance of the Group. The terms of the Articles of Agreement were arrived at after arm s length negotiations between the parties. Taking into account the above, the Directors (excluding the members of the Independent Board Committee whose view are set out in the letter from the Independent Board Committee on pages 12 to 13 of this circular) are of the view that the transactions contemplated under the Articles of Agreement are on normal commercial terms and are in the ordinary and usual course of business of the Group, and the terms of the Articles of Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. LISTING RULES IMPLICATIONS The Company is a non-wholly owned subsidiary of Wai Kee and Power Truth Development is an associate of Wai Kee. As at the Latest Practicable Date, Wai Kee (through its subsidiaries) was interested in 655,415,033 Shares, representing approximately 52.78% of the Company s issued share capital, and approximately 41.35% of the issued share capital of Road King. Accordingly, Wai Kee and Power Truth Development are connected persons of the Company under the Listing Rules, the transactions contemplated under the Articles of Agreement constitute a connected transaction of the Company under the Listing Rules. As the applicable percentage ratios (as defined in the Listing Rules) in respect of the transactions contemplated under the Articles of Agreement exceed 5%, the transactions contemplated under the Articles of Agreement are subject to the reporting, announcement and Independent Shareholders approval requirements under Chapter 14A of the Listing Rules. SGM SGM will be held at 10:00 a.m on Tuesday, 11 April 2017 at Unit 1103, 11th Floor, East Ocean Centre, 98 Granville Road, Tsimshatsui, Kowloon, Hong Kong for the purpose of considering and, if thought fit, approving the terms of the Articles of Agreement and the transactions contemplated thereunder. A notice of the SGM is set out on pages 33 and 34 of this circular. 9

12 LETTER FROM THE BOARD As Power Truth Development, an associate of Wai Kee, is a party to the Articles of Agreement, Wai Kee and its associates are required under the Listing Rules to abstain from voting at the SGM on the resolution for approving the Articles of Agreement. Mr. Zen, the Chairman and an executive Director held (i) 123,725,228 Shares representing 9.96% of the Company s issued share capital; (ii) 185,557,078 shares in Wai Kee representing 23.40% of the issued share capital of Wai Kee; and (iii) 14,497,000 shares in Road King representing 1.96% of the issued share capital of Road King as at the date of the Articles of Agreement and as at the Latest Practicable Date. Accordingly, Mr. Zen has abstained from voting on the Board resolutions approving the terms of the Articles of Agreement, as required by the Bye-laws of the Company, on the basis that Mr. Zen, as a director of the Company, is deemed to have a material interest in those transactions under the Bye-laws of the Company. In addition, Mr. Zen has confirmed to the Company that he and his associates will also voluntarily abstain from voting at the SGM. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER The Independent Board Committee comprising independent non-executive Directors, namely Mr. Ho Tai Wai, David and Mrs. Ling Lee Ching Man, Eleanor, has been formed to advise the Independent Shareholders in respect of the terms of the Articles of Agreement and the transactions contemplated thereto. Dr. Chow Ming Kuen, Joseph is not included as a member of the Independent Board Committee as he is also an independent non-executive director of Road King, the holding company of Power Truth Development. The recommendations of the Independent Board Committee, based on the advice of the Independent Financial Adviser, is set out in its letter on pages 12 to 13 of this circular. Veda Capital has also been appointed as the Independent Financial Adviser for the purpose of advising the Independent Board Committee and the Independent Shareholders in respect of the terms of the Articles of Agreement and the transactions contemplated thereto. The advice of the Independent Financial Adviser is set out in its letter on pages 14 to 25 of this circular. ADDITIONAL INFORMATION Your attention is also drawn to the letter from the Independent Board Committee, the letter of advice from the Independent Financial Adviser and the information set out in the appendices to this circular. 10

13 LETTER FROM THE BOARD RECOMMENDATION The Board (including the Independent Board Committee) consider that the Articles of Agreement is in the ordinary and usual course of business of the Group and on normal commercial terms, and the terms are fair and reasonable and the transactions contemplated thereunder are in the interests of the Company and its Shareholders as a whole. Accordingly, the Board recommends that all Independent Shareholders to vote in favour of the ordinary resolution set out in the notice of the SGM. Yours faithfully, By Order of the Board Build King Holdings Limited Chang Kam Chuen, Desmond Company Secretary 11

14 LETTER FROM THE INDEPENDENT BOARD COMMITTEE The following is the text of a letter from the Independent Board Committee, which has been prepared for the purpose of incorporation into this circular, setting out its recommendation to the Independent Shareholders in respect of the terms of the Articles of Agreement as set out in the Circular. BUILD KING HOLDINGS LIMITED (Incorporated in Bermuda with limited liability) (Stock Code: 00240) 22 March 2017 To the Independent Shareholders Dear Sir or Madam, CONNECTED TRANSACTION We refer to the circular issued by Company to the Shareholders dated 22 March 2017 (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 as the Independent Board Committee to consider the terms of the Articles of Agreement and to advise you as to whether the transactions contemplated thereunder are on normal commercial terms and in the ordinary and usual course of business, fair and reasonable so far as the Independent Shareholders are concerned and whether it is in the interests of the Company and the Shareholders as a whole. Veda Capital has been appointed as the independent financial adviser to advise us and the Independent Shareholders in this regard. Details of the independent advice of the Independent Financial Adviser, together with the principal factors and reasons the Independent Financial Adviser has taken into consideration, are set out on pages 14 to 25 of the Circular. We wish to draw your attention to the letter from the Board set out on pages 4 to 11 of the Circular and the letter of advice from the Independent Financial Adviser set out on pages 14 to 25 of the Circular and to the appendices of the Circular. 12

15 LETTER FROM THE INDEPENDENT BOARD COMMITTEE Having considered, among other things, the terms of the Articles of Agreement and the transactions contemplated thereunder, and having taken into account the principal factors and reasons considered by and the opinion of the Independent Financial Adviser as stated in its letter of advice dated 22 March 2017, the text of which is set out on pages 14 to 25 of the Circular, we consider that the terms of the Articles of Agreement are fair and reasonable so far as the Independent Shareholders are concerned, on normal commercial terms, in the ordinary and usual course of business of the Company and are in the interests of the Company and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the resolutions set out in the Notice of the SGM. Yours faithfully, For and on behalf of Independent Board Committee of Build King Holdings Limited Ho Tai Wai, David Ling Lee Ching Man, Eleanor Independent Non-executive Directors 13

16 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER The following is the full text of the letter from the Independent Financial Adviser setting out the advice to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Articles of Agreements, which has been prepared for the purpose of inclusion in this Circular. Veda Capital Limited Room 1106, 11/F, Wing On Centre, 111 Connaught Road Central, Hong Kong 22 March 2017 To: Independent Board Committee and the Independent Shareholders of Build King Holdings Limited; Dear Sir/Madams, CONNECTED TRANSACTION INTRODUCTION We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and Independent Shareholders in respect of the terms and conditions of the Articles of the Agreement and the transactions contemplated thereunder (the Transactions ). Details of which are set out in the section under Letter from the Board (the Board Letter ) contained in the circular of the Company dated 22 March 2017 (the Circular ) of which this letter forms part. Terms used in this letter shall have the same meanings as defined to them in the Circular unless the context requires otherwise. With the reference to the Announcement, Power Truth Development (the Employer ) and Build King Construction (the Contractor ) entered into the Articles of Agreement, pursuant to which the Employer has conditionally agreed to engage the Contractor, and the Contractor has conditionally agreed to perform the construction works including but not limited to site formation, substructure works and miscellaneous works under the Project (collectively, the Construction Works ) for the price of a maximum amount of approximately HK$149.4 million (the Contract Sum ). 14

17 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER The Company is a non-wholly owned subsidiary of Wai Kee and the Employer is an associate of Wai Kee. As at the Latest Practicable Date, Wai Kee (through its subsidiaries) is interested in 655,415,033 Shares, representing approximately 52.78% of the issued share capital of the Company, and also holds 306,034,428 shares of Road King, representing approximately 41.35% of the issued share capital of Road King. Accordingly, Wai Kee and the Employer are connected persons of the Company under the Listing Rules, and the Transactions constitute a connected transaction of the Company under the Listing Rules. As the applicable percentage ratios (as defined in the Listing Rules) in respect of the Transactions exceed 5%, the Transactions are subject to the reporting, announcement and Independent Shareholders approval requirements under Chapter 14A of the Listing Rules. INDEPENDENT BOARD COMMITTEE The Independent Board Committee comprising Mr. Ho Tai Wai, David and Mrs. Ling Lee Ching Man, Eleanor, being the independent non-executive Directors, has been established by the Company to advise and make recommendations to the Independent Shareholders as to (i) the fairness and reasonableness of the Transactions; and (ii) whether the terms of the Transactions are on normal commercial terms or better and are in the interests of the Company and the Independent Shareholders as a whole. Dr. Chow Ming Kuen, Joseph is not included as a member of the Independent Board Committee as he is also an independent non-executive director of Road King, the holding company of the Employer. We have been appointed as the Independent Financial Adviser for the purpose of advising the Independent Board Committee and the Independent Shareholders in respect of the terms of the Articles of Agreement and whether the terms of the Transactions are on normal commercial terms or better and are in the interests of the Company and the Independent Shareholders as a whole. OUR INDEPENDENCE As at the Latest Practicable Date, we did not have any relationship with, or interest in, or other services provided to, the Company or any other parties that could reasonably be regarded as relevant to our independence in the past two years except for the Transactions. Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial Adviser in relation to the Transactions, no arrangements existed whereby we had received or would receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, we consider that we are independent pursuant to Rule of the Listing Rules. 15

18 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER BASIS AND ASSUMPTIONS OF OUR OPINION In formulating our advice and recommendations to the Independent Board Committee and the Independent Shareholders, we have reviewed, amongst other things, (i) the Articles of Agreement, (ii) the quotation for the Construction Works prepared by the Contractor, (iii) the sample quotations for the projects in similar nature from independent third parties (the Independent Third Parties ) and other information set out in the Circular. We have relied on the accuracy of the statements, information, opinions and representations contained or referred to in the Circular and the information and representations made to us by the Company and the Directors. We have assumed that all information and representations contained or referred to in the Circular and provided to us by the Directors, for which they are solely and wholly responsible, are true, accurate and complete in all respects and not misleading or deceptive at the time when they were provided or made and will continue to be so up to the Latest Practicable Date. The Shareholders will be notified of material changes as soon as possible, if any, to the information and representations provided and made to us after the Latest Practicable Date and up to and including the date of the SGM. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiries and careful consideration and there are no other facts not contained in the Circular, the omission of which makes any such statement contained in the Circular misleading. We have no reason to suspect that any relevant information has been withheld, or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Directors, which have been provided to us. We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. However, we have not carried out any independent verification of the information provided by the Directors, nor have conducted any independent investigation into the business, financial conditions and affairs of the Company or its future prospects. The Directors have collectively and individually accepted full responsibility, including particulars given in compliance with the Listing Rules, for the accuracy of the information contained in the Circular and have confirmed, after having made all reasonable enquires, which to the best of their knowledge and belief, that the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other matters of facts the omission of which would make any statement herein or the Circular misleading. This letter is issued to the Independent Board Committee and the Independent Shareholders, solely in connection for their consideration of the terms of the Articles of Agreement, 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 purpose without our prior written consent. 16

19 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER PRINCIPAL FACTORS AND REASONS CONSIDERED In giving our recommendations to the Independent Board Committee and the Independent Shareholders in relation to the Transactions, we have taken into consideration the following principal factors and reasons: (i) Information on the parties Background of the Contractor and the Company The Contractor is a company incorporated under the laws of the United Kingdom with limited liability, and a wholly-owned subsidiary of the Company. It is principally engaged in undertaking all types of construction works in the private and public sectors in Hong Kong. The Company is an investment holding company. The principal activities of the Company and its subsidiaries are the undertaking of construction projects in Hong Kong, the PRC and the Middle East and environmental and waste management and marine engineering. Background of the Employer, Road King and Wai Kee Road King is an investment holding company. The principal activities of Road King and its subsidiaries, including the Employer, are investment in development, operation and management of toll roads, expressways and property development projects in the PRC. Wai Kee, as the holding company of the Company, is an investment holding company and is principally engaged in construction, toll road, property development, construction materials and quarrying. The Company is a non-wholly owned subsidiary of Wai Kee and the Employer is an associate of Wai Kee. (ii) Reasons for the Transactions As set out in the Board Letter, the Group has vast experience and track record of carrying out the construction works required under the Articles of Agreement. As the activities under the Articles of Agreement form an integral part of the core business of the Group, the Directors consider that the opportunity to engage in such activities by utilising its existing strengths on normal commercial terms can contribute to the financial performance of the Group. The terms of the Articles of Agreement were arrived at after arm s length negotiations between the parties. 17

20 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER According to the annual report of the Company for the year ended 31 December 2015 (the 2015 Annual Report ), the turnover of the Group was approximately HK$4,572 million for the year ended 31 December 2015, representing approximately 41% increase as compared with approximately HK$3,237 million for the year ended 31 December 2014, and the revenue generated from the construction works was accounted for approximately 99% of the turnover for the year ended 31 December The profit for the year ended 31 December 2015 also increased by 79% as compared to the profit for the year ended 31 December As noted from the Board Letter, in August 2016, Road King Group, for the first time, acquired a piece of land in Yuen Long District, Hong Kong with a total planned construction floor area of approximately 34,000 sqm. for residential development at a total consideration of approximately HK$988.9 million. Road King Group then invited the Group to submit a quotation for the execution and completion of the site formation, substructure works and miscellaneous works under the Project. As advised by the Directors, it is a common practice for project developer to invite a contractor to submit quotation for the construction projects. As further advised by the senior management of the Company, the long-established relationship amongst the Group and Wai Kee (together with its subsidiaries) will enhance the efficiency of works and provide effective communication. Given that (i) the nature of the Articles of Agreement falls within the scope of the principal business of the Group; (ii) performing construction work is the main revenue driver of the Group and the Articles of Agreement allows the Group to generate additional income for its core business; (iii) the terms of the Articles of Agreement were arrived at after arm s length negotiations; and (iv) the relevant terms and pricing basis under the Articles of Agreement are on normal commercial terms and are no less favourable than the terms offered to other Independent Third Parties for similar construction works (our detailed analysis in these regards are set out in the section below), we concur with the view of the Directors that the terms of the Articles of Agreement are on normal commercial terms and fair and reasonable and the entering into of the Articles of Agreement is in the interests of the Company and the Independent Shareholders as a whole. (iii) Principal terms of the Articles of Agreement Major terms of the Articles of Agreement are extracted as follows: Date: 14 March 2017 Parties: (i) Contractor Build King Construction, a wholly-owned subsidiary of the Company 18

21 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER (ii) Employer Power Truth Development, a wholly-owned subsidiary of Road King and an associate of Wai Kee Scope of Construction Works: The Contractor is required to undertake, including but without limitation, the following works (subject to any variations authorised by Employer) for the Project: (i) site formation works within the site area including hoarding and/or fencing, land survey, earthworks and site levelling; (ii) substructure works including piling works and underground drainage works; and (iii) miscellaneous works such as taking out and maintaining insurance, site cleaning and tidiness, temporary utilities works and systems, provision of site security and temporary site accommodation. Term: approximately 20 calendar months from the commencement date of work. The commencement date of work shall be subject to notice of commencement given by the Employer. In any event, the commencement date will be within this year. Contract Sum and basis of pricing: Subject to adjustments in respect of any authorised variations to specific Construction Works, the Contract Sum is expected to be a maximum amount of approximately HK$149.4 million. As the Contract Sum includes all contingent and/or provisional contract amounts which may or may not materialise, the actual revenue to be derived from the Articles of Agreement by the Group may equal to or fall short of the Contract Sum. Monthly payments under the Articles of Agreement are to be made by the Employer to the Contractor based on the progress of Construction Works properly executed as certified by the quantity surveyor appointed by the Employer and subject to retention of 5% of the Contract Sum (the Retention Ratio ) as stipulated in the conditions of the Articles of Agreement. 19

22 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER The Contract Sum submitted by the Group is determined with reference to (i) the size of the construction site, which is approximately the same size of the land in Yuen Long; (ii) the current estimated cost of the Construction Works assessed by the internal tendering team of the Group, including but not limited to the estimated costs of labour and professional staff, subcontractors fees, temporary and permanent materials, plant and equipment required to undertake the Construction Works, the estimated costs of provision, servicing and removal of the temporary site accommodation and other costs such as insurance costs; (iii) the complexity, the method and program to be used for the Construction Works; (iv) the risks and benefits in performing the Articles of Agreement; and (v) the overall profit margin that could be achieved for other recent similar projects undertaken by the Group for Independent Third Parties. As the scope of work for different projects are rarely identical, in determining the Contract Sum under the Articles of Agreement, the Group has considered, when pricing each component task comprised in the scope of Construction Works, pricing adopted for similar work for Independent Third Parties. From amongst tenders submitted by the Group since 1 January 2016, 7 tenders to a total of 6 Independent Third Parties included each component task in the scope of work. In determining the gross profit margin under the Articles of Agreement, the Group has considered 5 additional tenders submitted by the Group since November 2015 on top of the 7 tenders mentioned above. The estimated gross profit margins of those tenders ranged from approximately 4% to 10% and the gross profit margin under the Articles of Agreement is within such range. Conditions precedent: The obligations of the parties under the Articles of Agreement shall be conditional upon the approval by the Independent Shareholders of the Transactions pursuant to the Listing Rules having been obtained. 20

23 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER Performance Bond: Performance of Contractor s obligations under the Articles of Agreement is secured by a surety bond issued for a sum not greater than 5% of the Contract Sum (the Performance Bond ). Others: The parties will enter into a detailed building contract in the form set out in the Hong Kong Special Administrative Region Standard Form of Building Contract Private Edition (2005 Edition), which is widely used in the industry. It will contain details of the transactions including but not limited to the rights and obligations of the parties, payment of Contract Sum, completion, rectification of defects and indemnities to the Employer. The terms of the detailed building contract shall not conflict with the general principles set out in the Articles of Agreement. Should there be any conflict, the parties shall discuss and agree such adjustments to the detailed building contract so that the general principles in the Articles of Agreement should prevail. In order to assess the fairness and reasonableness of the terms and pricing basis under the Articles of Agreement, we have performed the following analysis: Contract Sum We have discussed with the Company and are given to understand that the quotation for the Construction Works was formulated according to the Company s standard tendering process in submitting quotation. We are given to understand from the Directors that the Employer invited the Contractor to submit a quotation for the Construction Works and provided the Contractor with the scope and requirements of the Construction Works. Based on the scope and requirements provided, the Contractor (i) determined the method and program of Construction Works; (ii) assessed the associated risks and benefits in performing the Articles of Agreement; (iii) performed site visit; (iv) consulted internal professional parties for assessing the complexity of some specific scope of the Construction Works; and (v) estimated the total costs of the Construction Works. The aforesaid estimates were then reviewed by the project director of the Contractor and the chairman of the Group, who then jointly determined the appropriate profit margin and price of the Construction Works. 21

24 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER We have obtained and reviewed the pricing summary sheets for the Construction Works and have discussed with the Company to understand how the detailed cost and profit margin were determined. We observed that each item of the Construction Works is listed out with an estimated cost respectively. The estimated cost for each item of the Construction Works was determined through the estimates of the following cost item(s) (where applicable), which include: (a) labour costs, which were estimated based on the number of staff required and the current wage levels with annual adjustments for inflation; (b) plant costs, which were estimated based on the size of site offices, machinery and equipment required on site; (c) temporary material costs, which were estimated based on the amount of materials needed for the preliminaries of the engineers and main contractor and would be cleared upon completion of the Project; and (d) independent sub-contracting and general fees, which were estimated based on the requirement of various on-site services that are to be sub-contracted to Independent Third Parties and fees paid for insurance. Based on the aforesaid cost estimates for the Construction Works, the project director of the Contractor and the chairman of the Group then determined the margin for the Construction Works after assessing relevant risks and opportunities, and made reference to the gross profit margins charged to recent similar projects. We are given to understand that it is difficult to compare the cost of each item under the Construction Works with other projects as the scope of works for different projects are rarely identical in respect of, among others, (i) the size of the construction site; (ii) landscape and geological condition of the construction site; (iii) complexity and difficulty of work to be performed; and (iv) amount of resources to be devoted into the project etc. Nevertheless, as per our discussion with the management of the Company, the Contractor, when pricing each component task comprised in the scope of Construction works, has made reference to the quotations of those projects with similar nature of the Project for Independent Third Parties. In this regard, we have obtained 7 comparable quotations (the Comparable Quotations ) offered by the Group to a total of 6 Independent Third Parties for the projects with similar nature of the Project during the period from 1 January 2016 to the 31 December 2016 (the Review Period ). Compared with the Comparable Quotations, the estimated cost of hoarding, excavation, disposal and preliminaries, which are the general component tasks involved, are within their respective ranges. 22

25 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER As further advised by the management of the Company, the component tasks in relation to piling are the major works to be involved in the Project and the sum of the relevant estimated cost accounts for approximately 54.45% of the Contract Sum. We have enquired with the management of the Company and are given to understand that due to the infrequent undertaking by the Company during the Review Period of the type of piling work required in the Project, only 2 Comparable Quotations (the Piling Comparable Quotations ) are relevant under the Review Period. Given the insufficient sample size, we have attempted to obtain additional quotations submitted by the independent sub-contractors (the Sub-contractor s Quotations ) to the Company in relation to the projects which involved the type of piling work required in the Project. In this regard, we have obtained 3 Sub-contractor s Quotations. Upon reviewed the Piling Comparable Quotations and the Sub-contractor s Quotations, we observed that the estimated costs of the component tasks relating to the type of piling work involved under the Project are comparable. In addition, in order to compare the gross profit margins between the Project and other recent similar projects for Independent Third Parties, we have further obtained and reviewed 5 additional quotations for the projects that are of similar nature as the Project on sample basis, which cover both the private and government sectors, and compared the gross profit margin under those comparable projects (collectively, the Sample Margin ) with the gross profit margin of the Project (the Project Margin ) since November We have discussed with the Company and are given to understand that, the management of the Contractor have taken into account the following factors prior to determine the Project Margin, including but not limited to (i) the competitiveness of the Contract Sum; (ii) the increasing competition in the piling projects over the market; (iii) the complexity, the method and program to be used for the Construction Works; and (iv) the average gross profit margin of the recent ongoing similar projects, to determine the gross profit margin for the Construction Works. We are also given to understand that the Sample Margin has experienced a downward trend in recent two years due to the uncertainties and unfavorable economic environment in Hong Kong while the Project Margin lies within the range of approximately 4% to 10% of the Sample Margin. Furthermore, we have discussed with the Company to understand that to ensure the Group s margins for all substantial construction projects are determined appropriately, the Group implements internal procedures whereby details of the method and program of works, and estimation of costs and margins are reviewed by at least 2 directors of the Contractor. Having considered the abovementioned, we are of the view that the Contract Sum is fair and reasonable. 23

26 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER Retention Ratio and Performance Bond In addition, we note from the Board Letter that the payment for the Construction Works under the Articles of Agreement will be settled by the Employer to the Contractor in monthly basis according to the progress of the Construction Works properly executed as certified by a quantity surveyor appointed by the Employer and subject to the Retention Ratio. As further noted from the Board Letter, the Employer will issue Performance Bond to the Contractor. We have further obtained and reviewed the recent sample agreements (the Sample Agreements ) covering both public and private sectors and including the retention and performance bond which were entered with Independent Third Parties and noted that the ranges of retention ratio under the Sample Agreements are from 3% to 10% with an average of approximately 5.5%. The Retention Ratio is close to the said average. As the Contractor will also issue the Performance Bond which is not greater than 5% of the Contract Sum (the Performance Bond Rate ) to the Employer subject to the performance of the Contractor s obligation under the Articles of Agreement, we have further discussed with the Directors and reviewed the performance bond rates for the Sample Agreements and noted that it is a normal and commercial practice to issue performance bond in both private and public sectors except for government projects. We also noted from the Sample Agreements that the range of performance bond rate under the Sample Agreements is from 3% to 10% with average level of approximately 5.25%. The Performance Bond Rate is close to the said average. Hence, we are satisfied and consider the payment terms involving the Retention Ratio and Performance Bond are on normal commercial terms and fair and reasonable. 24

27 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER RECOMMENDATION Having considered the above principal factors and reasons, we are of the view that (i) the Articles of Agreement are conducted in the ordinary and usual course of business of the Company; (ii) the terms of the Articles of Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (iii) the entering into of the Articles of Agreement is in the interests of Independent Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders, and we also recommend Independent Shareholders to vote in favour of the relevant resolution for approving the Transactions. Yours Faithfully, For and on behalf of Veda Capital Limited Julisa Fong Managing Director Ms. Julisa Fong is a Responsible Officer under the SFO to engage in type 6 (advising on corporate finance) regulated activity and has over 20 years of experience in investment banking and corporate finance. 25