PROPOSED ISSUE OF CONVERTIBLE BONDS

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1 Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement. This announcement is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of the Company. (Incorporated in Bermuda with limited liability) (Stock Code: 00346) PROPOSED ISSUE OF CONVERTIBLE BONDS This announcement is made by the Company pursuant to Rule of the Listing Rules and the Inside Information Provision under part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). PROPOSED ISSUANCE OF CONVERTIBLE BONDS The Board is pleased to announce that after trading hours, on 3 December 2015, the Company (as issuer) and the Investor (as subscriber) entered into the Subscription Agreement pursuant to which the Company has conditionally agreed to issue, and the Investor has conditionally agreed to subscribe for, the Convertible Bonds of an aggregate principal amount of US$46,800,000 (subject to the RMB Cap Amount). The Convertible Bonds shall bear interest at the rate of 5% per annum and can be convertible into 906,750,000 Conversion Shares upon full conversion of the Convertible Bonds (representing approximately 6.95% of the enlarged issued share capital of the Company) at any time 5 Business Days before the Maturity Date falling on the third anniversary of the Issue Date. A summary of the principal terms and conditions of the Convertible Bonds is set out in this announcement. The estimated net proceeds from the Subscription of approximately US$46,800,000 (subject to the RMB Cap Amount) is intended to be used for the Group s general working capital, and provide additional capital base for the future growth and development of the Group s business. 1

2 GENERAL Closing of the Subscription Agreement is conditional upon, among others, the Listing Committee of the Stock Exchange having granted the approval for the listing of, and permission to deal in, the Conversion Shares to be issued upon the exercise of the conversion rights attached to the Convertible Bonds. The Conversion Shares will be issued and allotted under the General Mandate granted to the Directors by the Shareholders. As at the date of this announcement, save for the proposed issue of the Conversion Shares upon exercise of the conversion rights attached to the Convertible Bonds, the Company has not utilised the General Mandate. No application will be made for the listing of any of the Convertible Bonds on the Stock Exchange or any other stock exchange. Shareholders and potential investors should note that the Subscription Agreement is subject to conditions and the Subscription may or may not proceed. Shareholders and potential investors are advised to exercise caution when dealing in the Shares. After trading hours, on 3 December 2015, the Company (as issuer) and the Investor (as subscriber) entered into the Subscription Agreement pursuant to which the Company has conditionally agreed to issue, and the Investor has conditionally agreed to subscribe for, the Convertible Bonds of an aggregate principal amount of US$46,800,000 (subject to the RMB Cap Amount). A summary of the principal terms of the Subscription Agreement and the principal terms and conditions of the Convertible Bonds is set out below: THE SUBSCRIPTION AGREEMENT Date: 3 December 2015 Parties: Issuer: The Company; and Investor: Giant Wave Investments Limited To the best of the Directors knowledge, information and belief, having made all reasonable enquiries, the Investor is a third party independent of the Company and its connected persons. Aggregate amount of the Convertible Bonds to be subscribed: Subject to fulfillment of the Conditions Precedent, the Investor has agreed to subscribe for the Convertible Bonds in an aggregate principal amount of US$46,800,000 (subject to the RMB Cap Amount). 2

3 Conditions Precedent to the Subscription Agreement: The Closing of the Convertible Bonds is subject to the fulfillment of the following Conditions Precedent: 1. The Company having made commercially reasonable efforts to procure Yanchang Petroleum Group to issue a letter of undertaking in relation to the Convertible Bonds, the particulars of which are as follows: (i) Yanchang Petroleum Group undertakes not to initiate to reduce its present shareholding in the 6,496,729,547 Shares in which it has beneficial interests within the validity period of the Convertible Bonds; and (ii) Yanchang Petroleum Group undertakes to remain the single largest Shareholder of the Company within the validity period of the Convertible Bonds. 2. The letter of undertaking in relation to the Convertible Bonds issued by Yanchang Petroleum Group pursuant to clause 1 has become effective; 3. The Investor is of the opinion that the warranties given by the Company as set out in the Subscription Agreement are true and accurate in all material respects and not misleading as at the date of the Subscription Agreement and the Closing Date; 4. The Board of the Company having passed a resolution to authorise the Directors to approve the Subscription Agreement and the proposed transactions contemplated thereunder, including the issue and allotment of the Convertible Bonds to the Investor under the General Mandate, the effective registration of the Investor in the register of Bondholders and the conversion of the Conversion Shares, according to the requirements of the Listing Rules and all applicable laws (including but not limited to those of Hong Kong, the PRC and Bermuda), and such approval not having been amended and being in full force; 5. (If required) The Listing Committee of the Stock Exchange having approved the issue of the Convertible Bonds either unconditionally or subject to conditions to which neither the Company nor the Investor has reasonable objection and both parties shall fulfill such conditions; 6. The Listing Committee of the Stock Exchange having granted the listing of, and permission to deal in, the Conversion Shares which may fall to be allotted and issued upon the exercise of the conversion rights attached to the Convertible Bonds, and such approval not having been amended and being in full force; 7. (If required) The Bermuda Monetary Authority having granted its permission for the issue of the Convertible Bonds and the issue and allotment of the Conversion Shares; 3

4 8. The Company having obtained and completed all such consents and filings which are necessary or required for the entering into, delivery and execution of the Subscription Agreement and the proposed transactions contemplated thereunder, and which shall be obtained from any regulatory authorities (including but not limited to the approving authorities or any courts or judicial authorities and other related third parties in the PRC) pursuant to the requirements of all applicable laws or any binding contracts in any jurisdictions (including but not limited to Hong Kong, the PRC and Bermuda), or any such approvals, authorisations, permits, licences, waivers, orders or exemptions which are obtained and completed by other parties in accordance with the terms and conditions (if any) of the Subscription Agreement; 9. The Company having delivered to the Investor a legal opinion issued by Hong Kong lawyers in such form and context with which the Investor is satisfied; 10. The Company not having been in breach of any obligations which shall have been performed before the Closing Date under the Subscription Agreement and the Convertible Bonds; 11. The Investor having been satisfied with the results of enquiries, investigations and due diligence conducted in relation to the business, affairs, operations and financial position of the Company which are deemed to be necessary, expedient or appropriate by the Investor or any of its management staff, employees, agents, professional consultants or other nominees; and 12. The Investor having obtained all necessary authorisations, approvals, consents, permissions, waivers, permits and licences relating to the Subscription Agreement, including but not limited to those issued by the investment committee of the Investor, and the same not having been revoked. The Company guarantees to use its best reasonable efforts to fulfil each of the Conditions Precedent set out in clauses 1 to 10 above before the Long Stop Date. If, despite reasonable efforts by the Company, the Conditions Precedent are not fulfilled or waived as mentioned below as at the Long Stop Date, the Subscription Agreement shall be terminated automatically. The Investor may at its option to notify the Company to waive any Conditions Precedent above other than clauses 6, 7 and 8 at any time before the Long Stop Date. Closing: The Closing Date shall be the fifth Business Day from the date on which all Conditions Precedent are fulfilled or waived in writing (or such other date as agreed between the Company and the Investor in writing, which shall not be later than the Long Stop Date unless agreed by both parties). 4

5 USE OF PROCEEDS The gross proceeds from the Subscription are expected to be US$46,800,000 (subject to the RMB Cap Amount and equivalent to approximately HK$362,700,000). The net proceeds from the Subscription, after the deduction of related expenses, are estimated to be approximately US$46,800,000 (subject to the RMB Cap Amount and equivalent to approximately HK$362,700,000) which is intended to be used for the Group s general working capital, and provide additional capital base for the future growth and development of the Group s business. PRINCIPLE TERMS UNDER THE CONVERTIBLE BONDS Issuer : The Company Principal amount : Convertible Bonds due 2018 in an aggregate principal amount of US$46,800,000 (subject to the RMB Cap Amount). Issue price : 100% of the principal amount of the Convertible Bonds. Ranking of the Convertible Bonds : The Convertible Bonds shall at all times (subject to any obligations preferred by mandatory provisions of law) rank pari passu with all other present and future direct, unconditional and unsubordinated obligations of the Company. Interest : 5% per annum on the outstanding principal amount of the Convertible Bonds, which shall be payable by the Company to the Investor in arrears semi-annually from the Issue Date until the date on which the Convertible Bonds are redeemed. Maturity date : The date falling on the third anniversary of the Issue Date (the Maturity Date ). Redemption upon maturity : The Company will redeem on the Maturity Date the Convertible Bonds in an amount equal to the sum of the aggregate principal amount of the Convertible Bonds then outstanding plus a premium representing an interest rate of 5% per annum on the principal amount of the Convertible Bonds together with all accrued and outstanding interest. Redemption upon event of default : Upon occurrence of an event of default set out in the terms and conditions of the Convertible Bonds, the Bondholder shall be entitled to notify the Company in writing to require the Convertible Bonds to be redeemed in an amount equal to the sum of the aggregate principal amount of the Convertible Bonds then outstanding plus a premium representing an interest rate of 5% per annum on the principal amount of the Convertible Bonds together with all accrued and outstanding interest. 5

6 Early redemption at the option of the Bondholder(s) : Unless previously redeemed, converted or cancelled, the Bondholder may, at its option and within a month after the second anniversary of the Issue Date ( Early Redemption Date ), notify the Company in writing to request the Company to redeem the Convertible Bonds in whole or in part in an amount equal to the sum of the outstanding principal amount of the Convertible Bonds to be redeemed, plus a premium representing an annual interest rate of 5% on the relevant principal amount together with all accrued and outstanding interest calculated from the Issue Date to the Early Redemption Date. Conversion period : The period commencing from the Issue Date up to 5 Business Days prior to the Maturity Date. Conversion Price : Initially at HK$0.40 per Conversion Share, subject to adjustments. Adjustments to Conversion Price : The Conversion Price will be subject to adjustment (but in no event shall the adjusted share price be lower than 90% of the Conversion Price other than subdivision of Shares) upon the occurrence of the following events: (a) (b) (c) (d) (e) consolidation or subdivision of Shares; capitalisation of profits or reserves; issue of Shares by way of scrip dividend; if the weighted average price of the Shares for the ten consecutive trading days before the first anniversary of the issue of the Convertible Bonds is lower than the then Conversion Price, the Conversion Price should be adjusted to the lower market price; or the Company or the Bondholder is of the view that other event(s) requires an adjustment to be made to the Conversion Price upon which the Company and the Bondholder shall jointly appoint a recognised professional to make a fair and reasonable adjustment to the Conversion Price. Conversion Shares to be issued under the Convertible Bonds : Based on the initial Conversion Price of HK$0.40 per Conversion Share at the exchange rate of HK$7.75 to US$1.00 prevailing on the date of the signing of the Subscription Agreement, a total of 906,750,000 Conversion Shares will be issued upon full conversion of the principal amount of the Convertible Bonds, representing approximately 6.95% of the enlarged issued share capital of the Company. 6

7 Ranking of Conversion Shares : Conversion Shares issued upon conversion shall rank pari passu in all respects with all other Shares on the date of conversion and the holder shall be entitled in respect of its Conversion Shares to all dividends and other distributions. Listing : No application will be made for the listing of any of the Convertible Bonds on the Stock Exchange or any other stock exchange. Transferability : The Convertible Bonds are freely transferrable by the Bondholder to any person subject to compliance with all applicable laws and provided that no transfer shall be made to any connected person of the Company without the consent of the Stock Exchange. Specific covenants : The Company undertakes to comply with the following specific covenants at all times until the date when all the Convertible Bonds have been converted into Conversion Share(s) or the Company has redeemed all the Convertible Bonds (whichever is earlier): (1) maintaining the net assets value of the Company at no less than HK$5 billion; (2) maintaining the ratio of total assets value to net assets value of the Company at no more than 2 times; (3) maintaining the ratio of net interest-bearing debt to net assets value of the Company at no more than 50%; (4) Yanchang Petroleum Group holds not less than 6,496,729,547 Shares; and (5) Yanchang Petroleum Group remains the single largest Shareholder of the Company. 7

8 Events of Default : Apart from events of default of the type commonly adopted for convertible debt securities (including, for example, breaches of terms, delisting of Shares and insolvency events), an event of default would arise if: THE CONVERSION PRICE (1) the net assets value of the Company is less than HK$5 billion; (2) the ratio of total assets value to net assets value of the Company is more than 2 times; (3) the ratio of net interest-bearing debt to net assets value of the Company is more than 50%; (4) the Company ceases or threatens to cease the whole or a substantial part of its business; or (5) Yanchang Petroleum Group breaches its undertaking under its letter of undertaking in relation to the Convertible Bonds as provided in accordance with the Conditions Precedent under the Subscription Agreement. The initial Conversion Price is HK$0.40 per Conversion Share and represents: (i) a premium of approximately 87.79% over the closing price of HK$ per Share as quoted on the Stock Exchange on the date of the Subscription Agreement; (ii) a premium of approximately 79.69% over the average closing price of HK$ per Share as quoted on the Stock Exchange for the 5 trading days up to and including the Last Trading Day; and (iii) a premium of approximately 76.91% over the average closing price of HK$ per Share as quoted on the Stock Exchange for the 10 trading days up to and including the Last Trading Day. The Conversion Price was determined after arm s length negotiation between the Company and the Investor with reference to the recent trading prices of the Shares on the Stock Exchange. The Directors are of the view that the Conversion Price is fair, reasonable and in the interests of the Company and its Shareholders as a whole. The net issue price, after deduction of the relevant expenses, is approximately HK$0.40 per Conversion Share. 8

9 ISSUE OF THE CONVERSION SHARES UNDER THE GENERAL MANDATE Based on the principal amount of US$46,800,000 (subject to the RMB Cap Amount) of the Convertible Bonds and the initial Conversion Price of HK$0.40 per Conversion Share, the Company will issue 906,750,000 Conversion Shares upon full exercise of the conversion rights attached to the Convertible Bonds, representing: (i) (ii) approximately 7.47% of the issued share capital of the Company as at the date of the Subscription Agreement; and approximately 6.95% of the enlarged issued share capital of the Company (assuming that there is no change in the issued share capital of the Company other than the issue of the Conversion Shares since the date of the Subscription Agreement up to the date of full conversion of the Convertible Bonds). The Conversion Shares will be issued and allotted under the General Mandate granted to the Directors at the Company s annual general meeting held on 27 May 2015 to issue, allot and deal with no more than 2,429,114,609 Shares. As at the date of this announcement, save for the proposed issue of the Conversion Shares upon exercise of the conversion rights attached to the Convertible Bonds, the Company has not utilised the General Mandate. As such, the issue of the Convertible Bonds and the issue of the Convertible Shares upon exercise of the conversion rights attached to the Convertible Bonds will not be subject to the Shareholders further approval. Application will be made by the Company to the Listing Committee of the Stock Exchange for the granting of the approval for the listing of, and permission to deal in, the Conversion Shares to be issued upon exercise of the conversion rights attached to the Convertible Bonds. REASONS FOR THE ISSUE OF THE CONVERTIBLE BONDS The Directors consider that the issue of the Convertible Bonds represents an opportunity to raise additional funds for the Company s general working capital. The Directors also consider that the issue of the Convertible Bonds is an appropriate means through which the Company can raise funds as it provides the Company with funding without immediate dilution of the interests of the existing Shareholders notwithstanding that their interests will be diluted if the Convertible Bonds are converted in the future. In addition, upon conversion of the Convertible Bonds, it is expected that the shareholding structure and the capital base of the Company would be enlarged and strengthened, which will benefit the future growth and development of the Group s business. Taking into account of the above, the Directors consider that the terms and conditions of the Subscription Agreement and the Convertible Bonds were negotiated on an arm s length basis and agreed on normal commercial terms between the Company and the Investor. The Directors also consider that the terms and conditions of the Subscription Agreement and the Convertible Bonds are fair and reasonable and the entering into the Subscription Agreement and the issue of the Convertible Bonds would be in the interests of the Company and its Shareholders as a whole. 9

10 EFFECT ON THE SHAREHOLDING STRUCTURE OF THE COMPANY As at the date of this announcement, the Company has 12,145,573,049 Shares in issue. Set out below are the shareholding structures of the Company (i) as at the date of this announcement and (ii) immediately after full conversion of the Convertible Bonds at the initial Conversion Price of HK$0.40 per Conversion Share (assuming that there is no change in the issued share capital of the Company other than the issue of the Conversion Shares since the date of the Subscription Agreement up to the date of full conversion of the Convertible Bonds): As at the date of this announcement Immediately after full conversion of the Convertible Bonds Approximate Approximate No. of Shares percentage No. of Shares percentage (%) (%) Yanchang Petroleum Group (Note 1) 6,496,729, ,496,729, Dr. Mu Guodong (Note 2) 300, , Mr. Sun Liming (Note 3) 600, , Investor 906,750, Public Shareholders 5,647,943, ,647,943, Total 12,145,573, ,052,323, Notes: 1. These 6,496,729,547 Shares were held by Yanchang Petroleum Group through its wholly-owned subsidiary, Yanchang Petroleum Group (Hong Kong) Co., Limited. 2. Dr. Mu Guodong is an independent non-executive Director of the Company. Dr. Mu personally held 230,000 Shares and his spouse held 70,000 Shares. Dr. Mu is deemed to be interested in these 70,000 Shares under the Securities and Futures Ordinance. 3. Mr. Sun Liming is an independent non-executive Director of the Company. EQUITY FUND RAISING ACTIVITIES BY THE COMPANY DURING THE PAST TWELVE MONTHS The Company has not conducted any equity fund raising activity during the past twelve (12) months immediately preceding the date of this announcement. INFORMATION ON THE GROUP The Group is principally engaged in (i) investments in the oil, natural gas and energy related business; (ii) oil and natural gas exploration, exploitation and operation; and (iii) trading and distribution of fuel oil. 10

11 INFORMATION ON THE INVESTOR The Investor is a limited liability company incorporated in the BVI. It is indirectly and wholly-owned by CCB International (Holdings) Limited ( CCBI ). CCBI is an investment services flagship which is indirectly and wholly-owned by China Construction Bank Corporation, a joint-stock company incorporated in the PRC with the shares of which listed on the Main Board of the Stock Exchange (stock code: 00939) and the Shanghai Stock Exchange (stock code: ). Shareholders and potential investors should note that the Subscription Agreement is subject to conditions and the Subscription may or may not proceed. Shareholders and potential investors are advised to exercise caution when dealing in the Shares. DEFINITIONS In this announcement, unless the context otherwise requires, the following expressions shall have the following meanings: associate(s) Board Bondholder(s) Business Day(s) BVI Closing Date Company Conditions Precedent connected person(s) has the meaning ascribed to it under the Listing Rules the board of Directors Holder(s) of any amount of the Convertible Bonds from time to time a day on which licensed banks in Hong Kong are generally open for business other than Saturday and Sunday or public holiday, or a day on which licensed banks do not open for business due to a tropical cyclone warning signal number 8 or above or a black rainstorm warning signal being in force in Hong Kong the British Virgin Islands the date of closing, being the fifth Business Day from the date on which all Conditions Precedent are being satisfied or waived in writing or such later date of closing as the Company and the Investor may agree in writing Yanchang Petroleum International Limited, a company incorporated in Bermuda with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange the conditions precedent as contemplated under the Subscription Agreement has the meaning ascribed to it under the Listing Rules 11

12 Conversion Price Conversion Share(s) Convertible Bonds Director(s) General Mandate Group HK$ Hong Kong Investor Issue Date Last Trading Day Listing Rules Long Stop Date PRC the initial conversion price of the Convertible Bonds, being HK$0.40 per Conversion Share subject to adjustments (an) ordinary share(s) of par value of HK$0.02 each (or such other amount as such ordinary share(s) may be divided or consolidated or converted into) in the issued share capital of the Company upon conversion of the Convertible Bonds the 5% redeemable convertible bonds due 2018 in principal amount of US$46,800,000 (subject to the RMB Cap Amount) convertible into Shares as contemplated under the Subscription Agreement the director(s) of the Company The general mandate granted to the Directors at the annual general meeting of the Company on 27 May 2015 to allot, issue and deal with not more than 2,429,114,609 Shares the Company and its subsidiaries Hong Kong dollars, the lawful currency of Hong Kong the Hong Kong Special Administrative Region of the PRC Giant Wave Investments Limited, a company incorporated under the laws of BVI with limited liability the date when the Convertible Bonds are issued by the Company to the Investor 3 December 2015, being the last trading day of the Shares on the Stock Exchange before the publication of this announcement the Rules Governing the Listing of Securities on the Stock Exchange 31 December 2015, or such later date as the Company and the Investor may agree in writing the People s Republic of China excluding Hong Kong and the Special Administrative Region of Macau and Taiwan for the purposes of this announcement 12

13 RMB Cap Amount Share(s) Shareholder(s) Stock Exchange Subscription Subscription Agreement subsidiary US$ Yanchang Petroleum Group On the Closing Date, the aggregate principal amount of US$46,800,000 shall not exceed the US$ equivalent of RMB300,000,000. If, on the Closing Date, the aggregate principal amount of US$46,800,000 exceeds the US$ equivalent of RMB300,000,000, the aggregate principal amount of US$46,800,000 shall be adjusted according to the US$ equivalent of RMB300,000,000 on the Closing Date (an) ordinary share(s) of par value of HK$0.02 each in the share capital of the Company the registered holder(s) of (an) issued Share(s) from time to time The Stock Exchange of Hong Kong Limited the proposed subscription by the Investor of the Convertible Bonds as contemplated under the Subscription Agreement the subscription agreement dated 3 December 2015 and entered into between the Company and the Investor in relation to the Subscription has the meaning ascribed to it under the Listing Rules United States dollars, the lawful currency of the United States Shaanxi Yanchang Petroleum (Group) Co., Limited ( ), a state-owned corporation registered in the PRC with limited liability, being a substantial Shareholder holding 6,496,729,547 Shares through its wholly-owned subsidiary, Yanchang Petroleum Group (Hong Kong) Co., Limited, representing approximately 53.49% of the existing issued share capital of the Company as at the date of this announcement % per cent 13

14 In this announcement, amounts in US$ have been converted into HK$ and vice-versa at the rates of US$1= HK$7.75 for illustration purposes only. These conversions shall not be taken as a representation that any amounts in US$ or HK$ have been or could have been or can be converted at the aforementioned rate or at any other rate or at all. Hong Kong, 3 December 2015 By Order of the Board Yanchang Petroleum International Limited Zhang Kaiyong Chairman Executive Directors: Mr. Zhang Kaiyong (Chairman) Mr. Ren Yansheng (Chief Executive Officer) Mr. Hui Bo (Vice President) Mr. Shen Hao Mr. Feng Dawei Mr. Zhao Jie Mr. Andres Pena Salceda Independent Non-Executive Directors: Mr. Ng Wing Ka Mr. Leung Ting Yuk Mr. Sun Liming Dr. Mu Guodong 14