Announcements

1. The Corporation has 129,554,630 Class “A” Common Voting Shares in issue;
2. The Corporation has 9,056,001 share options (the “Share Options”) under the Post IPO Share Option Scheme outstanding;
3. The Corporation issued convertible bonds (the ‘‘2019 CB’’) in an aggregate principal amount of USD$10,450,000 on June 17, 2019 to LionRock Soleil L.P., which is an independent third-party. The 2019 CB bears an interest rate of 10% per annum. The holders of the 2019 CB have the rights to convert the 2019 CB into Shares at the conversion price of HK$4.09 per Share (adjusted on a post share-consolidation basis) at any time up to 2 years from the issue date. Should the independent third-party exercise the 2019 CB, 19,979,685  shares will be issued representing 15.42% of the shareholding as the date hereof;
4. The Corporation issued CB in an aggregate principal amount of HK$72,000,000 to the Subscriber on April 1, 2020. The CB bears an interest rate of 8% per annum. Subject to the terms of the Subscription Agreement, the Subscriber has the rights to convert the CB in whole or in part into Shares at an initial conversion price of HK$0.632 per Share (subject to adjustment) at any time up to March 31, 2022; and
5. Save for the Share Options, the CB and the 2019 CB mentioned above, the Corporation doesn’t have any other convertible securities, options, warrants or other derivatives outstanding which are convertible or exchangeable into Shares.
   The table below depicts the shareholding structure of the Corporation, assuming there is no change in the issued share capital of the Corporation, (i) as at the date of this announcement;  (ii) immediately after full conversion of the Convertible Bonds based on the initial Conversion Price; (iii) immediately after full conversion of the CB and 2019 CB and (iv) immediately after full conversion of the CB, 2019 CB and the exercise of all options held by Directors:

Notes:

1.  Mr. Sun is the Executive Chairman and a Substantial Shareholder of the Corporation. He is interested or deemed to be interested in an aggregate of 36,308,540 Shares (representing approximately 28.03% of the share capital of the Corporation as at the date of this announcement), including (i) 10,338,000 Shares held by the Subscriber, a company directly and wholly-owned by Mr. Sun; (ii) 8,556,750 Shares directly held by Tai Feng Investments Limited, another company directly and wholly-owned by him and (iii) 17,413,790 Shares beneficially held by him. As at the date of this announcement, Mr. Sun has share options to subscribe for an aggregate 6,933,580 Shares granted by the Corporation under the Post-IPO Share Option Scheme of the Corporation.

2. Mr. Michael J Hibberd is the Non-Executive Vice-Chairman of the Corporation and is presumed to be acting in concert with the Subscriber under the Takeovers code.

3. Ms. Xijuan Jiang is a Non-Executive Director of the Corporation and is presumed to be acting in concert with the Subscriber under the Takeovers code.

4. Ms. Gloria Ho is an Executive Director of the Corporation and is presumed to be acting in concert with the Subscriber under the Takeovers code.

5. LionRock Soleil L.P., an independent third-party, is the holder of the 2019 CB issued by the Corporation. It will remain a public shareholder upon full conversion of CB.

6. Certain percentage figures included in the above table have been subject to rounding adjustments. Accordingly, figures shown as totals may not be an arithmetic aggregation of the figures preceding them.

7. As at the date of this announcement, the Corporation has 9,056,001 options outstanding under the Post-IPO Share Option Scheme, of which: a) 518,841 Options were not held by the Directors but are all exercisable, and b) 8,537,160 Options were granted to the Directors as shown below:

    

1. Mr. David Yi He is an Independent Non-Executive Director of the Corporation and also holds 139,682 shares in the Corporation as at the date of this announcement.

2. Save as disclosed above, none of the Directors have any relevant securities (as defined under Note 4 to Rule 22 of the Takeovers Code) of the Corporation as at the date of this announcement.

Each of the Subscriber and the Concert Group members has confirmed that, as at the date of this announcement:

Note:

1. Based on the Bank of Canada's nominal noon exchange rate (30 June 2020) of HKD$1.00 =CAD 0.1758

2. Based on the Bank of Canada's nominal noon exchange rate (31 December 2019) of HKD$1.00 =CAD 0.1668

3. Based on the Bank of Canada's nominal noon exchange rate (31 December 2018) of HKD$1.00 =CAD 0.1742

4. Based on the Bank of Canada's nominal noon exchange rate (31 March 2020) of HKD$1.00 =CAD 0.1830

Unfavourable market conditions faced by the Corporation

Recently, the Corporation’s liquidity has seriously deteriorated as a result of the economic hit brought about by COVID-19, causing drastic drop in oil demand and pricing; access to the funding was also obstructed due to the sluggish financial market.  On March 31, 2020, the Board decided to temporarily suspend production. The suspension further tightened the Corporation’s operating income and cash flow.  The Corporation was therefore in urgent financing need to sustain its day-to-day operation and administration expenses, and to meet its debt repayment obligations due in June, July and August 2020.  As stated in the 2020 interim results, the Corporation recorded a cash and cash equivalents balance to CDN470,000, representing a 63% decline from CDN1,254,000 as at December 31, 2020.  The operating cash flow for the three months ended June 30, 2020 recorded a net outflow of CDN2.0 million versus a net inflow of CDN0.7 million for the same period in 2019. The Corporation incurred a working capital deficiency of CDN260.5 million as at June 30, 2020. 

Limitation on financing alternative

Before the execution of the CB transaction, the Corporation’s management has already exhausted all available methods of raising funds, i.e. high yield debt issuance, bank loans, equity financing, none of which was successful due to the deterioration of financial performance of the Corporation and recent poor market sentiment as the result of the impact of COVD-19. After considering the above, and after arms’ length negotiation and careful consideration, in order to meet the urgent funding needs, the Corporation discussed and came up with a proposal with the Chairman Kwok Ping Sun, being the Chairman, Executive Director and Substantial Shareholder of the Corporation, whereby the Corporation will issue CB to Chairman Sun on terms stipulated in the Subscription Agreement. 

1. The financing cost for the Corporation is significantly lowered as the CB interest at 8.0% per annum can be saved upon the Conversion which is a substantial amount in view of the current liquidity position of the Corporation as at June 30, 2020;
2. Given the Corporation’s current debt-to-equity ratio was 402.60% as at June 30, 2020, compared to 342.39% as at December 31, 2019. Upon the Conversion, the debt-to-equity ratio is expected to be lowered to 377.13%.  The lowered gearing would enable the Corporation to be more persuasive in debt financing discussions in order to obtain additional funds and meet the funding needs of the Corporation after completion of the Conversion;
    
3. In view of the funding needs to continuously sustain the monthly operational costs especially during the market downturn, the Corporation’s management has recently been engaged in discussions with financial institutions and institutional investors for funding opportunities. The feedback from the prospective institutional investors is that the shareholding structure of the Corporation is very fragmented, in particular, the largest shareholder is not a controlling shareholder.  Therefore, they believe that the largest shareholder failed to demonstrate a high level of confidence and commitment in developing the business of the Corporation with a long-term perspective. After the Conversion, the Subscriber and its concert parties would become the controlling shareholder having 62.64% of the stake. The Corporation would then have a stronger position to present its shareholder support and commitment in fundraising negotiations; and
    
4. The Subscriber would be encouraged to even more actively participate in the operational turnaround of the Corporation with greater share ownership after the Conversion. There will be a better shareholder interest alignment. The Independent Shareholders are also given the opportunity to witness and benefit from the future developments of the Corporation together with the Subscriber.
    
   GENERAL
   Pursuant to the Takeovers Code, the Independent Board Committee comprising all non-executive director(s) of the Corporation who have no direct or indirect interest in the Whitewash Waiver and the Conversion, has been formed to advise the Independent Shareholders in respect of the Whitewash Waiver and the Conversion.
   The Independent Board Committee has appointed Donvex Capital Limited as the Independent Financial Adviser (the “Independent Financial Adviser”) to advise the Independent Board Committee and the Independent Shareholders in relation to the Whitewash Waiver and the Conversion.
   A SGM will be held to approve, among other things, the Conversion, the Whitewash Waiver and the Conversion.
   The Subscriber and the Concert Group members and their respective associates and Shareholders who are involved in or interested in the Subscription, the Conversion and the Whitewash Waiver shall abstain from voting in respect of the resolution(s) to approve the Whitewash Waiver and the Conversion at the SGM.
   As at the date of this announcement, save for the Subscriber and the Concert Group member and their respective associates as disclosed herein, no other Shareholder is involved in or interested in the Subscription (including Whitewash Waiver and the Conversion that is required to abstain from voting in respect of the resolution(s) to approve the Whitewash Waiver and the Conversion at the SGM.
   A circular containing, among others, (i) full details of the Subscription, the Conversion and the Whitewash Waiver; (ii) a letter of recommendations from the Independent Board Committee to the Independent Shareholders in respect of the Conversion and the Whitewash Waiver; (iii) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Whitewash Waiver and the Conversion; and (iv) a notice convening the SGM, will be despatched to the Shareholders within 21 days from the date of this announcement in compliance with Rule 8.2 of the Takeovers Code.

As at the date of this announcement, the Corporation does not believe that the Whitewash Waiver and the Conversion give rise to any concerns in relation to compliance with other applicable rules or regulations (including the Listing Rules). If a concern should arise after the release of this announcement, the Corporation will endeavor to resolve the matter to the satisfaction of the relevant authority as soon as possible but in any event before the dispatch of the circular. The Corporation notes that the Executive may or may not grant the Whitewash Waiver if the Whitewash Waiver does not comply with other applicable rules and regulations.