eSun Holdings Limited · 30/08/2019 · licensed securities dealer, registered institution in securities, bank manager, solicitor, professional accountant ... on which licensed banks

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 licensed securities dealer, registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser for independent advice.

If you have sold or transferred all your shares in eSun Holdings Limited, you should at once hand this circular with the accompanying form of proxy to the purchaser(s) or the transferee(s), or to the licensed securities dealer, registered institution in securities, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

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.

eSun Holdings Limited(Incorporated in Bermuda with limited liability)

(Stock Code: 571)

MAJOR DISPOSAL AND CONNECTED TRANSACTION

SALE AND PURCHASE AGREEMENT IN RELATION TO20% INTEREST IN A TARGET COMPANY

ANDNOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser tothe Independent Board Committee and the Independent Shareholders

Capitalised terms used in the lower portion of this cover page shall have the same respective meanings as those defined in the section headed “Definitions” in this circular.

A letter from the Board is set out on pages 8 to 19 of this circular. A letter from the Independent Board Committee is set out on page 20 of this circular. A letter from Red Sun Capital Limited, the Independent Financial Adviser, to the Independent Board Committee and the Independent Shareholders, is set out on pages 21 to 46 of this circular.

A notice convening the SGM to be held at Grand Ballroom 5, Level B, Hong Kong Ocean Park Marriott Hotel, 180 Wong Chuk Hang Road, Aberdeen, Hong Kong on Friday, 20 September 2019 at 9:00 a.m. is set out on pages 118 and 119 of this circular.

Shareholders are advised to read the Notice of SGM and if you are not able to attend the SGM or its adjournment (as the case may be) in person but wish to exercise your right as a Shareholder, please complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible, but in any event not less than 48 hours before the time fixed for holding the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy shall not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) should you so wish and in such event, the instrument appointing a proxy shall be deemed to be revoked.

30 August 2019

TABLE OF CONTENTS

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Page

DEFINITIONS ........................................................................................................................ 1

LETTER FROM THE BOARD ............................................................................................ 8

LETTER FROM THE INDEPENDENT BOARD COMMITTEE .................................... 20

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ................................... 21

APPENDIX I — FINANCIAL INFORMATION OF THE GROUP ........................... 47

APPENDIX II — MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP ............................................ 52

APPENDIX III — PROPERTY VALUATION REPORT OF THE TARGET GROUP ......................................................... 85

APPENDIX IV — BUSINESS VALUATION REPORT OF THE TARGET GROUP ......................................................... 97

APPENDIX V — GENERAL INFORMATION ............................................................ 107

NOTICE OF SGM .................................................................................................................. 118

ACCOMPANYING DOCUMENT: FORM OF PROXY

This circular in both English and Chinese is available in printed form and published on the respective websites of the Company at www.esun.com and the Stock Exchange at www.hkexnews.hk.

DEFINITIONS

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In this circular, the following expressions shall have the following respective meanings unless the context otherwise requires:

“associate(s)” has the meaning ascribed to it under the Listing Rules;

“Board” the board of Directors;

“business day” a day (other than a Saturday or a Sunday or a public holiday) on which licensed banks in Hong Kong are generally open for normal banking business;

“chief executive” has the meaning ascribed to it under the Listing Rules;

“Chinese Government” the government of the PRC;

“Company” eSun Holdings Limited (豐德麗控股有限公司), an exempted company incorporated in Bermuda with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange (Stock Code: 571);

“Completion” completion of the sale and purchase of the Sale Shares in accordance with the provisions of the Sale and Purchase Agreement;

“Conditions” conditions precedent to the Sale and Purchase Agreement which must be fully satisfied in order for Completion to take place;

“connected person(s)” has the meaning ascribed to it under the Listing Rules;

“Consideration” the amount payable under the Sale and Purchase Agreement as consideration for the Sale Shares in the amount of HK$557.25 million;

“Cost-sharing Agreements” collectively, the Laisun Creative Culture Cost-sharing Agreement, Novotown Creative Culture Cost-sharing Agreement, and Novotown Entertainment Cost-sharing Agreement, of which the details are set out in the announcement of Lai Fung dated 16 July 2019;

“Deed of Conditional Waiver” the deed of conditional waiver dated 30 October 2012 and executed by Lai Fung in favour of LSG and LSD (as supplemented by the supplemental deeds dated 19 November 2012 and 8 March 2019 executed by Lai Fung), details of which are summarised in the Company’s circulars dated 1 December 2012 and 19 March 2019, respectively;

DEFINITIONS

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“Deed of Ratification the deed of ratification and accession to be executed by LSD and Accession” (or its nominee) upon Completion under which LSD (or its

nominee) agrees to be bound by the Shareholders’ Agreement as if it is an original party thereto in place of the Seller;

“Director(s)” the director(s) of the Company;

“Disposal” the disposal of 20% equity interest in the Target Company pursuant to the terms and conditions of the Sale and Purchase Agreement;

“Excluded Directors” Mr. Lam Hau Yin, Lester, Mr. Chew Fook Aun (both executive Directors) and Madam U Po Chu (a non-executive Director), who abstained from voting on the board resolutions approving the Transaction to avoid any conflict of interests;

“GFA” gross floor area;

“Greater Bay Area” the Guangdong-Hong Kong-Macao Greater Bay Area;

“Group” the Company and its subsidiaries;

“Guarantees” the guarantees provided by the Company in favour of the lending banks to guarantee the payment obligations of the Target Group under the banking facilities granted;

“Head Lease Portion 1” 108 rooms of Building 2, No. 2 Pinggong West Road, Nanping Science and Technology Industrial Park, Zhuhai City of the PRC* (中國珠海市南屏科技工業園屏工西路2號第2棟樓);



“Head Lease Premises” collectively, Head Lease Portion 1, Head Lease Portion 2, Head Lease Portion 3 and the Potential Head Lease Portions;

“HK$” Hong Kong dollars, the lawful currency of Hong Kong;

“Hong Kong” the Hong Kong Special Administrative Region of the PRC;

DEFINITIONS

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“Independent Board Committee” an independent committee of the Board comprising all independent non-executive Directors, established to advise the

Independent Shareholders in respect of the Transaction;

“Independent Financial Adviser” Red Sun Capital Limited, a corporation licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities as defined under the SFO, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Transaction;

“Independent Shareholders” the Shareholders who do not have any material interest in the Transaction and who are not required to abstain from voting on resolution(s) approving the Transaction at the SGM pursuant to the Listing Rules;

“Lai Fung” Lai Fung Holdings Limited (麗豐控股有限公司), an exempted company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange (Stock Code: 1125);

“Lai Fung Announcements” the announcements of Lai Fung dated 16 July 2019 and 23 July 2019 regarding the continuing connected transactions under the Property Management Services Agreements and Cost-sharing Agreements;

“Lai Fung Board” the board of directors of Lai Fung, consisting of the directors of Lai Fung;

“Lai Fung Group” Lai Fung and its subsidiaries;

“Laisun Creative Culture” 珠海橫琴麗新文創天地有限公司 (Zhuhai Hengqin Laisun Creative Culture City Co., Ltd.*), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Target Company;

“Laisun Creative Culture the agreement entered into between Laisun Creative Culture Cost-sharing Agreement” and Novotown Business Management on 16 July 2019 in

relation to the cost-sharing arrangement, of which details are set out in the announcement of Lai Fung dated 16 July 2019;

“Laisun Creative Culture the agreement entered into between Laisun Creative Culture Property Management and Novotown Business Management on 23 July 2019 in Services Agreement” relation to the provision of property management services,

of which details are set out in the announcement of Lai Fung dated 23 July 2019;

DEFINITIONS

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“Latest Practicable Date” 28 August 2019, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein;

“LFHQ” Lai Fung (Hengqin) Development Company Limited (麗豐 (橫琴)發展有限公司), a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of Lai Fung;

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;

“LSD” Lai Sun Development Company Limited (麗新發展有限公司), a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange (Stock Code: 488);

“LSD Group” LSD and its subsidiaries;

“LSG” Lai Sun Garment (International) Limited (麗新製衣國際有限公司), a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange (Stock Code: 191);

“LSG Group” LSG and its subsidiaries;

“MAGHL” Media Asia Group Holdings Limited (寰亞傳媒集團有限公司), an exempted company incorporated in the Cayman Islands and continued in Bermuda with limited liability, the issued shares of which are listed and traded on GEM of the Stock Exchange (Stock Code: 8075);

“MAGHL Group” MAGHL and its subsidiaries;

“Notice of SGM” the notice convening the SGM as set out on pages 118 and 119 of this circular;

“Novotown Business Management” 珠海橫琴創新方商業管理有限公司 (Zhuhai Hengqin Novotown Business Management Co., Ltd.*), a company established in

the PRC with limited liability and an indirect wholly-owned subsidiary of Lai Fung;

“Novotown Creative Culture” 珠海橫琴創新方文化創意有限公司 (Zhuhai Hengqin Novotown Creative Culture Co., Ltd.*), a company established in the PRC

with limited liability and an indirect 70%-owned subsidiary of the Target Company;

DEFINITIONS

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“Novotown Creative Culture the agreement entered into between Novotown Creative Cost-sharing Agreement” Culture and Novotown Business Management on 16 July 2019

in relation to the cost-sharing arrangement, of which details are set out in the announcement of Lai Fung dated 16 July 2019;

“Novotown Creative Culture the agreement entered into between Novotown Creative Property Management Culture and Novotown Business Management on 16 July 2019 Services Agreement” in relation to the provision of property management services,


“Novotown Entertainment” 珠海橫琴創新方娛樂有限公司 (Zhuhai Hengqin Novotown Entertainment Co., Ltd.*), a company established in the PRC with limited liability and an indirect 70%-owned subsidiary of the Target Company;

“Novotown Entertainment the agreement entered into between Novotown Entertainment Cost-sharing Agreement” and Novotown Business Management on 16 July 2019 in

relation to the provision of the cost-sharing arrangement, of which details are set out in the announcement of Lai Fung dated 16 July 2019;

“Novotown Entertainment the agreement entered into between Novotown Entertainment Property Management and Novotown Business Management on 16 July 2019 in Services Agreement” relation to the provision of property management services,


“percentage ratio(s)” has the meaning ascribed to it in Rule 14.07 of the Listing Rules;

“Potential Head Lease Portions” additional rooms of buildings at No. 2 Pinggong West Road, Nanping Science and Technology Industrial Park, Zhuhai City of the PRC* (中國珠海市南屏科技工業園屏工西路2號);

“PRC” or “Mainland China” the People’s Republic of China and for the purpose or “China” of this circular, excluding Hong Kong, the Macau Special

Administrative Region of the PRC and Taiwan;

“Property Management col lec t ive ly , the Laisun Creat ive Cul ture Proper ty Services Agreements” Management Services Agreement, Novotown Creative Culture

Property Management Services Agreement and Novotown Entertainment Property Management Services Agreement, of which the details are set out in the Lai Fung Announcements;

DEFINITIONS

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“Restricted Opportunity(ies)” has the meaning ascribed to it in the Deed of Conditional Waiver, details of which are summarised in the Company’s circulars dated 1 December 2012 and 19 March 2019;

“RMB” Renminbi, the lawful currency of the PRC;

“Sale and Purchase Agreement” the share sale and purchase agreement dated 23 July 2019 and entered into between the Seller and LSD in relation to the sale and purchase of the Sale Shares;

“Sale Shares” 20 shares of US$1.00 each in the share capital of the Target Company, representing 20% of the total issued share capital of the Target Company;

“Seller” or “SHIL” Sunny Horizon Investments Limited, a company incorporated in the British Virgin Islands with limited liability and an indirect wholly-owned subsidiary of the Company;

“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time;

“SGM” the special general meeting of the Company to be convened and held at Grand Ballroom 5, Level B, Hong Kong Ocean Park Marriott Hotel, 180 Wong Chuk Hang Road, Aberdeen, Hong Kong on Friday, 20 September 2019 at 9:00 a.m., or any adjournment thereof;

“Share(s)” the ordinary share(s) of HK$0.50 each in the share capital of the Company;

“Shareholder(s)” the duly registered holder(s) of the Shares;

“Shareholder’s Loan” the loan in the amount of approximately HK$280.4 million (subject to adjustments as agreed between LSD and the Seller upon Completion) to be made by LSD to the Target Company upon Completion;

“Shareholders’ Agreement” the shareholders’ agreement dated 19 December 2013 in relation to the Target Company entered into between LFHQ, the Seller and the Target Company;

DEFINITIONS

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“Special Committee” an independent board committee of Lai Fung (comprising director(s) who do not have any material interest in the matters to be resolved at the relevant meeting of such committee) set up in accordance with the Deed of Conditional Waiver for considering and, if thought fit, confirming the provision of the waiver in respect of the Transaction under the Deed of Conditional Waiver;

“Stock Exchange” The Stock Exchange of Hong Kong Limited;

“subsidiary(ies)” has the meaning ascribed to it under the Listing Rules;

“Target Company” or Rosy Commerce Holdings Limited (業佳控股有限公司), “Rosy Commerce” a company incorporated in the British Virgin Islands with

limited liability;

“Target Group” Target Company and its subsidiaries;

“Transaction” the sale and purchase of the Sale Shares and the execution of the Deed of Ratification and Accession contemplated under the Sale and Purchase Agreement, and LSD’s provision of a Shareholder’s Loan to the Target Company;

“US$” or “USD” United States dollars, the lawful currency of the USA;

“USA” the United States of America; and

“%” per cent.

* All the English translation of certain Chinese names or words in this circular are included for information purpose only, and should not be regarded as the official English translation of such Chinese names or words.

LETTER FROM THE BOARD

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(Stock Code: 571)

Executive Directors: Registered Office:Mr. Lui Siu Tsuen, Richard (Chief Executive Officer) Clarendon HouseMr. Chew Fook Aun 2 Church StreetMr. Lam Hau Yin, Lester Hamilton HM 11Mr. Yip Chai Tuck Bermuda

Non-executive Director: Head Office and Principal PlaceMadam U Po Chu of Business in Hong Kong: 11th FloorIndependent Non-executive Directors: Lai Sun Commercial CentreMr. Low Chee Keong (Chairman) 680 Cheung Sha Wan RoadMr. Lo Kwok Kwei, David KowloonDr. Ng Lai Man, Carmen Hong KongMr. Alfred Donald Yap

30 August 2019

To the Shareholders

Dear Sir or Madam,


SALE AND PURCHASE AGREEMENT IN RELATION TO 20% INTEREST IN A TARGET COMPANY

ANDNOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the announcement jointly issued by LSG, LSD and the Company dated 23 July 2019 in relation to, among others, the Sale and Purchase Agreement and the Transaction.

The purpose of this circular is to provide you with, among other things, (i) further information on the Transaction; (ii) a letter from the Independent Board Committee containing its recommendation to the Independent Shareholders in respect of the Transaction; (iii) a letter from the Independent Financial Adviser containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders in relation to the Transaction; and (iv) the notice of the SGM, in order to enable you to make an informed decision on how to vote at the SGM.


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THE TRANSACTION

On 23 July 2019, LSD entered into the Sale and Purchase Agreement with the Seller, an indirect wholly-owned subsidiary of the Company, pursuant to which the Seller has agreed to sell, and LSD has agreed to purchase, the Sale Shares for the Consideration upon the terms and conditions set out in the Sale and Purchase Agreement. Prior to Completion, the Target Company is held as to 80% by LFHQ, an indirect wholly-owned subsidiary of Lai Fung, and 20% by the Seller. Subject to and upon Completion, the Target Company will be held as to 80% by LFHQ and 20% by LSD (or its nominee).

The Transaction, being a Restricted Opportunity, was referred by the Lai Fung Board to the Special Committee for review and consideration in accordance with the Deed of Conditional Waiver. A meeting of the Special Committee was held on 23 July 2019 to consider and, if thought fit, approve the sale of the Sale Shares to LSD and to consider whether the waiver by Lai Fung under the Deed of Conditional Waiver applies to the Transaction. The Special Committee has approved the sale of the Sale Shares to LSD and the waiver by Lai Fung under the Deed of Conditional Waiver should apply to the Transaction.

Upon Completion, LSD will make the Shareholder’s Loan (in the amount of approximately HK$280.4 million) (subject to adjustments as agreed between LSD and the Seller with reference to the additional contributions from shareholders of the Target Company to the Target Group after the execution of the Sale and Purchase Agreement) to the Target Company. The Shareholder’s Loan will be unsecured, interest free and repayable on demand, and it is intended to finance the general working capital of the Target Group.

THE SALE AND PURCHASE AGREEMENT

Principal terms of the Sale and Purchase Agreement are as follows:

Date: 23 July 2019

The buyer: LSD (or its nominee)

The seller: SHIL

Consideration

The Consideration for the Sale Shares (representing 20% of the total issued share capital of the Target Company), which is HK$557.25 million, shall be paid by LSD to the Seller (or its nominee) at Completion. The Consideration was determined after arm’s length negotiations between LSD and the Seller having taken into account, among other things, the business valuation of the Target Group of HK$2,229.0 million as at 30 April 2019 by Knight Frank Asset Appraisal Limited (whose report is set out in “Business Valuation Report of the Target Group” of this circular) and the business prospects of phase I of Novotown project in Hengqin, Zhuhai City, Guangdong province of the PRC (“Novotown Phase I”), the integrated tourism and entertainment project developed and operated by the Target Group. The Novotown Phase I is positioned to be a cultural and entertainment


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development to take advantage of the integrated tourism and entertainment demand in Hengqin and surrounding regions. The factors which the Group has taken into account in the planning and development of Novotown Phase I include, inter alia, macro information of the nearby regions: economic, infrastructure, transportation, traffic data of similar attractions, etc. The Consideration represents a premium of approximately 25% over the market value of the 20% equity interest in the Target Company as at 30 April 2019.

The business valuation of the Target Group as at 30 April 2019 reflects the market value of properties owned by the Target Group as at 30 April 2019 of HK$7,899 million. The increase in the market value of the Target Group’s properties as at 31 May 2019 (detail of which is set out in “Property Valuation Report of the Target Group” of this circular) as compared with that of 30 April 2019 was primarily due to additional cost incurred for the properties under development. It is expected that there will be no significant deviation for the business valuation of the Target Company as at 31 May 2019 compared with that of 30 April 2019, taking into account relevant movements in other assets and liabilities of the Target Group arising from the aforementioned cost additions during the month of May 2019 as well as additional deferred tax liabilities in relation to property-related fair value adjustments.

The Board (excluding the Independent Board Committee, whose views are set out in the “Letter from the Independent Board Committee” in this circular, and the Excluded Directors) considers that the Consideration is fair and reasonable and on normal commercial terms and that the Sale and Purchase Agreement is in the interests of the Company and the Shareholders as a whole.

Conditions precedent to the completion of the Sale and Purchase Agreement

Completion is conditional upon:

(a) the Sale and Purchase Agreement, the Deed of Ratification and Accession and the transactions contemplated under such agreements (being Restricted Opportunities) having been approved and accepted by the Special Committee in accordance with the Deed of Conditional Waiver;

(b) the Sale and Purchase Agreement and the transactions contemplated under such agreement having been approved by the Independent Shareholders in accordance with the Listing Rules;

(c) the execution of the Deed of Ratification and Accession by LSD (or its nominee) confirming that it will be bound by the Shareholders’ Agreement as a shareholder of the Target Company; and

(d) if required, each of LSD and the Company having obtained all other necessary consents, approvals, authorisation, licences and waivers (whether corporate, regulatory, governmental or otherwise) required in connection with the Sale and Purchase Agreement, the Deed of Ratification and Accession and the transactions contemplated under such agreements.

If any of the Conditions are not satisfied on or before 31 October 2019, or such later date as the Seller and LSD may agree in writing, the Sale and Purchase Agreement shall terminate in which event all rights and liabilities of the parties thereto under the Sale and Purchase Agreement shall cease and determine immediately upon such termination (save in respect of antecedent breaches).


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Completion

Completion shall take place on a date which is within two (2) business days after the date on which all the Conditions having been fulfilled, or such other date as shall be mutually agreed in writing by the Seller and LSD.

Upon Completion, LSD will make the Shareholder’s Loan (in the amount of approximately HK$280.4 million) (subject to adjustments as agreed between LSD and the Seller upon Completion) to the Target Company. The Shareholder’s Loan will be unsecured, interest free and repayable on demand, and it is intended to finance the general working capital of the Target Group.

Immediately following Completion, LSD (or its nominee) will own 20% equity interest of the Target Company and the Seller will cease to have any direct interest in the Target Company.

DEED OF RATIFICATION AND ACCESSION

Subject to and upon Completion, LSD (or its nominee), as the buyer of the Sale Shares, will execute the Deed of Ratification and Accession under which LSD (or its nominee) agrees to be bound by, and shall be entitled to the benefit of, the Shareholders’ Agreement, as if an original party thereto in place of the Seller. For details of the Shareholders’ Agreement, please refer to the joint announcement of the Company and Lai Fung dated 25 September 2013.

FINANCIAL ASSISTANCE

The Guarantees

Prior to the Transaction, there were existing banking facilities obtained by the Target Group, and the Company has provided the Guarantees of approximately HK$507.3 million in favour of the lending banks.

Such facilities were obtained to support the operations of the Target Group, and it is the agreement between the Company and LSD that such facilities be maintained after the Completion. Upon enquiry by the Target Company with the banks, the banks would require a long period of time to review and approve the release of the Guarantees, and therefore it is expected that the Guarantees could not be released immediately upon Completion. As such, to facilitate the Transaction, after arm’s length negotiation, the Company and LSD agreed that the Guarantees will continue to take effect after Completion in order to maintain the facilities. LSD is the intermediate holding company of the Company and hence a connected person of the Company under the Listing Rules. Upon Completion, the Target Group will be connected subsidiaries of the Company under Rule 14A.16 of the Listing Rules and thereby a connected person of the Company. The Guarantees to the Target Group upon Completion will constitute financial assistance of the Company to the Target Group under Chapter 14A of the Listing Rules.

In order to protect the interest of the Group, LSD has given its undertaking and the counter guarantee in favour of the Company.


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LSD’s undertaking

Upon Completion, LSD unconditionally and irrevocably undertakes to the Company to procure the release of the Guarantees within six (6) months after the Completion and replacement guarantees to be executed by LSD, or an entity or person of sufficient financial substance designated by LSD, in favour of the relevant banks.

Counter guarantee

Pursuant to the Sale and Purchase Agreement, at Completion, LSD shall execute a counter guarantee in favour of the Company, pursuant to which LSD shall indemnify the Company against any claims, losses or expenses suffered by the Company in respect of the Guarantees until the Guarantees are fully released and discharged.

FUTURE POTENTIAL CONTINUING CONNECTED TRANSACTIONS

Reference is made to the announcements of Lai Fung dated 16 July 2019 and 23 July 2019 regarding the continuing connected transactions under the Property Management Services Agreements and Cost-sharing Agreements.

Property Management Services Agreements

On 16 July 2019, Novotown Business Management and Novotown Creative Culture entered into the Novotown Creative Culture Property Management Services Agreement, pursuant to which Novotown Business Management will provide property management services to Novotown Creative Culture from 1 September 2019 to 31 August 2022.

On 16 July 2019, Novotown Business Management and Novotown Entertainment entered into the Novotown Entertainment Property Management Services Agreement, pursuant to which Novotown Business Management will provide property management services to Novotown Entertainment from 1 August 2019 to 31 July 2022.

On 23 July 2019, Novotown Business Management and Laisun Creative Culture entered into the Laisun Creative Culture Property Management Services Agreement, pursuant to which Novotown Business Management will provide property management services to Laisun Creative Culture from 1 October 2019 to 30 September 2022.

Cost-sharing Agreements

On 16 July 2019, Novotown Business Management and Laisun Creative Culture entered into the Laisun Creative Culture Cost-sharing Agreement, pursuant to which Novotown Business Management and Laisun Creative Culture will share the costs and expenses in connection with the use of the Head Lease Premises as staff quarters on a cost basis from 1 September 2019 to 30 April 2021.


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On 16 July 2019, Novotown Business Management and Novotown Creative Culture entered into the Novotown Creative Culture Cost-sharing Agreement, pursuant to which Novotown Business Management and Novotown Creative Culture will share the costs and expenses in connection with the use of the Head Lease Premises as staff quarters on a cost basis from 1 September 2019 to 30 April 2021.

On 16 July 2019, Novotown Business Management and Novotown Entertainment entered into the Novotown Entertainment Cost-sharing Agreement, pursuant to which Novotown Business Management and Novotown Entertainment will share the costs and expenses in connection with the use of the Head Lease Premises as staff quarters on a cost basis from 1 September 2019 to 30 April 2021.

LSD is the intermediate holding company of the Company holding approximately 74.62% shareholding interest in the Company and hence a connected person of the Company. Upon Completion, each of Laisun Creative Culture, Novotown Creative Culture and Novotown Entertainment will become a connected subsidiary of the Company pursuant to Rule 14A.16(2) of the Listing Rules by virtue of being an indirect subsidiary of the Target Company, which will in turn be a connected subsidiary of the Company controlled as to 20% by LSD (or its nominee) directly. As such Laisun Creative Culture, Novotown Creative Culture and Novotown Entertainment will become connected persons of the Company. Novotown Business Management is the indirect non-wholly-owned subsidiary of the Company. Accordingly, each of the Property Management Services Agreements and the Cost-sharing Agreements will constitute a continuing connected transaction of the Company under Chapter 14A of the Listing Rules upon Completion.

According to Rule 14A.60(1) of the Listing Rules, the Company is required to as soon as practicable comply the requirements of annual review and disclosure (including publishing announcement and annual reporting) upon Completion if Laisun Creative Culture, Novotown Creative Culture, Novotown Entertainment and Novotown Business Management continues the transactions under the Property Management Services Agreements and the Cost-sharing Agreements after Completion. If the Property Management Services Agreements and the Cost-sharing Agreements are renewed or the terms thereunder are amended, the Company will further comply with all the applicable requirements under Chapter 14A of the Listing Rules.

For further details of the Property Management Services Agreements and the Cost-sharing Agreements, please refer to the Lai Fung Announcements.

INFORMATION OF LSD

LSD is a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. The principal activities of the LSD Group include property investment, property development, investment in and operation of hotels and restaurants and investment holding. LSD owns approximately 74.62% of the total issued shares of the Company as at the Latest Practicable Date.


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INFORMATION OF LSG

LSG is a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. The principal activities of the LSG Group include property investment, property development, investment in and operation of hotels and restaurants and investment holding. LSG owns approximately 56.07% of the total issued shares of LSD as at the Latest Practicable Date.

INFORMATION OF THE SELLER

The Seller is a company incorporated in the British Virgin Islands with limited liability and is principally engaged in investment holding.

The Seller is an indirect wholly-owned subsidiary of the Company as at the Latest Practicable Date.

INFORMATION OF THE COMPANY

The Company is an exempted company incorporated in Bermuda with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. The Company acts as an investment holding company and the principal activities of the Group include the development, operation of and investment in media and entertainment, music production and distribution, the investment in and production and distribution of television programmes, films and video format products, cinema operation, property development for sale and property investment for rental purposes as well as the development and operation of and investment in cultural, leisure, entertainment and related facilities.

INFORMATION OF THE TARGET GROUP

The Target Company is an investment holding company incorporated in the British Virgin Islands with limited liability.

The Target Group is principally engaged in design, development and operation of Novotown Phase I in Hengqin, Zhuhai City, Guangdong Province of the PRC, which is an integrated tourism and entertainment project comprising of two themed indoor experience centres namely “Lionsgate Entertainment WorldTM” and “National Geographic Ultimate Explorer” under the intellectual property licenses granted by “Lionsgate” and “National Geographic”, 494 room Hyatt Regency hotel, offices, serviced apartments, cultural studios, shopping and leisure facilities and 2,088 car-parking spaces. The total GFA of Novotown Phase I is approximately 2.8 million square feet excluding car-parking spaces and ancillary facilities.


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The GFA breakdown of the properties owned by the Target Group as at 31 May 2019 is set out below:

Usage GFA (square feet)

Cultural themed hotel 594,763Cultural workshop 430,640Cultural commercial area 526,264Performance halls 155,193Cultural attractions 293,292Offices 543,020Cultural studios (for sale) 237,546Car-parking spaces 429,734Ancillary facilities and others 830,216

Total 4,040,668

The “Lionsgate Entertainment WorldTM” opened on 31 July 2019 and the “National Geographic Ultimate Explorer” is expected to open in September 2019. Constructions of hotel, offices, serviced apartments and commercial and leisure facilities are nearing completion and leasing is underway. Sale of cultural studios is in progress.

Financial information on the Target Group

Set out below is a summary of unaudited financial information of the Target Group for the financial years ended 31 July 2017 and 2018 prepared in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants:

Year ended 31 July 2017 2018 HK$’000 HK$’000

Net profit (before taxation) 727,715 738,721Net profit (after taxation) 547,892 550,960

REASONS FOR AND BENEFITS OF THE TRANSACTION

Other than the “Lionsgate Entertainment WorldTM” which was opened on 31 July 2019 and the sale of cultural studios which is in progress, the Target Group has yet to commence its operation in full capacity. Constructions of hotel, offices, serviced apartments and commercial and leisure facilities are nearing completion and leasing is underway. As such it may or may not be cash flow positive for the Target Group in the near term. As at 31 July 2019, the Group had outstanding consolidated total borrowings (after intragroup elimination) of approximately HK$10,065 million. Excluding the outstanding consolidated borrowings of Lai Fung Group and MAGHL Group, the Group has indebtedness of approximately HK$802 million that will be due within one (1) year.


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Taking into account the uncertain near term prospects of the Target Group, the near term obligations of the Group and the Consideration which represents a notable premium over the appraised value of the Target Group, the Directors therefore consider that the Transaction would provide a good opportunity for the Group to crystalise the value in its investment in the Target Group and recycle the capital for its other obligations. The net proceeds to be received by the Company from the Transaction will enable the Group to reduce its borrowings and to improve its working capital position for future opportunities that may arise.

Having taken into account the above reasons and benefits, the Directors (excluding the Independent Board Committee, whose views are set out in the “Letter from the Independent Board Committee” in this circular, and the Excluded Directors) are of the view that the terms and conditions of the Transaction are fair and reasonable; and that the Transaction is conducted under normal commercial terms and is in the interests of the Company and the Shareholders as a whole.

FINANCIAL IMPACT OF THE TRANSACTION AND INTENDED USE OF PROCEEDS BY THE COMPANY

Upon Completion, the Target Company will be held as to 80% by LFHQ and 20% by LSD (or its nominee) and remain as an indirect non-wholly-owned subsidiary of Lai Fung. Accordingly, the Target Company will remain as an indirect non-wholly-owned subsidiary of the Company. The Group’s effective interest in the Target Group will be reduced from approximately 60.44% to 40.44% and the change in the ownership interest in the Target Company will not result in loss of control in the Target Company. Therefore, the Disposal will be accounted for as an equity transaction of the Group. The assets, liabilities and financial results of the Target Group will continue to be included in the consolidated financial statements of the Group, and it will not result in the recognition of any gain or loss in the consolidated income statement of the Group.

The Company expects to receive net proceeds of approximately HK$503.1 million (after deduction of transaction costs and expenses) from the Disposal, and intends to apply them to repay existing indebtedness of the Group (excluding the indebtedness of Lai Fung Group and MAGHL Group) and/or finance the general corporate requirements.

LISTING RULES IMPLICATIONS

Major Disposal

The Seller is an indirect wholly-owned subsidiary of the Company. As one or more of the applicable percentage ratios as defined under Rule 14.07 of the Listing Rules in respect of the Disposal are greater than 25% but less than 75%, the Disposal constitutes a major transaction for the Company under the Listing Rules and is subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.


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Connected Transaction in relation to the Disposal

LSD is the intermediate holding company of the Company and hence a connected person of the Company under the Listing Rules. The Transaction constitutes a connected transaction for the Company and is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Financial assistance

As the Guarantees, upon Completion, will become a financial assistance to a connected person and will constitute a continuing connected transaction for the Company under Chapter 14A of the Listing Rules, accordingly, the Company will be subject to the announcement and annual reporting requirements under Chapter 14A of the Listing Rules.

SGM

The Notice of SGM is set out on pages 118 and 119 of this circular. The SGM will be held at Grand Ballroom 5, Level B, Hong Kong Ocean Park Marriott Hotel, 180 Wong Chuk Hang Road, Aberdeen, Hong Kong on Friday, 20 September 2019 at 9:00 a.m., to consider and, if thought fit, approve the Sale and Purchase Agreement and the Transaction. A form of proxy for use at the SGM is enclosed with this circular. Such form of proxy is also published on the website of the Stock Exchange (www.hkexnews.hk) and the Company’s website (www.esun.com), respectively.

Shareholders are advised to read the Notice of SGM and if you are not able to attend the SGM or its adjournment (as the case may be) in person but wish to exercise your right as a Shareholder, please complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible, but in any event not less than 48 hours before the time fixed for holding the SGM or any adjournment thereof (as the case may be). 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 (as the case may be) should you so wish and in such event, the instrument appointing a proxy shall be deemed to be revoked.

Any connected person of the Company with a material interest in the Transaction, and any Shareholder with a material interest in such transaction and its associates, shall not vote on the resolution in relation thereto. As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, (i) LSD and its associate(s) (which were interested in approximately 74.62% of total issued Shares); (ii) Dr. Lam Kin Ngok, Peter (the deputy chairman and an executive director of LSG as well as the chairman and an executive director of LSD who was beneficially interested in approximately 0.19% of total issued Shares (excluding his deemed interest in the same Shares held by LSD)); and (iii) Mr. Lam Hau Yin, Lester (an executive Director who was beneficially interested in approximately 0.19% of total issued Shares), are required to abstain from voting on the relevant resolution at the SGM to avoid any conflict of interests.


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VOTING BY WAY OF POLL

In compliance with Rule 13.39(4) of the Listing Rules, save for resolutions which relate purely to a procedural or administrative matter to be voted by a show of hands, any vote of the shareholders at a general meeting must be taken by poll. Accordingly, the ordinary resolution to be proposed at the SGM will be voted by way of a poll by the Shareholders.

By-law 66 of the Company’s Bye-laws provides that on a poll, every Shareholder present in person or by proxy or in the case of a member being a corporation, by its duly authorised representative, shall have one vote for every fully-paid Share of which he/she/it is the holder.

An explanation of the detailed procedures of conducting a poll will be provided to the Shareholders at the SGM. Tricor Tengis Limited, the branch share registrar of the Company in Hong Kong, will serve as the scrutineers for the vote-taking. The Company will publish an announcement on the poll results on the respective websites of the Company at www.esun.com and the Stock Exchange at www.hkexnews.hk shortly after the conclusion of the SGM pursuant to Rule 13.39(5) of the Listing Rules.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising all independent non-executive Directors, namely Dr. Ng Lai Man, Carmen (Chairwoman) and Messrs. Lo Kwok Kwei, David, Low Chee Keong and Alfred Donald Yap, has been established to advise and provide recommendation to the Independent Shareholders in respect of the Sale and Purchase Agreement and the Transaction after taking into account of the advice from the Independent Financial Adviser.

The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

Your attention is drawn to the letter from the Independent Board Committee to the Independent Shareholders set out on page 20 of this circular and the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders which is set out on pages 21 to 46 of this circular containing their advice and recommendation to the Independent Board Committee and the Independent Shareholders regarding the terms of the Transaction as well as the principal factors and reasons taken into consideration in arriving at their advice.

RECOMMENDATION

All Directors (including the Independent Board Committee having taken into account the advice of the Independent Financial Adviser) consider that the terms of the Transaction are on normal commercial terms and fair and reasonable, the entering into of the Sale and Purchase Agreement and the terms of the Transaction are in the interests of the Group and the Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Sale and Purchase Agreement and the Transaction.


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The Excluded Directors were abstained from voting on the Board resolution approving the Transaction to avoid any conflict of interests.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

The English version shall prevail in case of any discrepancy or inconsistency between this English version and its Chinese translation.

Yours faithfully, For and on behalf of the Board of eSun Holdings Limited Low Chee Keong Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Stock Code: 571)

30 August 2019

To the Independent Shareholders

Dear Sir or Madam,


SALE AND PURCHASE AGREEMENT IN RELATION TO 20% INTEREST IN A TARGET COMPANY

We refer to the circular of the Company dated 30 August 2019 (“Circular”) despatched to the Shareholders of which this letter forms part. Unless the context requires otherwise, terms and expressions defined or adopted in the Circular shall have the same respective meanings in this letter.

We have been appointed by the Board to form the Independent Board Committee to advise the Independent Shareholders as to whether the Transaction was entered into on normal commercial terms or better and in the ordinary and usual course of business of the Group, and whether its terms are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Independent Board Committee has appointed Red Sun Capital Limited as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Transaction.

We wish to draw your attention to the section headed “Letter from the Board” as set out on pages 8 to 19 of the Circular and the section headed “Letter from the Independent Financial Adviser” as set out on pages 21 to 46 of the Circular.

Having taken into account the principal factors and reasons considered by the Independent Financial Adviser, its conclusion and advice, we concur with the opinion of the Independent Financial Adviser that although the Transaction was not entered into in the ordinary and usual course of business of the Group, the terms of the Transaction are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution (the text of which is contained in the Notice of SGM) to be proposed at the SGM to approve the Sale and Purchase Agreement and the Transaction.

Yours faithfully,Independent Board Committee

eSun Holdings Limited

Ng Lai Man, Carmen Lo Kwok Kwei, David Low Chee Keong Alfred Donald Yap (Chairwoman)

Independent Non-Executive Directors

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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The following is the full text of the letter of advice from Red Sun Capital Limited prepared for the purpose of inclusion in this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Transaction.

Unit 3303, 33/F, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong

Tel: (852) 2857 9208 Fax: (852) 2857 9100

30 August 2019

To: The Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,


SALE AND PURCHASE AGREEMENT IN RELATION TO20% INTEREST IN A TARGET COMPANY

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in connection with the Transaction, including the disposal of the Sale Shares in the Target Company and the provision of Shareholder’s Loan by LSD to the Target Company, details of which are set out in the letter from the Board (the “Letter from the Board”) contained in the circular of the Company to the Shareholders dated 30 August 2019 (the “Circular”), of which this letter forms part. Unless otherwise defined, terms used in this letter shall have the same meanings as those defined in the Circular.

The Sale and Purchase Agreement

On 23 July 2019, LSD entered into the Sale and Purchase Agreement with the Seller, an indirect wholly-owned subsidiary of the Company, pursuant to which the Seller agreed to sell, and LSD agreed to purchase, the Sale Shares for the Consideration upon the terms and conditions set out in the Sale and Purchase Agreement. Prior to Completion, the Target Company is held as to 80% by LFHQ, an indirect wholly-owned subsidiary of Lai Fung, and 20% by the Seller. Subject to and upon Completion, the Target Company will be held as to 80% by LFHQ and 20% by LSD (or its nominee).


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As set out in the Letter from the Board, the Transaction, being a Restricted Opportunity, was referred by the Lai Fung Board to the Special Committee for review and consideration in accordance with the Deed of Conditional Waiver. A meeting of the Special Committee was held on 23 July 2019 to consider and, if thought fit, approve the sale of the Sale Shares to LSD and to consider whether the waiver by Lai Fung under the Deed of Conditional Waiver applies to the Transaction. The Special Committee has approved the sale of the Sale Shares to LSD and the waiver by Lai Fung under the Deed of Conditional Waiver should apply to the Transaction.

Upon Completion, LSD will make the Shareholder’s Loan (in the amount of approximately HK$280.4 million) (subject to adjustments as agreed between LSD and the Seller with reference to the additional contributions from shareholders of the Target Company to the Target Group after the execution of the Sale and Purchase Agreement) to the Target Company. The Shareholder’s Loan will be unsecured, interest free and repayable on demand, and it is intended to finance the general working capital of the Target Group.

In addition, as one of the conditions precedent of the Sale and Purchase Agreement, LSD (or its nominee), as the buyer of the Sale Shares, shall execute the Deed of Ratification and Accession confirming that it will be bound by the Shareholders’ Agreement as a shareholder of the Target Company.

Listing Rules implications

The Seller is an indirect wholly-owned subsidiary of the Company. As one or more of the applicable percentage ratios as defined under Rule 14.07 of the Listing Rules in respect of the Disposal are greater than 25% but less than 75%, the Disposal constitutes a major transaction for the Company under the Listing Rules and is subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

LSD is the intermediate holding company of the Company and hence a connected person of the Company under the Listing Rules. The Transaction constitutes a connected transaction for the Company and is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

THE INDEPENDENT BOARD COMMITTEE

The Board currently comprises four executive Directors, namely, Messrs. Lui Siu Tsuen, Richard (Chief Executive Officer), Chew Fook Aun, Lam Hau Yin, Lester and Yip Chai Tuck; one non-executive Director, namely Madam U Po Chu; and four independent non-executive Directors, namely Messrs. Low Chee Keong (Chairman), Lo Kwok Kwei, David and Alfred Donald Yap and Dr. Ng Lai Man, Carmen.

The Independent Board Committee comprising all the independent non-executive Directors, namely Messrs. Low Chee Keong, Lo Kwok Kwei, David and Alfred Donald Yap and Dr. Ng Lai Man, Carmen, has been established to make a recommendation to the Independent Shareholders in relation to the Transaction and whether its terms are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Red Sun Capital Limited has been appointed by the Independent Board Committee as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in the same regard.


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OUR INDEPENDENCE

As at the Latest Practicable Date, we did not have any business relationship with or interest in the Company or any other parties to the Transaction that could reasonably be regarded as relevant in assessing our independence. In the previous two years, save for our appointment as the independent financial adviser (i) for each of LSG and LSD for a very substantial acquisition and connected transaction in relation to the conditional voluntary general cash offer and the possible unconditional mandatory general cash offer by a wholly-owned subsidiary of LSD, the circular of which was dated 23 July 2018; and (ii) for the Company for a connected transaction regarding the proposed amendments of the Deed of Conditional Waiver in 2019, the circular of which was dated 19 March 2019, Red Sun Capital Limited has not acted as an independent financial adviser to the independent board committee and the independent shareholders of the Company and LSD for any transaction. Apart from normal professional fees paid or payable to us in connection with this appointment and the engagement as stated above as the Independent Financial Adviser, no arrangements exist whereby we had received or will receive any fees or benefits from the Group or any other parties that could reasonably be regarded as relevant in assessing our independence. Accordingly, we consider that we are independent pursuant to Rule 13.84 of the Listing Rules.

BASIS AND ASSUMPTIONS OF THE ADVICE

In formulating our advice, we have relied solely on the statements, information, opinions, beliefs and representations for matters relating to the Group and their respective shareholders and management contained in the Circular and the information and representations provided to us by the Group, its senior management (the “Management”) and/or the Directors. We have assumed that all such statements, information, opinions, beliefs and representations contained or referred to in the Circular (including this letter) or otherwise provided or made or given by the Company, the Management and/or the Directors and for which it is/they are solely responsible were true and accurate, and valid and complete in all material respects at the time they were made and given and continue to be true and accurate as at the date of the Circular. We have assumed that all the opinions, beliefs and representations for matters relating to the Group made or provided by the Management and/or the Directors contained in the Circular have been reasonably made after due and careful enquiry. We have also sought and obtained confirmation from the Company, the Management and/or the Directors that no material facts have been omitted from the information provided and referred to in the Circular.

We consider that we have been provided with sufficient information and documents to enable us to reach an informed view and the Management has assured us no material information has been withheld from us to allow us to reasonably rely on the information provided so as to provide a reasonable basis for our advice. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions, beliefs and representations provided to us by the Group, the Management and/or the Directors and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents. We have not, however, carried out any independent verification of the information provided, nor have we conducted any independent investigation into the business and affairs of the Company, Lai Fung, LSD, the Target Company and their respective shareholder(s) and subsidiaries or affiliates, and their respective histories, experience and track records, or the prospects of the markets in which they respectively operate.


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PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation regarding the Transaction, we have considered the following principal factors and reasons:

1. Overview of the PRC economy and tourism market

In the past years, the PRC government launched various policies, such as the establishment of free trade zones, to facilitate economic growth. As set out in the Thirteenth Five Year Plan* (十三五規劃), the PRC government targets to, among others, (i) accelerate the agricultural population urbanisation* (加快農業轉移人口市民化) by implementing three main strategies, namely further reform of the household registration system* (深化戶籍制度改革), implementation of the residence permit system* (實施居住證制度 ) and improvement on the system for promoting urbanisation of agricultural population* (健全促進農業轉移人口市民化的機制); and (ii) optimise urbanisation layout* (優化城鎮化佈局和形態) by implementing three main strategies, namely the acceleration of the construction and advancement of urban agglomeration* (加快城市群建設發展 ), enhance the drive of activities by central cities* (增強中心城市輻射帶動功能 ) and speeding up of the development of small and medium-sized cities and characteristical towns* (加快發展中小城市和特色鎮 ). The aforesaid policies are set with the view to promote long-term stability of the PRC economy and the PRC property market.

According to articles titled “2018 Basic Situation of Tourism Market”* (2018年旅遊市場基本情況), and “2018 Culture and Tourism Development Statistics Bulletin”* (2018年文化和旅遊發展統計公報) published in February 2019 and May 2019, respectively, by the Ministry of Culture and Tourism of the PRC, the number of domestic tourists recorded an average annual growth rate of approximately 11.8% from approximately 4.4 billion in 2016 to approximately 5.5 billion in 2018 as reflected in the table below. In 2018, the total revenue generated from domestic tourists was approximately RMB5,127.8 billion, representing an average annual growth rate of approximately 14.1% from approximately RMB3,939.0 billion in 2016.

Number of Revenue from domestic tourists domestic tourists Year in the PRC in the PRC

(billion) (RMB’ billion)

2016 4.4 3,939.02017 5.0 4,566.12018 5.5 5,127.8

As set out in the articles mentioned above, throughout 2018, the number of inbound tourist was approximately 141.2 million, representing an increase of approximately 1.2% as compared to approximately 139.5 million recorded in 2017, while the revenue from inbound tourism to the PRC was approximately USD127.1 billion in 2018, representing an increase of approximately 3.0% as compared to approximately USD123.4 billion recorded in 2017.


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Pursuant to the Thirteenth Five Year Plan* (十三五規劃 ), the annual gross domestic product (“GDP”) growth of the PRC for the next five years from 2016 has been estimated to be approximately 6.5%. However, such target was subsequently adjusted down to 6.0% by the PRC government in March 2019. It was noted from a Bloomberg article dated 16 July 2019 that the PRC’s total debt-to-GDP ratio reached approximately 310% as of July 2019 compared to approximately 297% in first quarter of 2018, which may affect the growth of the PRC economy. In addition, there are uncertainties around the ongoing trade negotiations between the governments of the PRC and USA.

2. Information of the Group

The Company is an exempted company incorporated in Bermuda with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. The Company acts as an investment holding company and the principal activities of the Group include the development, operation of and investment in media and entertainment, music production and distribution, the investment in and production and distribution of television programmes, films and video format products, cinema operation, property development for sale and property investment for rental purposes as well as the development and operation of and investment in cultural, leisure, entertainment and related facilities.

Set out below is the summary of the composition of the Group’s turnover for the two years ended 31 July 2017 and 2018, which were extracted from the Company’s annual report for the year ended 31 July 2018 (the “2018 Annual Report”) and the six months ended 31 January 2018 and 31 January 2019, respectively, which were extracted from the Company’s interim report for the six months ended 31 January 2019 (the “2019 Interim Report”):

For the year For the six months ended 31 July ended 31 January

2017 2018 2018 2019 (audited) (audited) (unaudited) (unaudited) (HK$’000) (HK$’000) (HK$’000) (HK$’000)

Turnover Property development 624,592 184,633 129,883 145,668 Property investment 696,257 759,963 376,483 421,154 Media and entertainment 448,371 428,198 237,090 233,062 Film production and distribution 418,476 342,684 199,157 240,257 Cinema operation 418,623 408,342 189,509 214,277 Corporate and others 71,069 60,043 52,759 5,788

Total turnover 2,677,388 2,183,863 1,184,881 1,260,206


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As disclosed in the 2019 Interim Report, for the six months ended 31 January 2019, the Group recorded a turnover of approximately HK$1,260.2 million, representing an increase of approximately 6.4% from approximately HK$1,184.9 million for the six months ended 31 January 2018. Such increase was mainly attributable to the increase in revenue generated from (i) property investment; (ii) film production and distribution; and (iii) cinema operation, which was partially offset by the decrease in revenue generated from corporate and others segment.

As disclosed in the 2018 Annual Report, for the year ended 31 July 2018, the Group recorded a turnover of approximately HK$2,183.9 million, representing a decrease of approximately 18.4% from approximately HK$2,677.4 million for the year ended 31 July 2017. The decrease was primarily due to lower turnover from sale of properties of the Lai Fung Group which adversely affected the Group’s turnover derived from its property development segment for the year ended 31 July 2018.

Set out below is the summary of the financial position of the Group as at 31 July 2017, 31 July 2018 and 31 January 2019, which were extracted from the 2018 Annual Report and the 2019 Interim Report:

For the six For the year months ended ended 31 July 31 January

2017 2018 2019 (audited) (audited) (unaudited) (HK$’000) (HK$’000) (HK$’000)

Non-current assets 23,269,238 25,112,118 25,794,866Current assets 5,973,510 6,937,701 8,612,933Non-current liabilities 7,051,653 11,093,812 12,313,462Current liabilities 4,968,225 3,311,059 4,479,418Net assets 17,222,870 17,644,948 17,614,919

As disclosed in the 2019 Interim Report, the Group recorded net assets of approximately HK$17,614.9 million as at 31 January 2019 which is largely in line with the net assets of the Group of approximately HK$17,644.9 million as at 31 July 2018. The net assets of the Group as at 31 January 2019 mainly consisted of, (i) total assets of approximately HK$34,407.8 million; and (ii) total liabilities of approximately HK$16,792.9 million.

Total assets of the Group as at 31 January 2019 mainly comprised of (i) investment properties of approximately HK$19,881.9 million; (ii) property, plant and equipment of approximately HK$4,458.8 million; and (iii) properties under development of approximately HK$2,219.9 million. Total liabilities of the Group as at 31 January 2019, on the other hand, mainly included (i) interest-bearing bank loans of approximately HK$5,535.6 million; (ii) deferred tax liabilities of approximately HK$3,338.0 million; and (iii) guaranteed notes of approximately HK$2,724.2 million.


– 27 –

As set out in the 2018 Annual Report and the 2019 Interim Report, the gearing ratio of the Group, calculated based on net debt, being total borrowings less pledged and restricted time deposits and bank balances and cash and cash equivalents, to net assets attributable to the owners of the Company, was approximately 53.9% and 58.5% as at 31 July 2018 and 31 January 2019, respectively. The increase in gearing ratio was largely attributable to the increase in (i) interest-bearing bank loans of approximately HK$1,614.6 million; and (ii) loans from a wholly-owned subsidiary of LSD of approximately HK$200.0 million.

3. Information of LSD

LSD is a company incorporated in Hong Kong with limited liability, the issued shares of which are listed and traded on the Main Board of the Stock Exchange. The principal activities of the LSD Group include property investment, property development, investment in and operation of hotels and restaurants and investment holding. LSD owns approximately 74.62% of the total issued shares of the Company as at the Latest Practicable Date.

4. Information of the Seller

The Seller is a company incorporated in the British Virgin Islands with limited liability and is principally engaged in investment holding.

The Seller is an indirect wholly-owned subsidiary of the Company as at the Latest Practicable Date.

5. Information of the Target Group

The Target Company is an investment holding company incorporated in the British Virgin Islands with limited liability.

The Target Group is principally engaged in design, development and operation of Novotown Phase I in Hengqin, Zhuhai City, Guangdong Province of the PRC, which is an integrated tourism and entertainment project comprising of two themed indoor experience centres namely “Lionsgate Entertainment WorldTM” and “National Geographic Ultimate Explorer” under the intellectual property licenses granted by “Lionsgate” and “National Geographic”, 494 room Hyatt Regency hotel, offices, serviced apartments, cultural studios, shopping and leisure facilities and 2,088 car-parking spaces (together, the “Target Group Business”). The total GFA of Novotown Phase I is approximately 2.8 million square feet excluding car-parking spaces and ancillary facilities.


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The GFA breakdown of the properties owned by the Target Group as at 31 May 2019 is set out below:

Usage GFA (square feet)

Cultural themed hotel 594,763Cultural workshop 430,640Cultural commercial area 526,264Performance halls 155,193Cultural attractions 293,292Offices 543,020Cultural studios (for sale) 237,546Car-parking spaces 429,734Ancillary facilities and others 830,216

Total: 4,040,668

As advised by the Directors, Lionsgate Entertainment WorldTM commenced its operation on 31 July 2019, while National Geographic Ultimate Explorer is expected to commence its operation in September 2019. Constructions of hotel, offices, serviced apartments and commercial and leisure facilities are nearing completion and leasing is underway. Sale of cultural studios is in progress.

Financial information on the Target Group

Set out below is a summary of unaudited financial information of the Target Group for the financial years ended 31 July 2017 and 2018 prepared in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants:

Year ended 31 July

2017 2018 (unaudited) (unaudited) (HK$’000) (HK$’000)

Net profit (before taxation) 727,715 738,721Net profit (after taxation) 547,892 550,960

As advised by the Management, the Target Group Business has not commenced operation as at the date of the Sale and Purchase Agreement and that the net profit before taxation for the years ended 31 July 2017 and 2018 were predominately attributable to the fair value gains arising from the revaluation of the investment properties held by the Target Group.


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Based on the unaudited management accounts of the Target Group for the nine months ended 30 April 2019 provided by the Management, the net asset position of the Target Group as at 30 April 2019 was approximately HK$1,368.3 million.

Background information on the Shareholders’ Agreement

Pursuant to the terms of the Shareholders’ Agreement, the Disposal falls within the ambit of a permitted transfer and does not require the consent of Lai Fung (i.e. the non-selling shareholder of the Target Company) nor undergo the procedures as set out below. However, as set out in the Shareholders’ Agreement, any proposed transfer/disposal of shares in the Target Company to a third party purchaser (the “Third Party Purchaser”), other than to the selling shareholder’s affiliate, would constitute a non-permitted transfer (the “Non-permitted Transfer”), which shall subject to certain procedures, including, among others, (i) deliver a written notice to the non-selling shareholder of the Target Company (the “Non-selling Shareholder”) setting out the relevant proposed terms of the Non-permitted Transfer; and (ii) the Non-selling Shareholder, being Lai Fung as at the Latest Practicable Date, has the right to purchase all of the sale shares under the Non-permitted Transfer at the consideration offered by the Third Party Purchaser within a prescribed time (together, the “Non-permitted Transfer Procedures”).

On this basis, the aforesaid administrative procedures would render an open public auction for the Sale Shares impractical considering that (i) the limited marketability of the Sale Shares would likely require a prolonged sales process; (ii) it would take time to carry out the Non-permitted Transfer Procedures; (iii) Lai Fung, being the non-selling shareholder of the Target Company, effectively has a first right of refusal on the Sale Shares pursuant to the Shareholders’ Agreement, which are likely to make the Sale Shares comparatively less attractive to any potential third party purchaser(s); and (iv) both Lai Fung and the Company are both listed companies, the shares of which are trading on the Stock Exchange, which may or may not be affected by any news and/or development arising from such sales process, and both companies are subject to ongoing disclosure requirements under the Listing Rules.

Although first right of refusal is not an uncommon commercial arrangement granted to the shareholders in a company with more than one shareholder, such term may become an additional barrier which could deter the interests from potential third party purchasers as any consideration agreed between the outgoing shareholder and the potential third party purchaser would subject to the other shareholders with the first right of refusal exercising their right thereto and acquire the subject equity interests of the outgoing shareholder by matching the consideration. On this basis, assuming every aspects of a transaction being equal, shareholders with first right of refusal would in general perceive to create higher risk of deal execution from the perspective of potential third-party purchasers.


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6. ReasonsforandthebenefitsoftheTransaction

As disclosed in the Letter from the Board, other than the “Lionsgate Entertainment WorldTM” which was opened on 31 July 2019 and the sale of cultural studios which is in progress, the Target Group has yet to commence its operation in full capacity. Constructions of hotel, offices, serviced apartments and commercial and leisure facilities are nearing completion and leasing is underway. As such it may or may not be cash flow positive for the Target Group in the near term. As at 31 July 2019, the Group had outstanding consolidated total borrowings (after intragroup elimination) of approximately HK$10,065 million. Excluding the outstanding consolidated borrowings of Lai Fung Group and MAGHL Group, the Group has indebtedness of approximately HK$802 million that will be due within one year.

Taking into account the uncertain near term prospects of the Target Group, the near term obligations of the Group and the Consideration which represents a notable premium over the appraised value of the Target Group, the Directors therefore consider that the Transaction would provide a good opportunity for the Group to crystalise the value in its investment in the Target Group and recycle the capital for its other obligations. The net proceeds to be received by the Company from the Transaction will enable the Group to reduce its borrowings and to improve its working capital position for future opportunities that may arise.

For information purposes only, as set out in the 2018 Annual Report and the 2019 Interim Report, the gearing ratio of the Group, calculated based on net debt divided by net assets attributable to the owners of the Company, was approximately 53.9% and 58.5% as at 31 July 2018 and 31 January 2019, respectively.

As disclosed in the section headed “Indebtedness” in Appendix I to the Circular, the total borrowings of the Group of approximately HK$10.1 billion as at 31 July 2019 primarily comprised of (i) unsecured and unguaranteed other borrowings, including the accrued interest on borrowings from a former shareholder of the Company, of approximately HK$304 million; (ii) secured bank loans of approximately HK$4,788 million; (iii) unsecured bank loans of approximately HK$1,302 million; (iv) unsecured guaranteed notes of approximately HK$2,721 million; and (v) unsecured and unguaranteed loans from a wholly-owned subsidiary of LSD, of approximately HK$950 million.

Having taken into account the above reasons and benefits, the Directors are of the view that the terms and conditions of the Transaction are fair and reasonable; and that the Transaction is conducted under normal commercial terms and is in the interests of the Company and the Shareholders as a whole.


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Our view

Having considered that (i) the Target Group Business, namely, the design, development and operation of Phase I of Novotown project in Hengqin, Zhuhai City, Guangdong Province of the PRC, which comprised of two themed indoor experience centres, being “Lionsgate Entertainment WorldTM” and “National Geographic Ultimate Explorer”, hotel, offices, serviced apartments, cultural studios and shopping and leisure facilities, is yet to record a profit from its operations and there is no proven operational track record by the Target Group up to the date of the Sale and Purchase Agreement; (ii) given the infancy stage of the Target Group Business, there are uncertainties around the Target Group’s ability and timing of whether it can attain a positive cash flow in the near term; (iii) even in the event that the Target Group Business eventually attains positive cash flow, the Group, being a 20% equity holder of the Target Company, would have limited control over whether and when a dividend will be declared and paid by the Target Company, thereby allowing the Company to gain access to and being able to deploy such cash for the Company’s use; (iv) the Group has indebtedness of approximately HK$802 million that will be due within one year (excluding the consolidated borrowings of Lai Fung Group and MAGHL Group), which indicates that the Group has a short-term capital need; (v) the fair value of the Target Group appraised by the Business Valuer, which is further analysed and discussed under the paragraph headed “11. Our analysis” in this letter below; and (vi) the Consideration represented a premium over the fair value of the Target Group, we concur with the Directors’ view that the Transaction would provide a good opportunity for the Group to crystalise the value in its investment in the Target Group and recycle the capital for its other obligations, and therefore is in the interests of the Company and the Shareholders as a whole.

7. Intended use of proceeds from the Disposal by the Company

The Company expects to receive net proceeds of approximately HK$503.1 million (after deduction of transaction costs and expenses) from the Disposal, and intends to apply them to repay existing indebtedness of the Group (excluding the indebtedness of Lai Fung Group and the MAGHL Group) and/or finance the general corporate requirements. For further details of indebtedness of the Group as at 31 July 2019, please refer to the section headed “Indebtedness” in Appendix I to the Circular.

8. The Sale and Purchase Agreement

As disclosed in the Letter from the Board, the principal terms of the Sale and Purchase Agreement are as follows:

Date: 23 July 2019

The buyer: LSD (or its nominee)

The seller: SHIL


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Consideration

The Consideration for the Sale Shares (representing 20% of the total issued share capital of the Target Company), which is HK$557.25 million, shall be paid by LSD to the Seller (or its nominee) at Completion. The Consideration was determined after arm’s length negotiations between LSD and the Seller having taken into account, among other things, the valuation of the Target Group of HK$2,229.0 million as at 30 April 2019 by an independent valuer and the business prospects of phase I of Novotown project in Hengqin, Zhuhai City, Guangdong province of the PRC (i.e. Novotown Phase I), the integrated tourism and entertainment project developed and operated by the Target Group. The Novotown Phase I is positioned to be a cultural and entertainment development to take advantage of the integrated tourism and entertainment demand in Hengqin and surrounding regions. The factors which the Group has taken into account in the planning and development of Novotown Phase I include, inter alia, macro information of the nearby regions: economic, infrastructure, transportation, traffic data of similar attractions, etc. The Consideration represents a premium of approximately 25% over the market value of the 20% equity interest in the Target Company as at 30 April 2019.

The business valuation of the Target Group as at 30 April 2019 reflects the market value of properties owned by the Target Group as at 30 April 2019 of approximately HK$7,899 million. The increase in the market value of the Target Group’s properties as at 31 May 2019 (details of which is set out in “Property Valuation Report of the Target Group” of this circular) as compared with that of 30 April 2019 was primarily due to additional cost incurred for the properties under development. It is expected that there will be no significant deviation for the business valuation of the Target Company as at 31 May 2019 compared with that of 30 April 2019, taking into account relevant movements in other assets and liabilities of the Target Group arising from the aforementioned cost additions during the month of May 2019 as well as additional deferred tax liabilities in relation to property-related fair value adjustments.

The Board considers that the Consideration is fair and reasonable and on normal commercial terms and that the Sale and Purchase Agreement is in the interests of the Company and the Shareholders as a whole.

Conditions precedent to the completion of the Sale and Purchase Agreement

Completion is conditional upon:

(a) the Sale and Purchase Agreement, the Deed of Ratification and Accession and the transactions contemplated under such agreements (being Restricted Opportunities) having been approved and accepted by the Special Committee in accordance with the Deed of Conditional Waiver;

(b) the Sale and Purchase Agreement and the transactions contemplated under such agreement having been approved by the Independent Shareholders in accordance with the Listing Rules;


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(c) the execution of the Deed of Ratification and Accession by LSD (or its nominee) confirming that it will be bound by the Shareholders’ Agreement as a shareholder of the Target Company; and

(d) if required, each of LSD and the Company having obtained all other necessary consents, approvals, authorisation, licences and waivers (whether corporate, regulatory, governmental or otherwise) required in connection with the Sale and Purchase Agreement, the Deed of Ratification and Accession and the transactions contemplated under such agreements.

If any of the Conditions are not satisfied on or before 31 October 2019, or such later date as the Seller and LSD may agree in writing, the Sale and Purchase Agreement shall terminate in which event all rights and liabilities of the parties thereto under the Sale and Purchase Agreement shall cease and determine immediately upon such termination (save in respect of antecedent breaches).

Completion

Completion shall take place on a date which is within two (2) business days after the date on which all the Conditions having been fulfilled, or such other date as shall be mutually agreed in writing by the Seller and LSD.


Immediately following Completion, LSD (or its nominee) will own 20% equity interest of the Target Company and the Seller will cease to have any direct interest in the Target Company.

9. The provision of a Shareholder’s Loan to the Target Company


The LSD’s directors consider that the provision of the Shareholder’s Loan will facilitate the Target Company in meeting its working capital needs, and will facilitate the further business development of the Target Company, in which LSD will have 20% equity interest upon Completion.


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The Directors advised that as the provision of a Shareholder’s Loan to the Target Company by LSD upon Completion (the “Provision”) will become a financial assistance received by the Company which is not secured by the assets of the Company, and therefore, the Provision is a fully exempted transaction under Chapter 14A of the Listing Rules.

10. Financial Assistance

As disclosed in the Letter from the Board, LSD will provide financial assistance in favour of the Company, details of which are as follows.

The Guarantees

Prior to the Transaction, there were existing banking facilities obtained by the Target Group, and the Company has provided the Guarantees of approximately HK$507.3 million in favour of the lending banks.

Such facilities were obtained to support the operations of the Target Group, and it is the agreement between the Company and LSD that such facilities be maintained after the Completion. Upon enquiry by the Target Company with the banks, the banks would require a long period of time to review and approve the release of the Guarantees, and therefore it is expected that the Guarantees could not be released immediately upon Completion. As such, to facilitate the Transaction, after arm’s length negotiation, the Company and LSD agreed that the Guarantees will continue to take effect after Completion in order to maintain the facilities. LSD is the intermediate holding company of the Company and hence a connected person of the Company under the Listing Rules. Upon Completion, the Target Group will be connected subsidiaries of the Company under Rule 14A.16 of the Listing Rules and thereby a connected person of the Company. The Guarantees to the Target Group upon Completion will constitute financial assistance of the Company to the Target Group under Chapter 14A of the Listing Rules.

In order to protect the interest of the Group, LSD has given its undertaking and the counter guarantee in favour of the Company.

LSD’s undertaking

Upon Completion, LSD unconditionally and irrevocably undertakes to the Company to procure the release of the Guarantees within six (6) months after the Completion and the replacement guarantees to be executed by LSD, or an entity or person of sufficient financial substance designated by LSD, in favour of the relevant banks.

Counter guarantee

Pursuant to the Sale and Purchase Agreement, at Completion, LSD shall execute a counter guarantee in favour of the Company, pursuant to which LSD shall indemnify the Company against any claims, losses or expenses suffered by the Company in respect of the Guarantees until the Guarantees are fully released and discharged.


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11. Our analysis

As set out in the Letter from the Board, the Consideration for the Sale Shares is HK$557.25 million. The Consideration was determined after arm’s length negotiations between LSD and the Seller having taken into account, among other things, the valuation of the Target Group of HK$2,229.0 million by an independent valuer and the expected business prospects of the Target Group. The Consideration represents a premium of approximately 25% over the market value of the 20% equity interest in the Target Company.

(a) Property valuation by the Property Valuer

In assessing the Consideration, we have reviewed and discussed with Knight Frank Petty Limited, the independent property valuer for the Group in respect of the valuation of the properties owned by the Target Group (the “Property Valuer”), the methodology of, and basis and assumptions adopted for, the valuation of the properties owned by the Target Group as set out in the independent property valuation report in Appendix III to the Circular (the “Property Valuation Report”).

We have discussed with the engagement team of the Property Valuer as to their expertise, property valuation experience (further details of which are set out in the Property Valuation Report) and their scope of work and valuation procedures conducted in relation to the property interest owned by the Target Group. The Property Valuer has confirmed their independence and we noted that the relevant individual has 26 years of experience in property valuation in the PRC and Hong Kong. We also noted that the Property Valuer carried out a site visit in May 2019 to inspect the properties owned by the Target Group, reviewed the title documents relating to the property interests provided by the Target Group, and obtained the legal opinion prepared by the Group’s PRC legal advisers. Based on the above, we are satisfied that the Property Valuer is qualified for giving its opinion as set out in the Property Valuation Report taken into account their relevant experiences and expertise, their independence, and their scope of work and valuation procedures conducted.

As set out in the Property Valuation Report, the properties of the Target Group were divided into two Groups. Group I properties of the Target Group (the “Group I Properties”) comprises the unsold villa (cultural studios), located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road, Hengqin New Area, Zhuhai Guangdong Province, the PRC. As at the Latest Practicable Date, the land use rights of the Group I Properties have been granted for terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013. Group I Properties are currently vacant.


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Group II properties of the Target Group (the “Group II Properties”) includes two parcels of adjacent land, excluding the Group I Properties, located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road, Hengqin New Area, Zhuhai Guangdong Province, the PRC. As at the Latest Practicable Date, the land use rights of the Group II Properties have been granted for terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013. The Group II Properties are currently under construction and scheduled to be completed in the third to fourth quarter of 2019.

Basis of the Property Valuation

As set out in the Property Valuation Report, it was compiled with “The HKIS Valuation Standards 2017” issued by the Hong Kong Institute of Surveyors.

According to the Property Valuation Report, the market value is defined as:

“the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

On this basis, the valuation of the Group I Properties and the Group II Properties as set out in the Property Valuation Report would represent their respective market values.

Methodology of the Property Valuation

As advised by the Property Valuer, as the Group I Properties and the Group II Properties are in different stage of completion (i.e. the Group I Properties are completed and the Group II Properties are currently under construction), different valuation methodologies would be applied.

For Group I Properties, the Property Valuer valued the property interest held by the Target Group in the PRC for sale purpose by using the market approach whenever market comparable transactions are available and assumed sale of property interests with the benefit of vacant possession.

For Group II Properties, the Property Valuer valued the property interest on the basis that the Group II Property will be developed and completed in accordance with the latest development proposals provided by the Target Group. The Property Valuer assumed that approvals for the proposals have been obtained without any onerous condition which would affect the value of its property interest. In arriving the appraised value, the Property Valuer has made reference to comparable transactions in the locality and also taken into account the construction costs that will be expended to reflect the quality of the completed developments.


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Due to the specific purpose for which the buildings and structures of cultural attractions portion of Group II Properties, there is no readily identifiable market comparable. The Property Valuer thus valued the Group II Properties by cost approach with reference to the depreciated replacement cost. Depreciated replacement cost is defined as,

“the current cost of replacing an asset with its modern equivalent asset less deduction for physical deterioration and all relevant forms of obsolescence and optimization.”

which is based on an estimate of the market value of the land in its existing use, plus the current cost of replacement of the improvements less allowance for physical deterioration and all relevant forms of obsolescence and optimisation.

In arriving at the value of the land portion of the cultural attraction portion of the Group II Properties, reference has been made to the sales evidence as available in the locality. The depreciated replacement cost of the Group II Properties is subject to adequate potential profitability of the business. The Property Valuer assumed that the replacing of the Group II Properties will be in compliance with the relevant laws and regulations and completed in timely fashion. The Property Valuer applied to the whole of the complex or development as a unique interest, and no piecemeal transactions of the complex or development of Group II Properties.

Property valuations of the Group I Properties and the Group II Properties

Set out below are the summary of values of the Group I Properties and the Group II Properties as extracted from the Property Valuation Report:

Market value in Market value existing state in existing Interest attributable to state as at attributable to the Group as at Property 31 May 2019 the Group 31 May 2019 HK$’ million HK$’ million

Group I Properties 908.0 60.44% 548.8Group II Properties 7,247.0 60.44% 4,380.1

Total 8,155.0 4,928.9

The market value of Group I Properties and Group II Properties attributable to the Group as at 31 May 2019 was estimated to be approximately HK$548.8 million and HK$4,380.1 million, respectively.


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(b) Business valuation prepared by the Business Valuer

In assessing the Consideration, we have also reviewed and discussed with Knight Frank Asset Appraisal Limited, the independent valuer for the Group in relation to the Target Group Business (the “Business Valuer”), the methodology of, and basis and assumptions adopted for, the valuation of the Target Group as set out in the valuation report in Appendix IV to the Circular (the “Business Valuation Report”).

We have discussed with the Business Valuer as to their expertise, business valuation experience (further details of which are set out in the Business Valuation Report) and their scope of work and valuation procedures conducted in relation to the fair value of the Target Group. The Business Valuer has confirmed their independence and we noted that the relevant individual has 26 years of experiences in valuation in the PRC and Hong Kong. We also noted that the Business Valuer reviewed following documents, including, among others, (i) the Property Valuation Report; and (ii) the consolidated management accounts of the Target Group for the nine months ended 30 April 2019. Based on the above, we are satisfied that the Business Valuer is qualified for giving its opinion as set out in the Business Valuation Report taken into account their relevant experiences and expertise, their independence, and their scope of work and valuation procedures conducted.

For further details of the information of the Target Group, please refer to the section headed “5. Information of the Target Group” in this letter.

Basis of the Business Valuation

As set out in the Business Valuation Report, the business valuation of the Target Company (the “Business Valuation”) is prepared on a fair value basis which, according to the Hong Kong Financial Reporting Standards (the “HKFRS”), is defined as follows:

“the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

On this basis, the Business Valuation as set out in the Business Valuation Report would represent its fair value.

Methodology of the Business Valuation

As per our discussion with the Business Valuer, in preforming the Business Valuation, the Business Valuer has considered the three generally accepted valuation approaches, namely, the asset/cost approach, the market approach and the income approach.


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The asset/cost approach is a general way of estimating the value of a business and/or equity interest using methods based on the market value of individual business assets less liabilities. The market approach is a general way of estimating a value indication of an asset, the market approach considers prices recently paid for similar assets, with adjustments made to the indicated market prices to reflect condition and utility of the appraised asset relative to market comparables. For the market approach to be used, a sufficient number of comparable companies to make comparisons must be available, with the industry composition must be such that meaningful comparisons can be made. Lastly, the income approach focuses on the economic benefits generated by the income producing capability of an enterprise. The underlying theory of this approach is that the value of an enterprise can be measured by the present worth of the economic benefits to be received over the useful life of the business entity. Based on this valuation principle, the income approach estimates the future economic benefits and discounts these benefits to its present value using a discount rate appropriate for the risks associated with realising those benefits.

According to the Business Valuation Report, in determining the selection of valuation approach used, the Business Valuer has considered the business nature, the current financial position and the future prospective of the Target Group. We understand that the Business Valuer had considered the merits and limitations of each of the aforesaid valuation methodologies as well as the nature and status of the Target Group Business as at the valuation date, including, among others, (i) the lack of sufficient suitable direct market comparables for the purpose of adopting the market approach; (ii) in absence of an established operational track record of the Target Group Business, when adopting the income approach, significant judgement will be exerted for the estimation of revenue and costs, which further increases the inherent uncertainties and risks in any projections derived for the purpose of the income approach; and (iii) the Target Group is capital intensive, fixed assets including completed properties, property under development and fixed assets relating to the theme parks represents more than 90% of the total assets, and therefore the Business Valuer considered the asset approach to be the most appropriate valuation methodology out of the three commonly adopted valuation methodology as discussed above.

As set out in the Business Valuation Report, the Business Valuer uses the adjusted net assets method under the asset approach to determine the equity value of the Target Group. Under this method, the Business Valuer starts with the book value of assets and liabilities and then adjust the book value of individual assets and liabilities, where necessary, to fair value.


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A summary of the fair value uplifts of individual assets and liabilities and the corresponding effects under the asset approach has been set out in Business Valuation Report (the “Summary Schedule”). It is noted that the fair value uplifts and corresponding financial effects were only attributable to (i) property under development; (ii) property, plant and equipment; (iii) completed properties for sale; and (iv) deferred tax liabilities. The net fair value movement amounted to approximately HK$860.6 million. As advised by the Management, such fair value uplifts merely reflect the differences between (i) the book value of the Group I Properties and the Group II Properties as at 30 April 2019; and (ii) the appraised values of the Group I Properties and the Group II Properties as at 30 April 2019. As advised by the Business Valuer, the appraised values of the Group I Properties and the Group II Properties have been reflected in the fair values of the net assets of the Target Group as at 30 April 2019. We have agreed (i) the book value of the subject assets set out in the unaudited management accounts for the four months ended 30 April 2019; and (ii) the fair value of the subject properties from the Property Valuation Report, to the Summary Schedule set out in the Business Valuation Report. For our other works preformed and analysis concluded in relation to the Property Valuation Report, please refer to the paragraph headed “(a) Property Valuation by the Property Valuer” in this section above.

We have discussed with the Business Valuer and understand that the differences between the respective book values as at 30 April 2019 and the respective appraised values by the Business Valuer as at 30 April 2019, namely, the adjustments, were the fair value uplifts in relation to (i) property under development; (ii) property, plant and equipment; (iii) completed properties for sale; and (iv) the deferred tax liabilities arising from the fair value uplifts under item (i), (ii) and (iii) above by reference to the applicable tax rates in the PRC. Having considered that the fair value uplifts and corresponding financial effects as set out in the Business Valuation are principally associated with the property valuation, we are satisfied that the fair value uplifts of the Business Valuation reflected the fair value of the respective appraised items.

Based on the Business Valuation Report, the Business Valuer is of the opinion that the fair value of 100% equity of the Target Group is HK$2,229.0 million as at 30 April 2019. Having performed our work as set out above, we considered that the aforesaid fair value as extracted from the Business Valuation Report to be a relevant valuation reference point and be included as part of our analysis for assessing the fair and reasonableness of the Transaction.


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(c) Market comparable analysis

In assessing the fairness and reasonableness of the Consideration, we have also considered comparing the price-to-earnings ratio (the “P/E ratio”) and the price-to-book ratios (the “P/B ratio”) under the Transaction against that of the companies which are listed on the Stock Exchange and are engaged in similar businesses to those of the Target Group. However, given the Target Group has yet to commence operations and not derived any revenue from the Target Group Business up to the date of the Sale and Purchase Agreement, we are of the view that P/E ratio is not an appropriate methodology to assess the value of the Target Group Business. On this basis, we have proceeded with our analysis on P/B ratio, which is considered to be one of the common valuation multiples used to assess the reasonableness of a valuation of a business, in particular, for businesses which are capital intensive and/or asset heavy. In addition, this valuation methodology is considered to be particularly appropriate for evaluating businesses which have yet to attain profitability or have highly volatile financial results.

In respect of the P/B ratio of the Target Company, such is calculated based on the adjusted net asset value of approximately HK$2,228.8 million (the “Adjusted NAV”), being the equity attributable to owners of the Target Company as at 30 April 2019 of approximately HK$1,368.3 million after taken into account the differences between the book value and the fair value uplifts of the Target Group of approximately HK$860.6 million as extracted from the Business Valuation Report as set out in Appendix IV to the Circular. On this basis, the implied P/B ratio under the Transaction, calculated based on (i) the value of 100% equity interest of the Target Company based on the Consideration of approximately HK$557.25 million, being approximately HK$2,786.25 million; and divided by (ii) the Adjusted NAV of approximately HK$2,228.8 million, would be approximately 1.25 times (the “Adjusted P/B ratio”).

For the purpose of our comparable analysis, we have identified comparable companies based on the following criteria: (i) the shares of which are listed on the GEM and Main Board of the Stock Exchange; (ii) engages in principal business similar to the Target Group Business and generated over 50% of its total revenue for the latest completed financial year from the operation of theme parks or tourism property; and (iii) revenue primarily generated from the PRC for the latest completed financial year, where not specified by the subject company, a majority of its non-current assets was located in the PRC (the “Criteria”). Based on the Criteria, we have identified an exhaustive list of three comparable companies (the “Comparable Companies”).

Having also considered that (i) the market capitalisation of the Comparable Companies is calculated based on the number of shares in issue at the relevant time multiplied by the closing price per share of the Comparable Companies, being the price per share of which the subject minority shareholders can trade on the Stock Exchange at the relevant time; (ii) the fair value of 100% equity interest of the Target Group was approximately HK$2,228.8 million as at 30 April 2019, which is within the range of the market capitalisation of the Comparable Companies from approximately HK$882.0 million


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to HK$11,042.4 million; and (iii) the Adjusted NAV of the Target Group was approximately HK$2,228.8 million, being within the range of the net asset value of the Comparable Companies from approximately HK$471.3 million to HK$9,598.9 million, despite that the history, scale of operations, listing status, financial performance and position of the Comparable Companies may differ from that of the Target Group, we believe that the P/B ratios of the Comparable Companies, which is readily available market information, can serve as a meaningful valuation reference point for the Target Business and provide some insight into the prevailing P/B ratio of businesses which are similar to that of the Target Group.

The table below sets out the P/B ratio of each of the Comparable Companies and the P/B ratio and Adjusted P/B ratio of the Target Group as at the Latest Practicable Date.

Company name Market Net asset(stock code) Principal business capitalisation value P/B ratio HK$’ million HK$’ million times (Notes 1 and 2) (Notes 2) (Note 3)

Fosun Tourism The leisure and holiday 11,042.4 9,598.9 1.15 Group (1992) tourism business (Note 4)

Gudou Holdings The operation of hot 882.0 471.3 1.87 Limited (8308) spring resorts and hotels, as well as the development of tourism property (Note 5)

Haichang Ocean Park The development and 4,400.0 5,064.5 0.87 Holdings Limited operation of theme parks (2255) and ancillary commercial properties in the PRC (Note 6)

Maximum 1.87 Minimum 0.87 Average 1.30

The Target Group— P/B ratio 2.04— Adjusted P/B ratio 1.25

Source: the website of the Stock Exchange and the respective annual report of the Comparable Companies

Notes:

(1) In respect of the Comparable Companies, market capitalisation is calculated based on the respective closing price as quoted on the Stock Exchange and the number of issued shares based on published information as at the Latest Practicable Date.


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(2) For the illustrative purpose of this table, conversion of RMB into HK$ in relation to the respective financial figures of the Comparable Companies and the Target Group denominated in RMB (if applicable and if any) is calculated at the approximate exchange rate of HK$1 to RMB0.8594. This exchange rate is for illustration purpose only and does not constitute a representation that any amounts have been, could have been, or may be exchanged at this or any other rate at all.

(3) Calculated by dividing the respective market capitalisation by the respective consolidated equity attributable to the owners of the Comparable Companies, as extracted from their respective latest published financial statements.

(4) As disclosed in its latest published annual report, it has three reportable operating segments, namely, the resorts segment, the tourism destinations segment and the services and solutions in various tourism and leisure settings segment. For the financial year ended 31 December 2018, the revenue from the resorts segment, being its largest revenue segment, amounted to approximately RMB12,017.0 million, representing approximately 73.9% of the total revenue of Fosun Tourism Group. Approximately 26.1%, being the remaining portion of the total revenue for the year ended 31 December 2018, was attributable to its tourism destinations segment, and services and solutions in various tourism and leisure settings segment.

(5) As disclosed in its latest published annual report, it has two reportable operating segments, namely, property development segment and hotel and resort operation segment. For the financial year ended 31 December 2018, the revenue from the hotel and resort operation segment amounted to approximately RMB142.7 million, being its largest revenue segment, representing approximately 57.4% of the total revenue of Gudon Holdings Limited. Approximately 42.6%, being the remaining portion of the total revenue for the year ended 31 December 2018, was attributable to its property development segment.

(6) As disclosed in its latest published annual report, it has two reportable operating segments, namely, the park operations segment and the property development segment. For the financial year ended 31 December 2018, the revenue from the park operation segment amounted to approximately RMB1,745.7 million, being its largest revenue segment, representing approximately 97.5% of the total revenue of Haichang Ocean Park Holdings Limited. Approximately 2.5%, being the remaining portion of the total revenue for the year ended 31 December 2018, was attributable to its property development segment.

The P/B ratios of the Comparable Companies ranged from approximately 0.87 times to 1.87 times, with an average of approximately 1.30 times. The P/B ratio and Adjusted P/B ratio of the Target Group was approximately 2.04 times and 1.25 times, respectively. While the P/B ratio of the Target Group as represented by the Consideration and the implied valuation of the Target Group exceeded the upper range of the P/B ratios of the Comparable Companies, the Adjusted P/B ratio of the Target Group as represented by the Consideration and the implied valuation of the Target Group is within range of the P/B ratios of the Comparable Companies. Given the Adjusted P/B ratio has taken into account the relevant fair value uplifts considered by the Business Valuer and the P/B ratio has not, we considered the Adjusted P/B ratio to be the more relevant ratio for our assessment out of the aforesaid two price-to-book ratios.

Having considered our analysis above together with our work performed on the Property Valuation Report and the Business Valuation Report as set out under sub-sections headed “(a) Property valuation by the Property Valuer” and “(b) Business valuation prepared by the Business Valuer” above, we are of the view that the Consideration is fair and reasonable.


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(d) Limited marketability of the Sale Shares

In addition to the above, we have also considered,

(i) the Sale Shares, being a 20% minority equity interest of a private company, which has no active trading market, with the remaining 80% equity interest being held by Lai Fung;

(ii) the principal business engaged by the Target Group, namely, the design, development and operation of Phase I of Novotown project in Hengqin, Zhuhai City, Guangdong Province of the PRC, which comprised of two themed indoor experience centres, being “Lionsgate Entertainment WorldTM” and “National Geographic Ultimate Explorer” under the intellectual property licenses granted by “Lionsgate” and “National Geographic”, hotel, offices, serviced apartments, cultural studios and shopping and leisure facilities (i.e. the Target Group Business), is yet to record a profit from its operations and there is no proven operational track record by the Target Group up to the date of the Sale and Purchase Agreement;

(iii) there are operational risks and uncertainties associated with the Target Group Business and the period of time required for the Target Group Business to become profitability is uncertain;

(iv) the Target Group Business may require further financial support from its shareholders should it continue to record net cash outflow;

(v) the cash flow of the Company will only benefit from the Target Group’s operations upon the Target Company’s distribution of cash dividend, which is subject to approval from Target Company’s board of directors, of which the holder of the Sale Shares has no control over. For information purposes, given the Target Group Business is still in the developing stages, no dividend has been declared or distributed since its incorporation; and

(vi) pursuant to the Shareholders’ Agreement, (aa) for each and every 20% of the total issued share capital of the Target Company held by a shareholder, it shall have the right to appoint one director, thus out of five directors of the Target Company, four were nominated by Lai Fung and the remaining one director was nominated by the Seller; (bb) all matters raised at a general meeting shall be decided by a simple majority of votes casted by the shareholder(s); and (cc) for certain stated matters, including, but not limited to, change in the nature or scope of the business of the Target Group, unanimous approval from its shareholders is required, thus the holder of Sale Shares does not have control over major decisions of the Target Group,

we concur with the Directors’ view that the marketability of the Sale Shares is limited.


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(e) Summary

Having considered the aforesaid factors, in particular, (i) the Transaction would enable the Group to crystalise the value in its investment in the Target Company and recycle the capital for its other obligations. The net proceeds to be received by the Company from the Transaction will enable the Group to reduce its borrowings and improve its working capital position for future opportunities that may arise; (ii) as advised by the Management, the Target Group has not encountered and is not expected to encounter material financial difficulties which will adversely affect its operation or development progress as at the Latest Practicable Date; (iii) having performed our work and analysis in relation to the Property Valuation Report and Business Valuation Report as set out above, we considered that the fair value as set out in the Business Valuation Report to be a relevant valuation reference point for our assessment on the fair and reasonableness of the Transaction; (iv) the Consideration represents a notable premium over the fair value of the Target Group as set out in the Business Valuation Report, and that the aforesaid fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the market participants at the measurement date” according to the HKFRS and the Business Valuer considers such to represent the market value of the Target Group; (v) our analysis on the market comparables; and (vi) the limited marketability of the Sale Shares, the Transaction is on normal commercial terms and considered to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

12. PossiblefinancialimpactoftheTransaction

Upon Completion, the Target Company will be held as to 80% by LFHQ and 20% by LSD (or its nominee) and remain as an indirect non-wholly-owned subsidiary of Lai Fung. Accordingly, the Target Company will remain as an indirect non-wholly-owned subsidiary of the Company. The Group’s effective interest in the Target Group will be reduced from approximately 60.44% to 40.44% and the change in the ownership interest in the Target Company will not result in loss of control in the Target Company. Therefore, the Disposal will be accounted for as an equity transaction of the Group. The assets, liabilities and financial results of the Target Group will continue to be included in the consolidated financial statements of the Group, and it will not result in the recognition of any gain or loss in the consolidated income statement of the Group.


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For illustration purposes only, assuming the entire estimated net proceeds from the Disposal of approximately HK$503.1 million and the full repayment of the shareholder’s loan from the Target Company of approximately HK$280.4 million (subject to adjustments as agreed between LSD and the Seller upon Completion) are applied towards the repayment of indebtedness of the Group (excluding the indebtedness of Lai Fung Group and the MAGHL Group) and assuming there is no change to the equity attributable to owners of the Company as at 31 January 2019, the implied gearing ratio would be reduce to approximately 53.1%. However, we understand from the Management that there is no definitive plan for the exact allocation of net proceeds from the Disposal as at the Latest Practicable Date, which is further detailed under paragraph headed “7. Intended use of proceeds from the Disposal by the Company” in this letter above.

RECOMMENDATION

Having considered of the above principal factors and reasons, we consider that the entering into of the Transaction, though not in the ordinary and usual course of the business of the Company, are in the interests of the Company and the Shareholders as a whole, and the terms of the Transaction are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned. We therefore advise the Independent Shareholders, and the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the relevant ordinary resolution to approve the Sale and Purchase Agreement and the Transaction at the SGM.

Yours faithfully, For and on behalf of Red Sun Capital Limited Lewis Lai Managing Director

Mr. Lewis Lai is a licensed person registered with the SFC and a responsible officer of Red Sun Capital Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and has over 12 years of experience in the corporate finance industry.

* For identification purposes only

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

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FINANCIAL INFORMATION OF THE GROUP

The audited consolidated financial statements and the independent auditor’s report of the Group (i) for the year ended 31 July 2016 are disclosed on pages 61 to 192 of the annual report of the Company for the year ended 31 July 2016 published on 16 November 2016; (ii) for the year ended 31 July 2017 are disclosed on pages 77 to 212 of the annual report of the Company for the year ended 31 July 2017 published on 15 November 2017; and (iii) for the year ended 31 July 2018 are disclosed on pages 85 to 220 of the annual report of the Company for the year ended 31 July 2018 published on 21 November 2018.

The above annual reports of the Company have been published on the respective websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.esun.com).

INDEBTEDNESS

As at 31 July 2019, being the latest practicable date for ascertaining certain information relating to this indebtedness statement, the Group had outstanding consolidated total borrowings (after intra-group elimination) of approximately HK$10,065 million, comprising unsecured and unguaranteed other borrowings, including the accrued interest on borrowings from a former shareholder of the Company, of approximately HK$304 million, secured bank loans of approximately HK$4,788 million, unsecured bank loans of approximately HK$1,302 million, unsecured guaranteed notes of approximately HK$2,721 million and unsecured and unguaranteed loans from a wholly-owned subsidiary of LSD, of approximately HK$950 million.

As at 31 July 2019, certain properties (including investment properties, properties under development and serviced apartments (including related leasehold improvements)) and certain bank balances and time deposits were pledged to banks to secure bank loan facilities of the Group. Equity interests in certain subsidiaries of the Group were pledged to banks to secure certain bank loan facilities granted to the Group. In addition, the Company and certain subsidiaries of the Group have also provided corporate guarantees in favour of the banks in respect of certain bank loan facilities granted to the Group.

The Group had provided guarantees to certain banks in respect of mortgage loan facilities granted by such banks to certain end-buyers of property units developed by the Group. Pursuant to the terms of the guarantees, upon default in mortgage payments by these end-buyers, the Group will be responsible to repay the outstanding mortgage loan principals together with accrued interest owed by the end-buyers in default. The Group’s obligation in relation to such guarantees has been gradually relinquished along with the settlement of the mortgage loans granted by the banks to the end-buyers. Such obligation will also be relinquished when the property ownership certificates for the relevant properties are issued and/or the end-buyers have fully repaid the mortgage loans. As at 31 July 2019, in respect of these guarantees, the contingent liabilities of the Group were estimated to be amounted to approximately HK$567 million.


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The Group had provided corporate guarantees to certain banks in connection with the general banking facilities granted to the Group and the facilities were utilised by the Group to the extent of approximately HK$5 million as at 31 July 2019.

Save as aforesaid and apart from intra-group liabilities, the Group did not, as at 31 July 2019, have any material outstanding (i) debt securities, whether issued and outstanding, authorised or otherwise created but unissued, or term loans, whether guaranteed, unguaranteed, secured (whether the security is provided by the Group or by third parties) or unsecured; (ii) other borrowings or indebtedness in the nature of borrowings including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments, whether guaranteed, unguaranteed, secured or unsecured; (iii) mortgage or charges; or (iv) guarantees or other contingent liabilities.

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 July 2018, being the date to which the latest published audited financial statements of the Company were made up.

WORKING CAPITAL

The Directors are of the opinion that, in the absence of any unforeseen circumstances and after taking into account (i) the internal resources of the Group; (ii) the Group’s presently available banking facilities and other borrowings; (iii) the expected refinancing of certain bank loans and other borrowings; and (iv) the completion of the Transaction, the Group has sufficient working capital for its requirements for at least 12 months from the date of this circular.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The principal activities of the Group include the development, operation of and investment in media and entertainment, music production and distribution, the investment in and production and distribution of television programmes, films and video format products, cinema operation, property development for sale and property investment for rental purposes, as well as the development, operation of and investment in cultural, leisure, entertainment and related facilities.

Mediaandentertainment/filmproductionanddistribution/cinemaoperation

The Mainland China entertainment market continues to grow at a remarkable pace. The Group continues to expand its media and entertainment businesses in Mainland China, optimising income from its film, TV, live entertainment, artiste management, music and cinema in this fast growing market. The Group is well positioned to capitalise on this trend with its solid foundation in the industry.


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• Film — continued drive to increase original production of films which appeal to Chinese language audiences. “Bodies At Rest”, an action crime film by director Renny Harlin casting Nick Cheung and Richie Jen, “Fagara in Mara”, a romance film produced by Ann Hui featuring Sammi Cheng are our recent release of films with satisfactory box office and critical acclaim, and “I’m Living It”, a feature film produced by Cheang Pou Soi with Aaron Kwok and Miriam Yeung, is in post-production stage. Projects under production include an action film “Knockout” by director Roy Chow featuring Han Geng and a romance comedy film “The Calling of a Bus Driver” by director Patrick Kong with Ivana Wong.

• TV — expanded activities in production and investments in quality TV drama series in line with the continued strong demand for good programmes from TV stations and online video websites in Mainland China. A 52 episode romance drama series “New Horizon”, starring Zheng Kai and Chen Chiao-en, is in the post-production stage and the Group is in discussion with various Chinese and overseas portals and video web sites for new project development.

• Live Entertainment — successfully produced and promoted a number of concerts in Hong Kong and Mainland China performed by prominent local, Asian and international artistes. The recent “Along With Ekin Live Concert 2019” and “FOLLOWMi Sammi Cheng World Tour-Hong Kong 2019” have earned good reputation and public praises. The Group will continue to work with prominent local and Asian artistes for concert promotion.

• Music — as international music labels are coming to a mutually acceptable licensing model with major Chinese music portals, the long awaited pay model for digital music is taking shape. The exclusive distribution licence of our music products with Tencent Music Entertainment (Shenzhen) Co., Ltd and Warner Music continues to provide stable income contribution to the Group.

• Artiste Management — actively looking for new talent in Greater China and further co-operation with Asian artistes with an aim to build up a strong artiste roster. The Group believes a strong talent roster will complement its media and entertainment businesses and will continue its effort in talent development.

• Cinema — acquisition of an additional 10% interest in Intercontinental Group Holdings Limited (“IGHL”) in November 2018 facilitated better implementation of the operating strategies of the Company into IGHL and bolstered the Group’s further development in sale and distribution of films and cinema business in Hong Kong and Mainland China. The MCL Cheung Sha Wan Cinema, newly opened in January 2019 is the first MCL cinema in West Kowloon district in Hong Kong. With industrial style design, the cinema has 4 houses with more than 400 seats of stadium seating, giving the audience a comfortable sightline and all cinema houses are equipped with 4K projection system, Dolby 7.1 surround sound system and Bowers & Wilkins Hi-Fi grade speakers to provide a great cinematic viewing experience for the audience. We are excited by the outlook for cinemas in Hong Kong and Mainland China and we will continue to seek out opportunities to expand our footprint.


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Targeting the enormous yet growing China market, the Group endeavors to strengthen its integrated media platform with an aim to provide valuable and competitive products and to enhance its market position, and the Group will continue to explore strategic alliances as well as investment opportunities to enrich its portfolio and broaden its income stream.

Mainland China Property Market

Global economies around the world continue to progress along a precarious path against a backdrop of familiar uncertainties during the period under review. The capital market has demonstrated steadiness backed by cautious optimism despite a delicate economic outlook, most notably the protracted situation of Brexit and the intermittent trade disputes between the USA and China. Some of these events are likely to linger in the near future and continue to cast a shadow on the outlook.

Notwithstanding the seemingly turbulent environment, the Chinese Government continued to forge ahead and delivered stable economic growth through a combination of proactive fiscal policy and prudent monetary policy. The determination of maintaining a stable economy is observed in the latest round of meetings in Beijing declaring a gross domestic product growth target of 6%-6.5% in March 2019. The effects of the trade disputes with the USA can be felt in certain parts of the Chinese economy such as exports. The weaknesses in parts of the economy are going to continue as a result of lacklustre global economic performance and trade disputes with the USA. However, we believe this may present an opportunity for domestic consumption plays. We believe the property sector being one of the main pillars could benefit from more favourable policies as a result. We have observed the same in various parts of China where the Chinese Government has eased its control on the construction and the sale of property projects. The Chinese Government’s approach to the economy is certainly good news to the sector in the long run and supportive fiscal policy would be beneficial to investors and developers alike. Under the current leadership of the Chinese Government, we can expect continued stability and continuity going forward.

The regional focus and rental-led strategy of Lai Fung has demonstrated resilience in recent years. The rental portfolio of approximately 3.3 million square feet, primarily in Shanghai and Guangzhou, delivered steady performance in rental income at close to full occupancies for the key assets.

Lai Fung Group has a number of projects in various stages of development in Shanghai, Guangzhou, Zhongshan and Hengqin. The rental portfolio of Lai Fung Group is expected to increase from approximately 3.3 million square feet to approximately 9.7 million square feet through developing the existing projects on hand over the next few years. Construction works of the combined redevelopment of Shanghai Northgate Plaza I, Northgate Plaza II and Hui Gong Building is expected to complete in the second quarter of 2022 and will add a total GFA of approximately 693,600 square feet excluding car-parking spaces to the rental portfolio of Lai Fung Group. The redevelopment plan includes an office tower, a shopping arcade and underground car-parking spaces. Construction work of Guangzhou Haizhu Plaza is expected to commence in the second quarter of 2019 and the completion is expected to be in the first half of 2023, providing a total rental GFA of approximately 580,500 square feet.


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Novotown Phase I is near completion and will be opened by phases in the second half of 2019. The “Lionsgate Entertainment WorldTM” opened on 31 July 2019 and the “National Geographic Ultimate Explorer” is expected to open in September 2019. On 31 December 2018, Lai Fung Group entered into the investment agreements with China Cinda (HK) Asset Management Co., Limited (中國信達(香港 )資產管理有限公司 ) (“Cinda”, an indirect wholly-owned subsidiary of China Cinda Asset Management Co., Ltd. (中國信達資產管理股份有限公司 ), a joint stock company incorporated in the PRC and whose shares and preference shares are listed on the Main Board of the Stock Exchange (Stock Code: 1359; Preference Shares Stock Code: 4607)) and Cinda has invested 30% equity interests in two subsidiaries of the Company, the core businesses of which are the internal buildout, fitting, preparation and operation of themed indoor experience centres in Novotown Phase I under the intellectual property licenses granted by “National Geographic” and “Lionsgate”.

Lai Fung Group succeeded in bidding for the land use rights of the land offered for sale by The Land and Resources Bureau of Zhuhai through the listing-for-sale process in December 2018 and the land is situated adjacent to Novotown Phase I with a total site area of approximately 143,800 square meters and a maximum plot ratio of 2 times and has been designated for the development of Phase II of the Novotown project. Apart from Real Madrid Club de Fútbol, Harrow International (China) Management Services Limited and ILA Holdings Limited that have been secured as key partners for Novotown Phase II, Lai Fung Group entered into a license agreement on 27 December 2018 with Ducati Motor Holding S.p.A. (“Ducati”) in relation to the development and operation of a motorcycle themed experience centre (“Ducati Experience Centre”) in Novotown Phase II. The Ducati Experience Centre expects to cover an area of no less than 4,500 square meters and will offer experiential attractions including immersive racing experiences, exclusive Ducati exhibits and retail concessions. Real Madrid World, Innovation Leadership Academy Hengqin and Ducati Experience Centre are expected to be the key elements in Novotown Phase II and details of the development plan will be formulated upon finalisation of the master layout plan with the Chinese Government. Lai Fung Group is in the process of finalising the master layout plan for the Novotown Phase II with the Chinese Government.

The remaining residential units in Zhongshan Palm Spring and the cultural studios of Novotown Phase I, as well as residential units in Shanghai Wuli Bridge project to be completed in 2019 are expected to contribute to the income of Lai Fung Group in the coming financial years. Lai Fung Group will continue its prudent and flexible approach in growing its landbank.

APPENDIX II MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

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MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP FOR THE YEAR ENDED 31 JULY 2018

Set out below is the management discussion and analyses of the Group as extracted from the annual report of the Company for the year ended 31 July 2018. Terms used below shall have the same meanings as defined in the said annual report.

OVERVIEW

Media and Entertainment

For the year ended 31 July 2018, this segment recorded a turnover of HK$428.2 million (2017: HK$448.4 million) and segment results decreased to HK$21.8 million from that of HK$25.5 million last year.

Live Entertainment

The Group remains highly active on the live entertainment front. During the year under review, the Group organised and invested in 138 (2017: 168) shows by popular local, Asian and internationally renowned artistes, including Miriam Yeung, Grasshopper, C AllStar, at17, Ivana Wong and Hins Cheung, Liza Wang, Vivian Chow, Wanna One, MayDay and Rene Liu.

Music Production, Distribution and Publishing

For the year ended 31 July 2018, the Group released 53 (2017: 30) albums, including titles by Sammi Cheng, Miriam Yeung, William So, C AllStar, Tang Siu Hau, at17, Cherry Ngan and Michael Lai. The Group is expected to continue to increase its music licensing revenue from the exploitation of the music library through new media distribution.

Artiste Management

The Group has a strong artiste management team and a sizeable number of talents and will continue to expand its profile and in tandem with our growing television drama production and film production business.


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Film and TV Programme Production and Distribution

For the year ended 31 July 2018, this segment recorded a turnover of HK$342.7 million (2017: HK$418.5 million) and segment results of a loss of HK$258.7 million (2017: HK$126.2 million).

During the year under review, the Group released a total of 5 films (2017: 6), including Legend of the Naga Pearls, The Adventurers, Manhunt and Girls vs Gangsters and distributed 39 (2017: 31) films and 480 (2017: 488) videos with high profile titles including Memoirs of a Murderer, The Post, Uncle Drew, Black Panther, Coco, Thor: Ragnarok and Star Wars: The Last Jedi.

Cinema Operation

For the year ended 31 July 2018, this segment recorded a turnover of HK$408.4 million (2017: HK$418.6 million). The Group currently operates nine cinemas in Hong Kong and three cinemas in Mainland China as well as one joint venture cinema in Hong Kong. The MCL Telford Cinema in Kowloon Bay, Hong Kong was re-opened in December 2017 after renovation with advanced cinema technology and the introduction of House FX Theater and MX4D Motion Theater. During the year under review, the Group opened two new cinemas, one in Shatin, Hong Kong and the other one in Suzhou, Mainland China. The cinema in New Town Plaza in Shatin, Hong Kong named “Movie Town” is the largest cinema in the New Territories with more than 1,700 seats in 7 houses and introduced the latest revolutionary cinema technologies to the town including the HK-first Samsung “Onyx Cinema LED” and RealD Cinema, plus the HK-exclusive MX4D motion theatre and House FX. The Group has chosen Ufun Suzhou Shopping Mall to establish its first “GRAND Cinema” flagship site in Mainland China. The Grand Cinema City in Suzhou has 10 houses which are all equipped with 3D digital projection and Dolby Surround sound systems, providing a total of 1,440 seats. Two of the houses are in China Giant Screen formats, each also with the most advanced Dolby Atmos sound system, giant screen of 18.6m wide and 10.5m tall and dual-digital projection systems. The Group also secured one cinema project in Hong Kong, which is expected to commence business in the financial year ending 31 July 2019. The cinema operation provides a complementary distribution channel for the Group’s film production and distribution businesses.


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Details on the number of screens and seats of each existing cinema are as follows:

Attributable interest to No. of No. ofCinema the Group screens Seats (%) (Note 1) (Note 1)

Mainland China Suzhou Grand Cinema City 100 10 1,440 Guangzhou May Flower Cinema City 100 7 606 Zhongshan May Flower Cinema City 100 5 905

Subtotal 22 2,951

Hong Kong Movie Town (including MX4D theatre) 100 7 1,702 Festival Grand Cinema 85 8 1,196 MCL Metro City Cinema (Note 2) 85 7 957 MCL Telford Cinema (including MX4D theatre) 85 6 789 STAR Cinema 85 6 622 Grand Kornhill Cinema (including MX4D theatre) 85 5 706 MCL South Horizons Cinema 85 3 555 MCL Green Code Cinema 85 3 285 Grand Windsor Cinema 85 3 246 The Grand Cinema 25.5 12 1,566

Subtotal 60 8,624

Total 82 11,575

Notes:

1. On 100% basis

2. Renovation in phases is in progress and with effect from 1 November 2018, rental spaces of one cinema house will be handed back to the landlord and the cinema will provide 694 seats in 6 houses.


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Property Investment

The following details are extracted from Lai Fung’s annual report for the year ended 31 July 2018.

Rental Income

For the year ended 31 July 2018, Lai Fung Group’s rental operations recorded a turnover of HK$766.2 million (2017: HK$702.1 million), representing a 9.1% increase over last year. Excluding the effect of currency translation, the growth for Renminbi denominated rental income was 3.3%. Breakdown of rental turnover by major rental properties is as follows:

For the year ended 31 July For the year ended 31 July

2018# 2017# Approximate 2018 2017 Approximate Year end HK$’million HK$’million change RMB’million RMB’million change occupancy (%) (%) (%)

ShanghaiShanghai Hong Kong Plaza 416.9 399.4 4.4 346.4 350.6 -1.2 Retail: 96.8 Office: 94.8 Serviced Apartments: 91.5

Shanghai May Flower Plaza 75.9 75.4 0.7 63.1 66.2 -4.7 Retail: 48.2* Hotel: 72.2

Shanghai Regents Park 25.0 20.0 25.0 20.7 17.5 18.3 100.0

GuangzhouGuangzhou May Flower Plaza 113.2 105.5 7.3 94.1 92.6 1.6 99.2

Guangzhou West Point 19.8 18.4 7.6 16.5 16.1 2.5 100.0

Guangzhou Lai Fung Tower 105.2 74.9 40.5 87.4 65.7 33.0 Retail: 100.0 Office: 100.0**

ZhongshanZhongshan Palm Spring 10.2 8.5 20.0 8.5 7.5 13.3 Retail: 75.5** Serviced Apartments: 51.9

Total 766.2 702.1 9.1 636.7 616.2 3.3

# The exchange rates adopted for the years ended 31 July 2018 and 2017 are 0.8310 and 0.8777, respectively.

* The drop in the occupancy rate is due to the early termination of the lease of Lotte Mart on 3 July 2018. Lai Fung Group is currently discussing with several prospective tenants to fill the vacancy.

** Excluding self-use area


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Rental income performed steadily as a whole with almost full occupancy in all the major properties. The strong growth from Guangzhou Lai Fung Tower is primarily due to its being fully leased during the year under review.

The asset swap transaction with Guangzhou Light Industry Real Estate Development Company as jointly announced by Lai Fung and the Company on 15 January 2015 in relation to Guangzhou Lai Fung Tower, the office block of Guangzhou Eastern Place Phase V, was completed in August 2017. This enables Lai Fung Group to consolidate its ownership of Guangzhou Lai Fung Tower completely and provide additional flexibility and strategic value to Lai Fung Group. The total GFA of this property owned by Lai Fung Group increased to approximately 705,500 square feet excluding car-parking spaces from approximately 626,700 square feet as at 31 July 2017 and the commercial area and the office building of this property excluding self-use area have been fully leased.

Property Development


Recognised Sales

For the year ended 31 July 2018, Lai Fung Group’s property development operations recorded a turnover of HK$184.6 million (2017: HK$624.6 million) from sale of properties, representing a 70.4% decrease over last year.

Total recognised sales was primarily driven by the sales performance of residential units of Guangzhou Eastern Place Phase V and Zhongshan Palm Spring of which approximately 7,521 and 84,936 square feet of residential GFA were sold, respectively, achieving sales revenue of HK$50.2 million and HK$90.5 million, respectively.

For the year ended 31 July 2018, average selling price recognised as a whole (excluding Guangzhou Dolce Vita and car-parking spaces) amounted to approximately HK$1,649 per square foot (2017: HK$983 per square foot). Sales of residential units and retail units of Guangzhou Dolce Vita performed well and achieved average selling price of HK$3,616 and HK$5,445 per square foot, respectively. This is recognised as a component of “Share of profits and losses of joint ventures” in the consolidated income statement.


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Breakdown of turnover for the year ended 31 July 2018 from property sales is as follows:

Approximate AverageRecognised basis No. of units GFA selling price# Turnover*

Square feet HK$/square foot HK$’million## RMB’million

Guangzhou Eastern Place Residential Units – Phase V 7 7,521 6,980 50.2 41.7

Guangzhou King’s Park Commercial Unit 1 3,337 2,380 7.5 6.3

Zhongshan Palm Spring Residential High-rise Units 70 84,936 1,148 90.5 75.2

Others 1.1 0.9

Subtotal 78 95,794 1,649 149.3 124.1

Guangzhou King’s Park Car-parking Spaces 6 4.6 3.8

Guangzhou Eastern Place Car-parking Spaces 27 30.7 25.5

Total 184.6 153.4

Recognised sales from joint venture project

Guangzhou Dolce Vita Residential Units**(47.5% basis) 42 92,288 3,616 313.8 260.8 Retail Units**(47.5% basis) – 665 5,445 3.4 2.8

Subtotal 42 92,953 3,629 317.2 263.6

Car-parking Spaces**(47.5% basis) 45 16.1 13.4

Total 333.3 277.0

# Before business tax and value-added tax inclusive

## The exchange rate adopted for the year ended 31 July 2018 is 0.8310.

* After business tax and value-added tax exclusive

** Guangzhou Dolce Vita is a joint venture project with CapitaLand China Holdings Pte. Ltd. (“CapitaLand China”) in which each of Lai Fung Group and CapitaLand China has an effective 47.5% interest. For the year ended 31 July 2018, 89 residential units and 1 retail unit were sold and the recognised sales (after business tax and value-added tax exclusive) attributable to the full project is HK$667.9 million (excluding car-parking spaces) and approximately 195,690 square feet (excluding car-parking spaces) of GFA were recognised. The recognised sales from car-parking spaces attributable to the full project is HK$33.8 million.


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Contracted Sales

As at 31 July 2018, Lai Fung Group’s property development operations, excluding Guangzhou Dolce Vita, has contracted but not yet recognised sales of HK$51.8 million and HK$246.9 million from sales of residential units in Zhongshan Palm Spring and studios of Hengqin Novotown Phase I, respectively and HK$3.4 million from sales of 6 car-parking spaces in Guangzhou King’s Park, Guangzhou Eastern Place and Zhongshan Palm Spring. Sales of the studios of Hengqin Novotown Phase I were strong and achieved an average selling price of HK$5,207 per square foot. Excluding the effect of currency translation, the Renminbi denominated contracted but not yet recognised sales of residential units, studios and car-parking spaces, excluding Guangzhou Dolce Vita as at 31 July 2018 amounted to RMB251.0 million (31 July 2017: RMB125.7 million).

The total contracted but not yet recognised sales of Lai Fung Group as at 31 July 2018 including Guangzhou Dolce Vita and car-parking spaces amounted to HK$302.5 million (31 July 2017: HK$402.8 million). The Renminbi denominated contracted but not yet recognised sales of residential units and car-parking spaces, including Guangzhou Dolce Vita as at 31 July 2018 amounted to RMB251.3 million (31 July 2017: RMB353.6 million).

Breakdown of contracted but not yet recognised sales as at 31 July 2018 is as follows:

Approximate AverageContracted basis No. of units GFA selling price# Turnover#


Zhongshan Palm Spring Residential High-rise Units 31 34,614 1,497 51.8 43.0Hengqin Novotown Studios 11 47,420 5,207 246.9 205.2

Subtotal 42 82,034 3,641 298.7 248.2

Guangzhou King’s Park Car-parking Spaces 2 1.6 1.3Guangzhou Eastern Place Car-parking Space 1 1.2 1.0Zhongshan Palm Spring Car-parking Spaces 3 0.6 0.5

Subtotal 302.1 251.0

Contracted sales from joint venture projectGuangzhou Dolce Vita Car-parking Space**(47.5% basis) 1 0.4 0.3

Subtotal 0.4 0.3

Total (excluding car-parking spaces) 42 82,034 3,641 298.7 248.2

Total (including car-parking spaces) 302.5 251.3



** Guangzhou Dolce Vita is a joint venture project with CapitaLand China in which each of Lai Fung Group and CapitaLand China has an effective 47.5% interest. As at 31 July 2018, the contracted but not yet recognised sales from car-parking spaces attributable to the full project is HK$0.8 million.


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LIQUIDITY, FINANCIAL RESOURCES, CHARGE ON ASSETS AND GEARING

Cash and Bank Balances

As at 31 July 2018, cash and bank balances held by the Group amounted to HK$3,209.8 million (2017: HK$3,304.6 million) of which around 22.9% was denominated in Hong Kong dollar (“HKD”) and United States dollar (“USD”) currencies, and around 76.9% was denominated in Renminbi (“RMB”). Cash and bank balances held by the Group excluding cash and bank balances held by MAGHL Group and Lai Fung Group as at 31 July 2018 was HK$341.9 million (2017: HK$273.8 million). As HKD is pegged to USD, the Group considers that the corresponding exposure to USD exchange rate fluctuation is nominal. The conversion of RMB denominated cash and bank balances into foreign currencies and the remittance of such foreign currencies denominated balances out of Mainland China are subject to the relevant rules and regulations of foreign exchanges control promulgated by the government authorities concerned. Apart from the cross currency swap arrangements of Lai Fung Group, the Group does not have any derivative financial instruments or hedging instruments outstanding.

Borrowings

As at 31 July 2018, the Group had outstanding consolidated total borrowings (after intra-group elimination) in the amount of HK$8,199.0 million. The borrowings of the Group (other than MAGHL and Lai Fung), MAGHL and Lai Fung, are as follows:

Group (other than MAGHL and Lai Fung)

As at 31 July 2018, the Group had guaranteed general banking facilities granted by certain banks. As at 31 July 2018, the Group had outstanding bank loans of HK$147.8 million and utilised letter of credit and letter of guarantee facilities of HK$5.9 million. All bank loans are repayable within 1 year and are on floating rate basis and are denominated in HKD.

Apart from the bank loans, the Group had an outstanding loan of HK$450.0 million from Hibright Limited (“Hibright”), which is a wholly-owned subsidiary of LSD. The loan is on floating rate basis, denominated in HKD and is repayable in the second year. The Group has the undrawn facilities of HK$302.8 million as at 31 July 2018.

In addition, there existed unsecured other borrowings due to the late Mr. Lim Por Yen in the principal amount of HK$113.0 million which is interest-bearing at the HSBC prime rate per annum. The Group’s recorded interest accruals were HK$91.1 million for the said unsecured other borrowings as at 31 July 2018. At the request of the Group, the executor of Mr. Lim Por Yen’s estate confirmed that no demand for the repayment of the outstanding other borrowings or the related interest would be made within one year from 31 July 2018.


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MAGHL

During the year, TFN Convertible Notes with principal amount of HK$130.0 million and Specific Mandate Convertible Notes with an aggregate principal amount of HK$166.8 million (including a principal amount of HK$100.0 million issued to the Group) were redeemed upon maturity on 14 May 2018 and 3 July 2018 respectively. As at 31 July 2018, MAGHL has unsecured and interest-bearing loans from Hibright and the Company of HK$200.0 million and HK$100.0 million respectively. The loans are on floating rate basis, denominated in HKD and are repayable in the second year.

Lai Fung

As at 31 July 2018, Lai Fung Group had total borrowings in the amount of HK$7,445.6 million comprising bank loans of HK$3,773.2 million, guaranteed notes of HK$2,725.5 million, loans from a subsidiary of the Company of HK$248.5 million, loans from a joint venture of HK$644.7 million and other borrowing of HK$53.7 million. The maturity profile of Lai Fung Group’s borrowings of HK$7,445.6 million is well spread with HK$419.2 million repayable within 1 year, HK$1,184.2 million repayable in the second year, HK$5,648.1 million repayable in the third to fifth years, and HK$194.1 million repayable beyond the fifth year. The undrawn facilities of Lai Fung Group was HK$3,552.0 million as at 31 July 2018.

Approximately 45% and 51% of Lai Fung Group’s borrowings were on a fixed rate basis and floating rate basis, respectively, and the remaining 4% of Lai Fung Group’s borrowings were interest free.

Apart from the guaranteed notes, Lai Fung Group’s other borrowings of HK$4,720.1 million were 53% denominated in RMB, 37% in HKD and 10% in USD.

Lai Fung Group’s guaranteed notes of HK$2,725.5 million were denominated in USD. Lai Fung Group has entered into cross currency swap agreements with financial institutions and the guaranteed notes have been effectively converted into HKD denominated debts.

Lai Fung Group’s presentation currency is denominated in HKD. Lai Fung Group’s monetary assets, liabilities and transactions are principally denominated in RMB, USD and HKD. Lai Fung Group, with HKD as its presentation currency, is exposed to foreign currency risk arising from the exposure of HKD against USD and RMB, respectively. Considering that HKD is pegged against USD, Lai Fung Group believes that the corresponding exposure to USD exchange rate fluctuation is nominal. However, Lai Fung Group has a net exchange exposure to RMB as Lai Fung Group’s assets are principally located in Mainland China and the revenues are predominantly in RMB. Apart from the aforesaid cross currency swap arrangements, Lai Fung Group does not have any derivative financial instruments or hedging instruments outstanding.


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Charge on Assets and Gearing

Certain assets of the Group have been pledged to secure borrowings and banking facility of the Group, including investment properties with a total carrying amount of approximately HK$11,575.2 million, properties under development with a total carrying amount of approximately HK$1,371.4 million, serviced apartments (including related leasehold improvements) with a total carrying amount of approximately HK$1,282.7 million, construction in progress with a total carrying amount of approximately HK$909.7 million and time deposits and bank balances of approximately HK$650.8 million.

As at 31 July 2018, the consolidated net assets attributable to the owners of the Company amounted to HK$9,259.5 million (2017: HK$9,118.2 million). The gearing ratio, being net debt (total borrowings of HK$8,199.0 million less pledged and restricted bank balances and time deposits of HK$1,073.8 million and cash and cash equivalents of HK$2,136.0 million) to net assets attributable to the owners of the Company was approximately 53.9%.

Taking into account the amount of cash being held as at the end of the reporting period, the available loan facility and the banking facilities, certain bank loans and the recurring cash flows from the Group’s operating activities, the Group believes that it would have sufficient liquidity for its present requirements to finance its existing operations and projects underway.

CONTINGENT LIABILITIES

Details of contingent liabilities of the Group as at 31 July 2018 are set out in note 49 to the Financial Statements.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 July 2018, the Group employed a total of around 1,880 (2017: 2,010) employees. The Group recognises the importance of maintaining a stable staff force in its continued success. Under the Group’s existing policies, employee pay rates are maintained at competitive levels whilst promotion and salary increments are assessed on a performance-related basis. Discretionary bonuses are granted to employees based on their merit and in accordance with industry practice. Other benefits including share option scheme, mandatory provident fund scheme, free hospitalisation insurance plan, subsidised medical care and sponsorship for external education and training programmes are offered to eligible employees.


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OVERVIEW


For the year ended 31 July 2017, this segment recorded a turnover of HK$448.4 million (2016: HK$537.1 million) and segment results increased from a profit of HK$16.5 million to a profit of HK$25.5 million.

Live Entertainment

The Group remains highly active on the live entertainment front. During the year under review, the Group organised and invested in 168 (2016: 197) shows by popular local, Asian and internationally renowned artistes, including Chan Po Chu and Mui Suet See, Sammi Cheng, Ivana Wong and Hins Cheung, Grasshopper, EXO, MayDay, Rene Liu, Tsai Chin, Ronald Cheng, Della, Yoga Lin and Lee Teuk@Super Junior.


For the year ended 31 July 2017, the Group released 30 (2016: 57) albums, including titles by Sammi Cheng, Ivana Wong, C AllStar, Jan Lamb, Tang Siu Hau and Leslie Cheung. The Group is expected to continue to increase its music licensing revenue from the exploitation of the music library through new media distribution.

Artiste Management

The Group has a strong artiste management team and a sizeable number of talents and will continue to expand its profile and in tandem with our growing television drama production and film production business. The Group is actively looking for new talent in Mainland China and further co-operation with Asian artistes.


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Film and TV Program Production and Distribution

For the year ended 31 July 2017, this segment recorded a turnover of HK$418.5 million (2016: HK$343.6 million) and segment results of a loss of HK$126.2 million (2016: a loss of HK$55.5 million).

During the year under review, the Group released a total of 6 films (2016: 7), namely Line Walker, Love Off The Cuff, Wine War, God of War, The House That Never Dies II and The Founding of An Army and distributed 31 (2016: 33) films and 488 (2016: 308) videos with high profile titles including Doraemon: New Nobita and the Birth of Japan, John Wick: Chapter Two, Ghost In The Shell, Baywatch, xXx: Reactivated, Captain America: Civil War and Beauty & The Beast (2017).

Cinema Operation

For the year ended 31 July 2017, this segment recorded a turnover of HK$418.6 million (2016: HK$364.9 million). As at 31 July 2017, the Group operates four cinemas in Mainland China and eight cinemas in Hong Kong as well as one joint venture cinema in Hong Kong. Our new cinema, MCL Green Code Cinema in Fanling, Hong Kong was opened on 21 January 2017. The Grand Kornhill Cinema in Kornhill Plaza, Hong Kong was re-opened on 1 April 2017 after renovation and is the first cinema in Hong Kong installed with a MX4D theatre providing the most advanced 4D movie experience. The MCL Telford Cinema has just completed its renovation in mid October 2017, with the success of the MX4D theatre in Grand Kornhill Cinema, MCL Telford Cinema has also installed with a MX4D theatre. The Group also secured one cinema project in Suzhou in Mainland China, which is expected to commence business in the financial year ending 31 July 2018. The cinema operation provides a complementary distribution channel for the Group’s film production and distribution businesses.


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Details on the number of screens and seats of each cinema as at the date of this Annual Report are as follows:

Attributable No. of No. ofCinema interest to the Group screens Seats (%) (Note) (Note)

Mainland China Guangzhou May Flower Cinema City 100 7 606 Zhongshan May Flower Cinema City 100 5 905 MCL Cinema City in Shekou 85 5 629 MCL Cinema City in Luohu 85 5 529

Subtotal 22 2,669

Hong Kong Festival Grand Cinema 85 8 1,196 MCL Metro City Cinema 85 7 957 MCL Telford Cinema (including MX4D Theatre) 85 6 789 STAR Cinema 85 6 622 Grand Kornhill Cinema (including MX4D Theatre) 85 5 706 MCL South Horizons Cinema 85 3 555 MCL Green Code Cinema 85 3 285 Grand Windsor Cinema 85 3 246 The Grand Cinema 25.5 12 1,566

Subtotal 53 6,922

Total 75 9,591

Note: On 100% basis


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Property Investment


Rental Income

For the year ended 31 July 2017, Lai Fung Group’s rental operations recorded a turnover of HK$702.1 million (2016: HK$629.4 million), representing an 11.6% increase over last year. Excluding the effect of currency translation against a depreciated Renminbi, the growth for Renminbi denominated rental income was 17.0%. Breakdown of rental turnover by major rental properties is as follows:

For the year ended 31 July For the year ended 31 July

2017# 2016# Approximate 2017 2016 Approximate Year end HK$’million HK$’million change RMB’million RMB’million change occupancy (%) (%) (%)

ShanghaiShanghai Hong Kong Plaza 399.4 398.2 0.3 350.6 333.2 5.2 Retail: 95.2 Office: 91.8 Serviced Apartments: 85.3

Shanghai May Flower Plaza 75.4 71.4 5.6 66.2 59.7 10.9 Retail: 100.0 Hotel: 81.6

Shanghai Regents Park 20.0 14.3 39.9 17.5 12.0 45.8 100.0

Shanghai Northgate Plaza I – 4.9 -100.0 – 4.1 -100.0 0.0*

GuangzhouGuangzhou May Flower Plaza 105.5 109.5 -3.7 92.6 91.6 1.1 99.2

Guangzhou West Point 18.4 17.2 7.0 16.1 14.4 11.8 99.6

Guangzhou Lai Fung Tower 74.9 6.2 1,108.1 65.7 5.2 1,163.5 Retail: 100.0 Office: 100.0**

ZhongshanZhongshan Palm Spring 8.5 7.7 10.4 7.5 6.4 17.2 Retail: 86.4*** Serviced Apartments: 56.9

Total 702.1 629.4 11.6 616.2 526.6 17.0

# The exchange rates adopted for the years ended 31 July 2017 and 2016 are 0.8777 and 0.8367, respectively.

* All tenants were vacated for project redevelopment and demolition has been completed in May 2017.

** Excluding the office area that is subject to the asset swap transaction as jointly announced by Lai Fung and the Company on 15 January 2015 and the asset swap transaction has been completed in August 2017.

*** Excluding self-use area


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Rental income performed steadily as a whole with almost full occupancy in all the major properties. Rental income growth was partially offset by depreciation of Renminbi during the year under review.

The asset swap transaction with Guangzhou Light Industry Real Estate Limited as jointly announced by Lai Fung and the Company on 15 January 2015 in relation to Guangzhou Lai Fung Tower, the office block of Guangzhou Eastern Place Phase V, has been completed in August 2017 post year end. This enables Lai Fung to consolidate its ownership of Guangzhou Lai Fung Tower completely and provide additional flexibility and strategic value to Lai Fung Group. As at the date of this Annual Report, the total GFA of this property owned by Lai Fung Group increased to approximately 707,800 square feet excluding car-parking spaces from that of approximately 626,700 square feet as at 31 July 2017 and the commercial area and the office building of this property have been fully leased.

The acquisition of Hui Gong Building was completed in September 2016. Lai Fung Group plans to redevelop Shanghai Northgate Plaza I, Northgate Plaza II and the Hui Gong Building together under a comprehensive redevelopment plan which includes an office tower, a shopping arcade and underground car-parking spaces and is expected to add a total GFA of approximately 693,600 square feet excluding car-parking spaces to the rental portfolio of Lai Fung Group. Demolition of Shanghai Northgate Plaza I and Hui Gong Building has been completed in May 2017 and foundation works commenced in September 2017.

Excluding self-use area of approximately 53,223 square feet, all commercial area of Zhongshan Palm Spring Rainbow Mall has been reclassified as rental properties.



Recognised Sales

For the year ended 31 July 2017, Lai Fung Group’s property development operations recorded a turnover of HK$624.6 million (2016: HK$1,414.1 million) from sale of properties, representing a 55.8% decrease in sales revenue over last year.

Total recognised sales were primarily driven by the sales performance of residential units of Guangzhou Eastern Place Phase V and Zhongshan Palm Spring of which approximately 21,364 and 641,366 square feet of residential GFA were sold, respectively, achieving sales revenue of HK$129.2 million and HK$485.3 million, respectively.

For the year ended 31 July 2017, average selling price recognised as a whole (excluding Guangzhou Dolce Vita and car-parking spaces) amounted to approximately HK$983 per square foot (2016: HK$4,207 per square foot). Sales of residential units of Guangzhou Dolce Vita performed well and achieved an average selling price of HK$2,584 per square foot (2016: HK$2,915 per square foot). This is recognised as a component of “Share of profits and losses of joint ventures” in the consolidated income statement.


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Approximate AverageRecognised basis No. of units GFA selling price# Turnover*


Guangzhou Eastern Place Residential Units – Phase V 19 21,364 6,481 129.2 113.4

Zhongshan Palm Spring Residential High-rise Units 479 597,959 743 420.1 368.7 Residential House Units 15 43,407 1,582 65.2 57.2

Others 0.4 0.4

Subtotal 513 662,730 983 614.9 539.7


Guangzhou West Point Car-parking Space 1 0.7 0.6

Total 624.6 548.2


Guangzhou Dolce Vita Residential Units**(47.5% basis) 514 737,122 2,570 1,794.7 1,575.2 Retail Units**(47.5% basis) 2 2,521 6,521 15.6 13.7

Subtotal 516 739,643 2,584 1,810.3 1,588.9

Car-parking Spaces**(47.5% basis) 373 122.4 107.4

Total 1,932.7 1,696.3




** Guangzhou Dolce Vita is a joint venture project with CapitaLand China in which each of Lai Fung Group and CapitaLand China has an effective 47.5% interest. For the year ended 31 July 2017, the recognised sales (after business tax and value-added tax exclusive) attributable to the full project was HK$3,811.2 million (excluding car-parking spaces) and approximately 1,557,142 square feet (excluding car-parking spaces) of GFA were recognised. The recognised sales from car-parking spaces attributable to the full project was HK$257.7 million.


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Contracted Sales

As at 31 July 2017, Lai Fung Group’s property development operations, excluding Guangzhou Dolce Vita, has contracted but not yet recognised sales of HK$91.1 million and HK$49.7 million from sales of residential units in Zhongshan Palm Spring and Guangzhou Eastern Place Phase V, respectively and HK$2.3 million from sales of 3 car-parking spaces in Guangzhou King’s Park. Sales of the remainder of the completed residential units of Zhongshan Palm Spring were strong and achieved an average selling price of HK$1,087 per square foot. Excluding the effect of currency translation against a depreciated Renminbi, the Renminbi denominated contracted but not yet recognised sales of residential units and car-parking spaces, excluding Guangzhou Dolce Vita as at 31 July 2017 amounted to RMB125.7 million (31 July 2016: RMB484.4 million).

The total contracted but not yet recognised sales of Lai Fung Group as at 31 July 2017 including Guangzhou Dolce Vita and car-parking spaces amounted to HK$402.8 million (31 July 2016: HK$2,249.1 million). The Renminbi denominated contracted but not yet recognised sales of residential units and car-parking spaces, including Guangzhou Dolce Vita as at 31 July 2017 amounted to RMB353.6 million (31 July 2016: RMB1,881.8 million).


Approximate AverageContracted basis No. of units GFA selling price# Turnover#


Guangzhou Eastern Place Residential Units – Phase V 7 7,522 6,607 49.7 43.6Zhongshan Palm Spring Residential High-rise Units 69 83,791 1,087 91.1 80.0

Subtotal 76 91,313 1,542 140.8 123.6



Contracted sales from joint venture project

Guangzhou Dolce Vita Residential Units*(47.5% basis) 38 80,140 3,203 256.6 225.2 Car-parking Spaces*(47.5% basis) 9 3.1 2.7


Total (excluding car-parking spaces) 114 171,453 2,318 397.4 348.8



* Guangzhou Dolce Vita is a joint venture project with CapitaLand China in which each of Lai Fung Group and CapitaLand China has an effective 47.5% interest. As at 31 July 2017, the contracted but not yet recognised sales attributable to the full project was HK$540.2 million (excluding car-parking spaces) and approximately 168,715 square feet of GFA (excluding car-parking spaces) were sold. The contracted but not yet recognised sales from car-parking spaces attributable to the full project was HK$6.5 million.


– 69 –



As at 31 July 2017, cash and bank balances held by the Group amounted to HK$3,304.6 million (2016: HK$4,365.6 million) of which around 24.2% was denominated in Hong Kong dollar (“HKD”) and United States dollar (“USD”) currencies, and around 75.5% was denominated in Renminbi (“RMB”). Cash and bank balances held by the Group excluding cash and bank balances held by MAGHL Group and Lai Fung Group as at 31 July 2017 was HK$273.8 million (2016: HK$303.0 million). As HKD is pegged to USD, the Group considers that the corresponding exposure to USD exchange rate fluctuation is nominal. The conversion of RMB denominated cash and bank balances into foreign currencies and the remittance of such foreign currencies denominated balances out of Mainland China are subject to the relevant rules and regulations of foreign exchanges control promulgated by the government authorities concerned. Apart from the cross currency swap arrangements of Lai Fung Group, the Group does not have any derivative financial instruments or hedging instruments outstanding.

Borrowings



As at 31 July 2017, the Group had bank loans of HK$271.4 million. The maturity profile of the Group’s bank loans is spread with HK$179.4 million repayable within 1 year, HK$34.8 million repayable in the second year and HK$57.2 million repayable in the third years. All bank loans are on floating rate basis and are denominated in HKD.

In addition, there existed unsecured other borrowings due to the late Mr. Lim Por Yen in the principal amount of HK$113.0 million which is interest-bearing at the HSBC prime rate per annum. The Group’s recorded interest accruals were HK$85.5 million for the said unsecured other borrowings as at 31 July 2017. At the request of the Group, the executor of Mr. Lim Por Yen’s estate confirmed that no demand for the repayment of the outstanding other borrowings or the related interest would be made within one year from 31 July 2017.


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MAGHL

As at 31 July 2017, MAGHL has unsecured and unguaranteed 3-year zero coupon TFN Convertible Notes with an aggregate outstanding principal amount of approximately HK$130.0 million issued to a subscriber. As at 31 July 2017, MAGHL has unsecured and unguaranteed 3-year zero coupon Specific Mandate Convertible Notes with an aggregate outstanding principal amount of HK$166.8 million, comprising approximately HK$100.0 million and approximately HK$66.8 million issued to the Group and other subscribers, respectively. Unless previously converted, redeemed, purchased or cancelled in accordance with the terms and conditions of the TFN Convertible Notes and the Specific Mandate Convertible Notes, they will be redeemed by MAGHL on the maturity dates of 13 May 2018 and 3 July 2018, respectively, at the principal amount outstanding. For accounting purpose, after deducting the equity portion of the convertible notes from the principal amount, the carrying amount of the TFN Convertible Notes as recorded in the Group was HK$121.1 million and the resultant carrying amount of the Specific Mandate Convertible Notes as recorded in the Group was HK$61.2 million as at 31 July 2017 after adjusting for (i) accrued interest and (ii) intra-group elimination.

Lai Fung

As at 31 July 2017, Lai Fung Group had total borrowings in the amount of HK$6,091.4 million comprising bank loans of HK$2,896.1 million, fixed rate senior notes of HK$2,080.4 million, loans from a subsidiary of the Company of HK$218.3 million, loans from a joint venture of HK$842.5 million and other borrowing of HK$54.1 million. The maturity profile of Lai Fung Group’s borrowings of HK$6,091.4 million is well spread with HK$2,355.1 million repayable within 1 year, HK$692.9 million repayable in the second year, HK$2,954.2 million repayable in the third to fifth years, and HK$89.2 million repayable beyond the fifth year.


Apart from the fixed rate senior notes, Lai Fung Group’s other borrowings of HK$4,011.0 million were 55% denominated in RMB, 33% in HKD and 12% in USD.

Lai Fung Group’s fixed rate senior notes of HK$2,080.4 million were denominated in RMB. On 25 April 2013, issue date of the RMB denominated senior notes (“2013 Notes”), Lai Fung Group entered into cross currency swap agreements with financial institutions for the purpose of hedging the foreign currency risk arising from such notes. Accordingly, the 2013 Notes have been effectively converted into USD denominated loans.


– 71 –



Certain assets of the Group have been pledged to secure borrowings and banking facility of the Group, including investment properties with a total carrying amount of approximately HK$10,401.2 million, properties under development with a total carrying amount of approximately HK$500.6 million, serviced apartments (including related leasehold improvements) with a total carrying amount of approximately HK$1,372.9 million, construction in progress with a total carrying amount of approximately HK$730.2 million and time deposits and bank balances of approximately HK$401.4 million.

In addition, as at 31 July 2017, a revolving loan facility in the amount of HK$600.0 million was granted by a bank to the Group. The said loan facility is secured by the charge over securities accounts and share mortgage of the ordinary shares of Lai Fung and certain ordinary shares of MAGHL held by the Group (other than Lai Fung and MAGHL). The Group has utilised the said loan facility for an amount of HK$150.0 million as at 31 July 2017. As at 31 July 2017, guaranteed general banking facilities in the amount of HK$214.0 million were granted by certain banks to the Group (other than Lai Fung). The said guaranteed general banking facilities (other than a term loan) are subject to annual review by the banks for renewal and the Group had utilised letter of credit and letter of guarantee facilities, term loan and revolving loans for a total amount of HK$130.6 million as at 31 July 2017. As such, the Group (other than Lai Fung) has the undrawn facilities of HK$533.4 million as at 31 July 2017. The undrawn facilities of Lai Fung Group was HK$3,528.0 million as at 31 July 2017.

As at 31 July 2017, the consolidated net assets attributable to the owners of the Company amounted to HK$9,118.2 million (2016: HK$8,599.3 million). The gearing ratio, being net debt (total borrowings of HK$6,525.3 million less pledged bank balances and time deposits of HK$571.1 million and cash and cash equivalents of HK$2,733.5 million) to net assets attributable to the owners of the Company was approximately 35.3%.

Taking into account the amount of cash being held as at the end of the reporting period, the available banking facilities, expected refinancing of fixed rate senior notes, certain bank loans and the recurring cash flows from the Group’s operating activities, the Group believes that it would have sufficient liquidity for its present requirements to finance its existing operations and projects underway.


– 72 –






– 73 –



OVERVIEW


For the year ended 31 July 2016, this segment recorded a turnover of HK$537.1 million (2015: HK$576.3 million) and segment result decreased from a profit of HK$50.2 million to a profit of HK$16.5 million.

Live Entertainment

The Group remains highly active on the live entertainment front. During the year ended 31 July 2016, the Group organised and invested in 197 (2015: 114) shows by popular local, Asian and internationally renowned artistes, including Sammi Cheng, Miriam Yeung, Ivana Wong, EXO, Infinite, SHINee, Super Junior, a group of Ekin Cheng, Jordan Chan, Michael Tse, Jerry Lamb and Chin Ka Lok, Grasshopper, Kelly Chen, George Lam, Rene Liu, Jolin Tsai and Hebe Tien. Besides pop music events, the Group has also extended its production to Cantonese Opera to promote traditional Chinese culture. The famous title 《牡丹亭驚夢》 featuring Ms. Chan Po Chu and Ms. Mui Suet See gained huge support when staged in May 2016 and has been rerun in August 2016.


For the year ended 31 July 2016, the Group released 57 (2015: 85) albums, including titles by Miriam Yeung, Ivana Wong, Grasshopper, C AllStar, a group of Richie Jen, William So, Edmond Leung and Steve Wong, Justin Lo, Sean Pang, RubberBand and Han Hong. The Group is expected to continue to increase its music licensing revenue from the exploitation of the music library through new media distribution.

Artiste Management

The Group has a strong artiste management team and a sizeable number of talents and will continue to expand its profile and in tandem with our growing television drama production and film production business. The Group is actively looking for new talent in Mainland China and co-operation with Asian artistes.


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Film and TV Programme Production and Distribution

For the year ended 31 July 2016, this segment recorded a turnover of HK$343.6 million (2015: HK$457.6 million) and segment results of a loss of HK$55.5 million (2015: a profit of HK$34.4 million).

For the year ended 31 July 2016, the Group released theatrically a total of 7 (2015: 7) films which were produced/invested by the Group, namely The Assassin, All You Need Is Love, Office, She Remembers, He Forgets, From Vegas to Macau III, Trivisa and Three. In addition, the Group has completed principal photography of another 5 films, most of them are expected to be released by 2017, whilst with 11 other films in the production pipeline or under development. The Group also distributed 33 (2015: 29) films and 308 (2015: 287) videos with high profile titles including No Escape, Point Break, Dirty Grandpa, Gods of Egypt, Scouts Guide to the Zombie Apocalypse, Star Trek Beyond, Avengers: Age of Ultron, Jurassic World, Star Wars: The Force Awakens and Zootopia.

The Group has made investments in the production of 7 (2015: 3) TV drama series in Mainland China which are expected to generate return to the Group in the coming financial years.

Cinema Operation

For the year ended 31 July 2016, this segment recorded a turnover of HK$364.9 million (2015: HK$294.9 million). As at 31 July 2016, the Group operates four cinemas in Mainland China and eight cinemas in Hong Kong as well as one joint venture cinema in Hong Kong. Our new cinemas, the Grand Windsor Cinema in Causeway Bay in Hong Kong, MCL South Horizons Cinema in South Horizons in Hong Kong and the Festival Grand Cinema in the Festival Walk in Kowloon Tong were opened on 26 September 2015, 23 March 2016 and 8 June 2016, respectively. It is expected that the new cinema in Green Code in Fanling, Hong Kong will commence operations by the end of 2016. The Group also secured two cinema projects in Suzhou and Wuxi in Mainland China, which are expected to commence businesses in the financial years ending 31 July 2017 and 31 July 2018, respectively. The cinema operation provides a complementary distribution channel for the Group’s film production and distribution businesses.


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Details on the number of screens and seats of each cinema as at 31 July 2016 are as follows:

Attributable No. of No. ofCinema interest to the Group screens seats (%) (Note) (Note)

Mainland China Guangzhou May Flower Cinema City 100 7 606 Zhongshan May Flower Cinema City 100 5 905 MCL Cinema City in Shekou 85 5 629 MCL Cinema City in Luohu 85 5 529

Subtotal 22 2,669

Hong Kong Festival Grand Cinema 85 8 1,196 MCL Metro Cinema 85 7 957 MCL Telford Cinema 85 6 819 STAR Cinema 85 6 622 MCL Kornhill Cinema 85 5 836 MCL South Horizons Cinema 85 3 555 Grand Windsor Cinema 85 3 246 MCL JP Cinema 85 2 658 The Grand Cinema 25.5 12 1,566

Subtotal 52 7,455

Total 74 10,124

Note: On 100% basis


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Property Investment

The following details are extracted from Lai Fung’s annual reports for the two years ended 31 July 2016 and 31 July 2015.

Rental Income

For the year ended 31 July 2016, Lai Fung Group’s rental operations recorded a turnover of HK$629.4 million (2015: HK$626.0 million), representing a 0.5% increase over last year. Excluding the effect of currency translation against a depreciated Renminbi, the growth for Renminbi denominated rental income was 5.2%. Breakdown of rental turnover by major rental properties is as follows:

Approximate For the year ended 31 July percentage Year end

2016 2015 change occupancy HK$’million HK$’million (%) (%)

ShanghaiShanghai Hong Kong Plaza 398.2 407.2 -2.2 Retail: 98.3 Office: 97.8 Serviced Apartments: 88.8

Shanghai May Flower Plaza 71.4 61.7 15.7 Retail: 99.5 Hotel: 90.4

Shanghai Regents Park 14.3 13.4 6.7 100.0

Shanghai Northgate Plaza I 4.9 10.8 -54.6 0.0*

GuangzhouGuangzhou May Flower Plaza 109.5 108.9 0.6 98.6

Guangzhou West Point 17.2 17.2 – 98.7

Guangzhou Lai Fung Tower 6.2 – N/A Retail: 91.8 Office: 53.9

ZhongshanZhongshan Palm Spring 7.7 6.8 13.2 Retail: 82.0** Serviced Apartments: 57.1

Total 629.4 626.0 0.5

* All tenants have been vacated for project redevelopment.** Excluding self-use area


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Rental income performed steadily as a whole with almost full occupancy in all the major properties. Rental income growth was partially offset by depreciation of Renminbi during the year under review. The increase in turnover of Shanghai May Flower Plaza is mainly driven by a better performance of the STARR Hotel Shanghai since its soft opening in November 2013.

Guangzhou Lai Fung Tower, the office block of Guangzhou Eastern Place Phase V, was completed and added to the rental portfolio of Lai Fung Group in June 2016 and has started to contribute to the rental income of Lai Fung Group. Up to the date of this Annual Report, excluding the office area that is subject to the asset swap transactions as jointly announced by Lai Fung and the Company on 15 January 2015, approximately 83.5% of the GFA of the building has been leased or has offers to lease.

All tenants of Shanghai Northgate Plaza I have been vacated for redevelopment of Shanghai Northgate Plaza I, Northgate Plaza II and the 6th to 11th floors of Hui Gong Building acquired by Lai Fung Group in September 2016. Lai Fung Group is currently discussing the redevelopment proposal with professional consultants and local authorities.

A portion of the Zhongshan Palm Spring Rainbow Mall, amounting to approximately 62% of total GFA, has been reclassified as rental properties as the floor space was leased out. Further reclassification and rental income recognition will take place in due course as the property becomes fully leased.


The following details are extracted from Lai Fung’s annual reports for the two years ended 31 July 2016 and 31 July 2015.

Recognised Sales

For the year ended 31 July 2016, Lai Fung Group’s property development operations recorded a turnover of HK$1,414.1 million (2015: HK$1,275.4 million) from sale of properties, representing a 10.9% increase in sales revenue over last year. Total recognised sales were primarily driven by the sales performance of residential units of Guangzhou Eastern Place Phase V of which approximately 182,574 square feet of residential GFA were sold, achieving sales revenue of HK$1,052.5 million. Excluding the effect of currency translation against a depreciated Renminbi, the growth for Renminbi denominated turnover from sales of properties during the year under review was 16.0%.

Primarily due to the depreciation of Renminbi, average selling price recognised as a whole (excluding Guangzhou Dolce Vita) for the year ended 31 July 2016 decreased to approximately HK$4,207 per square foot (2015: HK$4,243 per square foot).

Sales of Guangzhou Dolce Vita performed well and achieved an average selling price of HK$2,915 per square foot. This is recognised as a component of “Share of profits of joint ventures” in the consolidated income statement.


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Approximate AverageRecognised basis GFA selling price# Turnover* Square feet HK$/square foot HK$’million

Shanghai May Flower Plaza Residential Units 9,681 5,169 47.2 Office Apartment Units 12,564 3,660 43.4

Guangzhou Eastern Place Residential Units – Phase V 182,574 6,087 1,052.5 Residential Units – Phase IV 891 4,226 3.6

Guangzhou King’s Park Residential Units 21,404 4,707 95.0

Zhongshan Palm Spring Residential High-rise Units 11,190 701 7.4 Residential House Units 113,709 1,416 151.8

Subtotal 352,013 4,207 1,400.9

Guangzhou King’s Park Car-parking Spaces 13.2

Total 1,414.1


Guangzhou Dolce Vita Residential Units**(47.5% basis) 249,775 2,886 680.9 Retail Units**(47.5% basis) 1,953 6,516 11.7

Subtotal 251,728 2,915 692.6

Car-parking Spaces**(47.5% basis) 19.2

Total 711.8



** Guangzhou Dolce Vita is a joint venture project with CapitaLand China Holdings Pte. Ltd. (“CapitaLand China”) in which each of Lai Fung Group and CapitaLand China has an effective 47.5% interest. For the year ended 31 July 2016, the recognised sales (after business tax and value-added tax exclusive) attributable to the full project is HK$1,458.1 million (excluding car-parking spaces) and approximately 529,954 square feet of GFA (excluding car-parking spaces) were recognised. The recognised sales from car-parking spaces attributable to the full project is HK$40.4 million.


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Contracted Sales

As at 31 July 2016, Lai Fung Group’s property development operations, excluding Guangzhou Dolce Vita, have contracted but not yet recognised sales of HK$571.7 million from sale of residential units in Zhongshan Palm Spring and HK$7.3 million from sales of 10 car-parking spaces in Guangzhou King’s Park. Sales of the remainder of completed residential units of Zhongshan Palm Spring were strong and achieved an average selling price of HK$846 per square foot (excluding car-parking spaces). Excluding the effect of currency translation against a depreciated Renminbi, the Renminbi denominated contracted but not yet recognised sales of residential units, excluding Guangzhou Dolce Vita as at 31 July 2016 amounted to RMB478.3 million (2015: RMB162.1 million).

The total contracted but not yet recognised sales of Lai Fung Group as at 31 July 2016 including Guangzhou Dolce Vita amounted to HK$2,249.1 million (including car-parking spaces of Guangzhou King’s Park and Guangzhou Dolce Vita). The Renminbi denominated contracted but not yet recognised sales of residential units, including Guangzhou Dolce Vita as at 31 July 2016 amounted to RMB1,875.2 million (2015: RMB1,048.4 million).


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Approximate Average Contracted basis GFA selling price# Turnover#

Square feet HK$/square foot HK$’million

Zhongshan Palm Spring Residential High-rise Units 635,762 798 507.4 Residential House Units 39,917 1,611 64.3

Subtotal 675,679 846 571.7

Guangzhou King’s Park Car-parking Spaces 7.3

Subtotal 579.0

Contracted sales from joint venture project

Guangzhou Dolce Vita Residential Units**(47.5% basis) 665,452 2,492 1,658.6 Retail Units**(47.5% basis) 1,585 6,814 10.8

Subtotal 667,037 2,503 1,669.4

Car-parking Spaces**(47.5% basis) 0.7

Subtotal 1,670.1

Total (excluding car-parking spaces) 1,342,716 1,669 2,241.1


** Guangzhou Dolce Vita is a joint venture project with CapitaLand China in which each of Lai Fung Group and CapitaLand China has an effective 47.5% interest. As at 31 July 2016, the contracted but not yet recognised sales attributable to the full project is HK$3,514.5 million (excluding car-parking spaces) and approximately 1,404,288 square feet of GFA (excluding car-parking spaces) were sold. The contracted but not yet recognised sales from car-parking spaces attributable to the full project is HK$1.5 million.


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As at 31 July 2016, cash and bank balances held by the Group amounted to HK$4,365.6 million (2015: HK$4,647.4 million) of which around 22% was denominated in Hong Kong dollar (“HKD”) and United States dollar (“USD”) currencies, and around 78% was denominated in Renminbi (“RMB”). Cash and bank balances held by the Group excluding cash and bank balances held by MAGHL Group and Lai Fung Group as at 31 July 2016 was HK$303.0 million (2015: HK$1,061.3 million). As HKD is pegged to USD, the Group considers that the corresponding exposure to USD exchange rate fluctuation is nominal. The conversion of RMB denominated cash and bank balances into foreign currencies and the remittance of such foreign currencies denominated balances out of Mainland China are subject to the relevant rules and regulations of foreign exchanges control promulgated by the government authorities concerned. Apart from the cross currency swap arrangements of Lai Fung Group, the Group does not have any derivative financial instruments or hedging instruments outstanding.

Borrowings



As at 31 July 2016, the Group had revolving bank loans of HK$365.2 million. The maturity profile of the Group’s bank loans is spread with HK$24 million repayable within 1 year and HK$341.2 million repayable in the second year. All bank loans are on floating rate basis and are denominated in HKD.

During the year, the Group repurchased and redeemed the secured guaranteed notes of HK$766.3 million which were denominated in RMB with original maturity date of 24 June 2018 for bullet repayment. These notes were effectively delisted on 5 July 2016. In addition, there existed unsecured other borrowings due to the late Mr. Lim Por Yen in the principal amount of HK$113.0 million which is interest-bearing at the HSBC prime rate per annum. The Group’s recorded interest accruals were HK$79.8 million for the said unsecured other borrowings as at 31 July 2016. At the request of the Group, the executor of Mr. Lim Por Yen’s estate confirmed that no demand for the repayment of the outstanding other borrowings or the related interest would be made within one year from 31 July 2016.


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MAGHL

As at 31 July 2016, MAGHL has unsecured and unguaranteed 3-year zero coupon TFN Convertible Notes with an aggregate outstanding principal amount of HK$130.0 million issued to a subscriber. As at 31 July 2016, MAGHL has unsecured and unguaranteed 3-year zero coupon Specific Mandate Convertible Notes with an aggregate outstanding principal amount of HK$166.8 million, comprising HK$100.0 million and HK$66.8 million issued to the Group and other subscribers, respectively. Unless previously converted, redeemed, purchased or cancelled in accordance with the terms and conditions of the TFN Convertible Notes and the Specific Mandate Convertible Notes, they will be redeemed by MAGHL on the maturity dates of 13 May 2018 and 3 July 2018, respectively, at the principal amount outstanding. For accounting purpose, after deducting the equity portion of the convertible notes from the principal amount, the carrying amount of the TFN Convertible Notes as recorded in the Group was HK$110.6 million and the resultant carrying amount of the Specific Mandate Convertible Notes as recorded in the Group was HK$55.6 million as at 31 July 2016 after adjusting for (i) accrued interest and (ii) intra-group elimination.

Lai Fung

As at 31 July 2016, Lai Fung Group had total borrowings in the amount of HK$5,977.4 million comprising bank loans of HK$3,035.5 million, fixed rate senior notes of HK$2,092.7 million, loans from a subsidiary of the Company of HK$221.7 million, loans from a joint venture of HK$572.8 million and other borrowing of HK$54.7 million. The maturity profile of Lai Fung Group’s borrowings of HK$5,977.4 million is well spread with HK$637.9 million repayable within 1 year, HK$2,906.6 million repayable in the second year, HK$2,307.7 million repayable in the third to fifth years, and HK$125.2 million repayable beyond the fifth year.


Apart from the fixed rate senior notes, Lai Fung Group’s other borrowings of HK$3,884.7 million were 46% denominated in RMB, 42% in HKD and 12% in USD.

Lai Fung Group’s fixed rate senior notes of HK$2,092.7 million were denominated in RMB. On 25 April 2013, issue date of the RMB denominated senior notes (“2013 Notes”), Lai Fung Group entered into cross currency swap agreements with financial institutions for the purpose of hedging the foreign currency risk arising from such notes. Accordingly, the 2013 Notes have been effectively converted into USD denominated loans.


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Certain assets of the Group have been pledged to secure borrowings and banking facility of the Group, including investment properties with a total carrying amount of approximately HK$9,398.1 million, completed properties for sale with a total carrying amount of approximately HK$55.6 million, properties under development with a total carrying amount of approximately HK$365.0 million, serviced apartments (including related leasehold improvements) with a total carrying amount of approximately HK$1,471.6 million, properties and construction in progress with a total carrying amount of approximately HK$513.5 million and bank balances of approximately HK$131.6 million.

In addition, as at 31 July 2016, a revolving loan facility in the amount of HK$600.0 million was granted by a bank to the Group. As at the date of this Annual Report, the said loan facility is secured by the charge over securities accounts and share mortgage of the ordinary shares of Lai Fung and certain ordinary shares of MAGHL held by the Company. The Group has utilised the said loan facility for an amount of HK$350 million as at 31 July 2016. As at 31 July 2016, guaranteed general banking facilities in the amount of HK$79.0 million were granted by other banks to the Group. The said guaranteed general banking facilities are subject to annual review by the banks for renewal and the Group had utilised letter of credit and letter of guarantee facilities and revolving loans for a total amount of HK$39.6 million as at 31 July 2016. As such, the Group (other than Lai Fung) has the undrawn facilities of HK$289.4 million as at 31 July 2016. The undrawn facilities of Lai Fung Group was HK$3,576.2 million as at 31 July 2016.

As at 31 July 2016, the consolidated net assets attributable to the owners of the Company amounted to HK$8,599.3 million (2015: HK$9,164.7 million). The gearing ratio, being net debt (total borrowings of HK$6,479.9 million less pledged bank balances and time deposits of HK$1,066.5 million and cash and cash equivalents of HK$3,299.1 million) to net assets attributable to the owners of the Company was approximately 24.6%.

Taking into account the amount of cash being held as at the end of the reporting period, the available banking facilities, expected refinancing of certain bank loans and the recurring cash flows from the Group’s operating activities, the Group believes that it would have sufficient liquidity for its present requirements to finance its existing operations and projects underway.


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APPENDIX III PROPERTY VALUATION REPORT OF THE TARGET GROUP

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The following is the full text of the letter and valuation report received from Knight Frank Petty Limited, an independent valuer, in connection with the valuation as at 31 May 2019 of the market values of the property interests of Rosy Commerce Holdings Limited and its subsidiaries prepared for the purpose of incorporation in this circular.

Knight Frank 4/F Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

T +852 2840 1177 F +852 2840 0600 www.knightfrank.com.hk

The Board of DirectorseSun Holdings Limited11th FloorLai Sun Commercial Centre680 Cheung Sha Wan RoadKowloonHong Kong

30 August 2019

Dear Sirs

Valuation of Two Property Interests in Hengqin New Area, Zhuhai, Guangdong Province, the People’s Republic of China

In accordance with your instructions for us to value the property interests held by Rosy Commerce Holdings Limited (the “Target Company”) and its subsidiaries (hereinafter together referred to as the “Target Group”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the property interests as at 31 May 2019.


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Basis of Valuation

Our valuation is our opinion of the market values of the property interests, which we would define as intended to mean “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

Market value is understood as the value of an asset or liability estimated without regard to costs of sale or purchase (or transaction), and without offset for any associated taxes or potential taxes.

Market value is also the best price reasonably obtainable by the seller and the most advantageous price reasonably obtainable by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of value available only to a specific owner or purchaser.

In preparing our valuation report, we have complied with “The HKIS Valuation Standards 2017” published by the Hong Kong Institute of Surveyors, all requirements contained in the provision of Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

Valuation Methodology

We have valued the property interest in Group I which is held by the Target Group in the PRC for sale purpose by using Market Approach whenever market comparable transactions are available and assumed sale of property interests with the benefit of vacant possession.

In valuing property interest in Group II which is held under development by the Target Group in the PRC, we have valued the property interest on the basis that the property will be developed and completed in accordance with the latest development proposals provided to us. We have assumed that approvals for the proposals have been obtained without any onerous condition which would affect the value of the property interest. In arriving at our opinion of value, we have made reference to comparable transactions in the locality and also taken into account the construction costs that will be expended to reflect the quality of the completed developments.


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Due to the specific purpose for which the buildings and structures of cultural attractions portion of property no. 2 which is held by the Target Group under development have been designed, there is no readily identifiable market comparable, we have thus valued it by Cost Approach with reference to the depreciated replacement cost. Depreciated replacement cost is defined as “the current cost of replacing an asset with its modern equivalent asset less deduction for physical deterioration and all relevant forms of obsolescence and optimisation.” It is based on an estimate of the market value of the land in its existing use, plus the current cost of replacement of the improvements less allowance for physical deterioration and all relevant forms of obsolescence and optimisation. In arriving at the value of the land portion, reference has been made to the sales evidence as available in the locality. The depreciated replacement cost of the property is subject to adequate potential profitability of the business. It is assumed that the replacing of the property will be in compliance with the relevant laws and regulations and completed in timely fashion. In our valuation, it applies to the whole of the complex or development as a unique interest, and no piecemeal transactions of the complex or development is assumed.

Title Documents and Encumbrances

We have been provided by eSun Holdings Limited and its subsidiaries (hereinafter together referred to as the “Group”) with extracts of title documents relating to the property interests. However, we have not inspected the original documents to ascertain any amendments which may not appear on the copies handed to us by the Group and its PRC legal adviser, Guangda Law Firm, regarding the title and other legal matters relating to the properties.

No allowance has been made in our report for any charges, mortgages or amounts owing on the property interests nor for any expenses or taxation which may be incurred in affecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

Source of Information

We have relied to a considerable extent on the information given by the Group and the legal opinion of the Group’s PRC legal adviser. We have no reason to doubt the truth and accuracy of the information provided to us by the Group which is material to the valuation. We have accepted advice given by the Group on such matters as planning approvals or statutory notices, easements, tenure, completion date of buildings, particulars of occupancy, development schemes, construction costs, sites and floor areas. Dimension, measurements and areas included in the valuation report attached are based on information provided to us and are therefore only approximations. We have not been able to carry out on-site measurements to verify the correctness of sites and floor areas of the properties. We have exercised our due diligence in verifying the provided sites and floor areas by checking against the relevant documents provided. We were also advised by the Group that no material facts have been omitted from the information provided.


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Inspection and Structural Condition

We have inspected the properties and the inspection was carried out by Clement W M Leung in May 2019. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects, nor were any tests carried out to any of the services.

Identity of Property to be valued

We exercised reasonable care and skill (but will not have an absolute obligation to the Group) to ensure that the properties, identified by the property addresses in your instructions, are the properties inspected by us and contained within our valuation report.

Environmental Issues

We are not environmental specialists and therefore we have not carried out any scientific investigations of sites or buildings to establish the existence or otherwise of any environmental contamination, nor have we undertaken searches of public archives to seek evidence of past activities that might identify potential for contamination. In the absence of appropriate investigations and where there is no apparent reason to suspect potential for contamination, our valuations are prepared on the assumption that the properties are unaffected. Where contamination is suspected or confirmed, but adequate investigation has not been carried out and made available to us, then the valuations will be qualified.

Compliance with Relevant Ordinances and Regulations

We have assumed that the properties have been constructed, occupied and used in full compliance with, and without contravention of any ordinances, statutory requirement and notices except only where otherwise stated. We have further assumed that, for any use of the properties upon which this report is based, any and all required licences, permits, certificates, consents, approvals and authorisation have been obtained, except only where otherwise stated.

Remarks

In our valuation, Knight Frank has prepared the valuation based on information and data available to us as at the valuation date. It must be recognised that the real estate market is subject to market fluctuations, while changes in policy direction and social environment could be immediate and have sweeping impact on the real estate market. It should therefore be noted that any market violation, policy and social changes or other unexpected incidents after the valuation date may affect the values of the properties.


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Currency

Unless otherwise stated, all sums stated in our valuation report are in Hong Kong dollars. The exchange rate adopted for conversion is HK$1 = RMB0.8841 as at the date of valuation.

Our summary of values and valuation reports are attached.

Yours faithfullyFor and on behalf ofKnight Frank Petty Limited

Clement W M Leung MFin MCIREA MHKIS MRICS RPS (GP)RICS Registered ValuerExecutive Director, Head of China Valuation & Advisory

Note: Clement W M Leung MFin MCIREA MHKIS MRICS RPS(GP) is a qualified valuer who has 26 years of experiences in property valuation and consultancy services in Asia Pacific region, including the PRC, Hong Kong, Macau, Vietnam, London, New York and San Francisco, and has been participating in various corporate valuation projects in the PRC and Hong Kong.


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SUMMARY OF VALUES

Market value in existing state Market value in Interest attributable to existing state as at attributable to the Group Property 31 May 2019 the Group as at 31 May 2019

Group I — Property interest held by the Target Group in the PRC for sale purpose

1. Unsold villa (cultural studios) HK$908,000,000 60.44% HK$548,795,200 located at the east side of Yiwener Road south side of Caihong Road west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area, Zhuhai Guangdong Province The PRC

Group II — Property interest held under development by the Target Group in the PRC

2. Various portions located at the HK$7,247,000,000 60.44% HK$4,380,086,800 east side of Yiwener Road south side of Caihong Road west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area, Zhuhai Guangdong Province The PRC

Grand Total: HK$8,155,000,000 HK$4,928,882,000


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VALUATION REPORT

Group I — Property interest held by the Target Group in the PRC for sale purpose

Property Description and tenureParticulars ofoccupancy

Market Value inexisting state as at

31 May 2019

1 Unsold villa (cultural studios) located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area Zhuhai Guangdong Province The PRC

The development comprises two parcels of adjacent land located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road in Hengqin New Area of Zhuhai. The total site area is approximately 130,173.16 sq.m..

The development is located at Hengqin New Area which is situated at the southern part of Zhuhai. The locality is mainly construction sites and is planned to be tourist and leisure area. It takes about 30 minutes to drive to city centre of Zhuhai.

The development is planned to be developed into a comprehensive development including commercial, office, hotel, cultural development with a total plot ratio gross floor area of approximately 260,289.94 sq.m. (2,801,761 sq.ft.).

The property comprises unsold villa (cultural studios) of the development with a total gross floor area of approximately 17,655.78 sq.m. (190,047 sq.ft.) completed in 2018.

The land use rights of the property have been granted for terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013.

The property is currently vacant.

HK$908,000,000(HONG KONG

DOLLARSNINE HUNDRED

AND EIGHT MILLION ONLY)

(60.44% interestattributable

to the Group:HK$548,795,200)

(please see note 9)


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Notes:

1. Pursuant to the Guangdong Province Real Estate Title Certificate No Yue Fang Di Quan Zheng Zhu Zi Di 0100244268 issued by the Zhuhai Real Estate Registration Centre dated 27 May 2014, the title to the property, having a total site area of approximately 37,036.12 sq.m., is held by 珠海橫琴麗新文創天地有限公司 (Zhuhai Hengqin Laisun Creative Culture City Co., Ltd.) (“Laisun Creative Culture”), an indirect wholly-owned subsidiary of the Target Company, for land use rights terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013.

2. Pursuant to the Contract for Grant of State-owned Construction Land Use Right No. 440401-2013-000023 (the “Land Grant Contract”) entered into between the Land and Resources Bureau of Zhuhai (“Party A”) and Winfield Concept Limited (永輝基業有限公司), an indirect wholly-owned subsidiary of the Target Company (“Party B”) dated 27 September 2013, Party A agreed to grant the land use rights of two parcels of land to Party B. The said contract contains, inter-alia, the following salient conditions:

(i) Total site area : 130,173.16 sq.m. (Land parcel 1: 93,137.04 sq.m., Land parcel 2: 37,036.12 sq.m.)(ii) Use : Cultural/creative and commercial/servicing(iii) Land use term : 50 years for cultural and creative uses and 40 years for commercial, office and hotel uses(iv) Plot ratio : Not exceeding 2.0(v) Total gross floor area : Not exceeding 260,346.32 sq.m. (Land parcel 1: 186,274.08 sq.m., Land parcel 2:

74,072.24 sq.m.)(vi) Building height : Not exceeding 100 m(vii) Green area ratio : Not less than 30% of site area(viii) Land grant fee : RMB523,296,103.2(ix) Building covenant : Construction works should be commenced within twelve months since the handover of

the land and construction works should be completed within forty-eight months since the handover of the land

(x) Remarks: : — Gross floor areas allocation for commercial use and hotel and office uses should not be greater than 10% and 20% respectively whilst that for cultural use should not be less than 70%.

— Saleable gross floor area is restricted to 50% of total countable plot ratio gross floor area of the property.

3. Advised by th Group, Party B is an indirect wholly-owned subsidiary of the Target Company.

4. Pursuant to the amendment of the Land Grant Contract in February 2014, the grantee of the two parcels of land was changed from Party B to Laisun Creative Culture. Party B has established Laisun Creative Culture with Business Licence No 440003490000497 dated 3 January 2014 and Laisun Creative Culture has obtained the Guangdong Province Real Estate Title Certificate as mentioned in note 1.

5. Pursuant to the Construction Land Use Planning Permit No Zhu Heng Xin Gui Tu (Di Gui) (2014) 13 issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau dated 11 March 2014, the development with a total site area of 130,137.16 sq.m. was permitted to be developed.

6. Pursuant to the Construction Engineering Planning Permit No Zhu Heng Xin Gui Tu (Jian) (2016) 008 issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau in 2016, portion of the development with a total gross floor area of 35,508.99 sq.m. is permitted to be constructed.

7. Pursuant to the Construction Work Commencing Permit No 440405201605240101 issued by the Zhuhai Hengqin New District Management Committee — Construction and Environmental Bureau in 2016, construction works of the property with a total gross floor area of 35,508.99 sq.m. (above ground: 18,704.56 sq.m. and below ground: 16,804.43 sq.m.) is permitted to be commenced.

8. Pursuant to the Zhuhai Commodity Housing Pre-sale Permit No HQS2017009 dated 7 December 2017, pre-sale of portion of the property with a total gross floor area of 18,342.35 sq.m. was permitted.

9. As advised by the Target Company, portion of the property with a total gross floor area of 7,373.95 sq.m. have been sold at a total consideration of RMB317,397,900 prior to the date of valuation. According to the Target Company’s instruction, the title of the sold portion was still held by Laisun Creative Culture as at the date of valuation and was thus included in this valuation. We have also made reference to the contracted consideration in the course of our valuation.

10. We have been provided with the Group’s PRC legal adviser’s opinion, which inter-alia, contains the following:

(i) Laisun Creative Culture was legally established;(ii) Laisun Creative Culture legally owns the property;(iii) as mentioned in note 2(x), 50% of the total countable plot ratio gross floor area of the property is restricted for sale at the

moment. Laisun Creative Culture should hold such portion and has the right to lease such portion and to grant the lessee to sublease;

(iv) Laisun Creative Culture can sell, lease or transfer the property according to the relevant laws and regulations; and(v) the property is free from encumbrances.


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Group II — Property interest held under development by the Target Group in the PRC



31 May 2019

2 Various portions located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road Hengqin New Area Zhuhai Guangdong Province The PRC

The development comprises two parcels of adjacent land located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road in Hengqin New Area of Zhuhai. The total site area is approximately 130,173.16 sq.m..

The development is located at Hengqin New Area which is situated at the southern part of Zhuhai. The locality is mainly construction sites and is planned to be tourist and leisure area. It takes about 30 minutes to drive to city centre of Zhuhai.

The development is planned to be developed into a comprehensive development including commercial, office, hotel, cultural development with a total plot ratio gross floor area of approximately 260,289.94 sq.m. (2,801,761 sq.ft.).

The property is currently under construction and scheduled to be completed in the th i rd to four th quarter of 2019.

HK$7,247,000,000(HONG KONG

DOLLARSSEVEN BILLIONTWO HUNDRED

AND FORTY SEVEN MILLION

ONLY)

(60.44% interestattributable

to the Group:HK$4,380,086,800)

(please see notes11 and 12)


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31 May 2019

The property comprises various portions of the development and the area details are listed as follows:

Approximate Gross Floor AreaUse sq.m. sq.ft.

Office 50,447.74 543,020Office/serviced apartment (cultural workshop) 40,007.47 430,640Retail (cultural/commercial area) 48,891.15 526,264Cultural (cultural attractions) 27,247.50 293,292Cultural (various halls) 14,417.82 155,193Villa (cultural studios) 4,412.79 47,499Hotel (cultural themed hotel) 55,254.80 594,763

Sub-total: 240,679.27 2,590,671

Car park (below ground) 28,627.02 308,141Car park (above ground) 11,296.23 121,593Others 77,128.92 830,216

Total: 357,731.44 3,850,621

The land use rights of the property have been granted for terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013.


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Notes:

1. Pursuant to two Guangdong Province Real Estate Title Certificates Nos Yue Fang Di Quan Zheng Zhu Zi Di 0100244267 and 0100244268 both issued by the Zhuhai Real Estate Registration Centre dated 27 May 2014, the title to the development, having a total site area of 130,173.16 sq.m., is held by Laisun Creative Culture for land use rights terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013.

2. Pursuant to the Land Grant Contract entered into between Party A and Party B dated 27 September 2013, Party A agreed to grant the land use rights of two parcels of land to Party B. The said contract contains, inter-alia, the following salient conditions:

(i) Total site area : 130,173.16 sq.m. (Land parcel 1: 93,137.04 sq.m., Land parcel 2: 37,036.12 sq.m.)(ii) Use : Cultural/creative and commercial/servicing(iii) Land use term : 50 years for cultural and creative uses and 40 years for commercial, office and hotel uses(iv) Plot ratio : Not exceeding 2.0(v) Total gross floor area : Not exceeding 260,346.32 sq.m. (Land parcel 1: 186,274.08 sq.m., Land parcel 2:

74,072.24 sq.m.)(vi) Building height : Not exceeding 100 m(vii) Green area ratio : Not less than 30% of site area(viii) Land grant fee : RMB523,296,103.2(ix) Building covenant : Construction works should be commenced within twelve months since the handover of

the land and construction works should be completed within forty-eight months since the handover of the land

(x) Remarks : — Gross floor areas allocation for commercial use and hotel and office uses should not be greater than 10% and 20% respectively whilst that for cultural use should not be less than 70%.

— Saleable gross floor area is restricted to 50% of total countable plot ratio gross floor area of the property.

3. Advised by the Group, Party B is an indirect wholly-owned subsidiary of the Target Company.

4. Pursuant to the amendment of the Land Grant Contract in February 2014, the grantee of the two parcels of land was changed from Party B to Laisun Creative Culture. Party B has established Laisun Creative Culture with Business Licence No 440003490000497 dated 3 January 2014 and Laisun Creative Culture has obtained the Guangdong Province Real Estate Title Certificate as mentioned in note 1.

5. Pursuant to the Construction Land Use Planning Permit No Zhu Heng Xin Gui Tu (Di Gui) (2014) 13 issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau dated 11 March 2014, the development with a total site area of 130,137.16 sq.m. was permitted to be developed.

6. Pursuant to the Construction Engineering Planning Permit No Zhu Heng Xin Gui Tu (Jian) (2016) 009 issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau in 2016, the property with a total gross floor area of 8,623.49 sq.m. is permitted to be constructed.

7. Pursuant to three Construction Engineering Planning Permits Nos Zhu Heng Xin Gui Tu (Jian) (2019) 028, 029 and 030 all issued by the Zhuhai Hengqin New District Management Committee — Land & Planning Bureau in 11 April 2019, the property with a total gross floor area of 349,107.95 sq.m. is permitted to be constructed.

8. Pursuant to three Construction Work Commencing Permits Nos 440410201611180101, 440410201611170101 and 440405201609300301 all issued by the Zhuhai Hengqin New District Management Committee — Construction and Environmental Bureau in 2019, construction works of portion of the property with a total gross floor area of 345,546.04 sq.m. is permitted to be commenced.

9. Pursuant to the Construction Work Commencing Permit No 440405201803090101 dated 4 September 2018 issued by the Zhuhai Hengqin New District Management Committee — Construction and Environmental Bureau, construction works of portion of the property with a total gross floor area of 8,623.48 sq.m. is permitted to be commenced.

10. Pursuant to the Zhuhai Commodity Housing Pre-sale Permit No HQS2017009-1 dated 1 July 2019, pre-sale of portion of the property with a total gross floor area of 4,410.55 sq.m. was permitted.


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11. As advised by the Target Company, the construction cost incurred (including professional fee) and outstanding construction cost (including professional fee) of the property (excluding the cultural attractions potion) were approximately RMB2,650,200,000 and RMB570,500,000 respectively as at the date of valuation. Accordingly, we have taken into account the said costs in our valuation. In our opinion, the gross development value of the proposed developments of the property (excluding the cultural attractions portion), assuming it were complete as at the valuation date, was estimated approximately as RMB7,023,000,000.

12. Due to the specific purpose for which the buildings and structures of cultural attractions portion of property no. 2 which is held by the Target Group under development have been designed, there is no readily identifiable market comparable, we have thus valued it by Cost Approach with reference to the depreciated replacement cost. Depreciated replacement cost is defined as “the current cost of replacing an asset with its modern equivalent asset less deduction for physical deterioration and all relevant forms of obsolescence and optimisation.” It is based on an estimate of the market value of the land in its existing use, plus the current cost of replacement of the improvements less allowance for physical deterioration and all relevant forms of obsolescence and optimisation. In arriving at the value of the land portion, reference has been made to the sales evidence as available in the locality. The depreciated replacement cost of the property is subject to adequate potential profitability of the business. It is assumed that the replacing of the property will be in compliance with the relevant laws and regulations and completed in timely fashion. In our valuation, it applies to the whole of the complex or development as a unique interest, and no piecemeal transactions of the complex or development is assumed. The market value of the cultural attractions portion of the property with a total gross floor area of 27,247.50 sq.m. are approximately HK$460,000,000 as at the date of valuation.

13. We have been provided with the Group’s PRC legal adviser’s opinion, which inter-alia, contains the following:

(i) Laisun Creative Culture was legally established;(ii) Laisun Creative Culture legally owns the property;(iii) after consulting with the PRC legal adviser, Laisun Creative Culture might be subject to a daily fine equivalent to 0.3% of

the land grant fee if the construction works cannot be completed within forty-eight months since the handover of the land as contemplated by the Land Grand Contract and the delay cannot be mitigated within a reasonable period of time. Up to the date of issuance of the PRC legal opinion, no fine has been imposed to Laisun Creative Culture regarding the delay in completion of construction works of the property;

(iv) up to the date of issuance of the PRC legal opinion, no breach or termination of the Land Grant Contact and its amendment was observed and therefore they were legal and valid;

(v) as mentioned in note 2(x), 50% of the total countable plot ratio gross floor area of the property is restricted for sale at the moment. Laisun Creative Culture should hold such portion and has the right to lease such portion and to grant the lessee to sublease;

(vi) portion of the property (Land parcel 1 and construction works erected thereon) is subject to a mortgage in favour of Industrial and Commercial Bank of China Limited, Guangdong Pilot Free Trade Zone Hengqin Branch for a period from 15 October 2018 to 14 October 2028. The scope of mortgage includes, but not limited to, outstanding loan principal, outstanding interest payment and exchange rate loss with a limit up to RMB2,620,898,300. The mortgage is valid and enforceable;

(vii) save as abovementioned, Laisun Creative Culture can sell, lease or transfer the property according to the relevant laws and regulations and subject to approval from the mortgagee; and

(viii) except for the mortgage mentioned in note 13(vi), the property is free from encumbrances.

APPENDIX IV BUSINESS VALUATION REPORT OF THE TARGET GROUP

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The following is the text of the Business Valuation Report of the Target Group, prepared for the purpose of incorporation in this circular received from Knight Frank Asset Appraisal Limited, in connection with its valuation as at 30 April 2019 of the entire issued share capital of Rosy Commerce Holdings Limited and its subsidiaries.

Knight Frank 4/F Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

T +852 2840 1177 F +852 2840 0600 www.knightfrank.com.hk

The Board of DirectorseSun Holdings Limited11/F., Lai Sun Commercial Centre680 Cheung Sha Wan RoadKowloonHong Kong

30 August 2019

Dear Sirs,

Valuation of 100% Equity Interest of Rosy Commerce Holdings Limited and its Subsidiaries

In accordance with your instructions, we have undertaken a valuation on behalf of eSun Holdings Limited (the “Company”) to determine the fair value of 100% equity interest of Rosy Commerce Holdings Limited (the “Target Company”) and its subsidiaries (hereinafter together referred to as the “Target Group”). The valuation date was determined to be 30 April 2019 (the “Valuation Date”).

Basis of Valuation

Our valuation analysis was carried out on a fair value basis which, according to the Hong Kong Financial Reporting Standard, is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price).


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We have conducted our valuation in accordance with International Valuation Standards issued by the International Valuation Standards Council. Our valuation was performed so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to express our opinion on the subject asset. All matters essential to the proper understanding of the valuation are disclosed in the valuation report. Opinion of value included in the valuation report is impartial, independent, and unbiased.

Sources of Information

Our valuation analysis is based on our discussion with management of the Company during the course of our engagement and we have considered, reviewed and relied on the information provided by the management and the publicly available sources. Major sources of information include the following:

• management accounts of the Target Group for the financial year ended 30 April 2019 (“Management Accounts”);

• the valuation result regarding the Property as at 30 April 2019 as conducted independently by Knight Frank Petty Limited. (“Property Valuation”);

• shareholders’ agreement for Harmonic Run Limited entered into amongst the Target Company, China Cinda (HK) Asset Management Co., Limited, Harmonic Run Limited, Lai Fung Holdings Limited (“Lai Fung”) and the Company dated 25 January 2019 (“HRL Agreement”);

• shareholders’ agreement for Glorious Stand Limited entered into amongst the Target Company, China Cinda (HK) Asset Management Co., Limited, Glorious Stand Limited, Lai Fung and the Company dated 25 January 2019 (“GSL Agreement”); and

• shareholding chart of the Target Group.


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Background

The Target Company, a company incorporated in the British Virgin Islands with limited liability and currently owned by Lai Fung and the Company as to 80% and 20%, excluding the portion indirectly held through Lai Fung, respectively. The Target Company, through its subsidiaries, is principally engaged in the business of property development for sales, property investment for rental purposes and development and operation of and investment in cultural, leisure, entertainment and related facilities. The following chart sets out the shareholding structure of the Target Group:

業佳控股有限公司Rosy Commerce Holdings Limited

(Incorporated in British Virgin Islands)

世泉投資有限公司World Spring Investments Limited


永輝基業有限公司Winfield Concept Limited

(Incorporated in Hong Kong)

珠海橫琴麗新文創天地有限公司(Zhuhai Hengqin Laisun

Creative Culture City Co., Ltd)(Incorporated in the PRC)

珠海橫琴創新方文化創意有限公司(Zhuhai Hengqin NovotownCreative Culture Co., Ltd)(Incorporated in the PRC)

珠海橫琴創新方娛樂有限公司(Zhuhai Hengqin Novotown

Entertainment Co., Ltd)(Incorporated in the PRC)

永薈有限公司Win Merge Limited


寶薈有限公司Pearl Merge Limited


榮立有限公司Glorious Stand Limited


和運有限公司Harmonic Run Limited


100% 70% 70%

100% 100% 100%

100% 100% 100%

World Spring Investments Limited indirectly holds Zhuhai Hengqin Laisun Creative Culture City Co., Ltd. (珠海橫琴麗新文創天地有限公司) which is mainly engaged in the property development for sales and property investment for rental purposes in Hengqin. The development comprises two parcels of adjacent land located at the east side of Yiwener Road, south side of Caihong Road, west side of Tianyu Road and north side of Hengqin Main Road in Hengqin New Area of Zhuhai, Guangdong Province, the People’s Republic of China (“PRC”). The total site area is approximately 130,173.16 sq.m..

The development is located at Hengqin New Area which is situated at the southern part of Zhuhai. The locality is mainly construction sites and is planned to be tourist and leisure area. The development is planned to be developed into a comprehensive development which comprises various portions with commercial, office, hotel, cultural development uses with a total plot ratio gross floor area of approximately 260,289.94 sq.m. (2,801,761 sq.ft.).


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The land use rights of the development have been granted for terms of 40 years for office, commercial and servicing, hotel uses and 50 years for other uses commencing from 31 December 2013. Majority of the development is currently under construction and scheduled to be completed in the third to fourth quarter of 2019, while certain unsold villa (cultural studios) of the development with a total gross floor area of 17,655.78 sq.m. (190,047 sq.ft.) were completed in 2018. Details of the various portions of the development and the area can be found in the Property Valuation.

Glorious Stand Limited indirectly holds Zhuhai Hengqin Novotown Creative Culture Co., Ltd. (珠海橫琴創新方文化創意有限公司), which is principally engaged, through Win Merge Limited, a company incorporated in Hong Kong with limited liability, in the business of provision of internal build-out, fitting, preparation and operation of themed indoor experience centres under the intellectual property licenses granted by “National Geographic”.

Harmonic Run Limited indirectly holds Zhuhai Hengqin Novotown Entertainment Co., Ltd. (珠海橫琴創新方娛樂有限公司), which is principally engaged, through Pearl Merge Limited, a company incorporated in Hong Kong with limited liability, in the business of provision of the internal buildout, fitting, preparation and operation of themed indoor experience centres under the intellectual property licenses granted by “Lionsgate”.

According to the Management Accounts, total assets and total liabilities of the Target Group were HK$7,824 million and HK$6,456 million, respectively. Net assets of the Target Group were HK$1,368 million.

Valuation Approaches and Methodologies

The value of an asset, business or business interest can be conducted by one or more of the three generally accepted valuation approaches: asset/cost approach, market approach and income approach.

Asset/Cost approach

A general way of estimating the value of a business and/or equity interest using methods based on the market value of individual business assets less liabilities. It is founded on the principle of substitution, i.e. an asset is worth no more than it would cost to replace all of its constituent parts.

Market approach

A general way of estimating a value indication of an asset, the Market Approach considers prices recently paid for similar assets, with adjustments made to the indicated market prices to reflect condition and utility of the appraised asset relative to market comparables. For the Market Approach to be used, a sufficient number of comparable companies to make comparisons must be available, with the industry composition must be such that meaningful comparisons can be made.


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Income approach

This approach focuses on the economic benefits generated by the income producing capability of an enterprise. The underlying theory of this approach is that the value of an enterprise can be measured by the present worth of the economic benefits to be received over the useful life of the business entity. Based on this valuation principle, the Income Approach estimates the future economic benefits and discounts these benefits to its present value using a discount rate appropriate for the risks associated with realizing those benefits.

Selection of Valuation Approach

Under each approach, there are numerous methods that can be used to determine the value of the asset. Each valuation method uses a specific procedure to calculate the value and no one business valuation approach or method is definitive. In determining which method or methods to use in this valuation assignment, we have held discussion with the management and have considered the business nature, the current financial position and its future prospective of the Target Group.

In assessing the fair value of the equity interest of the Target Group, we have considered the fact that Target Group is capital intensive, in which fixed assets including completed properties, property under development and fixed assets relating to the theme parks represents more than 90% of the total assets and therefore we have adopted the asset approach. In addition, we have taken into consideration the rights and obligations of Harmonic Run Limited, Glorious Stand Limited, the Target Company and China Cinda (HK) Asset Management Co., Limited as stipulated in the HRL Agreement and the GSL Agreement, respectively. In the asset approach, primary emphasis is placed on the value of the assets and liabilities of the Target Group.

A description of the selected method, the valuation procedures and assumptions can be found in the following sections.

General Assumptions

Notwithstanding the incorporation of foreseeable changes in our valuation, a number of assumptions have been made in our valuation analysis and in the preparation of the reported assessed figures. The assumptions are:

• There will be no major changes in existing political, legal, fiscal or economic conditions in the country or district where the Target Group is conducting its business.

• There will be no major changes in the current taxation law in the areas in which the Target Group conducting its operation, including the rate of tax payable and all applicable laws and regulations remains unchanged.

• The inflation, interest rates and currency exchange rate will not differ materially from those presently prevailing.


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• The Target Group will retain the key management and personnel, and major customers to maintain its ongoing operations.

• There will be no major business disruptions through international crisis, diseases, industrial disputes, industrial accidents or severe weather conditions that will affect the existing business.

• The Target Group will remain free from claims and litigation against the business or their customers that will have a material impact on value.

• The Target Group is unaffected by any statutory notice and that operation of the Target Group gives, or will give, no rise to a contravention of any statutory requirements.

• The Target Group is not subject to any unusual or onerous restrictions or encumbrances.

• The potential bad debt arises from the operation of the Target Group, if any, will not materially affect the business operations.

Valuation of the Target Group

Methodology

We utilise the adjusted net assets method to determine the equity value of the Target Group. Under this method, we start with the reported book value of assets and liabilities and then adjust the book value of individual assets and liabilities, where necessary, to fair value.

Property, plant and equipment — Construction-in-progress-hotel (“CIP Hotel”)

According to the Management Accounts, CIP Hotel was amounted to HK$1,136 million as of the Valuation Date. We made reference to the Property Valuation and CIP Hotel was estimated to be HK$1,638 million, representing an increase in HK$502 million, or 44.2%.

Property, plant and equipment — Construction-in-progress-theme parks (“CIP Theme Parks”)

According to the Management Accounts, CIP Theme Parks was amounted to HK$1,512 million as of the Valuation Date, which consisted of the land and building (HK$387 million) and the furniture, fixtures and equipment (HK$1,125 million).

We made reference to the Property Valuation and the land and building was estimated to be HK$439 million, representing an increase in HK$52 million, or 13.4%. The book value of furniture, fixtures and equipment, at HK$1,125 million, was assumed fairly representing their fair value.


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Property under development

According to the Management Accounts, property under development was amounted to HK$621 million as of the Valuation Date. We made reference to the Property Valuation and property under development was estimated to be HK$1,401 million, representing an increase in HK$780 million, or 125.6%.

Completed properties for sale

According to the Management Accounts, completed properties for sale was amounted to HK$399 million as of the Valuation Date. We made reference to the Property Valuation and completed properties for sale was estimated to be HK$931 million, representing an increase in HK$532 million, or 133.3%.

Further details relating to the valuation of the above fixed assets, please refer to the Property Valuation.

Deferred tax liabilities

According to the Management Accounts, deferred tax liabilities were amounted to HK$476 million as of the Valuation Date. We made reference to the calculation from the management of the Company and additional deferred tax liabilities resulting from fair value adjustment of properties which include land appreciation tax (at progressive rates from 30% to 60% on the appreciation amount and claw back rates from 0% to 35% based on the prevailing tax rules) and corporate income tax (at 25% on the gain based on the prevailing tax rules) were estimated to be HK$1,005 million, resulting in adjusted deferred tax liabilities of HK$1,481 million.

Value of Other Assets and Liabilities

Save as the above items, we have not made any adjustment to other assets and liabilities.


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Equity Value of the Target Group

The adjusted net assets value of the Target Group as of the Valuation Date were illustrated as follows:

HK$ Book Value Adjustments Fair Value

AssetsProperty, plant & equipment (Note 1) 2,653,443,760 553,902,292 3,207,346,052Investment properties (Note 2) 3,490,000,000 — 3,490,000,000Property under development (Note 2) 621,253,057 779,746,943 1,401,000,000Completed properties for sale (Note 2) 399,041,932 531,958,068 931,000,000Debtors, deposits and prepayments 271,189,112 — 271,189,112Prepaid tax 1,744,593 — 1,744,593Cash and cash equivalent and pledged and restricted time deposits and bank balances 387,151,923 — 387,151,923

Total assets 7,823,824,377 1,865,607,303 9,689,431,680

LiabilitiesCreditors, accruals, deposits received and deferred income (2,104,940,624) — (2,104,940,624)Interest-bearing bank loans (2,428,896,283) — (2,428,896,283)Amount due to immediate holding companies (1,402,287,514) — (1,402,287,514)Other borrowings (41,545,999) — (41,545,999)Tax payable (1,831,957) — (1,831,957)Deferred tax liabilities (476,036,773) (1,005,046,595) (1,481,083,368)

Total liabilities (6,455,539,150) (1,005,046,595) (7,460,585,745)

Net asset value 1,368,285,227 860,560,708 2,228,845,935

Note 1

Breakdown of property, plant & equipment:CIP Hotel (Note 2) 1,135,938,755 502,061,245 1,638,000,000 CIP Theme Parks (land and building) (Note 2) 387,158,953 51,841,047 439,000,000 CIP Theme Parks (furniture, fixtures and equipment) 1,125,082,612 — 1,125,082,612 Others 5,263,440 — 5,263,440

2,653,443,760 553,902,292 3,207,346,052

Note 2

Fair values of property interests according to the Property Valuation:Investment properties 3,490,000,000 Properties under development 1,401,000,000 Completed properties for sale 931,000,000 CIP Hotel 1,638,000,000 CIP Theme Parks (land and building) 439,000,000

7,899,000,000


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Limiting Conditions

• The conclusion of value arrived at herein is valid only for the stated purpose as of the Valuation Date.

• As part of our analysis, we have reviewed financial and business information from public sources together with such financial information, client representation, project documentation and other pertinent data concerning the project made available to us during the course of our valuation. We have assumed the accuracy of, and have relied on the information and client representations provided in arriving at our opinion of value.

• We have explained as part of our service engagement procedure that it is the director’s responsibility to ensure proper books of accounts are maintained, and the financial statements give a true and fair view and have been prepared in accordance with the relevant companies’ ordinance.

• Knight Frank Asset Appraisal Limited shall not be required to give testimony or attendance in court or to any government agency by reason of this valuation and with reference to the project described herein unless prior arrangements have been made.

• No opinion is intended to be expressed for matters which require legal or other specialised expertise or knowledge, beyond what is customarily employed by valuers.

• Our conclusions assume continuation of prudent client policies over whatever period of time that is considered to be necessary in order to maintain the character and integrity of the assets valued.

• We assume that there are no hidden or unexpected conditions associated with the assets valued that might adversely affect the reported value. Further, we assume no responsibility for changes in market conditions after the date of this report.

• This report is confidential to the client for the specific purpose to which it refers. In accordance with our standard practice, we must state that this valuation report is only for the purpose of the party to whom it is addressed and no responsibility is accepted with respect to any third party for the whole or any part of its contents.


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Opinion of Value

Based on our foregoing analysis, it is our opinion that as of the Valuation Date, the fair value of 100% equity interest of the Target Group is reasonably represented in the amount of HK$2,229,000,000 (HONG KONG DOLLAR TWO BILLION TWO HUNDRED TWENTY NINE MILLION ONLY).

Yours faithfullyFor and on behalf of

Knight Frank Asset Appraisal Limited

Clement W M Leung Andrew C L Chan MFin MCIREA MHKIS MRICS RPS(GP) CFA FRM MBA Executive Director Associate Director Head of China Valuation & Advisory Corporate Valuation& Advisory

Notes:

1. Clement W M Leung MFin MCIREA MHKIS MRICS RPS(GP) is a qualified valuer who has 26 years of experiences in property valuation and consultancy services in Asia Pacific region, including the PRC, Hong Kong, Macau, Vietnam, London, New York and San Francisco, and has been participating in various corporate valuation projects in the PRC and Hong Kong.

2. Andrew C L Chan CFA FRM MBA has over 20 years of experiences in corporate valuation, investment and financial analysis and has been participating in various valuation projects in the PRC, Hong Kong and Singapore.

APPENDIX V GENERAL INFORMATION

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1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURES OF DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) where required, pursuant to section 352 of the SFO, to be entered in the register required to be kept by the Company referred to therein (“Register of Directors and Chief Executive”); or (c) where required to be notified to the Company and the Stock Exchange pursuant to the Code of Practice for Securities Transactions by Directors and Designated Employees adopted by the Company (“Securities Code”) on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers contained in Appendix 10 to the Listing Rules; or (d) as known to the Directors were disclosed as follows:

(1) Interests in the Company

Long positions in the Shares and underlying Shares

Number of underlying Approximate Number of Shares Shares percentage of

Personal Corporate Personal total issuedName of Director Capacity interests interests interests Total Shares (Note)

Lam Hau Yin, Lester Beneficial 2,794,443 Nil Nil 2,794,443 0.19% (“Mr. Lester Lam”) owner

Note: The total number of issued Shares as at the Latest Practicable Date (1,491,854,598 Shares) has been used in the calculation of the approximately percentage.


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(2) Interests in associated corporations

(i) Lai Fung

Long positions in Lai Fung Shares and underlying Lai Fung Shares

Number of Approximate Number of Lai Fung underlying percentage of Shares (Note 1) Lai Fung Shares total issued

Personal Corporate Personal Lai Fung Name of Directors Capacity interests interests interests Total Shares (Note 2) (Note 3)

Lester Lam Beneficial owner Nil Nil 3,219,182 3,219,182 0.98%

Chew Fook Aun Beneficial owner Nil 709,591 900,000 1,609,591 0.49% (“Mr. FA Chew”) and owner of (Note 4)

controlled corporation

Notes:

1. On 14 August 2017, the shareholders of Lai Fung at its extraordinary general meeting approved that every fifty (50) issued and unissued ordinary shares of HK$0.10 each in the share capital of Lai Fung be consolidated into one (1) ordinary share of HK$5.00 each in the share capital of Lai Fung (“Lai Fung Shares”) which became effective on 15 August 2017 (“Share Consolidation”). As a result of Share Consolidation, the exercise price of the outstanding share options and number of shares comprised in the outstanding share options had been adjusted.

2. These interests in underlying Lai Fung Shares represent the interests in share options granted to the Directors under Lai Fung’s share option schemes. Details of the share option granted to each of Mr. Lester Lam (currently also the chief executive officer and an executive director of Lai Fung) and Mr. FA Chew (currently also the chairman and an executive director of Lai Fung) are as follows:

Number of underlying Lai Fung Shares Exercise comprised in price per Name of Directors Date of grant share options Option period Lai Fung Share (HK$)

Mr. Lester Lam 18/01/2013 3,219,182 18/01/2013 – 17/01/2023 11.40

Mr. FA Chew 12/06/2012 900,000 12/06/2012 – 11/06/2022 6.65

3. The total number of issued Lai Fung Shares as at the Latest Practicable Date (327,496,556 Lai Fung Shares) has been used in the calculation of the approximate percentage.

4. Mr. FA Chew was deemed to be interested in the 709,591 Lai Fung Shares owned by The Orchid Growers Association Limited by virtue of his 100% shareholding interest in the said company.


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(ii) LSD

Long positions in ordinary shares of LSD (“LSD Shares”) and underlying LSD Shares

Number of Number of underlying LSD Approximate LSD Shares Shares percentage of

Personal Corporate Personal total issuedName of Directors Capacity interests interests interests Total LSD Shares (Note 1) (Note 2)

Mr. FA Chew Beneficial owner and Nil 400,000 3,773,081 4,173,081 0.69% owner of controlled (Note 3)

corporation

Mr. Lester Lam Beneficial owner Nil Nil 4,173,081 4,173,081 0.69%

Lui Siu Tsuen, Beneficial owner Nil Nil 104,000 104,000 0.02% Richard (“Mr. Richard Lui”)

U Po Chu Beneficial owner 26,919 Nil Nil 26,919 0.01% (“Madam U”)

Notes:

1. These interests in underlying LSD Shares represent the interests in share options granted to the Directors under LSD’s share option scheme. Details of the share option granted to each of Mr. Lester Lam (currently also an executive director of LSD), Mr. FA Chew (currently also the deputy chairman and an executive director of LSD) and Mr. Richard Lui are as follows:

Number of underlying LSD Shares Exercise comprised in price per Name of Directors Date of grant share options Option period LSD Share (HK$)

Mr. FA Chew 05/06/2012 3,773,081 05/06/2012 – 04/06/2022 5.35

Mr. Lester Lam 18/01/2013 4,173,081 18/01/2013 – 17/01/2023 16.10

Mr. Richard Lui 18/01/2013 104,000 18/01/2013 – 17/01/2023 16.10

2. The total number of issued LSD Shares as at the Latest Practicable Date (606,464,125 LSD Shares) has been used in the calculation of the approximate percentage.

3. Mr. FA Chew was deemed to be interested in the 400,000 LSD Shares owned by The Orchid Growers Association Limited by virtue of his 100% shareholding interest in the said company.


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(iii) LSG

Long positions in ordinary shares of LSG (“LSG Shares”) and underlying LSG Shares

Number of underlying Approximate Number of LSG Shares LSG Share percentage

Personal Corporate Personal of total issued Name of Directors Capacity interests interests interests Total LSG Shares (Note 1) (Note 2)

Mr. Lester Lam Beneficial owner 12,366,937 Nil 7,571,626 19,938,563 5.15%

Mr. FA Chew Beneficial owner Nil 202,422 3,819,204 4,021,626 1.04% and owner of (Note 3)

controlled corporation

Mr. Richard Lui Beneficial owner 185,600 Nil Nil 185,600 0.05%

Madam U Beneficial owner 825,525 Nil Nil 825,525 0.21%

Notes:

1. These interests in underlying LSG Shares represent the interests in share options granted to the Directors under LSG’s share option schemes. Details of the share options granted to each of Mr. Lester Lam (currently also an executive director of LSG) and Mr. FA Chew (currently also the deputy chairman and an executive director of LSG) are as follows:

Number of underlying LSG Shares Exercise comprised in price per Name of Directors Date of grant share options Option period LSG Share (HK$)

Mr. FA Chew 19/06/2017 3,819,204 19/06/2017 – 18/06/2027 15.00

Mr. Lester Lam 18/01/2013 3,752,422 18/01/2013 – 17/01/2023 6.05 19/06/2017 3,819,204 19/06/2017 – 18/06/2027 15.00

2. The total number of issued LSG Shares as at the Latest Practicable Date (386,879,622 LSG Shares) has been used in the calculation of the approximate percentage.

3. Mr. FA Chew was deemed to be interested in the 202,422 LSG Shares owned by The Orchid Growers Association Limited by virtue of his 100% shareholding interest in the said company.


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Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company and their respective close associates had or was deemed to have any interest, in the long and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations, which was required to be notified to the Company and the Stock Exchange, recorded in the Register of Directors and Chief Executive, notified under the Securities Code, or otherwise known to the Directors.

Save as disclosed below (and their respective interests disclosed above), as at the Latest Practicable Date, there was no Director who is a director or employee of a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

1. Mr. FA Chew (an executive Director) is also an executive director of each of Lai Fung, LSD and LSG;

2. Mr. Lester Lam (an executive Director) is also an executive director of each of Lai Fung, LSD and LSG;

3. Mr. Yip Chai Tuck (“Mr. CT Yip”, an executive Director) is also the chief executive officer of LSG and an executive director of MAGHL; and

4. Madam U (a non-executive Director) is also a non-executive director of each of Lai Fung and LSD, and an executive director of LSG.

3. DIRECTORS’ SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which will not expire or be determinable by the relevant member of the Group within one year without payment of compensation (other than statutory compensation).

4. LITIGATION

As at the Latest Practicable Date, none of the members of the Group were engaged in any litigation, arbitration or claim of material importance, and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.


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5. COMPETING INTERESTS

As at the Latest Practicable Date, the following Directors (together, “Interested Directors”) are considered to have interests in businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the Group pursuant to the Listing Rules:

Four executive Directors, namely Mr. Richard Lui, Mr. FA Chew, Mr. Lester Lam and Mr. CT Yip as well as Madam U, a non-executive Director, held shareholding interests and/or other interests and/or directorships in companies/entities engaged in the businesses of media and entertainment and/or property development and investment and/or development and operation of and investment in cultural, leisure, entertainment and related facilities in Hong Kong and/or Mainland China.

However, the Board is independent from the boards of directors/governing committees of the aforesaid companies/entities and none of the Interested Directors can personally control the Board. Further, each of the Interested Directors is fully aware of, and has been discharging, his/her fiduciary duty to the Company and has acted and will continue to act in the best interest of the Company and the Shareholders as a whole. Therefore, the Group is capable of carrying on its businesses independently of, and at arm’s length from, the businesses of such companies/entities.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or their respective close associates had any interest in a business, which competes or may compete with the businesses of the Group (which would be required to be disclosed under Rule 8.10 of the Listing Rules as if each of them were treated as a controlling shareholder of the Company).

6. DIRECTORS’ INTERESTS IN ASSETS AND CONTRACTS OF THE GROUP

As at the Latest Practicable Date,

(a) none of the Directors had any interest, direct or indirect, in any assets which had, since 31 July 2018 (being the date to which the latest published audited consolidated financial statements of the Company were made up), been acquired or disposed of by, or leased to, the Company or any member of the Group, or were proposed to be acquired or disposed of by, or leased to, the Company or any member of the Group; and

(b) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group subsisting at such date and which was significant in relation to the businesses of the Group.


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7. EXPERTS’ QUALIFICATION AND CONSENTS

The following are the qualifications of the experts who have been named in this circular and whose advices or opinions are contained in this circular:

Name Qualification

Knight Frank Asset Appraisal Professional Valuers Limited

Knight Frank Petty Limited Professional Valuers

Red Sun Capital Limited A corporation licensed to carry out Type 1 (dealing insecurities) and Type 6 (advising on corporate finance)regulated activities as defined under the SFO

As at the Latest Practicable Date, none of above experts had:

(a) any shareholding, direct or indirect, in any member of the Group or any right or option, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group; and

(b) any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group since 31 July 2018, being the date to which the latest published audited consolidated financial statements of the Company were made up.

The above experts have given and have not withdrawn their written consents to the issue of this circular with the inclusion therein of their letters, reports or opinion and reference to their names in the form and context in which they respectively appear.

8. MATERIAL CONTRACTS

The following material contracts (not being contracts entered into in the ordinary course of business) had been entered into by the Group within the two years immediately preceding the Latest Practicable Date:

(a) a cooperation agreement dated 22 November 2017 (as supplemented) entered into between Supreme Motion Limited (卓動有限公司 ), an indirect wholly-owned subsidiary of Lai Fung), Harrow International (China) Management Services Limited and ILA Holdings Limited in relation to the setting up of the Innovation Leadership Academy Hengqin in Phase II of the Novotown project;


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(b) a shareholders agreement dated 6 December 2017 entered into between Marvel Day Ventures Limited (“Marvel Day”, an indirect non-wholly-owned subsidiary of the Company), Cosmic Dragon Limited (“Cosmic Dragon”, an indirect non-wholly-owned subsidiary of LSD) and Love Grubers Limited (“Love Grubers”) (which is beneficially owned as to 50% by Marvel Day and 50% by Cosmic Dragon) pursuant to which the parties agreed to procure Love Grubers to incorporate a wholly-owned subsidiary, Grubers Telford Limited, for the purpose of operating a cafe within the premises of MCL Telford Cinema located at Level 2 (Portion) and Level 3, Telford Gardens, No. 33 Wai Yip Street, Kowloon Bay, Kowloon, Hong Kong, whereby Marvel Day and Cosmic Dragon shall contribute all working or investment funding or capital which is required for the business or operations of Love Grubers (including an initial share capital funding amount being US$2 and a shareholders’ loan in the amount of HK$8 million) pro rata to their shareholding in Love Grubers;

(c) a sale and purchase agreement dated 13 December 2017 entered into between the Company (as seller) and Ms. Zhai Madalina-Elena (as purchaser) for the sale and purchase of all issued shares of Biu Kei Investments Limited (a wholly-owned subsidiary of the Company, holding a PRC subsidiary which engaged in cosmetic business in the PRC) at a consideration of HK$800,000;

(d) a cooperation agreement dated 14 December 2017 entered into between eSun Cinema Holdings (PRC) Limited (an indirect wholly-owned subsidiary of the Company) and Zhejiang Xinmu Cinema Management Co. Ltd.* (浙江新幕影院經營管理有限公司) in relation to the development of cinemas in the Tier One, Tier Two and Tier Three cities in the PRC through a 50:50 joint venture company;

(e) a subscription agreement dated 10 January 2018 entered into between Lai Fung, Lai Fung Bonds (2018) Limited (“Lai Fung Bonds”, a wholly-owned subsidiary of Lai Fung), LSD and the joint lead managers (being DBS Bank Ltd., The Hongkong and Shanghai Banking Corporation Limited, Oversea-Chinese Banking Corporation Limited and UBS AG Hong Kong Branch) in relation to the issue and distribution of the 5.65% guaranteed notes due 2023 in the principal amount of US$350,000,000 to be issued by Lai Fung Bonds;

(f) a loan agreement dated 29 June 2018 entered into between the Company (as lender) and MAGHL (as borrower) in respect of a term loan facility in the amount of HK$100,000,000 provided by the Company to MAGHL;

* For identification purposes only


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(g) a preferred stock purchase agreement entered into by Nice Sound Limited (“Nice Sound”, an indirect wholly-owned subsidiary of the Company) on 29 June 2018 and Stampede Entertainment, Inc. (“Stampede”) in respect of the subscription by Nice Sound of 333,161 Series A-2 preferred stock of Stampede at a consideration of US$1,999,998.80;

(h) a loan agreement entered into between the Company (as borrower) and Hibright Limited (“Hibright”, a wholly-owned subsidiary of LSD) (as lender) on 27 July 2018 (as supplemented) in respect of the term loan facility in the principal amount of up to HK$700,000,000 to be granted by Hibright to the Company;

(i) a share sale and purchase agreement entered into between the Company (as buyer) and Lai’s Holdings Limited (as seller) on 28 November 2018, pursuant to which the Company purchased 5,000 shares in IGHL (representing 10% of the total issued shares of IGHL) at a total consideration of HK$37,500,000;

(j) a licence agreement dated 27 December 2018 entered into between Wealth Creation Limited (富威基業有限公司) (“Wealth Creation”, a wholly-owned subsidiary of Lai Fung) (as the licensee) and Ducati (as the licensor) in relation to the development and operation of a motorcycle-themed experience centre (“Centre”) which is planned to be launched in Phase II of the Novotown project, whereby Ducati shall license its licensed intellectual property rights to Wealth Creation in return for payments, largely in the form of royalties against various revenue streams of the Centre payable on a yearly basis (subject to adjustments pursuant to the terms of the licence agreement);

(k) an agreement dated 31 December 2018 made among Rosy Commerce, Cinda and Glorious Stand Limited (榮立有限公司) (“Glorious Stand”, an indirect non-wholly-owned subsidiary of Lai Fung) in relation to the sale and purchase and subscription of shares in Glorious Stand (“GSL Investment Agreement”), whereby:

i. Rosy Commerce agreed to subscribe for nine new shares in Glorious Stand at the aggregate subscription price of US$9;

ii. Cinda agreed to acquire three shares in Glorious Stand from Rosy Commerce at the USD equivalent of approximately RMB7 million;

iii. Cinda agreed to subscribe for 27 new shares in Glorious Stand at the aggregate subscription price of the USD equivalent of approximately RMB50 million; and

iv. Rosy Commerce agreed to subscribe for 63 new shares in Glorious Stand at the aggregate subscription price of US$63;


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(l) an agreement dated 31 December 2018 made among Rosy Commerce, Cinda and Harmonic Run Limited (和運有限公司) (“Harmonic Run”, an indirect non-wholly-owned subsidiary of Lai Fung) in relation to the subscription of shares in Harmonic Run (“HRL Investment Agreement”), whereby:

i. Cinda agreed to subscribe for 30 new shares in Harmonic Run at the aggregate subscription price of the USD equivalent of RMB186 million; and

ii. Rosy Commerce agreed to subscribe for 69 new shares in Harmonic Run at the aggregate subscription price of the USD equivalent of approximately RMB314 million;

(m) a shareholders’ agreement dated 25 January 2019 entered into among Rosy Commerce, Cinda, Glorious Stand, the Company and Lai Fung in relation to Glorious Stand upon completion of the GSL Investment Agreement;

(n) a shareholders’ agreement dated 25 January 2019 entered into among Rosy Commerce, Cinda, Harmonic Run, the Company and Lai Fung in relation to Harmonic Run upon completion of the HRL Investment Agreement;

(o) 2019 Supplemental Deed executed by Lai Fung in favour of LSG, LSD, the late Mr. Lim Por Yen, Dr. Lam Kin Ngok, Peter and Dr. Lam Kin Ming dated 8 March 2019 in relation to certain amendments to certain undertakings in the spin-off agreement entered into by Lai Fung, the deed of undertaking entered into by LSD and the non-compete agreement entered into by LSG, Lai Fung, Dr. Lam Kin Ngok, Peter, Dr. Lam Kin Ming and the late Mr. Lim Por Yen;

(p) a loan agreement entered into between the Company (as borrower) and Hibright (as lender) on 22 July 2019 in respect of the term loan facility in the principal amount of up to HK$200,000,000 to be granted by Hibright to the Company; and

(q) the Sale and Purchase Agreement.

9. GENERAL

(a) The address of the registered office of the Company is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The head office and principal place of business of the Company is 11th Floor, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon, Hong Kong.

(b) The company secretary of the Company is Ms. Wong Lai Chun, who is an associate member of The Hong Kong Institute of Chartered Secretaries and The Institute of Chartered Secretaries and Administrators.


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(c) The share registrar and transfer office of the Company in Bermuda is MUFG Fund Services (Bermuda) Limited at 4th Floor North Cedar House, 41 Cedar Avenue, Hamilton HM 12, Bermuda.

(d) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

(e) In case of inconsistency, the English text of this circular shall prevail over the Chinese text.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during the following business hours (i.e. from 9:30 a.m. to 12:30 p.m. and from 2:30 p.m. to 5:30 p.m.) on any weekday (Saturdays, Sundays and public holidays excepted) unless (i) a tropical cyclone warning signal number 8 or above is hoisted; or (ii) a black rainstorm warning signal is issued at 11th Floor, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon, Hong Kong for 14 days from the date of this circular:

(a) the Memorandum of Association and Bye-laws of the Company;

(b) the material contracts referred to under the paragraph headed “Material Contracts” in this Appendix V;

(c) the letter from the Independent Financial Adviser to the Independent Board Committee and Independent Shareholders, the text of which is set out on pages 21 to 46 of this circular;

(d) the Property Valuation Report of the Target Group prepared by Knight Frank Petty Limited, the text of which is set out in Appendix III to this circular;

(e) the Business Valuation Report of the Target Group prepared by Knight Frank Asset Appraisal Limited, the text of which is set out in Appendix IV to this circular;

(f) the written consents referred to under the paragraph headed “Experts’ Qualification and Consents” in this Appendix V;

(g) the annual reports of the Company for the three years ended 31 July 2016, 31 July 2017 and 31 July 2018;

(h) the circular of the Company on a very substantial acquisition in relation to an acquisition of land use rights dated 26 February 2019;

(i) the circular of the Company on the connected transaction in relation to the 2019 Supplemental Deed in relation to Amendments to the Existing Non-Competition Undertakings dated 19 March 2019; and

(j) this circular.

NOTICE OF SGM

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(Stock Code: 571)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT a special general meeting (“SGM”) of the members (“Members”) of eSun Holdings Limited (“Company”) will be held at Grand Ballroom 5, Level B, Hong Kong Ocean Park Marriott Hotel, 180 Wong Chuk Hang Road, Aberdeen, Hong Kong on Friday, 20 September 2019 at 9:00 a.m. for the purpose of considering and, if thought fit, with or without amendments, passing the following resolutions as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“THAT:

(a) the share sale and purchase agreement dated 23 July 2019 entered into between Sunny Horizon Investments Limited as seller and Lai Sun Development Company Limited as buyer (a copy of which is marked “A” has been produced to the Members and signed by the chairman of the SGM for the purpose of identification) in relation to, among other matters, the proposed sale of 20% of the total issued share capital of Rosy Commerce Holdings Limited, and the transactions contemplated thereunder (“Transaction”) be and are hereby approved, ratified and confirmed;

(b) the directors of the Company (“Directors”) be and are hereby authorised, for and on behalf of the Company, to do all such acts and things, to take all such steps and to sign or otherwise execute all such agreements, documents, deeds or instruments as they may in their absolute discretion consider necessary, desirable or expedient in connection with or to implement and/or to give effect to the Transaction and all matters incidental thereto; and

(c) the Directors be and are hereby authorised, for and on behalf of the Company, to agree to such variation, amendment, modification and/or waiver of any matters relating to or in connection with the Transaction as are, in their opinion in the interests of the Company and the Members as a whole in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules” and “Stock Exchange”, respectively) and other applicable law, rules and regulations.”

By order of the board of directors of eSun Holdings Limited Wong Lai Chun Company Secretary

Hong Kong, 30 August 2019

NOTICE OF SGM

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Registered Office: Head Office and Principal Place of Business:Clarendon House 11th Floor2 Church Street Lai Sun Commercial CentreHamilton HM 11 680 Cheung Sha Wan RoadBermuda Kowloon, Hong Kong

Notes:

(1) A Member entitled to attend and vote at the SGM convened by the above notice (“Notice”) or its adjourned meeting (as the case may be) is entitled to appoint one (or, if he/she/it holds two or more shares of the Company (“Shares”), more than one) proxy to attend the SGM and, on a poll, vote on his/her/its behalf in accordance with the Bye-laws of the Company. A proxy need not be a Member.

(2) To be valid, a form of proxy, duly signed and completed together with the power of attorney or other authority (if any) under which it is signed (or a notarially certified copy thereof), must be lodged with Tricor Tengis Limited, the branch share registrar of the Company in Hong Kong (“Registrar”), at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the SGM or its adjourned meeting (as the case may be) and in default, the proxy will not be treated as valid. Completion and return of the form of proxy shall not preclude Members from attending in person and voting at the SGM or its adjourned meeting (as the case may be) should they so wish. In that event, the said form(s) of proxy shall be deemed to be revoked.

The contact phone number of the Registrar is (852) 2980 1333.

(3) To ascertain the entitlements to attend and vote at the SGM, Members must lodge the relevant transfer document(s) and share certificate(s) at the office of the Registrar no later than 4:30 p.m. on Monday, 16 September 2019 for registration.

(4) Where there are joint registered holders of any Shares, any one of such joint holders may attend and vote at the SGM or its adjourned meeting (as the case may be), either in person or by proxy, in respect of such Shares as if he/she/it were solely entitled thereto. However, if more than one of such joint holders are present at the SGM or its adjourned meeting (as the case may be) personally or by proxy, then one of such holders so present whose name stands first in the Register/Branch Register of Members of the Company in respect of such Shares shall alone be entitled to vote in respect thereof.

(5) In compliance with Rule 13.39(4) of the Listing Rules, voting on the resolution proposed in the Notice shall be decided by way of a poll at the SGM.

(6) If a tropical cyclone warning signal No. 8 or above is expected to be hoisted or a “black” rainstorm warning signal is expected to be in force at any time after 7:00 a.m. on the date of the SGM, the SGM will be postponed. The Company will post an announcement on the respective websites of the Company (www.esun.com) and the Stock Exchange (www.hkexnews.hk) to notify Members of the date, time and venue of the rescheduled SGM.

If a tropical cyclone warning signal No. 8 or above or a “black” rainstorm warning signal is lowered or cancelled at or before 7:00 a.m. on the date of the SGM and where conditions permit, the SGM will be held as scheduled. The SGM will be held as scheduled when an amber or red rainstorm warning signal is in force.

Having considered their own situations, Members should decide on their own whether they would attend the SGM under a bad weather condition and if they do so, they are advised to exercise care and caution.

(7) Members are advised to read the circular of the Company dated 30 August 2019 which contains information concerning the resolution to be proposed in the SGM.